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Layoffs, reorganizations, and hiring freezes are the latest buzz words. It’s not just failing enterprises that are trimming their workforce; in this uncertain economy, even healthy businesses see downsizing as an effective way to control costs. But when workers lose jobs, they often use employment and labor laws to seek redress. And it’s looking like the downturn of 2001 will not just repeat history, but expand on it. What’s different this time? Gone are most of the middle managers skilled in contracting, as well as expanding, the workforce. Many have retired or been eliminated as organizations change management structures to increase the authority of the team leaders and practice the art of horizontal management. Without an expert middle manager acting as stopgap, many laid-off workers are going directly to talk to plaintiffs’ counsel. There are some dangers that companies can — but all too often fail to — avoid. So here is a map identifying layoff land mines and showing how to skirt them. 1. Forgetting to consider the alternatives Before putting forth a layoff plan, the general counsel should explore alternatives to downsizing. Always try to minimize the negative economic impact on affected workers and allow self-selection to take its course. Start with severe restrictions on hiring. Then review the need for temporary workers. Another option is to reduce the workforce through quality controls and the weeding out of weak performers — but this can be dangerous if quotas are established. Each situation requires an individual review of employment law issues concerning termination of employees for cause, even if they are properly classified as at-will. An exit incentive program is a popular alternative. This can take many forms, from voluntary early retirement to a voluntary layoff program. Legal issues raised by such programs include eligibility criteria and whether the programs are truly voluntary. If an under-performing employee is told that the choice is termination or participation in the exit incentive program, the employer must be able to legally justify the termination. More creative approaches include a host of voluntary leave programs — such as expanding parental leave programs and increasing community services opportunities. Some of these programs have financial incentives, from paid benefits to partial payment of wages. But they also raise a number of issues, such as eligibility requirements, stock option vesting, and return rights. Pay reductions and shortened workweeks are also options. These measures, however imperfect, are far less likely to generate litigation than forced layoffs. 2. Failing to evaluate existing personnel policies If layoffs are necessary, then there is much to do. Surprisingly enough, many companies fail to take the first and most basic step: reading the company handbook, noting policies that might restrict the company’s right to conduct a reduction-in-workforce or might specify how RIFs should take place. Thoroughly review all written policies disseminated to employees. 3. Making promises, and giving other good-faith reassurances to the workforce Several well-known CEOs have gone so far as to promise that there will be no layoffs, only to be overtaken by events. Usually, such promises create more of a public-relations challenge than an actual legal liability. But workers who feel they’ve been lied to might be more willing to sue. Advise company officials to refrain from making pledges, however much they might wish to reassure worried workers. 4. Laying off workers without a clear, well-documented plan Too often the need for layoffs is pressing, the planning process gets rushed, and everyone assumes that the rationale for downsizing is obvious. Big mistake. Later evidence of inconsistent actions, such as hiring new managers during the layoff period, might make it appear that the organization was using a general economic downturn as an excuse to weed out employees in a protected class. It is vitally important to create and document your layoff plan. Central to the plan itself is a clear business justification for the layoffs. The plan also should establish clear criteria for the layoff selections. Employers frequently use layoffs to eliminate marginal performers. This is a proper objective. But there must be uniformity in the decision-making process — including standardized methodology and criteria in selecting individuals. Courts have been skeptical of subjective criteria, believing it may hide unlawful discrimination. So the key is to establish methods for quantifying considerations, such as weak performance and lack of transferable skills. This often can be done by carefully defining the criteria, training supervisors, and ranking employees. The employer must be able to re-create the selection process. So documenting a layoff is essential. More often the most serious problem is the discovery of tangential records. One of the most dangerous sources of document surprise is e-mail. Random comments exchanged by managers involved in the selection process can — and will — be used by those challenging the layoff. These statements can be misleading. One solution is to restrict communications and documentation. 5. Carelessly choosing the employees who will carry out the layoff plan An essential form of insurance against litigation is to select articulate decision makers and to have more than one of them participate in every selection of an employee to be laid off. These decision makers can help explain the business justification for the layoffs, which helps stop rumors, bad feelings, and lawsuits. They also often become key witnesses during litigation. Of course, the decision makers should be trained. This not only helps ensure uniformity in the application of the criteria, it also allows the employer to reinforce equal-employment considerations, such as avoiding age discrimination. 6. Failing to properly perform a disparate-impact analysis After management has made its initial layoff decisions, the demographics of the affected workforce, including those laid off and those remaining, must be statistically compared. This process ensures that there is no disparate impact on a facility- or company-wide basis. The statistics must be examined for each protected category, especially with regards to age, race, and sex. It is not uncommon for this analysis to be done in anticipation of litigation and to be covered by the work-product privilege. If a solid and provable rationale cannot be generated, then the selections may need to be changed. 7. Posting new positions when a layoff is taking place Sometimes a company hires younger workers while laying off older ones because the younger workers have skills that older workers lack. This is dangerous. Instead, you should first offer the to-be-fired worker training in the new technology, and document that offer. Employers should freeze hiring during the layoff period. 8. Failing to properly consider the Workers Adjustment and Retraining Notification Act and other legal requirements triggered by the layoff Clearly, WARN needs to be reviewed before every layoff. The act applies to employers with 100 or more full-time employees, or 100 or more employees including part-time employees who, in the aggregate, work at least 4,000 hours per week exclusive of overtime. Sixty days before a “plant closing” or “mass layoff,” an employer must notify affected employees, unions, and local and state government officials. Alternatively, 60 days’ pay may be supplied in lieu of notice. This pay must be in addition to any guaranteed severance. Too often employers fail to figure out what constitutes a single site under WARN and when the employee reductions reach the level of a mass layoff. Carefully review the WARN criteria — as well as state or local legal requirements regarding layoffs. 9. Failing to properly implement severance and release programs Employers should consider requiring employees to sign a release and waiver of claims in exchange for severance benefits. Waivers and releases, however, must comply with the Older Workers Benefit Protections Act to prevent age-discrimination claims. It is also good practice to have releases comply with this act for all employment-related legal claims. 10. Failing to consider other legal issues A well-developed legal review of the layoff may prove totally inadequate in protecting the employer from collateral claims by the layoff. Before you announce the layoffs, try to review all the types of claims that employees might make. Often such reviews can make the difference in proving a valid defense. In this precarious economy, it wouldn’t hurt to review your company’s layoff policy — even if downsizing seems like a remote possibility. Remember, your company is depending on you to reduce its legal risks. Don’t wait for legal challenges to pile up before formulating a good plan. Garry G. Mathiason is a partner at San Francisco’s Littler Mendelson. A version of this article originally appeared in The National Law Journal .

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