X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Increased competition and rapidly developing technologies are leading companies to make innovations in how they operate, organize work, and manage people. As employers increasingly take advantage of new technology, process-oriented systems, and favorable market conditions, they are finding the need to restructure staff and supervision. These changes present legal challenges and risks for in-house counsel and their human resources counterparts; however, with proper planning and advice, the potential for incurring charges of discrimination or other employment law issues can be anticipated and avoided. RESTRUCTURING GUIDELINES Reorganizations and mergers often result in workforce reductions. A difficult aspect of the decision to downsize is selecting employees for separation and determining what, if any, severance payments are to be made. Before planning a reduction in force, however, employers should consider whether other options are feasible, including: (1) freezing wages; (2) postponing wage increases if cash needs are an immediate issue; (3) furloughing workers; (4) reducing work hours with proportionate pay cuts; (5) assessing expected job attrition; and (6) freezing hiring. Some employers look to early retirement programs while others offer volunteers enhanced severance benefits. While seemingly less severe than an involuntary layoff, these measures still require sensitivity to the manner in which they are communicated and their effect on employee morale. GENERAL CONSIDERATIONS IN PLANNING A REDUCTION Once reduction is determined necessary, the task generally falls to operations, human resources, and legal counsel to devise a plan specific to the industry and the needs of the employer. Operations will focus almost entirely on reducing the head count and will rely on human resources and the legal department or outside counsel to prepare a strategy that minimizes the risks of litigation from affected employees. At a minimum, the following steps should be considered in developing an effective reduction plan: 1. Articulate management’s legitimate business reasons. The need for cost savings and a reduction in the number of full-time positions are among the most common reasons for a reduction. All levels of management should understand the benefit of the downsizing because in defense of a discrimination charge, the employer may have to produce witnesses who can articulate a legitimate business reason for the reduction. 2. Review any prior written policies for reductions in force. If there have been prior layoffs, the employer should be aware of any existing policies and procedures that define the criteria for layoff selection or the benefits provided. While the employer may want to make a change, it should not assume that existing policies can be ignored. Employees may raise issues in reliance on existing policies which had been distributed to them. 3. Determine whether to obtain waivers and releases. If employees selected for layoff are over 40 years of age, any releases must comply with the Older Workers Benefit Protection Act, 29 U.S.C. � 626(f). This will affect timing since employees must be given 45 days to consider the release. 4. Determine whether the number of employees to be reduced will trigger the implications of the Worker Adjustment Retraining and Notification Act, 29 U.S.C. �� 2101-2109, or any state plant closing statutes. If WARN is implicated, timetables for notification of employees will be affected. 5. Determine the benefits to be offered to employees being laid off. Any existing policies on the amount and formula for calculating severance pay and benefits must be reviewed. Also, management must decide whether any additional benefits will be offered, such as outplacement services or continuation of medical benefits. 6. Determine where the layoffs will occur. Generally, layoffs will be in the departments or units of the company most significantly affected by the underlying reason for the reduction. However, it may be necessary or desirable to implement company-wide reductions. Obviously, this decision should be made in the initial planning. 7. Establish a layoff committee. There are multiple tasks involved with a successful reduction. It is helpful to have a layoff committee or task force to assume responsibility for and take the necessary steps to accomplish the reduction. 8. Determine criteria for layoff selection. It is imperative to have a written plan outlining how individuals are to be selected for layoff to insure consistency in the process among all affected units or departments of the company. Permissible criteria commonly used to evaluate and select employees for reduction in force include: (a) length of service or seniority; (b) category (e.g., first eliminate all temporary, part-time, or contract employees); (c) strict use of pre-existing job performance data; and (d) work functions remaining after a layoff (and any consequent reorganization) is completed. 9. Determine whether to offer protections against layoff. Sometimes employers offer employees protection against layoff, such as (a) allowing affected employees to transfer to other vacant positions within the organization; (b) allowing affected employees to bump other employees; (c) permitting managers to transfer to non-managerial positions; and (d) providing high-level management review for certain employees (e.g., high salary or long-service employees). The decision to offer such protection should be made prior to implementing the layoff. 