QuickCounsel

Planning and Conducting a Reduction in Force

Overview Planning for a Reduction in Force Selecting Employee Layoff Disparate Impact Analysis Releases A Note on WARN Additional Resources Rate this QuickCounsel

Overview

Results 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.

Back to top

Planning for a Reduction in Force

Careful 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:

• Are there other alternatives, such as voluntary attrition programs (including Early Retirement Incentive Programs and Voluntary Resignation Incentive Programs), job sharing, hiring freezes, work furloughs, etc.?
  
  
• Will layoffs result in partial terminations of pension or employee benefit plans, triggering ERISA obligations?
  
  
• Will terminations constitute withdrawal from a multi-employer pension plan, triggering withdrawal liability?
  
  
• How will the employer comply with all ERISA notice and reporting requirements?
  
  
• How will the employer comply with the federal WARN Act and comparable state laws providing specific time limits and notice requirements for certain group termination programs?
  
  
• What are the relevant notice obligations under state laws governing payment of wages, insurance and severance benefits continuation, personnel record access, letters of recommendations, etc.?
  
  
• What limitations, liabilities, and/or obligations are created by existing collective bargaining and other contractual obligations?
  
  
• How will the organization ensure all COBRA notice requirements are fulfilled?

Back to top

Selecting Employees for Layoff

Selection 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.

Back to top

Disparate Impact Analysis

Under 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.

Back to top

Releases

Employers 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.

Back to top

A Note on WARN

WARN 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.

Back to top

ADDITIONAL RESOURCES

Government Forms and Information

• Fact Sheet on the Worker Adjustment and Retraining Notification Act (DOL)
• Employment Law Guide: Plant Closings and Mass Layoffs (DOL)
• Worker Adjustment and Retraining Notification (WARN) Act Guide to Advance Notice of Closings and Layoffs, Employers Guide (DOL)
• State Rapid Response Coordinators
• WARN Regulations
• EEOC Directive Number 915.003
• Older Workers Benefit Protection Act of 1990, Public Law 101-433, October 16, 1990, 104 Stat. 978, 29 USC 621 et seq.

Sponsor Resources

• Contact author Scott T. Baken, Jackson Lewis, White Plains, NY.
• Jackson Lewis, COBRA Premium Subsidies Notice Requirements and Action Plan (March 30, 2009).
• Jackson Lewis, Seeing the Big Picture at Eye Level: Working Smarter During the Recession (Preventive Strategies newsletter, First Quarter 2009).
• Jackson Lewis, Tips for a Layoff or Reduction in Force in Troubled Times (Jan. 9, 2009).
• Jackson Lewis, Workforce Reductions: Managing Through Difficult Times (Preventive Strategies newsletter, Second Quarter 2008).
• Jackson Lewis, Court Invalidates Group Termination Releases, Requiring Strict Compliance with OWBPA (June 6, 2008).

Back to top

Have an idea for a quick counsel or interested in writing one?

• Submit your ideas by filling out our online topic proposal form.

The information in this QuickCounsel should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or the ACC. This QuickCounsel is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.

Back to top

Published June 15, 2009

Reprinted with permission from the Association of Corporate Counsel
2010 All Rights Reserved
www.acc.com