Tough economic times often force companies to implement cost cutting measures to help maintain profitability or reduce losses. Unfortunately, layoffs are often viewed as effective cost saving measures to help businesses remain profitable and solvent. Mistakes in the layoff process can result in costly and complex litigation under a variety of state and federal employment laws.
While this is not an exhaustive discussion of the law applicable the difficulties surrounding laying off employees, below are some of the most common mistakes that employers make when implementing layoffs.
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Mistake #1: Inadequate preparation.
A company contemplating a layoff should develop a written plan. The plan should include a list of the business reasons for a layoff. The plan should also include a description of the (i) new organizational structure after the layoff; (ii) business objectives for the layoff; and (iii) redundant or unnecessary job functions, without identifying the specific employees in the identified positions. The company should also include, prior to selecting the positions that will be eliminated, the order in which job categories will be eliminated. For example, the company may decide to terminate all independent contractor relationships and temporary workers before laying off part-time and full-time employees. The company should also establish objective selection criteria (for use when multiple employees are in the identified job functions) to determine who will and will not be retained. Having a written plan creates a record of the company’s decision making and implementation process which will help minimize legal risks should there be challenges to the layoff, such as discrimination.
Mistake #2: Failing to conduct a statistical or adverse impact analysis.
Employees challenging a layoff may attempt to show a statistical disparity between the number of employees who were laid off and the total number of employees in his or her protected category. For example, if all of the employees who were laid off are age 40 or above, the older population in the workforce may be disproportionately affected by the layoff which, in turn, may lead to an age discrimination lawsuit. The purpose of the analysis is to ensure that employees who are in a protected category (e.g., age, race, gender) are not being singled out, whether intentionally or not. An adverse impact analysis is generally done with legal counsel to maintain confidentiality of the information through the attorney-client privilege.
Mistake #3: Failing to determine whether WARN applies.
The Worker Adjustment and Retraining Notification Act (“WARN”) requires employers with 100 or more employees to provide 60 days advance notice of a plant closing or mass layoff. A “plant closing” means the permanent or temporary shut down of a single site of employment that results in the loss of employment during any 30-day period for 50 or more full-time employees. A mass layoff means a reduction in force that results in an employment loss at a single site of employment during any 30 day period for at least 30% of the active employees, excluding part-time, and at least 50 full-time employees; or alternatively, results in loss of employment for 500 or more full–time employees regardless of the percentage. If the layoff is covered by WARN, the employer will need to provide the applicable notice to its employees prior to the layoff. If WARN applies and the employer fails to comply with its requirements, each affected employee may seek recovery of back pay and unpaid benefits up to a maximum of 60 days, plus attorney’s fees.
Mistake # 4: Failing to comply with the OWBPA.
Employers generally offer a severance package to employees affected by layoffs. The severance package is offered in exchange for signing a standard release in which employees waive their right to file a lawsuit against the company (“Release”). The Older Worker Benefit Protect Act (“OWBPA”) applies to employees who are in the protected age group (age 40 or above). Age-protected employees may not waive any right or claim under the Age Discrimination in Employment Act (“ADEA”) unless the waiver is “knowing and voluntary”. To meet this criteria, the waiver must be (1) in writing, drafted in plain language taking into consideration the comprehension and education levels of the employees; (2) not have the effect of misleading, misinforming, or omitting information; and (3) specifically reference the ADEA. Age-protected employees must also be given an extended time period to consider signing the Release (45 days for “group terminations” and 21 days for individual terminations). The age-protected employees must also be given 7 days after they sign the Release to revoke it. Additionally, age-protected employees must be given information about the ages (not names) and job titles of those employees selected and those not selected from the “decisional unit”. The rules for identifying the decisional unit are complex and should be made on a case by case basis for each separation program. Employers should be careful to comply with the OWBPA notice requirements in any layoff where employees are required to sign a release.
Mistake #5: Hiring replacements to fill “eliminated” positions.
Employers should be cautious if they decide to fill a position that was a part of a recent layoff. Although there is not a specific time period that must elapse before an employer may fill a position, the proximity of time between the layoff and the hire creates a risk of an accusation that position elimination was a pretext for discrimination. For example, if the employer hires a replacement within six months or less from the date of the layoff and the former employee learns that the position he occupied for over 25 years was filled by a younger (under age 40) male, it may raise concerns about the legitimacy of the position elimination. Employers should not use position elimination as means to quickly address performance issues. Instead, employers should be truthful during the evaluation process and use disciplinary procedures to identify and attempt to correct performance deficiencies.
Of course, this is not an exhaustive discussion of the law applicable to these issues. For more information on this topic, please email Sandra White, Labor & Employment Lawyer with BRANSCOMB |PC. Her contact information is email@example.com or (210) 598-5400.