Layoffs, Downsizing, Reductions in Force (RIF)
Whatever you want to call them – layoffs, downsizing, rightsizing, reductions in force – the global economic situation has resulted in more job losses and unemployment than the United States has seen in generations. Since late summer of 2008, more than 5 million U.S. jobs were lost.
While employers lay off workers because there isn’t enough work or as a cost-cutting measure, layoffs create potential significant legal costs if they aren’t done well and morale, productivity, and loyalty in the workplace may suffer among the employees who are left. Adequate planning and preparation are crucial to minimize a businesses’ legal risks in a layoff. Perhaps the best way to minimize legal exposure when implementing a reduction in force is to create a record of decision making and implementation processes. Doing that will help an employer withstand later legal challenges, such as discrimination.
Employers are at an even higher risk of being sued by employees affected by a reduction in force because with so many layoffs happening across the country and in all sectors of the economy, it is more difficult for workers to find a new job and often the jobs they can find pay less than what they were making before, may be only part time, and may not include benefits such as health insurance. It’s a combination that may make workers more inclined to sue their former employer, especially if they believe they were not treated fairly or they don’t believe management is sharing the company’s financial pain.
HR Hero Free White Papers: Downsizing: Getting It Right from Termination to Engaging the Survivors and 5 Alternatives to a RIF
Legal issues for employers when laying off employees
Every potential or planned layoff creates a number of critical, and possibly expensive, legal issues, including:
- Worker Adjustment and Retraining Notification Act (WARN Act). WARN is a federal law requiring employers of more than 100 employees to give written layoff notice at least 60 days before any plant closing or “mass layoff.” A number of states also have WARN acts that may have even stricter requirements and apply to even smaller employers.
- Discrimination laws. Federal and state discrimination laws, such as the Age Discrimination in Employment Act (ADEA), prohibit workers in protected classes from suffering unlawful disparate impact or disparate treatement because of a reduction in force .
- Family and Medical Leave Act (FMLA). Employees on FMLA leave may be protected against a reduction in force unless it can be shown that they would have lost their positions even if the FMLA leave hadn’t been taken.
- Uniformed Services Employment and Reemployment Rights Act (USERRA). USERRA requires employers to reinstate returning members of military services to the jobs they would have held had they not been serving. The law also might protect an employee from layoff unless the employer can show that “circumstances have so changed as to make such reemployment impossible or unreasonable . . . or such employment would impose an undue hardship on the employer.”
- COBRA. This federal law requires most employers that sponsor group health plans for their employees to allow certain employees and their dependents who would otherwise lose coverage under the plan because they left their job or certain other events – such as a layoff — to pay to continue that coverage for a specified period of time.
- Other issues employers need to consider during a layoff. The following are list of other issues that can get employers in legal trouble when planning and carrying out layoffs: retaliation, worker’s compensation claims, EEOC claims, poor documentation, inadequate document retention, employees protected by whistleblower laws, and badly crafted severance agreements and waivers.
Employers face a difficult choice when contemplating layoffs. Using objective criteria may be the best legal protection, but it isn’t necessarily an effective way of keeping the most productive employees. Subjective criteria focuses more on the quality of the remaining employees work but leaves employers more vulnerable to claims of favoritism and discrimination. Either way, careful planning is critical to a successful layoff.
HR Guide to Employment Law: A practical compliance reference manual covering 14 topics, including discrimination and issues related to reductions in force