Mass Layoffs, Reductions in Force and Plant Closings: Federal
- Certain large employers must provide 60 days advance notice of impending plant closings or mass layoffs under the Worker Adjustment and Retraining Notification Act (WARN Act). See WARN Act.
- Failure to abide by the WARN Act, if an exception does not apply, exposes an employer to serious sanctions. See Penalties and Enforcement.
- Before instituting a mass layoff or RIF, consider whether other options are available such as hiring freezes, salary rollbacks, employee furloughs or voluntary attrition programs. Craft any such termination alternative carefully to avoid discriminating against protected classes of workers. See Alternatives to Layoffs.
- When economic downturns occur, employers must be careful in identifying and selecting employees for layoffs, given the myriad legal issues that may arise following a mass termination. See Identifying Job Related Criteria for Layoff Selection.
- A suggestion that terminated employees would be recalled or reinstated upon a change of economic circumstances should be considered in the rehiring process. See Rehiring Employees After a Reduction in Force.
The Worker Adjustment and Retraining Notification Act (WARN Act) requires that a covered employer provide affected employees with advance written notice of a covered plant closing or a mass layoff.
An affected employee is any employee who may reasonably be expected to experience an employment loss due to a proposed plant closing or mass layoff (e.g. workers whose jobs will be eliminated, those who may be displaced due to bumping rights or other factors).
While part-time employees are not counted in determining whether plant closing or mass layoff employee thresholds are reached, these workers still are due notice.
The purpose of the advance notification requirement is to provide affected employees with time to:
- Adjust to the future loss of employment;
- Look for another job; and
- Get skill training or retraining to allow them to successfully compete in the job market, if needed.
Generally, an employer is covered under the WARN Act if it employs:
- 100 or more full-time employees who work an average of 20 or more hours per week for at least six months in the preceding 12 months; or
- 100 or more employees, including part-time employees, who together work at least 4,000 hours per week, exclusive of overtime hours.
Part-time employees include any employee who:
- Works an average of fewer than 20 hours per week; or
- Has been employed for fewer than six of the 12 months before the date on which the WARN notice is required.
The calculation of employees for WARN Act purposes occurs the date that WARN notice is due, not the date that the termination will occur or that a plant will close.
Acme Pharmaceuticals' headquarters is located in Boston, where it employs 45 full-time individuals. It also runs a manufacturing plant in Cambridge, Massachusetts, employing 93 full-time workers. Its research and development facility in Wellesley, Massachusetts, employs an additional 25 full-time workers.
Acme decides to close its manufacturing plant and outsource all future manufacturing to a third party located in another country. Because the manufacturing plant has fewer than 100 employees, Acme opts not to provide its employees with advance notice of the plant closing under the WARN Act. However, the employees would have a viable claim for a WARN Act violation because Acme has more than 100 full-time employees when adding all work sites together.
Workers on temporary layoff or on leave who have a reasonable expectation of recall are also counted as employees. A "reasonable expectation of recall" exists when employees understand, through notification or industry practice, that their employment with the employer has been temporarily suspended and that they will be recalled to the same or a similar job. +20 CFR § 639.3(a)(1).
The following situations require advance notification under the WARN Act:
- A plant closing; or
- A mass layoff
A plant closing is the permanent or temporary shutdown of a single site of employment or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss for 50 or more employees (excluding part-time employees) during any 30-day period.
A mass layoff is a reduction in force (RIF) that:
- Is not the result of a plant closing; and
- Results in an employment loss at a single employment site during any 30-day period, for:
- 500 or more full-time employees; or
- 50-499 full-time employees, if the employees make up at least 33 percent of the active full-time employees.
Acme, Inc. employs 300 employees at its headquarters. On March 5, 60 of Acme's employees experience an employment loss. Acme lays off an additional 40 employees on March 30.
Neither of these layoffs, standing alone, would meet the WARN Act's coverage requirements for a mass layoff. However, 60 days' advance written notice is required to all affected employees because both occurred within a 30-day period. Therefore, the actions constitute a mass layoff.
If a third layoff affecting 60 more employees occurs on April 20, these employees also would be entitled to WARN notice since their employment losses all fall within a second 30-day period that includes the March 30 layoffs.