10. Review of proposed layoff selections prior to implementation. It is critical the process include a review of each layoff decision to assess the justification for each selection and the risk of any adverse impact. Legal counsel should be involved in this phase of the process. 11. Prepare a script for communicating layoffs. The layoff committee should prepare a script or outline of points that management should make when meeting with employees selected for layoff. Notes of each interview should be written and retained to help the participants remember later what took place, if necessary. In conducting the interviews, keep to the point and (a) be brief, consistent, direct, and firm as to the decision and explanation; (b) specify whether the layoff is permanent or temporary–explain any available recall or rehire rights; (c) explain any available severance benefits, health insurance conversion rights, and other termination payments; (d) discuss any outplacement services which will be offered and any other transitional services; (e) give employees written information about their termination benefits and be prepared to respond to questions regarding unemployment insurance benefits; (f) anticipate employees’ shock, surprise, and difficulty absorbing the information; and (g) describe final paychecks, including accrued vacation, sick leave, etc. 12. Have a procedure for following up during the layoff process. Employees who have been laid off should be afforded respect and concern in the time following the layoff announcement, particularly when communicating the details of benefits, job references, etc. Affected employees should be directed to contact a designated employee relations official with follow-up questions. 13. Decide whether references will be given. A determination should be made whether, and if so, how, references will be provided. Requests for references should be answered in a consistent manner. 14. Assess potential risk of harm to the employer. Employees with sensitive positions or who pose a risk of harm or sabotage to other employees or company property may require special treatment. Determine whether there are any employees who pose potential problems and plan the interview to afford the least opportunity for disruption or subsequent misconduct. Alert security personnel and revoke access to company property, such as computer systems, as soon as possible. Implement the extra security measures as discreetly and respectfully as possible. 15. Heighten management awareness to sensitivity of all employees. Reductions in force have a significant impact on all employees, those laid off and those remaining. Employers should be sensitive to the importance of treating employees fairly and with respect. Those involved in the decision making process must prevent any premature disclosure or leaks of information. 16. Review relevant cases for guidance. Numerous court decisions have addressed discrimination and other issues arising from layoffs. It may be helpful to review recent court decisions to survey the kinds of claims being made as a result of layoff decisions and implementation. Some recent cases include: Dammen v. UniMed Medical Center, 236 F.3d 978 (8th Cir. 2001) (claim of age discrimination where employee’s position was eliminated and subsequently re-created and transferred to a younger employee); Paluck v. Gooding Rubber Company, 221 F.3d 1003 (7th Cir. 2000) (employee laid off due to $950,000 reduction in customer sales sues alleging retaliation and age discrimination); Hollowell v. Orleans Regional Hospital, 217 F.3d 379 (5th Cir. 2000) (employees sue under WARN claiming lack of notice of closing of business); Scott v. Goodyear Tire & Rubber Company, 160 F.3d 1121 (6th Cir. 1998) (claim of discrimination where employee was offered early retirement rather than reassignment in a layoff); Salvato v. Illinois Department of Human Rights, 155 F.3d 922 (7th Cir. 1998) (employees aged 44 and 61 challenge layoff due to $670,000.00 budget cut); Beaird v. Seagate Technology, Inc., 145 F.3d 1159 (10th Cir. 1998) (27 of 200 employees laid off sue for age, race, and/or sex discrimination); Hartley v. Wisconsin Bell, Inc., 124 F.3d 887 (7th Cir. 1997) (claim of discrimination results from failure to rehire after a layoff); and Burger v. New York Institute of Technology, 94 F.3d 830 (2d Cir. 1996) (layoff challenged where duties transferred to younger employee). SPECIFIC STATUTORY REQUIREMENTS Worker Adjustment Retraining and Notification Act (WARN), 29 U.S.C. �� 2101-2109 Employers considering a sizeable layoff or plant closing must determine early in the decision process whether the action will trigger the notice and other requirements of the federal WARN Act or similar state statutes. These statutes contain timetables for providing notice to affected employees and must be taken into account in planning and implementing a reduction in force. a. Notification WARN requires a covered employer (one employing 100 or more employees as defined in the statute) to give 60 days’ advance written notice of “plant closing” or “mass layoff.” The notices must be provided to affected non-union employees, to the chief officers of the local and international bargaining representative (union) of affected unionized employees, and to the state dislocated worker unit in the state where the plant closing or mass layoff will occur and chief elected official of local government. The content requirements differ for each type of notice. The