Layoffs, Downsizing, and Reductions in Force - RIFs
Whatever you want to call them - layoffs, downsizing, rightsizing, reductions in force - the global economic situation has resulted in more job losses and unemployment than the United States has seen in generations. In 2008, nearly 2.6 million U.S. jobs were lost, the most in one year since 1945. And with more than 200,000 U.S. job losses announced in January 2009, this year isn't looking much better.
HR Guide to Employment Law: A practical compliance reference manual covering 14 topics, including discrimination and issues related to reductions in force
Whille employers lay off workers because there isn't enough work or as a cost-cutting measure, layoffs create potential significant legal costs if they aren't done well and morale, productivity, and loyalty in the workplace may suffer among the employees who are left. Adequate planning and preparation are crucial to minimize a businesses' legal risks in a layoff. Perhaps the best way to minimize legal exposure when implementing a reduction in force is to create a record of decisionmaking and implementation processes. Doing that will help an employer withstand later legal challenges, such as discrimination.
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Employers are at an even higher risk of being sued by employees affected by a reduction in force because with so many layoffs happening across the country and in all sectors of the economy, it is more difficult for workers to find a new job and often the jobs they can find pay less than what they were making before, may be only part time, and may not include benefits such as health insurance. It's a combination that may make workers more inclined to sue their former employer, especially if they believe they were not treated fairly or they don't believe management is sharing the company's financial pain.
HR Hero Free White Papers: Downsizing: Getting It Right from Termination to Engaging the Survivors and 5 Alternatives to a RIF
Legal issues for employers when laying off employees
Every potential or planned layoff creates a number of critical, and possibly expensive, legal issues, including:
- Worker Adjustment and Retraining Notification Act (WARN Act). WARN is a federal law requiring employers of more than 100 employees to give written layoff notice at least 60 days before any plant closing or "mass layoff." A number of states also have WARN acts that may have even stricter requirements and apply to even smaller employers.
- Discrimination laws. Federal and state discrimination laws, such as the Age Discrimination in Employment Act (ADEA), prohibit workers in protected classes from suffering unlawful disparate impact or disparate treatement because of a reduction in force .
- Family and Medical Leave Act (FMLA). Employees on FMLA leave may be protected against a reduction in force unless it can be shown that they would have lost their positions even if the FMLA leave hadn't been taken.
- Uniformed Services Employment and Reemployment Rights Act (USERRA). USERRA requires employers to reinstate returning members of military services to the jobs they would have held had they not been serving. The law also might protect an employee from layoff unless the employer can show that "circumstances have so changed as to make such reemployment impossible or unreasonable . . . or such employment would impose an undue hardship on the employer."
- COBRA. This federal law requires most employers that sponsor group health plans for their employees to allow certain employees and their dependents who would otherwise lose coverage under the plan because they left their job or certain other events – such as a layoff -- to pay to continue that coverage for a specified period of time.
- Other issues employers need to concider during a layoff. The following are list of other issues that can get employers in legal trouble when planning and carrying out layoffs: retaliation, worker's compensation claims, EEOC claims, poor documentation, inadequate document retention, employees protected by whistleblower laws, and badly crafted severance agreements and waivers.
Employers face a difficult choice when contemplating layoffs. Using objective criteria may be the best legal protection, but it isn't necessarily an effective way of keeping the most productive employees. Subjective criteria focuses more on the quality of the remaining employees work but leaves employers more vulnerable to claims of favoritism and discrimination. Either way, careful planning is critical to a successful layoff.
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Related articles on Layoffs, Downsizing, and Reductions in Force featured in HR Hero Line and the Employment Law Post
- EEOC Guidance on Waivers in Severance Agreements
(Indiana Employment Law Letter, October 2009)
- Managing Employee Health Insurance Premiums under Revised FMLA Regulations
(Georgia Employment Law Letter, October 2009)
- Age Discrimination Filings Jump During Recession
(Diversity Insight, August 2009)
- Proceed with Caution When Rehiring Laid-Off Employees
(Tennessee Employment Law Letter, July 2009)
- Take Extra Care When Firing or Laying Off Disabled Employees
(Nevada Employment Law Letter, June 2009)
- In States Where Unemployment Rates Rise, Employer Costs May Follow
(Employers State Law Alert, May 2009)
- Unforeseeable Circumstances Justify Layoff Without WARN Notice
(Colorado Employment Law Letter, April 2009)
- Furloughs and Reduced-Hour Schedules as Alternatives to Layoffs
(Nevada Employment Law Letter, April 2009)
- Cutting Corners When Cutting Employee's Hours Can Cost Employers in the Long Run
(Texas Employment Law Letter, February 2009)
- How Can Employers Avoid Legal Issues When Firing Employees?
(Arkansas Employment Law Letter, January 2009)
- Who’s to Blame for Layoffs?
(Human Resources News, January 2009)
- Sixth Circuit Affirms Decision to Lay Off Predominantly Female Departments
(Kentucky Employment Law Letter, January 2009)
- Sour Economy, Political Changes Could Create Perfect Storm for Employment-Related Lawsuits
(Alabama Employment Law Letter, January 2009)
- Reducing Personnel Costs and Helping Workers Have Work-Life Balance
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- Laid-Off Workers Win Some Discrimination Lawsuits, Lose Some
(Utah Employment Law Letter, December 2008)
- Downsizing: Plan Ahead to Avoid Trouble
(Michigan Employment Law Letter , November 2008)
- Avoiding Legal Pitfalls During RIFs and When Reducing Workers' Hours
(Missouri Employment Law Letter, October 2008)
- Risks, Benefits of Using Contingent Workers
(Indiana Employment Law Letter, September 2008)
- Reducing the Risk of Wrongful Discharge Claims During Layoffs
(Tennessee Employment Law Letter, August 2008)
- Legal Issues When Reducing Employees' Hours, Wages
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- Payroll Deductions that Don't Affect Exempt Status
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HR Tools for RIFs
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