| H/N, some of this may apply. M How To Conduct a Layoff or Reduction in Force Conducting a layoff is the most difficult decision facing businesses today. The basic compliance components to review during the layoff/RIF process are:
Step 1: Selection of employees for layoff After a company has designed its future organizational structure, a system for determining who will stay and who will go must be created. The selection criteria should be designed to identify the employee traits that will be instrumental in meeting the company’s goals. There are several factors that can be used in deciding the selection process, including seniority, performance, job classification or job knowledge and skills. By aligning the future goals of the organization with the best selection process, the company will be able to determine its success going forward. Step 2: Avoid adverse action/disparate impact An organization should review the selected employees for layoff to determine if an adverse (disparate) impact exists for a protected class. Protected classes include individuals who are members of a certain race, color, ethnicity, national origin, religion, gender, genetic information, age (40 or over), or those with a disability or those who have veteran status. States may have additional protected classes, such as sexual orientation, marital status, smokers, etc. Any protected class that may have a disproportionately larger percentage affected by the layoff will need to be evaluated and substantiated. Step 3: Review federal and state WARN regulations to stay compliant Employers must determine if the WARN act will apply. The WARN act requires employers conducting a large-scale layoff to provide 60 days’ notice to affected employees (few exceptions apply). Remember to inform affected employees if they have recall rights, and communicate the details within the severance agreement and during the layoff session. Employers need to clearly outline the process for recall rights and/or applying for future positions with the company. In addition, a number of states have enacted “mini-WARN” legislation that extends notice requirements to smaller businesses conducting layoffs. Reviewing state laws will be important since mini-WARN acts often impose additional requirements that differ from federal law. As of April 2011, the following states have mini-WARN laws: California, Connecticut, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Montana (public employers only), Nevada (public employers only), New Hampshire, New Jersey, New York, Ohio, Oregon, South Dakota, Tennessee and Wisconsin, and Puerto Rico. For more information, review the DOL’s WARN Employer’s Guide. Step 4: Review OWBPA regulations for compliance If releases are used in exchange for severance pay, they must comply with the Older Worker’s Benefits Protection Act (OWBPA) in order to effectively release claims under the Age Discrimination in Employment Act. The OWBPA addresses four different release scenarios, and each scenario contains five steps that must be followed in order to be compliant. Under OWBPA, employers will also need to provide older workers a consideration period of at least 21 days for one employee age 40 or over and 45 days for two or more employees age 40 or over for any releases to be signed. Additionally, employees must receive a revocation period of at least seven days. During a reduction in force or voluntary group incentive program, two additional requirements are needed to validate the releases. The employer must publicly identify the targeted employees, and secondly, the eligible employees must be informed in writing of the job titles and ages of all individuals selected for the group program, along with employees in the same job classification or unit that were not selected for the program. Step 5: Severance packages and additional services Many employers offer severance packages to their displaced employees. A written severance package policy allows employees to realize the steps involved in the involuntary termination. Employers are not obligated to provide severance to laid off employees under federal law, but severance packages may lessen the chance of legal action filed on behalf of former employees. (Some states have very specific criteria for required severance, such as in the District of Columbia, Idaho, Louisiana, Massachusetts, Montana, and Rhode Island; while Maine, Hawaii, Puerto Rico, and the U.S. Virgin Islands have broader laws covering more employers). Severance packages may include salary continuation, vacation pay, continued (company paid) period of benefit coverage, company-paid COBRA election premiums, outplacement services, counseling and resume workshops, etc. SHRM has a sample Severance Agreement SHRM members may use as a model. Step 6: Layoff session Sitting down with an employee who is about to be laid off will be difficult, but if handled professionally, may reduce potential anger and resentment from the employee. Ensure that you are prepared for this meeting, and all information has been collected and available to the employee. Employers will want to be sympathetic and explain the reasons for the layoff, review health benefits and COBRA election procedures, 401(k) options, outplacement services and re-hire process, if available. Employers may also want to provide information on the unemployment process, along with any other job placement information available for displaced workers. It is also recommended to review the severance agreement with the employee and answer any questions the employee may have before leaving the company. Employers may also want to offer to answer any questions that employees may have over the next several weeks. Step 7: Inform workforce of layoff Notifying the remaining workforce of the layoffs that were conducted will help to squelch potential rumors. The employer may also want to communicate the company’s financial position and its commitment to meeting company goals and objectives going forward with the current workforce. Keep in mind that many of the employees you are addressing had built strong friendships with the laid off co-workers, and they will be anxious to know their future with the company as well. Be prepared to honestly communicate and answer questions to keep morale and productivity high going forward. Employers will need everyone on board and aware of the future challenges to be successful. See more layoff guidance in SHRM’s Managing Downsizing by Means of Layoffs Toolkit.