An employment loss means:
- An employment termination (other than a termination for cause, voluntary separation from employment or retirement);
- A layoff for longer than six months; or
- A reduction in work hours of individual employees of more than 50 percent during each month of any six-month period.
If the number of employment losses during a 30-day period does not meet the threshold requirements for a plant closing or a mass layoff (defined below) but the number of employment losses for two or more groups of workers reaches the threshold level during a 90-day period, the WARN Act can be triggered.
Employment losses within any 90-day period are considered a plant closing or a mass layoff unless an employer can show that the employment losses during the 90-day period are due to separate and distinct actions and were not an attempt to evade WARN's requirements. +29 USCS § 2102(d).
An employment loss does not occur when an employee is reassigned or transferred to employer-sponsored programs (e.g., retraining or job search activities), as long as the reassignment is not considered a constructive discharge or other involuntary termination. In addition, an employee may not be considered to have experienced an employment loss under WARN if a closing or layoff results from the relocation or consolidation of part or all of the employer's business and, prior to the closing or layoff, the employer offers to do the following:
- Transfer the employee to a different site of employment within a reasonable commuting distance with no more than a six-month break in employment; or
- Transfer the employee to any other site of employment regardless of distance with no more than a six-month break in employment, and the employee accepts within 30 days of the offer or of the closing or layoff, whichever is later.
A single site of employment can be a single location or a group of contiguous locations, such as a group of buildings forming a "campus." Separate buildings or areas that are not directly connected or in immediate proximity may be considered a single site of employment if they:
- Are in reasonable geographic proximity;
- Are used for the same purpose; and
- Share the same staff and equipment.
However, noncontiguous sites in the same geographic area do not qualify as a single site if they do not share the same staff or purpose. For instance, assembly plants that are located on opposite sides of a city, and that are managed by a single employer, count as separate sites if they employ different workers.
Acme Textiles, Inc., a national employer with thousands of employees, decides to scale back operations at its Springfield, Illinois, plant. Acme lays off 70 of its 200 active full-time employees at the site.
Because the Springfield plant remained open and fewer than 100 employees were let go, Acme does not think that the WARN Act applies and does not provide notice of the impending layoff to any of the affected employees.
Acme's failure to provide notice is a WARN Act violation. Although the Springfield plant did not close, a business does not need to close for the WARN Act to apply. In mass layoff situations, such as this, where at least 50 full-time employees and 33 percent of full-time employees at the Springfield location are laid off, notice of the layoff should be provided to all affected employees.
To help determine if an employer is covered under WARN and if a situation requires advance notice for an impending mass layoff or RIF, see Does the WARN Act Apply? WARN Act Quick Reference chart.
The WARN Act requires covered employers to provide 60 calendar days' advance written notice to the following parties:
- Each representative of an affected employee or, if there is no representative, each affected employee;
- The state dislocated worker unit; and
- The chief elected official of the unit of local government within which the plant closing or mass layoff is to occur. If there is more than one such unit, the employer should notify the local government unit to which it paid the highest taxes for the year before the determination is made.
All notice must be specific and based on the best information available to the employer at the time the notice is served. The 60-day period is the minimum for advance notice. However, employers may voluntarily provide longer periods of advance notice. +20 CFR § 639.7(a).
Timing of Notices
When all employees are not terminated on the same date, the date of the first group termination within the statutory 30-day or 90-day period triggers an employer's 60-day notice requirement. An employee's last day of employment is considered the date of that worker's layoff. The first and each subsequent group of terminated workers due to a planned plant closing or mass layoff are entitled to a full 60 days' notice.In order for an employer to decide whether it needs to issue notice, it should look ahead 30 days and behind 30 days to determine if employment actions taken and planned will, when added together for any 30-day period, reach the minimum numbers for a plant closing or a mass layoff and trigger WARN's notice requirement.
As noted above, an employer is not required to give notice if it shows that the separate employment losses result from separate and distinct actions and causes, and are not an attempt to evade WARN's requirements. +20 CFR § 639.5; +29 USCS § 2102(d).
Sale of Business
When a covered employer sells all or part of its business, the employer (seller) must provide the WARN notice for any covered mass layoff or plant closing that occurs up to and including the effective date of the sale. After the date and time of the sale, it is the purchaser's responsibility to provide notice to employees who have worked at least six of the previous 12 months.
