Adopting Practices to Minimize Liability for Layoffs

Employers can make themselves vulnerable to liability when they lay off employees under such legislation as the Worker Adjustment and Retraining Notification Act (WARN Act), state versions of the WARN Act, and the Older Workers Benefit Protection Act (OWBPA). Fortunately, employers can take various steps to minimize this type of liability when they conduct layoffs. 

Layoff Procedures to Follow

First, employers should identify the business reasons that justify each layoff and document them to the extent possible in a layoff planning file. Next, the employer should determine key factors about the planned layoff, including how to calculate the size of the layoff, whether based on a percentage of the overall workforce, a specific number of employees, or a budget cut level. The employer also should decide whether the layoffs will occur all at once or in stages.

Next, the employer should consider whether the layoff will trigger a WARN event or an applicable state “mini-WARN” event. If so, the employer may want to determine how to structure the layoff to avoid the applicability of these state or federal laws.

The next step of the layoff process will involve determining which workers should be laid off. The employer should weigh the advantages and disadvantages of allowing employees to volunteer for the layoffs and what severance release packages to offer if they do. Regardless of whether the employer chooses to utilize a self-selection process, the employer must designate the criteria used to select employees for the reduction in force (RIF) and identify the decision-makers who will select the affected employees. Those decision-makers should be familiar with the planned RIF process and the designated criteria for choosing employees to include in the process. They then should make a preliminary list of employees recommended to be included in the RIF and the reasons to justify their inclusion. 

Once the decision-makers have prepared an initial list, Human Resources (HR) personnel should scrutinize the list for unjustified or weak reasoning behind any choices. HR also should perform a statistical adverse impact analysis to check for disproportionate impact on protected classifications and to confirm a non-discriminatory basis for inclusion. 

After finalizing the list, the employer should determine whether it will offer severance to the employees, how it will calculate any severance, and prepare severance agreements and releases compliant with OWBPA and the Age Discrimination in Employment Act (ADEA) for employees over the age of forty. Releases and severance agreements also must comply with any employee collective bargaining agreements and applicable state or local requirements to be legally enforceable. Finally, the employer should determine the best means of communicating the information to the employees and the public, depending on the circumstances. 

Disparate Impact Analysis 

A disparate impact analysis is integral to avoiding liability in any RIF. Before implementing planned layoffs, employers should perform this analysis on all levels – company-wide, division-wide, and department-wide. A disparate impact analysis compares a protected class of the workforce to the protected class of those selected for the layoff. Protected classes are based on characteristics covered by federal or state discrimination laws, such as age, disability, race, or gender. If the analysis results show that the two protected classes do not align or show a statistical disparity of at least two standard deviations, the layoff could trigger a discrimination claim and liability for the employer. 

If the analysis reveals a disparate impact, the employer will need to reexamine the selection criteria and replace any subjective criteria with objective ones. The employer then should repeat the selection process using the objective criteria. Examples of objective criteria may include seniority and outcomes of performance reviews. 

Another approach is to have a management control group review the employee selections. This process helps to avoid claims that a single manager or supervisor discriminated in choosing the laid-off employees. 

Employers also should scrutinize any employees selected for the RIF with exceptional circumstances that might increase the likelihood of them filing a retaliation claim. These employees include those currently taking leave protected by statute, such as FMLA leave. Also included in this group are employees who have complained or participated in workplace investigations. Employers must have clearly articulated reasons based on objective criteria to include them in the selection list. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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