Pre-Layoff Planning Considerations
First, make sure you’ve considered all alternative options to a Reduction in Force (RIF). Here are all of the alternatives to consider:
- A voluntary resignation program;
- Across-the-board salary reductions;
- Reduced work hours;
- A brief, temporary shutdown;
- Early-out packages;
- Retraining or reassigning employees
If layoffs are necessary, consider these questions:
- Is there a legitimate non-discriminatory and well-documented business justification for the layoff to discourage and defend against potential discrimination claims?
- Has a hiring freeze been put in place to discourage and defend against discrimination claims?
- Has a clear communication plan about the layoffs been carefully developed to reduce stress and anxiety that could impact employee performance and workplace morale?
- Have you considered workplace counseling to reduce stress and anxiety and to minimize any risk of workplace violence?
- Have employment policies and contracts been reviewed for language limiting the employer’s ability to conduct a layoff, such as:
- Specifications of layoff procedure;
- Policies negating at-will employment;
- The order of groups to be affected.
- Have policies and contracts been reviewed to determine whether the employer must make any payments at the time of termination, such as:
- Accrued vacation benefits;
- Severance pay mandated by an employment contract or Collective Bargaining Agreements (CBA); or
- Severance pay mandated by an express or implied policy?
- If unionized employees will be affected, have current CBAs been reviewed for duties to bargain over the layoff decision or effect of the layoff?
- If unionized employees will be affected, have current CBAs been reviewed to determine whether they outline specific layoff procedures?
Considerations in Selecting Layoff Group
Businesses must use objective criteria to select the layoff group, such as the elimination of particular department or redundant positions. If subjective criteria are being used to select the layoff group, make sure objective evaluation guidelines have been applied to the selection decisions and that the reasons behind selection decisions are well documented. Consider also:
- Have the individuals that will determine the layoff group been trained on selection guidelines and equal employment opportunity considerations?
- Has the process for documenting the decision-making been determined?
- Has an adverse impact analysis of the effect of the selection process been conducted and documented to ensure that no particular protected classes are disproportionately affected?
- Have the selection decisions been reviewed to ensure that they are consistent with the stated layoff goals?
- Have layoffs of individuals on leave been reviewed to ensure that they are consistent with the stated layoff goals and to ensure that these individuals are not disproportionately impacted?
- Can employees selected for layoff claim interference with any rights to protected leave of absence?
- Can employees selected for layoff claim retaliation for:
- Pre-existing legal claims;
- Recently protected leaves of absence;
- Internal complaints; or
- Whistleblowing activities?
It’s important that you’ve determined if you will offer a severance package or not and if you will, how it will work. Consider also:
- Is the employer required to pay severance to any individual or group of individuals based on a:
- written severance plan or policy;
- severance policy implied by past practices;
- individual employment contract; or
- collective bargaining agreement?
- If severance is required, is the employee’s right to severance conditioned on signing a release?
- Is voluntary severance being offered to the layoff group in exchange for a release of claims to minimize the risk of litigation against the employer?
- If voluntary severance is being offered to only a portion of the layoff group, are objective criteria being used to select that group to minimize the risk of discrimination claims?
- If severance is being offered in exchange for a release of claims, is there sufficient consideration to warrant a release of claims (for example, is the severance something that employees would not already be entitled to if they did not sign the release)?
- If severance is being offered in exchange for a release of claims, does the severance agreement contain a paragraph explicitly releasing the employer from legal claims that the employees otherwise may have brought against the employer up to the point of their termination?
- If severance is being offered in exchange for a release of claims, does the agreement remind the employees of any continuing obligations following their separation from employment, including:
- Non-compete obligations;
- Non-solicitation obligations; and
- Non-disclosure obligations prohibiting the employee from disclosing the employer’s confidential and proprietary competitive information?
- If severance is being offered in exchange for a release of claims, have all necessary state and local laws been included in the release?
- If severance is being offered in exchange for a release of claims, does the agreement comply with the Older Workers Benefit Protection Act by:
- Specifically, advising the employee to review the agreement with an attorney before signing?
- Referencing rights or claims under the Age Discrimination in Employment Act?
- Informing the employee that she cannot release claims arising after termination?
- Providing the employee at least 45 days to consider the agreement before signing (or, if not a group layoff, at least 21 days to consider the agreement before signing) and an additional seven days to revoke his signature?
- Including required disclosures concerning the ages and positions (but not names) of the employees selected for severance packages?
Make sure if severance is being offered in exchange for a release, that any employees continuing to work after signing the release are informed on whether they must sign supplemental release at the time of actual termination of employment.
Beyond or in lieu of a severance package, there are several other employee benefits to consider, including:
- Does the layoff result in a plan termination (that is, a significant employment loss affecting more than 20% of the participating employees), and if so, has an expert been consulted to determine whether those employees can become 100% vested in previously unvested money in the plan?
- Will the employees in the layoff group be given sufficient notice to fully use their health flexible spending account (health FSA)?
- If an employee has made prepayments for health FSA coverage after the employee’s coverage termination date, have those amounts been refunded to the employee as taxable wages?
- Will the employees in the layoff group be given sufficient notice to plan for pre-termination contributions to their 401(k) plans and repayment of 401(k) loans?
- Will Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums be paid in consideration for release agreements?
- Regardless of whether paid COBRA premiums are being offered to laid-off employees, are required COBRA notices being provided to the layoff group?
General Termination Considerations
In general, here are the questions that any business owner should consider before any Reduction in Force.
- Have wage and hour laws of affected states been analyzed to ensure appropriate timing of payment of final paychecks?
- Have company policies and applicable state laws been analyzed to ensure proper payment upon termination of:
- accrued vacation;
- accrued paid time off;
- earned but unpaid commissions; or
- earned but unpaid bonuses?
- Have employees been reminded of their obligations to return company property and confidential information?
- Have employees been reminded of any other post-employment obligations, such as non-compete or non-solicitation obligations?
- Have employees been provided with notices of their state unemployment rights, where applicable?
After making layoffs, employers have a few additional questions to consider, including:
- Have internal and external communication plans been implemented to minimize employee relations and public relations issues?
- Have proper records been kept that document the entire layoff process and related decision-making?
- Are additional layoffs being considered in the near future, and if so, will they trigger federal or state WARN Act provisions? See below.
Considerations Regarding Reporting and Notice Obligations
Generally, the WARN Act applies to private and quasi-public (for example, certain housing authorities) employers that employ more than 100 full-time employees.
- Does the layoff trigger the federal Worker Adjustment Retraining and Notification Act (WARN Act) and if so, have its reporting and notice requirements been complied with?
- NOT APPLICABLE TO IDAHO OR WASHINGTON.
- Has state-specific WARN statutes and similar local laws been considered (examples include California, Illinois, New York, and more than a dozen other states)?
- If any affected employees are located in a state with its own version of the WARN Act, does the layoff trigger the state statute and, if so, have the state’s reporting and notice requirements been complied with?
- Have prior or future-planned layoffs been considered as cumulative layoffs that may trigger WARN Act obligations?
- Do the circumstances warrant an exception to the notice requirement or is shortened notice permissible under the federal WARN Acts and any state WARN laws?
- For employees due notice, how must it be provided?
- If notice is required, have the proper government agencies been notified?
- If the layoff affects foreign nationals, has an immigration expert been consulted to advise on reporting obligations to the government regarding visa eligibility loss?
If you’re a small business owner facing RIF due to COVID-19, we are here to help. We are offering pro-bono consulting sessions to help business owners navigate these uncertain and challenging times. Inquire about them here.