What’s the first step for an employer considering downsizing?
First, review the company’s personnel policies and employment contracts to determine whether they in any way restrict the right to implement layoffs or require the company to pay severance benefits. If such policies exist, they must be replaced with policies indicating that the employer has an absolute and unfettered right to conduct layoffs.
The employer’s severance policy should state that severance is not guaranteed. Severance is at the sole and absolute discretion of the employer, and any severance will be conditioned on the execution of a written release or waiver of all claims against the employer.
How can employers develop a strategic plan for downsizing?
The plan must explain the economic justification for the RIF. The company should document the economic problems it is experiencing, including financial losses, operating expenses and lost market share. Once the plan has been completed, the company must develop and document the basis for selecting the positions to be eliminated.
The employer must then establish the criteria for selecting which employees holding the eliminated position will be included in the layoff. The employer must be able to explain its legitimate, nondiscriminatory reasons for selecting certain employees for termination rather than others. That explanation will only be credible if there is documentation establishing that the process was objective and uniformly applied.
If a seniority-based test is used, the employer must clearly define the type of seniority used (i.e. job, company or department seniority). If the employer makes its selection decisions based on performance, it must clearly define the criteria applied and be objective in its application of that criteria to each individual.
While subjective judgments regarding performance are not illegal, per se, they will be closely scrutinized by courts and juries to assure that the judgments used were not a pretext for discrimination. Consequently, an employer should never use an economic layoff as an excuse to terminate a problem employee.
What else can an employer do to avoid typical layoff pitfalls?
The employer should select layoff decision-makers who have hired minorities, women and older employees. Where the same individual hired and fired the employee, a fact-finder may draw an inference that discrimination is not a determining factor in the downsizing decision.
Once the candidates to be laid off have been identified, a review of each individual’s circumstances should be conducted to avoid retaliation claims. Employers should determine whether the individual has a pending EEOC claim or workers’ compensation claim, has reported illegal activities under state or federal whistleblower statutes, is on leave under the Family Medical Leave Act or is involved in other legal disputes involving the company. Laying off such an individual may well be an invitation to a retaliation lawsuit.
Bruce A. Truex is senior partner with Secrest Wardle. Reach him at (248) 539-2852 or [email protected].
