John Phillips and Kara Shea, Editors
Miller & Martin

Vol. 23, No. 7
July 2008

KARA'S CORNER

It's the economy, stupid . . . part two

In our last issue, I discussed the risks of some of the methods employers use to forestall layoffs (such as adjusting hours and compensation). This month, I'm going to assume the worst has happened and talk you through a reduction in force (RIF) scenario, with the goal of reducing the risk of wrongful discharge claims and making the process as painless as possible for you and your employees.

Follow your own policies

Do you have a written policy addressing layoffs? If so, read it carefully before implementing a RIF, and make sure you follow your own rules for selection processes, notification requirements, and severance to the letter. But don't worry ― you don't have to have a preexisting written policy to lawfully enact a RIF.

Exit incentive programs

Think about offering an exit incentive program if you're able to. Such programs, if implemented correctly, provide a fairly litigation-proof method of thinning your workforce because they permit employees to essentially select themselves for termination. However, they can also be disruptive.

You should consider the impact on employee morale of announcing possible layoffs far in advance, the disruption to ongoing projects, and the possibility that all your best employees might head for the door right away, leaving you with "the rest" for the duration. Once an offer of severance is made, it's difficult ― and sometimes impossible ― to retract. To avoid claims of discrimination, you also need to give careful consideration to the criteria used to select which groups of employees will be offered exit incentives.

Severance

If you provide employees with any severance pay, through an incentive program or involuntary layoffs, you should always obtain a written release of all claims against your company in return. Otherwise, employees can take the severance money and still sue you for wrongful termination.

Special protections for older workers

If you obtain a release from any employee who is 40 or older, ensure that it complies with the federal Older Workers Benefit Protection Act (OWBPA). If the release doesn't conform to the provisions of the OWBPA, it will be invalid, which means the employee will be able to keep the money and still sue you for age discrimination, even though he signed a document saying he wouldn't.

So what does the Act require? For starters, there must be a special reference to the OWBPA in the release itself. In addition, the employee has up to 21 days to consider the release and up to seven days to revoke it after he executes it. There are additional requirements for group layoffs. For example, if you obtain releases from two or more employees as part of the same RIF and any of them are 40 or older, you must allow them a 45-day review period instead of 21 days. Also, the release must contain a list of all employees in the affected departments, their ages, and whether they were laid off.

Some employers prefer to forgo the OWBPA's requirements, reasoning that the law applies only to one of the claims contained in the release so they're willing to risk liability to avoid the notice requirements and waiting periods. However, age discrimination claims (both intentional discrimination and disparate impact claims) are probably the most common type of wrongful discharge claim to result from a RIF. And when groups of employees are affected, you could be facing a potential class action. Therefore, it's wise to work through the wording of your severance agreements with an employment attorney before implementing a RIF that might affect older workers.

In the next two months, we'll discuss selection criteria for layoffs and state and federal layoff notification requirements.

Kara Shea is an editor of Tennessee Employment Law Letter and a partner with Miller & Martin PLLC, practicing in the Nashville office. She can be reached at (615) 244-9270 or kshea@millermartin.com.

Copyright 2008 M. Lee Smith Publishers LLC

This newsletter does not attempt to offer solutions to individual problems but to provide information about current developments in Tennessee employment law. Questions about individual problems should be addressed to the attorney of your choice.