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Bernard J. DiMuro, Jonathan R. Mook, and Michael E. Barnsback, Editors
DiMuroGinsberg, P.C.
Vol. 20, No. 5
June 2008
REDUCTIONS IN FORCE
Considering layoffs or a reduction in force? How to reduce your liability
Hillary J. Collyer
As the fallout from the subprime mortgage crisis and record oil prices continues to spread across the economy, many employers are deciding to eliminate jobs. In fact, employment consulting firm Challenger, Gray & Christmas, Inc., recently reported
that planned layoffs for U.S. companies increased 68 percent from March to April and were up 27 percent from a year ago. If you're one of those employers considering layoffs or a reduction in force (RIF), there are a number of important
considerations to take into account before doing so.
A RIF involves laying off a group of employees, whereas a layoff usually involves letting go of an individual. RIFs and layoffs inevitably produce great amounts of stress for employees and employers ― along with a heightened risk of litigation.
Careful planning and management of the reduction is crucial in limiting your exposure to liability.
Legal pitfalls
There are, of course, a myriad of federal, state, and local laws that preclude your right to terminate employees on the basis of certain characteristics or conduct. While some of the laws apply only to employers with a requisite number of employees,
the most prudent approach is to be mindful of all protected factors to ensure that they don't affect your layoff decisions.
Federal, state, and local statutes prohibit you from considering factors such as sex, race, religion, national origin, age, and disability when making layoff decisions. Obviously, you shouldn't consider or rely on these any of those factors when
engaging in the decisionmaking process. In fact, you should avoid discussing them altogether. Everyone involved in the layoff process should be careful to avoid making any written or oral comments about protected groups ― that includes jokes or
casual references. Any such comment ― no matter how innocent ― could be used against you in a lawsuit later. Remember, loose lips sink ships.
Establishing an objective plan for your RIF
One federal appellate court recently held that the lack of an objective plan for a RIF provided sufficient circumstantial evidence against an employer to allow an age discrimination lawsuit against it to proceed to trial. Accordingly, it's essential
for you to demonstrate an objective plan for your RIF. The following are some tips to help you establish an objective RIF plan, thereby reducing your exposure to litigation.
First, analyze, articulate, and document the necessity of the proposed RIF and your reasonable business goals. Your business goals should serve as your guiding light for all decisions regarding which employees are terminated and which ones are
retained.
Second, decide how you will choose which employees to lay off. There are three general categories of methods for determining whom to lay off:
- objective methods;
- subjective methods; or
- a combination of the two methods.
From the perspective of reducing the potential for discrimination claims, using objective methods to choose which employees to retain versus which
ones to terminate in a RIF is generally preferable to using subjective methods. For instance, you might use across-the-board cuts. Employers that opt for this method lay off the newest employees from each department in equal percentages.
Another objective method is to eliminate certain jobs or job categories. Employers using that method must first identify and then eliminate unnecessary jobs or job categories. Decisions should center on which positions and job functions should be
eliminated rather than which individual employees to terminate.
Generally, subjective methods are more risky from a legal standpoint. An example of a subjective method is laying off employees based on their annual per-formance evaluations. While it might be the preferable method from the standpoint of retaining
your best performers, it increases your chances of being accused of discrimination.
Documenting your decision
Regardless of whether you choose to use objective or subjective methods to determine which employees to lay off, you should take care to articulate and document the legitimate business reasons for choosing to retain certain employees while
terminating others. Once you've compiled a list of positions (or employees) to eliminate, review the proposed cuts. Double-check to make certain that you've used neutral criteria in reaching your decisions. Also, make sure that the proposed reduction
doesn't have a disproportionately adverse effect on any one group of protected employees, such as women, minorities, or disabled or older workers.
You might want to consider offering terminated employees some assistance to reduce the negative effects of the RIF. Assistance can include providing the following:
- employment counseling;
- relocation expenses;
- resum preparation; and/or
- outplacement assistance.
Some studies indicate that employees who receive these services are less likely to initiate litigation against their former
employers.
Open and honest communication with employees is key in ensuring a smooth transition during a RIF. Anytime downsizing occurs, a strong potential exists that remaining employees will be demoralized. Even employees who have been retained might start
looking for a new job. That's especially true if they feel their coworkers have been treated poorly or believe their employer isn't being straight with them. A well-planned process that is communicated both openly and honestly goes a long way in
reducing poor morale among remaining employees.
WARN Act problems
Finally, be aware of the Worker Adjustment and Retraining Notification (WARN) Act. This federal law requires employers with at least 100 employees to provide 60 days' notice before a plant closing or mass layoff. Under the Act, a "plant closing"
occurs when a single employment site or one or more facilities within a single site institute a layoff of 50 or more employees during a 30-day period. A "mass layoff" is defined as a reduction of at least 50 employees comprising at least 33 percent
of the workforce or a layoff involving at least 500 employees. Failure to comply with the WARN Act can make you liable to each employee for back pay, benefits, and attorneys' fees.
Bottom line
Going through a layoff or implementing a RIF is never easy. However, with careful planning, consultation with legal counsel, and open communication with your employees, you can avoid the legal pitfalls and problems that may arise when companies
downsize in a haphazard or uncoordinated fashion. A well-planned, well- executed RIF can result in your company being in a stronger financial and competitive position to address the significant challenges today's turbulent economy may bring.
Copyright 2008 M. Lee Smith Publishers LLC
VIRGINIA EMPLOYMENT LAW LETTER is a monthly publication provided as an educational service only to assist lay persons in recognizing potential problems in their labor and employment matters. It is not meant to be construed as legal advice. Readers in
need of legal assistance should retain the services of competent counsel.
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