Unemployment continues inching upward, hitting 5.5% in June, as
cash-strapped U.S. businesses queasy with uncertainty are forced to reduce
headcounts. Reductions in force are never a pleasant experience and often
set the stage for discrimination and retaliation lawsuits.
While layoffs are at times a necessary part of doing business, they
require legal savvy and a sensitive human touch. The two considerations go
hand in hand, sources say, as a hasty or impersonal layoff can create
resentment and trigger litigation.
Employers should be clear about the business reasons for layoffs, use
objective criteria in a consistent manner, document all decisions, treat
outgoing employees with dignity, pay attention to the morale of existing
staff and have a plan in place before handing out a single pink slip, say
human resources experts.
"When it comes down to managing a layoff, it's much more than just a
packet of materials," says Wendy Nice Barnes, vice president of human
resources for eHealthInsurance Services Inc., based in Mountain View.
The most important thing an employer can do before initiating a layoff is
to be clear about the specific reason or reasons for a RIF, says San
Francisco attorney Marc Koonin. From a legal standpoint, being able to tie
the departure of employees to purely business reasons makes it easier to
defend against claims, he says.
"Nobody likes being laid off; but if the company puts out a presentable,
verifiable reason for the reduction in force and then they implement in
that way, then they're taking away 90% of the potential claims," says
Koonin, an associate with Sedgwick, Detert, Moran & Arnold LLP.
He says once the goal of the reduction in force is established -a
refocusing on sales through the minimization of middle-management, for
example - the company can then determine which positions contribute to
that goal, and which should be eliminated. Unintended consequences,
however, could include disproportionate layoffs of older workers who had
worked their way up to management positions.
"Maybe you didn't mean to discriminate against the older folks, but that
was the outcome," says Koonin. "You'll probably pass the test if you used
consistent criteria in line with your goal."
California's Worker Adjustment and Retraining Notification (WARN) Act
requires employers with 75 or more employees to give 60 days warning
before commencing a reduction in force. Penalties for non-compliance
include the payment of 60 days worth of wages, plus benefits, for all
affected employees. But that doesn't mean small businesses, exempt from
WARN, should proceed with abrupt layoffs.
"When you add it up, I think it's important to give a notice even if
you're not WARN covered, and to have dialogue and good relationships with
employees," says Los Angeles attorney John Zaimes, a partner with Reed
Smith LLP. After all, he says, disgruntled ex-employees are the ones most
likely to look for a reason to sue.
But before making an announcement, employers should have an implementation
plan in place, says Shelley Canter, president of San Francisco-based
leadership and executive coaching firm RJC Associates. That plan would
include communication strategies and resources for outgoing employees, she
Be Objective, Consistent & Document Everything
With a clearly articulated reason in mind and in writing, managers
involved in a force reduction should work with counsel to develop
objective criteria for where the cuts are to be made, attorneys say. These
criteria may include so-called "soft skill" considerations, such as the
ability to work well with others and must be consistently applied.
It is a mistake to keep people simply because they are well liked, or to
tie layoff decisions to individual considerations, says Los Angeles
attorney Margaret Rosenthal, a partner in the firm Baker & Hostetler LLP.
It all comes back to basing decisions on your force reduction objective,
which usually means you'll want to keep your income-generating employees.
So you want to look at things like experience and written evaluations, but
always base the decision on clear objectives.
Attorney Phyllis Kupferstein, partner in the Los Angeles office of
McDermott Will & Emery LLP, tells clients to make sure they don't cut
employees based on salary, especially since older workers are the ones
most likely to fall into that category. And the layoff of anyone in a
protected class, a racial minority or a woman for example, must be
double-checked to make sure there is no appearance of bias, she says.
"You do have to think through what the likelihood of litigation is," says
Kupferstein. "If you end up with a lot of lawsuits, then it's not going to
help you financially."
If someone who filed a discrimination claim earlier is on the layoff list,
Koonin says, employers want to be very careful not to trigger a
retaliation claim. But the rule of thumb, he says, is to be ready to
justify any potentially risky layoff as an objective business decision.
Zaimes suggests going one step further and hiring an outside statistician
to make an adverse impact analysis, which would expose unintended
consequences before it's too late.
Proper documentation, as well as the absence of emails or other records
indicating bias, is the best way to defend against claims, attorneys say.
"It's horrible to have some email flashed up in court that basically says
that whatever we said was our goal is a lie, that we're actually pulling
out the dead wood," Koonin says.
Proper documentation begins with well-kept employee records, which
indicate employee performance and overall contribution to the company,
Kupferstein says. Beyond that, she adds, perhaps a one-page document
showing the thought process at the time an employee was laid off is enough
to defend such decisions.
Be Compassionate & Helpful, While Maintaining Morale
Barnes, who says she has experienced both ends of a layoff in her 12 years
working in Silicon Valley, recommends an empathetic approach. Not only
will laid-off employees who are nevertheless taken care of be less likely
to file a lawsuit, but such practices also reflect favorably on the
"I look at it as if I'm in those shoes myself," she says. "How will I pay
my bills, first of all?"
Employees who suddenly find themselves unemployed will need to know how to
apply for benefits through the Employment Development Department, how to
apply for a COBRA health benefit extension, and may need help polishing
their resumes, Barnes says. Severance is fairly common in California, she
says. Los Angeles-based arbitrator and mediator Barbara Neal suggests that
companies offer a transfer when possible or provide outplacement services.
Kupferstein also suggests a severance package and believes it is a
cost-effective investment toward minimizing lawsuits by disgruntled
ex-employees, as well as a strategy to help maintain harmony among
existing staff. Another option is to offer a release, which is essentially
an early retirement.
"Whatever you can do to show some goodwill toward outgoing employees would
reduce the likelihood of lawsuits and would help morale of the remaining
employees," Kupferstein says.
The treatment of laid-off employees affects existing staff in a number of
ways, including their loyalty to the company, Canter says.
"The best employees can always get good jobs elsewhere - and they will, if
you mistreat others," Canter insists.
Ultimately, the point of any layoff is to improve the company's
performance. So without careful attention to details - particularly in the
areas of legal risk and HR management - companies may find themselves
worse off than before the layoff.
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