United States Department of Labor has issued regulations setting forth the specific contents of such notices. There are detailed instructions about the form and contents of the notice, to whom they must be sent, and when they must be sent. [FOOTNOTE 1] b. Situations That Do Not Require Giving Notice (1) Closing a “temporary facility” or a closing or layoff that is the result of completing a “particular project.” The affected employees must have been hired with the understanding that their employment was limited to the duration of the project or undertaking. The burden of proof will fall on the employer to establish that the employees were aware of the temporary nature of the job when they were hired. (2) Where the closing or layoff constitutes a strike or a lockout which occurs during the normal course of collective bargaining and which is not designed to evade WARN requirements. c. Circumstances that Allow Less Than a 60-Day Notice Under each of the following exceptions, the Act requires that employers “give as much notice as is practicable” and require that the employer give a brief statement of the basis for reducing the notification period. [FOOTNOTE 2]The regulation requires advance written notice, rather than no notice at all; however, no exception applies to plant closings and mass layoffs. (1) “Unforeseeable” business circumstances. The mass layoff or closure is caused by business circumstances that were not reasonably foreseeable at the time that notice would have been required. (a) The circumstance is caused by some sudden, dramatic, and unexpected action or condition outside of the employer’s control (e.g., a principal client’s sudden and unexpected termination of a contract; a strike at a major supplier of the employer; an unanticipated or dramatic major economic downturn; or closings ordered by government agencies, without prior notice). (b) The employer must exercise “commercially reasonable” business judgment that a similarly-situated employer would use in predicting the demands of its particular market. (2) The plant closing is due to a “faltering company.” (a) The exception applies only to a plant closing. The employer was actively seeking capital or business as of the time the WARN notice was due. (b) The employer must have a good faith belief that giving notice would preclude the company from obtaining the capital or business it needs. (c) The employer must show that, had it obtained the business or financing, it would have enabled the employer to avoid or postpone the shutdown. (d) The employer’s actions will be reviewed on a company-wide basis, not just at the affected facility. (3) The mass layoff or closing is a direct result of a natural disaster such as a flood, earthquake, or drought. (a) Applies to mass layoffs and plant closings. (b) The employer must demonstrate that the closing or layoff is the direct result of the natural disaster. d. A WARN Checklist (1) WARN covers employers who employ: (a) One hundred or more full-time employees, or (b) One hundred or more full-time and part-time employees who work at least four thousand straight time hours per week. (2) Part-time employees are those employees: (a) Whose average work week is less than 20 hours per week, or (b) Who have worked less than six months during the twelve-month period prior to the required notice date. (c) An affected employee is any employee who may reasonably expect to experience an employment loss. (3) An “employment loss” is: (a) A termination of employment which is neither a discharge for cause, a voluntary departure, nor a retirement, or (b) A layoff exceeding six months, or (c) A reduction in work hours of individual employees of more than 50 percent during each month of any six-month period. (4) A “mass layoff” occurs if there is an “employment loss”: (a) at a single employment site; (b) during any 30-day period; (c) for at least 50 employees, if they comprise at least 33 percent of the workforce at the site (excluding part-time employees); or (d) for at least 500 employees (excluding part-time employees), regardless of what percent of the workforce they comprise. (5) Separate buildings or work areas may be considered a “single site” if: (a) They are in reasonable geographic proximity. (b) They are used for the same purpose. (c) They share the same staff and equipment. e. Liability for Failure to Give Timely Notice An employer incurs liability for back pay and lost benefits (including medical expenses actually incurred) each day that the required notice was not given, up to a maximum of 60 days. Employers may also be fined up to $500 per day for a maximum of 60 days for failing to notify the local government authorities involved. Older Worker Benefit Protection Act (OWBPA) Releases When employees are separated, an employer often decides to offer severance in exchange for a release. The Older Worker Benefit Protection Act sets out the requirements for a valid release of an age discrimination claim. The below requirements apply to waivers of age discrimination claims for an individual termination, unrelated to a RIF, early retirement plan, or other group termination program: a. The waiver must be part of a written agreement that is easily understood by the employee. b. The waiver must specifically refer to claims arising under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. �� 621-634. c. The waiver cannot apply to rights arising after the waiver is signed. d. The waiver must be supported by consideration. e. The employee must be advised