The notice to an affected employee's representative must include:
- The name and address of the employment site involved in the plant closing or mass layoff;
- The name and telephone number of a company official to contact for additional information;
- A statement regarding the temporary or permanent nature of the plant closing or mass layoff and whether an entire facility is to be closed;
- The expected date of the first employee termination and the expected schedule for all employee terminations; and
- The job titles of positions to be affected by the plant closing or mass layoff and the names of the employees holding those affected jobs.
An employer that provides notice to a union representative or affected unions does not also need to notify the affected union employees themselves.
Affected Employee Notice
The notice to affected employees (who do not have a representative) must be written in language that is understandable to them and must include:
- A statement regarding the temporary or permanent nature of the plant closing or mass layoff and whether an entire facility is to be closed;
- The expected date of the first employee termination and the expected schedule for all employee terminations;
- An indication of whether or not bumping rights exist; and
- The name and telephone number of a company official to contact for additional information about the plant closing or mass layoff.
Additional helpful information for employees, such as available dislocated worker assistance and the estimated duration if the planned action is expected to be temporary (if known), also may be provided.
State Dislocated Worker Unit and Chief Elected Official Notice
Separate notices must be provided to the state dislocated worker unit and the chief elected official (i.e., of the local government within which a closing or a layoff occurs). The notices must include:
- The name and address of employment site involved in the plant closing or mass layoff, and the name and phone number of a company official to contact for more information;
- A statement regarding the temporary or permanent nature of the plant closing or mass layoff and, if the entire facility is to be closed, a statement to that effect;
- The expected date of the first employee termination and the expected schedule for all employee terminations;
- The job titles to be affected by the plant closing or mass layoff, and the number of affected employees in each job classification;
- An indication of whether or not bumping rights exist; and
- The name of each union representing affected employees, including the name and address of the chief elected officer for each union.
It will be deemed a failure to give required notice if the employer cannot provide this information or have it readily accessible when the state dislocated worker unit or the unit of local government requests it. +20 CFR § 639.7(f).
Exemptions From Notice Requirements
A covered employer does not need to provide notice in the following instances:
- A plant closing or mass layoff is the result of the completion of a particular project or undertaking; or
- The closing of a temporary facility.
These exemptions only apply if the affected employees were hired with the understanding that their employment was limited to the duration of the project, undertaking or facility. The employer bears the burden of showing that the temporary nature of the project or facility was clearly communicated. An employer may not label an ongoing project as temporary to avoid WARN obligations.
Another exemption from the notice requirements involves strikers or workers who are part of the bargaining unit(s) which are involved in labor negotiations that led to a lockout when the strike or lockout is the same as a mass layoff or plant closing. Non-striking employees who experience employment loss as a result of the lockout or strike and workers who are not part of the bargaining units involved in the labor negotiations must still get notice.
The Department of Labor (DOL) encourages employers to give notice when a significant number of employees will be terminated, even if the situation is not covered by WARN. +20 C.F.R. § 639.1(e).
Exceptions to Advance Notice Requirements
The WARN Act includes the following three exceptions to the 60-day advance notice requirement, permitting employers to provide a reduced notice period:
1. The faltering company exception;
2. The unforeseeable business circumstances exception; and
3. The natural disaster exception.
For all three situations, the employer must provide as much notice as is practicable and include a statement of the basis for the reduced notice period.
The "faltering company exception" applies to plant closings, but not to mass layoffs. A company may qualify for the faltering company exception if:
- It was actively seeking capital or business at the time that the 60-day notice would have been required (e.g., seeking financing or refinancing through the arrangement of loans) and can identify specific actions taken to obtain capital or business;
- There existed a realistic opportunity to get the financing or business sought;
- The financing or business sought, if obtained, would have enabled the company to avoid or postpone the shutdown for a reasonable period of time; and
- The company reasonably and in good faith believed that giving the required 60 days' advance notice would undermine its ability to obtain the needed capital or business to save jobs.
An employer that relies on this exception will have its actions viewed in a company-wide context. Thus, a company with access to capital markets or cash reserves may not avail itself of this exception by looking solely at the financial condition of the particular facility, operating unit or site to be closed.
Unforeseeable Business Circumstances
When a company experiences a sudden and dramatic downturn in its business outside of its control, it may qualify for the "unforeseeable business circumstances" exception. Specifically, the conditions that caused the downturn in business must not have been "reasonably foreseeable" at the time the 60-day notice would have been required. +29 USCS § 2102(b)(2)(A); +20 CFR § 639.9(b)(1).
