Layoff Considerations

Everyone involved, from the people making the cuts to the people receiving the news, can feel the emotional and psychological strain of a workforce reduction. No company wants to lay off workers because of the emotional toll it takes on everyone involved. But when the time comes to lay off employees, it’s important to take into account both legal and personal factors.

Federal laws which may be applicable to layoffs

In the United States, organizations with 15 or more employees are subject to federal laws protecting the employees from unlawful termination. Companies with less than 15 employees may be subject to special laws in several states. Such laws put companies at risk of being sued when they lay off employees, including the Worker Adjustment and Retraining Notification Act (WARN Act) along with its “mini-WARN” requirements, and the Older Workers Benefit Protection Act (OWBPA). The WARN Act, for example, mandates 60 days’ notice of business closures or mass layoffs for companies with 100 or more employees.

Consider offering severance packages through severance agreements to employees who are being laid off.

A severance agreement’s primary objective is to protect an employer from a wrongful termination claim made by an employee who is being laid off. A legally binding contract i.e., a severance agreement, eliminates these claims in court. On the other hand, providing severance pay to an employee can be viewed as an indication that the employer cares about the employee’s future success, despite the fact that it aids in securing the employee’s signature on the contract. Although ‘at will’ employers have the right to fire an employee at any time, no one wants to risk losing their ability to provide for themselves and their loved ones if they are laid off. Providing severance pay and having a written contract which dissolves all claims against the employer can help defuse emotions and ensure that your company is transparent about communicating changes that would come with the layoff such as, for example, benefits and insurance changes that may occur upon termination. If severance is being offered, employers should assess their responsibilities under any applicable collective bargaining agreements and prepare separation agreements with care to ensure they meet all applicable state and local regulations.

To comply with the OWBPA and the Age Discrimination in Employment Act (ADEA), you must decide if severance will be paid to selectees, how much severance will be offered, and produce releases. Among the ADEA’s many stipulations is that employees be given access to relevant data before signing any releases, that they be given time to think about whether or not to sign, and that they be given another week after signing to change their minds.

Consider running a disparate impact analysis.

A disparate impact analysis is an assessment that looks at how layoffs would affect members of different protected classes. A discrimination claim could be justified if they are inconsistent. To prevent disproportionately negative effects on individuals because of legally protected characteristics like age, color, or gender, an unfavorable impact analysis should be conducted prior to any layoffs.

Run a disparate impact analysis on all layoffs across the company, and its divisions and departments. Examine the criteria used for selection carefully if there is a disproportionate effect (a statistical discrepancy of two standard deviations or more). Discard the layoff selection list and identify objective variables, then perform the selection process again using those objective variables if the selection criteria were based on a manager’s subjective appraisal of the workforce reporting to that manager. While seniority is one objective aspect to consider, it should be strictly adhered to excluding any exceptional circumstances. Using seniority as an objective may be simple, but it does not make sure that the organization retains the best people. Instead, some companies use employee performance reviews as the deciding variable. To counter allegations of unfair treatment, employers must be able to explain why the named employees were chosen for termination.

Employees on statutorily protected absences, as well as those who have filed workplace complaints or participated in workplace investigations, are “red flag” employees who require additional analysis. Ensure that the inclusion of such workers in the layoff is defendable in light of the potential retaliation claim. Managers should receive instruction on making selections and communicating about the layoffs. To prevent charges that a specific manager or supervisor prejudiced when laying off workers, a control group of supervisors could examine the selection criteria and employee selection decisions.

Practices that you as an employer can adopt to limit your liability.

There are certain measures that businesses can take to reduce their risk of legal action. Among these customs are:

  • Establish the business justifications for the layoffs and collect any supporting paperwork; save copies of this information in a layoff planning file.
  • Think about the criteria that will be used to establish the layoff’s scope, such as the proportion of the workforce affected, the number of affected employees, or the amount of the budget reduction.
  • Choose a timeline for the layoffs, whether they will all happen at once or in stages.
  • Think about if the reduction in force (RIF) is likely to cause a WARN event and whether it can be constructed to avoid this.
  • Weigh the pros and cons of giving severance release agreements and letting employees self-select into the reduction. It’s important to take time in establishing the criteria that will be utilized to pick RIF candidates.
  • Provide a memo within the organization outlining the selection process and criteria, and name the decision-makers responsible for making those selections among the impacted personnel.
  • Initiate the RIF by having the decision-makers run through the process and give some first recommendations as to who should be affected and why. Human Resources is in a position to investigate these suggestions and query any picks for which the rationale is unclear or appears poor.
  • Once the final list is compiled, HR should conduct a statistical adverse effect study to establish non-discrimination and determine if any protected classes of employees appear to be disproportionately affected.
  • Create an internal and, if necessary, external communications strategy to share the news of the layoffs with everyone. Everything should be documented, from the company’s decision-making and selection process to the alternatives to layoffs that were examined.

If you want to know more about how you, as an employer, can reduce your company’s liability arising out of mass layoffs and workforce redundancies, you can reach out to our employment law attorneys at the Walsh Law Firm, LLC to help you with adopting a strategy to reduce your company’s liability.