Question: Times are tough, and we might have to lay off employees or downsize. What do we need to think about beforehand and what steps do we need to take in advance?
Answer: Two words: plan ahead. Planning for a reduction in force (RIF) and making sure everything is in order can be an overwhelming task, which is why early planning is crucial. There are many moving pieces when implementing RIFs, and many different legal requirements come into play. For this reason, we recommend speaking with legal counsel to help you plan and execute the RIF. Waiting too long to plan or reach out for help can mean missing crucial deadlines or steps. Although not every component of preparation can be explained in this article, here are a few key items to think about when considering a layoff (in which employees have an expectation of recall in the future) or downsizing (in which employees permanently lose their jobs):
Create a plan: Come up with a written plan that specifies the details of the RIF (such as who will be laid off, when and how you will notify workers, and any plans for severance agreements) to help you stay organized so that crucial steps aren’t forgotten. Developing this plan early will give you time to make sure you can comply with any legal requirements, such as notifying employees within legally designated time frames.
Reasons for layoff: Determine how you will select employees when reducing the workforce. Ensuring that you use objective business-related reasons for the RIF is important to limit any potential discrimination claims. You may not intend to discriminate in your decisions, but there could still be a disproportionate impact on a certain group with a protected status. It’s important to make sure each termination decision is defensible with objective, nondiscriminatory criteria. For more information, see our Model Form, Downsizing Evaluation.
Labor agreements: Consider and review any collective bargaining agreements before planning your reduction in force. The labor agreement may cover topics such as notice requirements, severance pay or benefits, or transfer opportunities. You have a duty to bargain with the union over the effects of the decision to downsize, and you may even have a duty to bargain the decision itself depending on whether labor costs will affect the decision.
Required notices: Consider whether any notice requirements apply. For qualifying layoffs and plant closures, the Worker Adjustment and Retraining Notification Act (WARN Act) requires covered employers to notify employees, the union (if any), and government officials at least 60 days in advance. If affected workers are employed in California, be aware that California’s WARN Act may impose additional notice requirements. Navigating notice requirements can be extremely tricky, so we recommend working with your Vigilant Law Group employment attorney to help guide you through the process. See our Legal Guide, WARN Act: At-a-Glance to learn more about the WARN Act requirements.
Separation and release of claims agreements: State and federal law can restrict or impose certain requirements on settlement agreements. For example, some state laws restrict nondisparagement provisions, while the federal Age Discrimination in Employment Act (ADEA) imposes strict requirements on agreements to release age-related discrimination claims. Vigilant’s Model Form, Separation Agreement can provide a helpful start for drafting agreements when the decision-making process is straightforward (such as the elimination of an entire department). However, situations with more discretionary RIF decisions may involve more legal risks and careful drafting may be necessary to craft a more comprehensive agreement. Contact your Vigilant Law Group employment for help with drafting and reviewing these agreements to make sure they are legally compliant.
See our Legal Guide, Downsizing and Layoff Checklist for more in-depth information and a more detailed checklist. As always, reach out to your Vigilant Law Group employment attorney for help if you think a layoff or downsizing might be in the picture. They will be able to work with you to conduct the necessary analysis and help you through these steps. This is one area where planning early and reaching out for help sooner rather than later can be incredibly helpful.