Situations that may qualify as unforeseeable business circumstances include:
- A strike at one of the employer's major suppliers;
- A key client's sudden and unexpected termination of a major contract; and
- A government-ordered closing of an employment site that occurs without prior notice.
Several federal appellate courts have ruled that foreseeability is determined by a business downturn being "more probable than not," rather than merely possible. See, e.g., In re AE Liquidation, Inc., +866 F.3d 515.
The employer must exercise commercially reasonable business judgment as would a similarly-situated employer in predicting the demands of the market. It is not required, however, to accurately predict general economic conditions that also may affect demand for its products or services. +20 CFR § 639.9(b)(2).
If an employer argues that its failure to provide 60 days' advance notice of termination was excused by an unforeseen business circumstance, it must still show that it provided notice as soon as "practicable" with a brief statement about the basis for reducing the notice period. +29 USCS § 2102(b)(3).
When a plant closing or mass layoff is the direct result of a natural disaster (e.g., hurricane, earthquake, drought, storm, flood, tidal wave or similar extreme effect of nature), the employer may be excused from providing 60 days' advance notice to affected employees.
While a disaster may prevent full or any advance notice, the employer must provide notice as soon as reasonably possible, containing as much of the required information that is available under the circumstances, even if it is after the fact of an employment loss caused by the disaster.
If a plant closing or mass layoff occurs as an indirect result of a natural disaster, the exception does not apply. However, the unforeseeable business circumstance exception may be applicable.
Notice Distribution Requirements
An employer must assign the most appropriate person within its organization to prepare and deliver the notice to all of the required parties). Many times this will be the local site plant manager, the local personnel director or a labor relations officer.
An employer may use any reasonable method of delivery to all required parties (e.g., first class mail, personal delivery with optional signed receipt).
An employer may fulfill its obligation to give notice to each affected employee by mailing the notice to an employee's last known address or by including the notice in the employee's paycheck. However, a ticketed notice, i.e., preprinted notice regularly included in each employee's pay check or pay envelope, does not meet WARN requirements.
If a natural disaster destroys employment records and the employer is unable to send notification to the affected employees' last known addresses, the DOL notes that an employer can still comply with WARN in good faith by posting a notice at the worksite that:
- Indicates that the worksite will be closed or partially closed;
- Identifies the workers that are to be affected by the closure; and
- Explains that individual notice was not possible due to the loss or destruction of employment records.
Employers in this scenario should also place a notice in the local newspaper(s). This too is considered "good faith" notice by the employer and thus, would likely not be considered a violation of the WARN Act.
Additional notice is required when the date of a planned plant closing or mass layoff is extended beyond the date or ending date of any 14-day period announced in the original WARN notice as follows:
- If the postponement is for fewer than 60 days, the employer should give the additional notice as soon as possible and should refer to the earlier notice, the date (or 14-day period) to which the planned action is postponed and the reasons for the postponement.
- If the postponement is for 60 days or more, the additional notice should be treated as a new notice. Rolling notice, given whether or not a plant closing or mass layoff is impending, with the intent to evade the purpose of the Act is not acceptable.
Effect of Other Laws and Agreements
If another law or agreement provides for a longer notice period, WARN notice will run at the same time as the additional notice period. A collective bargaining agreement (CBA) may not reduce WARN rights. +20 C.F.R. § 639.1(g).
If an employer provides notice, in good faith, under the WARN Act, it will not be a violation of the National Labor Relations Act (NLRA) or the Railway Labor Act. +29 USCS § 2108.
Penalties and Enforcement
Employees, their representatives and units of local government may sue an employer they believe has violated WARN's notice requirements. However, the DOL does not have authority to sue an employer under WARN. +20 CFR § 639.1(d).
A covered employer that orders a plant closing or mass layoff and fails to comply with WARN's notice provisions will owe each affected employee:
- Back pay for each day of the violation at the higher of the average regular rate the employee received during the last three years of employment or the final regular rate the employee received; and
- Benefits under an employee benefits plan, including the cost of medical expenses incurred during the employment loss that would have been covered by the plan if the job loss had not occurred.
