Layoff Guidance

It is a badly-kept secret that the U.S. economy is facing challenges - inflation, increased interest rates, increased labor costs, decreased business growth, etc.

One option for businesses during an economic downturn is to conduct layoffs to save on labor costs. Of course, decisions to conduct layoffs are difficult and, as such, are often delayed until absolutely necessary.

However, the delay often leads to an urgency to implement the layoffs quickly. Don’t risk increasing your litigation risk by rushing. Below are some recommended steps employers considering a layoff should take to mitigate the risk of employment litigation:

1. Plan and prepare well in advance of anticipated date of layoffs. Substantial time will be needed to carry out the below steps.

2. Develop objective criteria for selecting employees for layoff. Such factors may include skill set/experience, seniority, criticality of positions or departments, performance review scores, and disciplinary action. It is critical to ensure that if using specific quantitative criteria, such as performance review scores and or disciplinary action(s) that employee documentation is thorough and accurate.

3. Review layoff decisions for disparate impact. A disparate impact is when criteria that is or appears to be neutral in practice unintentionally results in a disproportionate impact on a protected group. Stated another way, an unexpected number of individuals belonging to a protected group are selected for layoff. When that happens, the employer will need to go back and critically re-assess the criteria used for layoff selection.

4. Analyze whether advance notices are required under federal or state WARN regulations. Federal WARN requires 60 days’ notice, and some state WARN acts can require even more time, thus highlighting the need for early layoff analysis.

5. Determine whether any employees selected for layoff have employment contracts that entitle them to severance or other benefits, advance notice, or other contractual rights.

6. Will severance packages be offered to employees selected for layoff? Are there any company policies that entitle employees to severance benefits?

7. If severance benefits are offered, will entitlement be contingent upon employees signing a general release agreement? Review your agreements to ensure compliance with the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). The ADEA and OWBPA have specific terms and requirements for a valid release of age claims. Will employees under 40 years old receive different general release agreements that do not contain the ADEA and OWBPA required terms?

8. Similarly, review applicable state laws as to specific language requirements for valid releases.

9. Are some or all employees selected for layoff subject to restrictive covenant agreements? If so, does the employer want the covenants to remain enforced or is it willing to waive the enforceability as a result of the layoff. Enforceability will depend on state law, and some states limit enforceability when employees are terminated due to no fault of theirs.

10. Prepare management for layoff meetings. Have a clear plan on what is going to be communicated, who is responsible for communicating the message, and how the message will be delivered to employees selected for layoff and employees that are being retained. Consider developing a FAQ sheet.

11. Inform impacted employees of layoff and distribute information packet containing general release agreement and description of severance benefits, if any. Treat your employees with dignity and respect at all times. Decide how and when impacted employees will receive the documents (general release agreement) offering the severance package. If you provide the general release agreement before the last day of work, consider not allowing employees to sign the release agreement until the last day of work.

Determining the need for a layoff is a challenging decision that involves emotional, financial, and legal issues. The above steps will help in mitigating employment litigation risk and help ensure the company's planned financial benefits are realized.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Leonard Feigel, Foley & Lardner © Mondaq Ltd, 2022

From WCI's HR Answers Now ©2022 CCH Incorporated and its affiliates. All rights reserved.