QuickCounselPlanning and Conducting a Reduction in Force
OverviewResults of a recent poll conducted by the Society for Human Resource Management (“SHRM”) indicate that 60 percent of employers are likely to institute layoffs in 2009. Although organizations may achieve short-term savings through a reduction in force (“RIF”), layoffs also entail hidden costs and legal risks. For example, large scale terminations can eliminate disproportionate numbers of older, female and minority employees, which can result in class actions and individual wrongful discharge claims. In addition, RIFs may trigger certain employer obligations under the Employee Retirement Income Security Act (“ERISA”), the Worker Adjustment and Retraining Notification Act (“WARN”), the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), and comparable state laws. Planning for a Reduction in ForceCareful planning helps reduce the legal risks that accompany workforce reductions. The current financial crisis, however, may make it difficult for employers to plan layoffs far in advance. Some key considerations for organizations facing the possibility of a RIF are:
Selecting Employees for LayoffSelection should be based on quantifiable and objective job-related factors such as: length of service or seniority; elimination of unnecessary job classifications or certain categories of employees; and pre-existing job appraisal data related to successful performance of critical post-reduction functions. Employers should strive for an objective comparison of employees where job qualifications and skills are evaluated in making layoff determinations. Consider establishing a RIF Committee and obtaining outside legal review. Disparate Impact AnalysisUnder a disparate impact theory of discrimination, an employee may challenge an employer’s policy or practice that appears neutral on its face but disproportionately affects a protected group in application. After making initial selection decisions, therefore, employers should conduct a disparate impact analysis to determine whether there will be any disproportionate effect on workers 40 years of age or older, females, and/or minorities. If a disparate impact exists, evaluate whether selection can be justified by business necessity, or in the case of older workers, by reasonable factors other than age. If not, consider alternative selections. ReleasesEmployers can attempt to limit their potential liability by obtaining general releases from employees affected by a RIF, in return for enhanced severance benefits or other valuable consideration. Strict compliance with legal requirements is critical to the effectiveness of any release. Under the Older Workers Benefit Protection Act (“OWBPA”), for example, many procedural requirements must be satisfied before an employee's release or waiver of age discrimination claims under federal law will be considered enforceable. A Note on WARNWARN applies to employers that have, nationwide, 100 or more employees (excluding part timers), or 100 or more employees (including part timers) whose total weekly work hours (excluding overtime) are at least 4,000 per week. The Act requires covered employers to give 60 days’ advance written notice of a "plant closing" or "mass layoff” to certain specified individuals and organizations. WARN provides limited exceptions to its notice requirements, including an exception for business circumstances that were not reasonably foreseeable at the time the notice would have been required and a limited “faltering company” exception. Similar statutes are found in California, Hawaii, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Tennessee, Virginia, Washington, Wisconsin, Puerto Rico, and the U.S. Virgin Islands. In addition, some cities and municipalities have enacted plant closing ordinances. There are many other issues employers should consider when conducting RIFs. ADDITIONAL RESOURCESGovernment Forms and Information
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Reprinted with permission from the Association of Corporate Counsel 2010 All Rights Reserved www.acc.com
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