Even in the present strong economy, employers sometimes need to conduct reductions in force (RIFs)—that is, permanently eliminate certain job groups or positions. Even a thriving company may need to move a base of operations or respond to changing market conditions. Companies that acquire other companies may see redundancies and unneeded workers in the acquired workforce.
Whatever the reason RIFs occur, they are no fun for anyone. Terminating even one person is a stressful task—even if the person deserves to be let go —since you know you are depriving him of his livelihood and dealing with a situation that gives rise to potential legal exposure for the organization. Terminating multiple employees in a RIF is an even less happy occasion because in most instances, you are terminating individuals who have done nothing wrong. And of course, multiple terminations mean multiple risks. But there are some guidelines to keep in mind to reduce the stress and the risk inherent in these situations.
Examine your alternatives
Employers considering a RIF for economic reasons should first explore methods for cutting costs other than permanent layoffs. Furloughs, temporary or permanent pay reductions, or reduced work schedules may eliminate the need for some or all layoffs, and they may be surprisingly well tolerated by a workforce that otherwise would lose their jobs. For all of these options, you will want to be sure to comply with applicable wage and hour laws and the terms of any collective bargaining agreements.
Follow your own rules
Does your company have a written policy addressing layoffs? If so, read it carefully and make sure you follow your own rules for selection processes, notification requirements, and severance to the letter. But don’t worry— employers don’t have to have a preexisting written policy to lawfully enact layoffs.
Consider your selection process
Carefully consider how you will decide which positions to eliminate before actually making any decisions regarding which employees will be affected. Think about offering an exit incentive program if you can. Such programs, if implemented correctly, provide a fairly litigation-proof method of thinning your workforce because they permit employees to essentially select themselves for termination. However, they can also be disruptive. Consider the impact on employee morale of announcing possible layoffs far in advance, the disruption to ongoing projects, and the possibility that all the best employees might head for the door right away, leaving you with “the rest” for the duration.
If you decide involuntary termination is the only option, think about your goals and selection methodology before naming any names. You may be secretly glad that a RIF gives you the opportunity to be rid of a problematic employee you have long wanted to fire, but that shouldn’t be the lead-in to a selection process. You should decide which departments, job groups, or positions need to be looked at. If there are multiple employees within an affected group and you don’t intend to eliminate the entire group, you will have to decide who stays and who goes.
There are several ways to go about this, from a strict seniority system (last hired, first fired) to a subjective, merit-based selection process. The more subjective the criteria, the greater the risk. Even though a RIF may be necessary for business reasons, you can still be sued for wrongful termination if you use discriminatory criteria in the selection or your selection process has a disparate impact on employees in protected categories.
Once you make preliminary selections, take a look at your list with an objective eye. Does it appear that women, minorities, or employees in age- protected categories have been disproportionately affected? If so, you may wish to reconsider your criteria and your selections.
Keep WARN Act in mind
In Tennessee, federal and state law requires advance written notice, to both affected employees and the appropriate government representatives, with respect to facility closures and large-scale RIFs affecting a significant percentage of your workforce. Worker Adjustment and Retraining Notification Act (WARN Act) compliance isn’t difficult, but failure to give appropriate notice can lead to significant penalties and exposure for civil damages. Ideally, you should consult with experienced employment counsel at least 90 days before commencing any layoffs you think might trigger WARN Act requirements.
If you provide employees with any severance pay, through an incentive program or involuntary layoffs, you may wish to obtain a written release of all claims against the company in return. Otherwise, employees can take the severance money and still sue you for wrongful termination. And keep in mind, to obtain an enforceable release of age discrimination claims from employees 40 or older, you must ensure the release complies with the federal Older Workers Benefit Protection Act (OWBPA). If it doesn’t conform to the provisions of the OWBPA (which includes a required 45- day consideration period for group termination programs and requires that certain notices be provided), it will be invalid, which means the employee will be able to keep the money and still sue you for age discrimination, even though he signed a document saying he wouldn’t. Age discrimination claims—both intentional discrimination and disparate-impact claims—are probably the most common type of wrongful discharge claims to result from layoffs. And when groups of employees are affected, an employer could be facing a potential class action. Therefore, it’s wise to work through the wording of your severance agreements with an employment attorney before implementing layoffs that might affect older workers.
Originally published in the Tennessee Employment Law Letter on 09/01/2018. Edited by: Kara E. Shea and David Johnson of Butler Snow LLP.