The above amounts will be calculated for the period of the violation, up to 60 days, but will not exceed half the number of days the employee was employed by the employer.
These amounts will be reduced by:
- Any wages paid by the employer to the employee for the period of the violation;
- Any voluntary and unconditional payment by the employer to the employee that is not required by any legal obligation; and
- Any payment by the employer to a third party or trustee (such as premiums for health benefits or payments to a defined contribution pension plan) on the employee's behalf for the period of the violation.
An employer that fails to provide advance notice to the local or state government may have to pay a civil penalty of up to $500 per day for up to 60 days. This penalty will not apply if the employer pays each affected employee the amount for which the employer is liable within three weeks of ordering the mass layoff or plan closing.
Any of these sanctions can be decreased if the employer can prove that it attempted to comply with the WARN Act in good faith and reasonably believed that it was not in violation.
Alternatives to Layoffs
The reality of business is that organizations are often faced with rising costs and falling revenues. Labor costs often comprise an employer's single greatest area of expense, due to salaries, benefits, taxes and related insurances. One common and easy way to balance the budget is to downsize the labor force while stabilizing revenues. This remedy is only "easy" on its face, however. Selecting areas of the business and particular employees to include in a layoff, reduction in force (RIF) or plant closing is rife with potential legal pitfalls. Avoiding these potential land mines requires diligence and information.
Prior to instituting a corporate layoff or RIF, an employer should first consider whether a reduction of staff is truly the best option. Often, layoffs can lead to angry former employees eager to sue the company coupled with survivor's guilt from the remaining employees. To make matters worse, the remaining employees often have to work harder, for the same salary, to replace the productivity offered by their fired comrades. Alternative methods to decreasing costs are generally preferred to large scale reductions of employees. Safer alternatives to a mass layoff or reduction in force include:
- Hiring freezes;
- Salary freezes;
- Bonus or pension freezes;
- Salary rollbacks;
- Benefit decreases, such as elimination of fringe benefits or 401(k) matching;
- Selective, performance-based terminations that are carefully documented through performance reviews and performance improvement plans;
- Reduced work hours or flexible work schedules;
- Telecommuting policies;
- Providing incentives to encourage early retirement; and
- Eliminating contract and temporary employees.
Another alternative to a layoff is an employee furlough, where employees take unpaid or partially paid time off for various periods of time. Generally, the employee will either have a scheduled furlough period or be subject to callback rights. One common example of a furlough is an employer shutdown (or forced unpaid vacation) between Christmas and New Year's Day. Alternatively, an employer may ask employees to work a four-day week or take the summer off. Benefits usually continue during a furlough period, while pay is decreased or eliminated.
Recently, when reviewing a California state furlough of corrections officers, the United States District Court for the Northern District of California found that a furlough program equated to a legal reduction in pay for salaried workers and did not violate the Fair Labor Standards Act (FLSA). See Newton v. Brown, +2011 U.S. Dist. LEXIS 56554 (N.D.Ca 2011). While the court did not find an FLSA violation, an employer implementing a furlough of salaried employees who are exempt from overtime regulations should understand that a decrease in salary could affect overtime compensation exemptions and place a salaried worker's regular rate below minimum wage.
Voluntary Attrition Programs
Another method of reducing a workforce without resorting to an involuntary layoff is to ask employees to voluntarily accept a layoff or early retirement, generally for a set dollar amount. Early retirement plans enable employees to retire at a younger age than normally required to fully vest in retirement benefits. This option can be used as a method to reshape and reinvigorate a workforce without resorting to layoffs or accidentally targeting older workers. Though this can be expensive for employers in the short run, it will successfully decrease the labor costs in the long run and place the decision-making on the employees themselves, which will be viewed less negatively by the remaining workers. It is crucial, however, that employers obtain a fully executed release of claims from the retiring employees to guard against potential lawsuits for age discrimination.
When designing a voluntary retirement plan, an employer should consider eligibility criteria and create an easy to understand policy. According to the Equal Employment Opportunity Commission (EEOC), as long as an early retirement plan is voluntary, an employer may:
- Set a minimum age for eligibility (such as 60 rather than 65);
- Set a minimum length of service for eligibility (e.g., 20 years or more);
- Offer the early retirement program for a limited period of time (e.g., from January 1 through April 1); and
- Provide the same level of early retirement incentive benefits to older workers and similarly situated younger workers.