in writing to consult with an attorney before signing. f. Where no Equal Employment Opportunity Commission (EEOC) age discrimination charge or lawsuit has been filed, there are two additional requirements: (1) The employee must be given 21 calendar days to consider the agreement to waive age claims, and (2) The employee must be given at least seven calendar days after signing to revoke the agreement. g. If an age discrimination-based EEOC charge or lawsuit has been filed, the employee must be given a “reasonable” period of time to consider the settlement agreement. h. In situations where a waiver of an ADEA claim is sought in connection with a group termination program, there are additional requirements. More specifically, if the waiver is part of an exit incentive or employment termination program offered to a group or class of employees, the employee must be given at least 45 calendar days to consider the agreement. The employer further must notify the employees involved in the termination program in writing of the eligibility factors and the applicable time limits for the program. The employer must also notify the employees involved in the termination program of the job titles and ages of all eligible employees and employees selected for the program, as well as the ages of all employees in the same job classification, organization, or unit who are ineligible or not selected for the program. A waiver under the OWBPA cannot interfere with an employee’s right to participate in an EEOC charge or investigation or a private lawsuit by a third party but can contractually waive rights to damages. i. The Supreme Court and EEOC Regulations The Supreme Court’s decision in Oubre v. Entergy Operations, Inc. [FOOTNOTE 3]prompted the EEOC to promulgate regulations governing tender-back requirements under the OWBPA. In Oubre, the Supreme Court held that under the OWBPA employees cannot be required to return or “tender back” severance (or other benefits given in exchange for a waiver agreement) as a condition precedent challenging the validity of the waiver they signed. The Court also ruled that an individual who does not tender back consideration received in exchange for a waiver, which is not in compliance with the OWBPA, does not ratify the waiver by retaining the consideration. The EEOC has expanded the Supreme Court’s holding in Oubrein a new regulation — 29 C.F.R. �1625.23 — entitled “Waivers of rights and claims: Tender back of consideration.” SUMMARY OF NEW EEOC REGULATION (a) Effective Date: The EEOC’s new regulation became effective on January 10, 2001. (b) No Tender Back: A requirement in a release requiring the tendering back of the consideration as a condition precedent to bringing suit is unlawful. (c) No Ratification: The employee’s retention of consideration does not constitute ratification of the release. (d) No Attorneys’ Fees: Provisions requiring the employee to pay attorneys fees if his or her challenge to the waiver fails are unlawful. An employer may recover fees only if the employee’s claim is frivolous. (e) Set-Off: A court, in its discretion, may set-off an award an employer receives up to the amount of the consideration paid for the release. (f) Continuing Duty to Honor Other Terms of the Release: An employer must continue to honor the terms of its release, notwithstanding a challenge to its validity by an employee. minimize risks As employers increasingly take advantage of new technology, implement process-oriented systems, and react to changing market conditions, they have a corresponding need to restructure staff and supervision. To minimize the employment law risks often associated with restructuring, employers must be aware of their rights and obligations when conducting reductions in force and other initiatives resulting in changes in employment status. Armed with an understanding of those rights and obligations, employers are able to develop strategies to avoid charges of discrimination and to defend their actions should litigation ensue. Penny A. Lieberman is a partner in the New York City office of Jackson Lewis Schnitzler & Krupman. Lieberman received a B.A. degree from the State University of New York at Binghamton and a J.D. degree from Boston University School of Law. She may be contacted at (212)545-4014; [email protected]. Peter N. Moss is a partner in the New York City office of Jackson Lewis Schnitzler & Krupman. Moss received a B. S. from the New York State School of Industrial and Labor Relations, Cornell University, and a J. D., cum laude, from Albany Law School, Union University where he was a member of Phi Alpha Delta and Editor-in-Chief, Albany Law Journal of Science and Technology, 1990-1991. He is a member of the New York State and American Bar Associations. Moss may be contacted at (212)545-4024; [email protected]. ::::FOOTNOTES:::: FN1See 20 C.F.R. �639.7 FN2See 20 C.F.R. � 639.9(1999) FN3522 U.S. 422, 72 Employ. Prac. Dec. CCH �45,117(1998) This article was adapted from a presentation made at the Jackson Lewis Annual Corporate Counsel Conference, October 26, 2000. The conference is exclusively for in-house counsel with responsibilities in the areas of employment, labor, benefits, and immigration matters. For more information on this annual event, please visit www.jacksonlewis.comand go to the “Events” page, or contact Michelle Stouber, Marketing Department Coordinator, 1-800-648-2551, [email protected]. � 2001, CCH INCORPORATED. All Rights Reserved.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.