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OP-ED: What If You Need to Do a Layoff? Practical Steps for Reduction in Force

Daily Journal of Commerce

July 15, 2022

Overview

As communities continue to be shocked at the gas pump, soaring inflation and whispers of ‎‎“recession,” we have noted an increase in layoffs in certain industries — particularly technology, ‎retail and food. Given the economic uncertainty, our regional developers and builders could also ‎feel the adverse impacts. These impacts could, unfortunately, require companies to consider ‎layoffs or reductions in force (RIFs). While there were temporary layoffs at the outset of the ‎pandemic, the construction industry rallied quickly and navigated the challenges COVID-19 ‎presented. Now, the construction industry may need to navigate the more traditional economic ‎pressures of the market: fewer projects, more competition and less overall work. ‎

RIFs, if done correctly, can help companies ease financial constraints. But, if done incorrectly, ‎RIFs can lead to significant legal liability that will further distract and burden the company. For ‎example, Company A determines it needs to let go of 20 employees in a RIF. Company A could ‎employ a lawful, nondiscriminatory method to decide which individuals to let go. But, instead, ‎Company A’s owner decides to finally get rid of the folks he doesn’t like — the employees who ‎don’t look like him or speak like him. In other words, he made termination decisions based on the ‎employee’s gender, national origin, race, etc. As a result, Company A will likely find itself in a ‎world of legal hurt. ‎

Employers who see the need to make a RIF (like Company A) should follow these key steps to ‎ensure that the RIF does not unfairly impact individuals who are in protected classes. ‎

Develop a strategy. Prepare a plan identifying the future vision and organizational structure that ‎will most effectively meet the company’s continuing needs. A few questions you might ask ‎include: What locations, departments, and divisions will be involved? How many full-time ‎equivalent (FTE) positions do you need to reduce? What is your budget for severance ‎agreements, attorney’s fees, unemployment claims and other associated costs? What is your ‎timeline for the reduction in force? Does the company have to comply with a collective ‎bargaining agreement?‎

Consider other options. Consider whether other options exist to ease the financial crunch before ‎planning terminations or layoffs. A few options to consider include: Is it possible to have ‎employees move to a job-share arrangement or part-time schedule or participate in a work-share ‎program? Would a temporary shutdown be possible? Would your employees consider a pay ‎reduction? If you decide on a pay reduction, consider fairness issues and making reductions from ‎your C-suite on down. Do you want to ask volunteers to take early retirement or voluntary ‎separation before the involuntary reductions? Have you frozen your current open positions?‎

Analyze application of WARN and any mini WARN Acts. The federal Worker Adjustment ‎and Retraining Notification (WARN) Act applies to employers of 100 or more employees and ‎requires that employers provide employees and certain governmental agencies with 60 days’ ‎advance notice of a plant closing or certain types of mass layoffs. Many states also have “mini” ‎WARN Acts and specific rules about contacting the state employment division and providing ‎notice of a mass layoff. Washington’s WARN Act tracks the federal requirements. Washington ‎employers, subject to WARN, must submit a WARN notice to the Employment Security ‎Department, the chief elected official in the community where the layoff or closure will occur, ‎and any affected bargaining unit. The notice must contain very specific information including ‎whether it is a layoff or closure and is temporary or permanent, the total number of employees ‎and their job titles or positions. ‎

Determine the objective nondiscriminatory criteria for the layoff. Regardless of whether a ‎WARN Notice is required, companies should work carefully with in-house or contracted human ‎resource experts or legal counsel to establish the objective criteria it will use to choose which ‎employees will be subject to a layoff. Generally, you will want to keep your best performers and ‎most versatile employees. You may also decide to give consideration to loyalty and long-term ‎employees. If the business is a closely held family business, then whether the person is a family ‎member is relevant. To the extent a company is subject to a collective bargaining agreement, ‎make sure any criterion or process used is consistent with that agreement.‎

Examples of specific nondiscriminatory criteria for selection can include:‎

  • Temporary employees.‎
  • Past performance.‎
  • Positive teamwork.‎
  • Versatility (ability to perform more than one job or function).‎
  • Department or project-specific closures.‎
  • Elimination or consolidation of specific jobs.‎
  • Relative ability of the employee.‎
  • Training, certification, education and experience.‎
  • Any non-discriminatory, objective criteria that you decide are relevant.‎

Apply the objective criteria. The company should next apply the objective criteria to all ‎employees (including employees on a leave of absence for other reasons). A company may rank ‎or weigh certain criteria differently — e.g., strong attendance and performance can count more ‎than the number of years with the company — so long as the company applies the criteria ‎consistently among the employees. One way to do this is to give each criterion a set amount of ‎points to rank all employees. For example, for past performance reviews, if the employee received ‎excellent reviews, they get 5 points; if they received “meets expectations,” they get 3 points; and ‎‎“needs improvement overall” gets no points. The company must be careful not to consider any ‎compensation, injuries, disabilities, age or any other protected characteristic when ranking ‎employees. ‎

Review for bias and disparate impact. After selecting the employees, the company should ‎work closely with human resources or legal counsel to evaluate whether there could be evidence ‎of bias or disparate impact related to a protected class of employees. Disparate impact occurs ‎when a particular protected class of employees, such as age, disability, or sex, is ‎disproportionately represented in an otherwise seemingly neutral application of criteria for the ‎RIF. This can be identified by running a statistical analysis. If there is a disparate impact or ‎potential evidence of bias, reconsider the inclusion of those employees in the group or how the ‎criteria is applied.‎

Consider communication of the RIF decision. It is always difficult to inform employees that ‎their jobs are ending as the result of a RIF. Consider how you will communicate the RIF to your ‎workforce and whether you will offer separation agreements to the affected employees. ‎Separation agreements must be carefully drafted. It is best to obtain legal help with this task. ‎Most RIFs are “exit or other employment termination programs offered to a group or class of ‎employees” under the Age Discrimination in Employment Act (ADEA), as amended by the ‎Older Worker Benefit Protection Act, and require specific waiver language and time for the ‎employee to consider the separation package.‎

A lot can go wrong in drafting an ADEA release, and courts are willing to invalidate them if ‎done incorrectly. We strongly urge companies to work with their legal counsel closely to ensure ‎compliance.

RIFs are always stressful but often necessary to enable a business to keep its ‎competitive edge. RIFs require careful advance planning and documentation to provide the best ‎protection to the company. Following the recommendations above and obtaining legal counsel ‎will put you at a distinct advantage and help to protect your RIF from claims of discrimination.‎

This article summarizes aspects of the law and does not constitute legal advice. For legal advice ‎for your situation, you should contact an attorney.‎

Column first appeared in the Oregon Daily Journal of Commerce on July 15, 2022.

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