Overview Many different things can lead an organization to engage in downsizing by means of a layoff, including:
While there are similarities between the way an organization should handle a layoff as compared with termination for poor performance or for cause, this article spotlights policies and practices that are particularly relevant to the layoff situation. See, Involuntary Termination of Employment in the United States. Whenever an organization contemplates a layoff, it must take into account the risks of running afoul of a number of federal and state statutes. In addition, certain common law claims also can take on added vigor in the context of a layoff. Whereas the discharge of a single employee may expose an employer to a multiplicity of legal claims as to that employee, a layoff potentially exposes an employer to a multiplicity of claims by many employees in the form of a class action or collective action lawsuit. Successfully implementing a layoff is one of the greatest challenges a human resource professional may face. However, a significant body of effective practices has developed to guide HR leaders in carrying out the process in a strategic, legally compliant and humane fashion. Why Layoffs Occur Layoffs are a time-tested means of cutting organizational costs; reducing staff can have an immediate and substantial impact. Because “people” costs—compensation and benefits—typically represent half of a company’s total operating expenses, it is natural that organizations aiming to reduce expenses tend to focus on shedding employees. Even the announcement of an upcoming layoff is widely regarded as a quick way to boost the share price of a public company’s stock, although studies belie that assumption. See, It’s the Workforce, Stupid! and A comparative analysis of layoff announcements and stock prices in the United States and Japan. A variety of conditions may necessitate a layoff:
Alternatives to Layoffs While layoffs have become a standard business practice, there has been little research on the effectiveness of job-trimming practices in improving an organization’s fortunes. Employers routinely resort to mass layoffs to help meet financial forecasts and stay within budgets, but they often ignore innovative cost-reduction solutions that may fit their cost-cutting environment. Anyone who has ever been laid off or required to implement a layoff understands the importance of considering alternatives to a layoff that may be not only more palatable but also more effective than a layoff. As with so much of effective human resource management, recognizing and implementing alternatives to layoffs requires a strategic approach. Alternatives to layoffs include:
A Strategic Approach to Layoffs A strategic approach to layoffs has many things in common with that used in fault-based terminations. As such, it:
See, Involuntary Termination of Employment in the United States; Five Ways to Reorganize Right, Tips for Employers Who Want to Avoid Legal Claims for Downsizing and Prune Employees Carefully to Retain Top Talent. Legal Implications of Layoffs A variety of federal and state statutes as well as municipal ordinances and regulations may be implicated by an organization’s decision to conduct a layoff. Note that employers not covered by the federal laws discussed below may be covered by similar state laws. Federal laws The Worker Adjustment and Retraining Notification Act (WARN). The goal of this statute (and its state law counterparts) is to minimize harm to workers and communities caused by layoffs. Subject to certain exceptions and under certain circumstances, WARN requires employers to provide a minimum of 60 days notice of a “mass layoff” or “plant closing” to certain persons. Under WARN, the term “plant closing” means the permanent or temporary shutdown of a “single site of employment” or one or more “facilities or operating units” within a single site of employment if the shutdown results in an “employment loss” during any 30-day period at the single site of employment for 50 or more employees, excluding any part-time employees. A “mass layoff” occurs when at least 500 employees, excluding part-time employees, lose employment during any 30-day period, or if at least 33 percent of the employees at a single site of employment lose employment during any 30-day period, unless that percentage amounts to fewer than 50 workers. The WARN regulations say that in deciding whether notice is required, the employer should:
Obviously, the determination of whether WARN even applies to a particular layoff can be a complex task. In all but the most clear-cut situations, it is wise to consult experienced legal counsel. WARN notices must be given to three distinct groups:
Damages and civil penalties can be assessed against employers who violate WARN. See, A Practical Guide to Workforce Reductions. Equal employment opportunity laws. These include Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act (ADEA), including their anti-retaliation provisions. (Many states have similar laws.) Employers conducting a layoff must be careful not to discriminate intentionally against any person in a protected class (See, Selection Principles are Key to Limiting Legal Risks in RIF and Can we include employees who have performance problems in a RIF?) or to discriminate inadvertently against a group of persons in a protected class. See, Once the decision has been made to downsize, what criteria should be used in selecting employees for layoff? and Different Treatment During Layoff Amounts to Bias. The Older Workers Benefit Protection Act (OWBPA). The OWBPA, which amends the ADEA, regulates the content and time periods applicable to releases of claims as to persons age 40 or older. The OWBPA mandates that any agreement providing for the release of claims under the ADEA must contain certain provisions to be legally enforceable. As a result of the OWBPA, there are three basic types of separation agreements for the following situations:
See, Get Quid Pro Quo When They Go and Ensuring Legal Peace. Laws providing for reinstatement rights. Both the Family and Medical Leave Act (FMLA) and its state counterparts, as well as the Uniformed Services Employment and Reemployment Rights Act (USERRA) and similar state laws, provide for employee reinstatement under certain conditions. An employee on FMLA leave is entitled to be reinstated to the same position or an equivalent position—in terms of pay, benefits and other terms and conditions of employment—except in the case of any of the following:
See, FMLA Compliance Assistance. USERRA applies to all employers, regardless of size, and all regular employees, regardless of position or full- or part-time status. It regulates leaves of absence taken by members of the uniformed services, including Reservists, and by National Guard members for training, periods of active military service (whether voluntary or involuntary) and funeral honors duty, as well as time spent being examined to determine fitness to perform such service. Like the FMLA, USERRA has special rules for reinstatement that are important to note in the context of a layoff. There are three exceptions to USERRA’s re-employment obligations:
See, USERRA Compliance Assistance and The USERRA Regulations Deconstructed. Laws regulating benefits administration. These include the Employee Retirement Income Security Act (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA). Wage and hour laws. Mass layoffs invite scrutiny from employees and plaintiffs’ attorneys as to grievances employees may have had but never bothered to pursue. In the context of a layoff, there may be little disincentive for a single employee or group of employees to bring claims for violation of the Fair Labor Standards Act (FLSA) or its state counterparts alleging improper classification as exempt employees (making them ineligible for overtime) and other minimum wage or overtime pay violations. Other state laws Unemployment insurance. Employees laid off through no fault of their own generally will be entitled to unemployment insurance benefits, provided other eligibility requirements have been met. An award of unemployment insurance benefits to a laid off employee will result in higher unemployment taxes for the employer. However, such benefits help laid off employees temporarily deal with the loss of employment income, which in turn can benefit the employer in a lower incidence of lawsuits by laid off workers. Service letter laws. Some states have laws requiring employers to provide upon written request basic information about a former employee such as the nature, character, duration of employment, the rate of compensation and the reason for termination. Employee access to personnel records. A majority of states require employers either to copy, or make available for inspection and copying, a former employee’s own personnel file. States differ as to the applicable time periods, the scope of records the employee must be permitted access to and the means by which the state enforces the rule. Common law claims. Employees may allege common law claims that their layoffs constituted wrongful discharge in violation of:
International law considerations Multinational corporations may be subject to layoff laws of the countries in which they operate. See, New Law Makes It Easier to Close Plants. Even U.S. companies may have international law obligations in the area of layoffs. See, Cut Immigration Downsizing Risks and What is our responsibility when a person with an H-1B visa is terminated? Effective Practices in Implementing Layoffs There is a wealth of information to support HR professionals in effectively, legally and humanely implementing layoffs. Effective layoff practices include:
Many sample policies and forms related to layoffs are available. Policies
Notices notices
SHRM Fee-based Products and Services Books
External Resources Government Agencies
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