Layoffs, downsizing and reorganizations have become dog-eared pages in the management playbook. No longer reserved solely for recessions, staff cuts seem to be called upon nearly any time a company misses its earnings. Can’t make your numbers? Cut payroll.
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Downsizing sounds simple, but executing a layoff is far more complicated than just shedding jobs. It requires serious planning, says Jay Warren, a litigator with Bryan Cave LLP. Companies risk taking unlawful measures that may come back to haunt them if they don’t take the time to assess the goals of a layoff and determine the criteria for making cuts, then communicate those criteria to the managers involved and review the plan with corporate counsel, he says.
Warren, who has represented unions, employers and employees during his 30-year career in law, spoke with CIO.com about the top mistakes that companies make when conducting layoffs and the necessary steps for a legal layoff. He also shared advice about the rights that employees have during a downsizing.
CIO: What mistakes do companies make when conducting layoffs?
Jay Warren: A layoff, like any other kind of important decision, requires people to think things through. It requires an agreement about your goals for the layoff, your criteria for achieving those goals, a process that clearly defines who’s going to be making decisions and a review of the process to make sure it’s been conducted lawfully and in the way you wanted. Sometimes, when companies are under a lot of economic pressure, they don’t feel they have the time to think through how to conduct a layoff and to review it with their [corporate] counsel before finalizing it. When economic pressures are great, people try to take shortcuts, which can then get them into problems.
What kinds of problems?
A layoff may have an adverse effect on some protected group, like people over a certain age or minority employees. If the [personnel] decisions that have been made are not well supported, there could be an inference that those decisions were intentional discrimination, rather than simply a cost cutting effort.
I’ve read cases where lower-level managers have used layoffs as an opportunity to get rid of certain staff for unlawful reasons: The manager doesn’t like working with minority employees; the manager is 35 and feels he has too many people over age 50 working for him and he wants a younger workforce; or there’s someone on the manager’s staff who has a disability and has taken a lot of time off from work to accommodate his disability and the manager doesn’t like that. This can happen if the manager doesn’t get sufficient guidance in the decision-making, or if there isn’t a sufficient review of the manager’s decisions.
The consequence, then, is that the company could find itself in hot water?
The company could be sued. The company could be subject to EEOC [Equal Employment Opportunity Commission], state or federal investigations and lawsuits.
What’s your advice to companies contemplating a downsizing? What measures should they take?
Take the time to do it right. Companies need to first figure out what their goals are. It could be to cut employee costs by 10 percent in certain divisions. Then they have to establish what criteria they’re going to use to decide who to cut, and what their decision-making process is going to be. Who is going to be making the decision? What information should those people be using to make those decisions? Then they have to decide who in HR is going to review all of this and at what stage in the proceeding is the company going to obtain advice from its attorneys about the selection process it’s using.
Those are the steps. It includes clearly communicating to the people actually making [personnel] decisions what information they should use and what the criteria are.
Is it important to have all these steps documented?
Yes. If the process or decisions are challenged in the future, you have documentation to show that the decisions were made in accordance with the company’s policies and under lawful criteria.
NEXT: Employees’ Rights
What rights do employees have during a layoff?
Without collective bargaining agreements, layoffs can be conducted in any way an employer chooses as long as it doesn’t discriminate.
If we’re talking about a reduction in force that doesn’t involve closing down a facility, the laws that are applied are mostly anti-discrimination laws. Some statutes of the anti-discrimination laws apply to companies with 15 or more employees. Other statutes apply to companies with 20 or more employees.
If we’re talking about closing down a facility that involves laying off a substantial number of employees, under the WARN Act (Worker Adjustment and Retraining Notification Act), the company is required to give employees at least a 60 day notice of the closing or of a mass layoff at the facility. The WARN Act only applies to employers who have 100 or more employees, excluding part-time employees. A mass layoff means a loss of at least one-third (equaling at least 50) of the employees at a single site during a 30 day period, or at least 500 employees at sites with more than 1500 employees.
If an employee has an employment contract for a definite period of time and if the employer lays the employee off in the middle of the contract, that might be a breach of contract, depending on what the employment agreement says.
Also, employers may have severance programs and those severance programs may provide for payment of severance benefits in the event someone is laid off.
Do most employees realize they have these rights?
My experience is that most people do not have an understanding of their legal rights, but they have a fairly strong understanding of what it means to be treated fairly or unfairly. If someone feels they’ve been treated unfairly, they’re likely to consult an attorney.
Older workers benefit from a protection that applies to age discrimination laws. If a company is laying off employees and decides to pay them severance, the company will ask the employees to sign a release of legal claims in order to get their severance. To obtain an enforceable release of age discrimination claims, employers need to tell employees over the age of 40 to seek the advice of a lawyer.
If an employer wants a release to be effective, the employer needs to give the employee the opportunity to read the release, ask questions, and not pressure the employee to sign it. If the severance plan is sufficiently complex to be covered by the federal Employee Retirement Income Security Act (ERISA), the company has an obligation to notify employees of their rights [to severance] under the severance plan. The general standard for [legal] releases where the federal age discrimination statute doesn’t apply&mdashh;for employees younger than 40, or for employers with less than 20 employees—is that the release has to be knowing and voluntary. The employee has to understand that he’s giving up a legal claim, and he can’t be coerced.
There are certain kinds of claims, such as workers compensation claims and violations of the Fair Labor Standards Act, that cannot be released without getting the authorization of a government agency.
It doesn’t seem fair that companies can ask employees to basically waive all their rights to future legal claims as a condition of severance.
There’s no legal obligation to pay severance. There are no laws that require people in the U.S. to be paid a certain amount of money if their employment is terminated for reasons other than bad conduct. If a company voluntarily undertakes to pay someone [severance] at the time that they leave, the company legally has the right to condition the payment on the basis of not being sued. And the employee has a choice: If he thinks his rights have been violated, he can bring suit, or he can accept severance and give up his right to a lawsuit. The exception to this is when a company has an existing severance plan and the plan doesn’t have a provision that says to get severance, the employee must sign a release. In those situations, if the company wants a release, it has to offer additional money beyond the severance.