As the negative economic outlook continues to fill our news and social media feeds, many organizations are pondering what an economic shift may mean for their business. Others have moved on to the next stage of grief, acceptance, and have started to plan ahead. For some organizations, this means considering, and possibly implementing, a reorganization or reduction in force (RIF).
Regardless of company size, industry or location, employers considering a reorganization or a reduction in force must consider many variables—and avoid many pitfalls. While there are too many issues to list here, here are five key questions for those organizations that are about to take the next step to implement a reduction in force.
- Do we have Federal or State WARN Act obligations?
The federal Worker Adjustment and Retraining Notification Act, or WARN Act, requires employers to give 60 days’ advance, written notice to employees impacted by certain mass layoffs and facility closures. The WARN Act provides extensive detail on the who, what, when, where, why and how of such notifications. Failure to comply with the notification requirements can result in significant penalties.
Here, as with many areas of employment law compliance, employers also must ensure that they are considering any state and local laws that may be implicated by their actions. Some states and municipalities have their own “mini-WARN Act” on the books. These state laws often apply to smaller organizations and smaller layoffs, which might not trigger the federal WARN Act. For this reason, employers also must be aware of any “mini-WARN Act” obligations in the locations where they operate.
- How do we ensure there is no discrimination in our selection process?
Like just about every other employment decision, RIFs can expose your organization to various legal claims. For example, employers who terminate a group of employees should be mindful of the potential for exposure to claims of discrimination—both intentional and unintentional.
In order to help reduce the risk of such claims and to prepare an appropriate defense for the worst-case scenario that a former employee challenges their termination as discriminatory, employers should strive to use objective selection criteria when identifying which employees will be selected for discharge. This is critical as you determine which employees from the same or similar job classifications will be selected for termination. These types of individual selection decisions may lead to disparate treatment claims—i.e., you selected someone for termination based on a protected class, such as age, gender, race, disability, etc., or based on a protected activity, such as making a complaint of harassment or requesting family or medical leave.
However, using objective selection criteria is not only important when evaluating individual selection decisions. It is equally vital when evaluating the selected group as a whole. This is because employers also must consider whether their selection criteria have an adverse impact on members of a protected group, such as members of a particular gender or race. For example, perhaps your chosen selection criteria inadvertently resulted in the disproportionate selection of female over male workers, even though this skewed gender impact was completely unintentional. Remember: even if the result was unintentional, an employer may still be liable for a discriminatory outcome. Therefore, evaluating the group as a whole before finalizing RIF selection decisions is critical.
The results of an organization’s selection criteria may need to be reassessed following the evaluation discussed above. If it appears that one or more of your selection criteria are problematic from a disparate treatment or disparate impact perspective, you might need to revise those criteria—and then conduct this evaluation again until you are comfortable with the results, and with defending them in the event of a legal challenge.
- Will we offer severance?
Many employers choose to offer severance to employees whose positions are being eliminated in a reduction in force. There are significant benefits to such an approach for both the employee and the employer. For example, severance provides the employees with income continuation and/or assistance with continuation of health care coverage to assist them with the transition. On the employer side of this equation, employers who offer severance will almost always condition receipt of those benefits on the employee’s acceptance of a waiver and release agreement. This allows the employer to receive the benefit of finality if the severance agreement contains a full release and waiver of claims.
As you are planning a RIF, determine early in the process whether you intend to offer some form of severance to affected employees. If so, your organization will need to think through what the benefits will look like and what terms will be included in the agreement provided to employees, and it will need ensure that there is some consistency to the approach.
- How do we ensure compliance with the Older Workers Benefit Protection Act?
Speaking of severance, employers who offer severance and condition the receipt of that severance on the employee’s execution of a separation agreement must ensure that their separation agreement is legally compliant—and that it maximizes the benefit that the employer is receiving from the transaction. This is particularly important when offering a separation agreement to employees who are age 40 or older.
The Older Workers Benefit Protection Act (OWBPA) requires employers to jump through several hoops in order to obtain a valid waiver of age discrimination claims from individuals aged 40 or older. There are differing requirements for individual terminations versus group terminations like a RIF (i.e., when more than one employee is being terminated and offered severance in exchange for signing a release). By way of most critical example, in a group termination scenario, OWBPA requires employers to provide those employees with certain disclosure information, which can be burdensome. Employers must understand these requirements and their obligations when preparing OWBPA-compliant separation agreements.
OWBPA requirements are many, and frankly, there are simply too many obligations to list here. We will say, however, that the aforementioned disclosure requirements will drive decision making in a number of key respects.
- Do we have any obligations to labor unions?
Unionized employers should expect that they may have a number of additional requirements to consider when conducting a reduction in force. Collective bargaining agreements (CBAs) often contain layoff and bumping provisions that will dictate the order in which employees must be laid off. Notice may be due to the union, additional benefits may be due to the bargaining unit employees being laid off, and recall rights likely will need to be established. In certain instances, the employer’s RIF may trigger an obligation to engage in effects bargaining.
Each CBA, and the layoff obligations under each CBA, are different. For unionized workplaces, the collective bargaining agreement often will be the first place to start the reorganization planning process.
These five considerations are basic, threshold questions—and they are key to developing the beginnings of an effective strategy to plan and implement your reduction in force. These are not, however, the only considerations. As noted above, there are many, many more things for an organization to consider prior to finalizing and implementing their reduction in force. Planning ahead in a careful and thoughtful manner, with an eye towards legal compliance, can place your organization in the best position possible under difficult circumstances.
Last, but not least, engage your labor and employment counsel early and often in the process—both to obtain appropriate guidance and in order to preserve the attorney-client privilege over the planning and selection processes to the maximum extent possible. Doing so can help minimize your organization’s exposure to potentially costly legal claims that could erode some of the savings you may have experienced from the RIF.