Importantly, older workers should never be forced into an early retirement program. Employers should work hard to ensure they do not convey the message to older employees that they should or must participate in a voluntary attrition program. To shield itself from liability, an employer must ensure that participation in the program is strictly voluntary. To determine whether an early retirement program is truly voluntary, the EEOC will consider the following:
- Whether the employee was given adequate time to make a decision about the program;
- Whether the employee was given complete and accurate information about the program;
- Whether the employer in any way subjected the employee to threats or coercion regarding participation in the program;
- Whether older employees would suffer negative consequences if they chose not to participate; and
- Whether the employee had an opportunity to review the program with legal counsel.
Acme Shipping Co. determines that, to cut costs in an economic downturn, it will trim staff through a voluntary early retirement program. When drafting the program, Acme contemplates two different structures. First, it could offer the early retirement program to all employees over the age of 60 with at least 20 years of service and give them two months to volunteer for the program. Second, it could widen the number of employees eligible to take advantage of the program to make it appear fairer, but decrease the volunteer period to one week. In that scenario, Acme would plan to have supervisors subtly encourage employees over 60 to participate.
The EEOC would likely consider the first option to be voluntary. The second option would expose Acme to legal liability given the appearance that Acme is forcing its older workers to make a decision regarding their retirement in haste.
The EEOC will also review whether older and younger employees are afforded equal benefits in the early retirement program. If the EEOC finds that equal benefits are not paid regardless of age, the employer can justify this inequity in one of five ways:
- Equal cost: Lower benefits to older workers are justified by age-based considerations for retirement (this method is rarely successful).
- Subsidized portion offset: If a younger employee is invited to participate in an early retirement program, an employer may pay the younger employee more than an older employee to bring the younger employee's benefits or pension level up to where it would have been if the employee had retired at the normal retirement age. Provided that the benefit is part of a defined benefit plan, this is lawful so long as all younger employees are treated equally and the younger employee's benefit amount does not exceed the benefit amount provided to an employee retiring at normal age.
- Social Security gap: An employer is permitted to supplement gaps between the early retirement age and Social Security as part of an early retirement program, provided that the supplement:
- Ends at the age of eligibility for reduced or unreduced Social Security benefits;
- Is a defined part of the benefit to be paid as part of the program; and
- Does not exceed the amount to which an employee would be entitled from Social Security upon eligibility.
- Tenured faculty: An institution of higher learning is permitted to make age-based reductions in early retirement incentive benefits to tenured faculty without penalty, with certain limitations that should be reviewed with counsel prior to instituting such a program.
- Plans consistent with the ADEA: An employer can structure an early retirement program to give all employees above a certain age:
- A flat sum;
- Additional benefits for years of service;
- A percentage of salary;
- Flat dollar increases in pension benefits;
- Percentage increases in pension benefits; and
- Imputed years of service and/or age.
Identifying Job Related Criteria for Layoff Selection
Sometimes a layoff, RIF or plant closing is the only viable solution to an employer's issues. There should be valid, well-documented business related reasons for the layoff in order to defend against complaints by disgruntled employees. Insignificant, temporary economic problems will not suffice, nor will they garner much sympathy with a judge or a jury.
Economic hardships, such as a decrease in sales, failure to get a necessary line of credit or closing of a business unit, on the other hand, are legitimate justifications for a layoff. Discriminatory purposes, such as removing all older workers, are not.
Pre-Layoff Planning and Preparation
Prior to identifying employees for a RIF, an employer should exercise its due diligence and conduct a review of certain basic corporate policies.
First, the employer should review its written personnel policies, including policies contained within an employee handbook or manual especially that pertains to layoffs or RIFs. If the employer has any such policies in writing, it is crucial to follow those guidelines. Even minor deviations from written policies could lead to legal disputes.
Employers should then review how any past layoffs or reductions in force were conducted. Evidence as to how the employer had let personnel go in past economic downturns can be useful when devising the current plan. If the previous layoff went well, that procedure may again be followed. If the previous layoff resulted in legal actions, pitfalls particular to the employer or industry may be identified and can then be avoided.
Employers should also strive to review any unwritten policies. If, for example, the employer typically pays severance to discharged employees, then it should pay the laid off employees a severance to avoid facially discriminatory practices.
