RIFs: Preparing for the Unkindest Cut
As the economy stagnates, many employers who were hoping to avoid layoffs must now finally consider them. Today's expert, attorney Michael Rosen, sorts out the key issues.
Rosen, a labor and employment partner with the law firm Foley Hoag LLP in Boston, says that any reduction in force (RIF) must be carefully planned and executed both to minimize exposure to liability and to mitigate negative effects on employee morale and operations.
Today we begin looking at Rosen's top nine issues:
1. Determine Whether a Layoff Is Even Necessary
The typical objective in a layoff is to reduce expenses through the paring down of payroll and benefits-related costs, says Rosen. Such cost savings may make a RIF attractive, but large-scale reductions also entail substantial costs, both in upfront severance-related compensation, and in longer-term, often hidden costs, such as legal expenses associated with claims by terminated employees, attrition of valued employees, and downstream costs of hiring again when economic circumstances improve, he notes.
Ask yourself, are there other reductions in expenses that could be made that don't hamper the company's future ability to compete? For example, suggests Rosen, you might want to consider:
· Hiring freezes
· Wage freezes
· Postponement of wage increases
· Reduction or elimination of annual bonuses
· Reduction in fringe benefits
· Reduced work hours
· Transferring potentially affected employees to open or vacant positions
· Engaging in more selective performance-based terminations
2. Consider a Voluntary Program
This approach can minimize a company's exposure to termination-related lawsuits, in part because employees who leave voluntarily are less likely to contemplate lawsuits. In addition, such employees typically are required to sign a release of claims in exchange for participation in the plan. Voluntary plans also have less potential to damage employee morale and productivity.
But there are several potential pitfalls. For example, the employer may have no control over the number of employees who participate.
Moreover, a voluntary program is a very blunt instrument for paring a company's workforce; good employees may choose to leave while poor performing employees may choose to stay, realizing that they will have difficulty finding new employment.
3. Develop Uniform Selection Criteria
Perhaps the most critical factor in avoiding legal complications with a layoff is the development and application of a uniform approach for selecting employees for termination.
Employers must choose among objective criteria (e.g., seniority or comparative sales revenue), subjective criteria (e.g., management ranking by performance) or some combination of both in determining whom to lay off.
For reducing potential claims, using objective methods is generally preferable. However, that may not be the ideal method for retaining the best employees going forward. What is most important is that the employer utilize the chosen method fairly and consistently across its workforce. Be sure to maintain documentation to support your decisions.
4. Conduct a Layoff Analysis
Once an employer has compiled a list of employees to eliminate, analyze whether the RIF will have a disproportionate effect on any one group of protected employees, such as racial minorities, women, older workers ( 40 years of age or over), or the disabled. An outside statistical consultant or legal counsel can assist in the analysis.
With respect to older workers, the stakes are higher in the wake of several recent U.S. Supreme Court decisions making clear that the "disparate impact" theory of liability is available in the context of age discrimination claims. While a layoff that has a disproportionate impact on older workers is not by definition illegal, employers must be able to show that such impact was the result of legitimate nondiscriminatory factors other than age.
5. Clarify WARN Obligations
Advance layoff planning is particularly important because of federal and/or state laws requiring notice before a layoff can take effect. The federal Workers Adjustment Retraining and Notification Act (WARN) requires employers, with 100 or more employees, to provide employees, bargaining representatives and local government officials 60 days advanced written notice of a mass layoff or a plant closing. Several states also have different and/or more expansive plant closing laws.
In tomorrow's Advisor, we'll cover the rest of Rosen's tips, and introduce a unique resource that is especially directed at helping the small HR department.
6. Determine Severance and Check ERISA Compliance
Rosen, a labor and employment partner with the law firm Foley Hoag LLP in Boston, says that employers will typically provide some amount of severance—often based on a formula such as years of service—to employees who are laid off. Severance may or may not be conditioned upon the employees signing of a release of claims against the employer.
Employers should clarify whether severance will be subject to ERISA. It may be beneficial for an employer to create an ERISA plan that spells out the eligibility requirements for severance and the process by which the plan will be administered.
7. Ask for a Release
Many employers are generally familiar with releases in the context of individual terminations, says Rosen. But many employers are unaware of the specific, heightened requirements for obtaining a valid release from employees 40 years of age or older in the context of a layoff.
These heightened requirements are the result of the Older Workers Benefit Protection Act (OWBPA). Among other requirements, in a group termination program such as a layoff, employees 40 or older must be provided with information about (1) eligibility factors to participate and time limits of the termination program, (2) job titles and ages of all employees eligible or selected for the program, and (3) ages of all employees in the same job classification or organizational unit not eligible or selected for termination.
8. Don't Forget Immigration Implications
For companies that employ foreign nationals, a layoff will raise a host of immigration issues.
Nonimmigrant workers on the various categories of temporary work visas (H-1B, L, E, and TN) are legally authorized to remain in the U.S. only as long as they are employed with the particular employer noted in their visa application.
An employer that terminates an H-1B employee before the end of the validity period on the approved H-1B petition must pay the employee "the reasonable costs of return transportation" of the foreign national to return abroad.
Additionally, an employer must notify the U.S. Citizenship and Immigration Services of the H-1B foreign national's termination. Only when that notification is filed is the employee's employment considered "terminated" according to U.S. Department of Labor (DOL) regulations.
These are a few of the requirements employers must consider in the event that a layoff affects foreign workers.
9. Don't Lose Sight of Termination Basics
A layoff can be an administratively complicated event, causing some employers to lose sight of basic requirements that come into play in any termination situation.
These include ensuring that affected employees are paid all accrued salary and unused vacation time in the final paycheck (which in many states must be provided on the last day of employment); administering COBRA notices; reminding employees of the continued applicability of nondisclosure obligations and other restrictive covenants; ensuring that employees return all company property on a timely basis; and providing state unemployment rights notices to employees, as many states require. Ensuring that all of these matters are addressed appropriately requires significant planning and organization.