Well, it’s official. The National Bureau of Economic Research says the U.S. has been in a recession since December 2007. While that may come as no surprise to anyone, the fact that we are in a recession may cause and has caused many employers to dust off their reduction in force policies and practices.
If your company is, or may be, contemplating a reduction in force (RIF), layoff, “right sizing”, or other similar action, be sure to consider the various legal pitfalls you may encounter. Here are some of the more significant federal laws you should consider:
1. WARN. The Worker Adjustment and Retraining Notification Act applies to employers of 100 or more persons. It requires 60 days notice or pay whenever a plant closing or mass layoff occurs. A plant closing may occur whenever there is a permanent or temporary shutdown of a single site of employment or one or more operating units within the site that results in the loss of employment for 50 or more employees during a certain period. A mass layoff can occur when the number of employees laid off for 6 months is: (a) at least 50 persons; and (b) comprises 33% of the workforce.
Keep in mind that layoffs often occur over time. Where no single layoff event meets a WARN trigger, then all layoffs occurring during a rolling 90 days can be aggregated and, if the 50 and 33% thresholds are met, a WARN notice will be due. That requires employers to plan well ahead.
2. Title VII/ADEA/ADA. When employers find it necessary to reduce their workforces, they must be careful to engage in a non-discriminatory selection process. As a result, employers should not only carefully consider the basis upon which they will select persons for reduction, but periodically test that selection process to make sure it does not have an adverse impact upon protected groups. There are several different methodologies which are lawful although some of those methodologies may require greater documentation than others.
3. Severance/Releases and the OWBPA. While there is no federal law requiring an employer to pay severance pay, many employers elect to do so, or have severance policies in existence which may be applicable to a reduction in force. Your first step is to determine whether any such policy exists and then assess how it will apply to the planned reduction. It may be advisable to create a severance policy if a contemplated RIF is going to be quite large. If an employer elects to provide severance, we recommend that its policy should condition payment of severance upon the execution of a release by the employee, releasing the employer from any claims the employee may have against the employer, with the exception of those which cannot be waived, such as the right to workers compensation or unemployment compensation benefits or benefits which have vested pursuant to ERISA.
Additionally, if employees being RIF’d are over the age of 40, the employer must comply with the Older Workers Benefit Protection Act (OWBPA) in order for a release of any age discrimination claim to be valid. To meet the requirements of the OWBPA, the employer must:
a) Utilize language which is easily understandable to the employee;
b) Inform the employee that he or she has the right to consult with an attorney before electing to sign the release;
c) For terminations of only one employee, the employee must be told that they have 21 days in which to consider whether to sign the agreement, and 7 days thereafter to change their mind and revoke any prior consent given. For terminations of two or more employees, which is very common in a RIF, the employer must give the employee 45 days in which to decide whether to sign the release; 7 days after signing in which to change their mind and revoke their consent; and provide the employee with a description of the group or class of persons covered by the program, eligibility factors for participation, and time limits applicable to the program; and disclose the job titles and ages of all individuals eligible or selected for the program as well as those who are not eligible or selected. Names of employees need not be disclosed.
4. COBRA. The layoff or termination of an employee pursuant to a RIF is a qualifying event under COBRA. As a result, the plan administrator has a responsibility to notify the employee of their right to continue participation under the employer’s group medical plan, and to inform the employee of the amount of the premium they must pay and the deadlines for doing so.
5. Logistics. Reductions in force are very traumatic events for organizations. Communication is critical as is the planning for the event. Internal communications to those employees being RIF’d can lessen the blow by describing the benefits the employer will be providing, including outplacement services, if any, as well as coordinating efforts with state departments of labor to assist at job fairs, or processing of unemployment compensation claims. Equally important are reassuring communications to those individuals who will remain with the organization. Identifying those persons who will interface with the media needs to be planned in advance, for it is not uncommon for news of a RIF to be “leaked” prior to the time the employer intends to announce it.
If employees being RIF’d are represented by a union, advance notice must be provided to that union. It is recommended that the employer offer to meet with union representatives to discuss the details of the reduction and receive whatever input the union wishes to provide. An employer is not required to agree to anything the union proposes. However, it is required to meet and confer in good faith and to at least consider union proposals. Most often, the collective bargaining agreement will describe how the reduction or layoff will occur, as well as the selection process. The timing of the communication to the union is also critical in managing when knowledge becomes public that a reduction is going to occur.
Reductions in force are unfortunate but not uncommon events during a downturn in the economy. Advance preparation can significantly ease the emotional pain and reduce the risks of costly litigation from those who lose their jobs.