Even in a tight labor market, restructuring may be necessary at any time.
It may seem strange to speak of reductions-in-force (RIFs) during this phase of the economic cycle. But recent mass layoffs in the automotive and other industries demonstrate that restructuring may be necessary at any time. In addition, employers should be up to date on new compliances related to sexual harassment.
That said, here are some topics employers must address when planning and implementing a RIF.
An employer considering a RIF should first explore alternatives that may eliminate or reduce the need for layoffs. Alternatives may include eliminating overtime, reducing hours, instituting furloughs, freezing hiring or implementing a voluntary retirement program (VRP).
When doing a furlough, employers must take care not to inadvertently convert employees from exempt to non-exempt overtime status in the process. This occurs when employees’ docked furlough pay puts their weekly salary below threshold for exempt status.
VRP’s can be valuable tools for restructuring, but employers must comply with the timing and notice requirements of the Older Worker Benefit Protection Act for a completely effective program.
Once the decision-makers are identified and in place, the team should create the methodology and/or criteria for selecting employees for the layoff. Generally, employers use standard business criteria for making selections such as job elimination, skills, productivity, discipline history, job performance, location, and tenure. Regardless of the approach taken, a human resources representative should function as a gatekeeper to ensure that integrity of the selection process, and to document the decisions made. Documentation should include the business justification for the RIF, organizational charts before and after the selections, and the individuals selected based on the criteria identified.
After making initial selections, employers should confer with counsel to analyze the composition of the selected group for potential claims of disparate treatment (intentional discrimination) and of disparate impact (disproportionate impact on a protected group). This process should include an assessment of compliance with the many discrimination laws, including whether the decision-makers disproportionally selected those in protected groups, selected individuals with previous or pending claims, complaints, or charges, or otherwise acted inconsistent with established selection procedures. EEOC regulations also require that all but the smallest employers conduct statistical analysis of the selections prior to implementing a RIF. This analysis checks to determine if the employer’s selection of individuals for the RIF is consistent with the composition of the protected workers in the population considered for the RIF. Employers should leave time to consider statistically significant adverse impact against a protected group and document steps taken to address this issue.
It is advisable for employers to have a severance plan compliant with the Employee Retirement Income Security Act of 1974, but it is surprising how many employers continue to use informal severance policies. ERISA provides significant benefits to employers including pre-emption of many unfavorable state laws and deference to complaint procedures provide in ERISA plan documents. In addition, care must be taken to provide notice to those terminated in a RIF of the right to continue health benefits under COBRA.
Employers should be aware that state laws often affect employees selected for RIFs. Most states have requirements for when employees must receive their final paychecks, and when the employer must pay accrued, but unused, holiday/sick/vacation pay. For example, California and Massachusetts require employers to pay final wages and accrued vacation on the termination date. In New York, employers must notify terminated employees, in writing, within five working days of the discharge, of certain information related to the discharge and benefits status. Other states require advance notice to state unemployment agencies of group layoffs so that the agency is ready to process a potential flood of unemployment compensation claims.
When considering a mass layoff or plant closing, employers must assess whether a Collective Bargain Agreement (CBA) exists. In the manufacturing and automotive industries, it often does exist, and employers generally are required to bargain with the union about the effects of the restructuring—and follow layoff provisions in the CBA.
After the selections have been made, employers should plan for communicating the decision to the employees, both those selected and those not. Employers typically make a group announcement about the RIF, then have managers and human resources representatives notify selected employees individually of the selection decision. Many companies use a script for consistency, and have a checklist to ensure that all paperwork is in order (COBRA notices; benefits-related information; wage-payment requirements; final wages and accrued but unused vacation). Employers should also plan for communications to public officials, the media, vendors, suppliers and other interested third parties.
When relaying the decision to selected employees, employers should consider security concerns. This should include advance planning to protect the company’s property and networks. It is helpful to determine if any selected employees have exhibited traits of suicidal or violent behavior, or are known to have weapons accessible in their cars. If an employer learns that these concerns exist, it is important to plan for additional security personnel both during and following a layoff. The Company may also consider having on-site Employee Assistance Program (EAP) staff available to counsel laid-off and retained employees.
The federal Worker Adjustment and Retraining Notification Act (WARN Act) and a growing number of state “mini-WARN” statutes require 60 to 90 days advance notice to employees, unions and government entities, of certain business unit closings or mass layoffs. These statutes require significant advance planning to comply with these notice provisions. Employers that violate WARN may be liable to each affected employee for back pay and benefits for the period of the violation, up to 60 or 90 days per employee.
Employers contemplating layoffs should consider requiring releases of claims barring legal action in exchange for severance pay and other benefits provided to employees selected for a RIF. It is important that these releases comply with a growing number of state and federal laws, as well as government-agency regulations placing restrictions on releases. If the release covers claims under the federal Age Discrimination in Employment Act, it must satisfy certain minimum statutory requirements for an effective waiver. For group termination programs, this includes 45 days for the employees to consider signing the release and a disclosure providing detailed information about the employer’s decision-making process.
In addition, as the #MeToo movement has increased awareness of sexual harassment, Congress and state legislatures have added new restrictions on releases. hese relate mainly to concerns that confidentiality agreements in releases have been used to prevent information about sexual harassment from being disseminated leading to additional harassment victims. Congress added a provision to the tax code limiting deductibility of severance payments if a separation agreement resolves harassment claims and includes a confidentiality clause. California and New York also have passed laws limiting confidentiality and related provisions (e.g. non‐disparagement) in agreements resolving harassment claims.
Employers usually conduct RIF’s because of financial challenges. With advance planning, employers can minimize risks associated with RIF’s and avoid additional expenses from having to defend poorly conceived decisions.
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