Once the decision that a layoff is necessary and unavoidable has been made, and all associated policies have been reviewed, the employer should perform a preliminary identification of employees to be included in the layoff or RIF. High level managers and officers should be involved in the selection process.
An employer should review the following as it conducts its preliminary layoff analysis:
- Individual employment contracts. If employees are subject to employment contracts, review the contract carefully to ensure compliance with any termination provision, including whether the contract allows for termination for economic reasons. The contract may require a certain notice procedure or severance payments that would not fit within the layoff scheme. Avoiding breach of contract actions, in the midst of a layoff, is important.
- Collective bargaining agreements. As with contracts, any union workers covered by a collective bargaining agreement may be subject to individualized limits or rules on layoffs. Such rules should be followed and incorporated into the layoff procedure.
Acme Law Firm employs over 400 people, including 150 attorneys. Though litigation increased during a recent economic downturn, business deals also dried up, causing an imbalance to the budget. In reviewing ways to decrease costs, the chief financial officer realizes that the technology department cost Acme over $500,000 the year before. That figure includes all salaries and associated benefits, whereas the CFO estimates that outsourcing technology needs would cost only $100,000 per year.
The CFO decides that downsizing the technology department and outsourcing technology needs is in the law firm's best interest, though the decision was not made as part of any economic catastrophe. Depending on the number of employees to be discharged, Acme may have to comply with the WARN Act.
More often, layoffs will be widespread throughout a company. In choosing which employees to include, employers should take the following steps:
- Review the organizations needs on an ongoing basis and identify the particular departments or positions that can easily withstand a smaller workforce. This step focuses on job function, not individual employees.
- Decide on objective, performance related criteria for layoff decisions, such as quality of work, productivity and communication skills. This should not include protected categories, such as disabilities and age. Seniority can also be considered. While the "last in, first out" theory of employee layoffs is not always the best course of action, it is, at least, an objective identifier that can take some pressure off the employer. These factors should be applied uniformly in all individual layoff determinations.
- Chart the criteria to be used and conduct a trial run of the employee identification process, creating a tentative layoff list.
- Carefully review the list for potential problems. The layoff plan should not, either facially or in practice, discriminate on the basis of age, race, sex, national origin, religion, medical leave, disability, military leave or any other protected category. If a review shows a disproportionate effect on a group of individuals in a protected category, employers should adjust their selection criteria to make the layoff more evenly distributed. Consulting with in-house or outside counsel is always advisable.
- Make sure that, once the individuals on the layoff list are subtracted from the workforce, the organization will still be able to function properly.
Once the layoff list is finalized, make a final review of any individuals that fit within protected categories. Statutes such as the Americans with Disabilities Act (ADA), Age Discrimination in Employment Act (ADEA) and Family and Medical Leave Act (FMLA), for example, contain prerequisites for terminating employees who exercise legal rights. These laws also prohibit employers from firing employees in retaliation for exercising their legal rights. See Retaliation.
Another area of concern occurs when individuals who are close to vesting in pensions or other benefits are included in a layoff. Terminating an employee purposefully to avoid paying an earned benefit violates the Employee Retirement Income Security Act (ERISA) and pension laws and policies. Further, all pension and 401(k) plans should have provisions governing procedures for layoffs. Accelerating a vesting period to avoid the perception of impropriety may be in the employer's best interest, if possible.
Upon completion of the layoff list, ensure that any management dissenters during the process support the final decision. Management should always present a united front and offer a consistent message. Even a single dissenting opinion can create an environment of animosity.
Acme Porcelain, a toilet supplier, lost its largest three accounts to a competitor. As a result, the company president and vice president of HR decide to terminate 40 employees to cover the loss. After meeting with various company supervisors, Acme Porcelain compiles a list of 40 employees to lay off, including Carl, an Iraq War veteran. After receiving his termination notice, Carl runs into the VP, who tells Carl that he had tried to convince the president not to terminate Carl because he was a distinguished member of the uniformed services. Based on that conversation, Carl sues Acme Porcelain for wrongful termination, alleging discrimination based on his veteran status.
Importantly, the individual responsible for notifying employees to be discharged should be extremely cautious when discussing the reasons for the termination. Even the smallest expression of regret can lead to a claim of wrongful termination.
There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.
The following states have additional requirements for this topic under applicable state law.