Before planning a RIF, employers should consider some of the many cost-saving alternatives. Some alternatives to downsizing include:
1. Reducing employee hours
2. Lower employee wages
3. Hiring, wage and bonus freezes
4. Discontinuing use of temps and part-time employees and redistributing their
assignments/work to full-time employees
5. Reducing fringe benefits
6. Early retirement incentive programs and voluntary resignation incentive
programs
What laws apply?
Whenever an employer decides to downsize or reduce its workforce, proper steps must be taken to ensure that the employer is in compliance with the myriad of applicable federal, state and local laws.
Employers should be aware of the “plant closing laws,” the most well-known of which is the federal Worker Adjustment and Retraining Notification Act (WARN). WARN requires a covered employer (defined as an employer that has 100 or more full-time employees nationwide who in the aggregate work at least 4,000 hours per week excluding overtime) to give 60 days’ advance written notice of a “plant closing” or “mass layoff” – terms that are defined in the Act.
Many states, including Maine, Maryland, New Jersey, New York, and Pennsylvania (Philadelphia), have their own laws which are variations on the federal WARN act.
Employers should also be aware of state requirements for terminating employees. Different states have different laws regarding when an employee must receive his or her final paycheck, whether an employee must be paid for all accrued but unused vacation time, what deductions are allowed from an employee’s final paycheck, etc. In California, for example, employees must be given their final paycheck (regardless of whether or not they use direct deposit) upon termination, along with any accrued but unused vacation pay.
Am I required to provide severance pay?
The answer to this question is “it depends, but usually no.”
In most cases, severance pay is not required under law. Maine, however, has a law requiring any employer who relocates or terminates a “covered establishment” to provide affected employees with one week of severance pay for every year that employee was employed at the establishment.
Employers may also be required to provide severance pay as a penalty for not complying with a particular law. New Jersey’s WARN Act provides that employers with 100 or more full-time employees must give those employees at least 60 days’ notice prior to any “mass layoff,” or to any “transfer of operations or termination of operations” as defined by the Act. Employers who fail to comply with NJ WARN must provide each of the affected employees with one week’s severance pay for each full year of service.
In other cases, while providing departing employees with severance pay may not be required by law, it may nevertheless be a wise business-decision. Oftentimes, employers will offer severance pay as consideration for signing a “waiver” by which a departing employee waives his/her right to sue the Company for situations arising out of his/her employment (see the next section for more information on releases/waivers). Other times, employers offer severance simply as a way of showing their gratitude for the departing employees’ hard work over the years and as a means of providing those employees with some form of financial support during their upcoming job search.
Should I have employees sign a release/waiver?
Generally speaking, it is wise for employers to have employees sign a “release” or “waiver” when conducting a reduction in force. It is important, however, that these legal documents be drafted by an attorney, as there are specific clauses that must be included in a valid release.
In addition, employers who want employees to forego their rights to bring a lawsuit under the Age Discrimination in Employment Act (ADEA) in exchange for severance (or some other form of consideration) must make sure their waivers conform to the requirements of the Older Workers Benefit Protection Act (OWBPA). The OWBPA contains specific rules regarding information that must both accompany and be contained in a release to make it “valid as to age.”
There are additional requirements if the waiver is being requested in connection with an “exit incentive or other employment termination program” offered to a group or class of employees.
What is a business-justification memo?
A common concern amongst employers who implement a reduction in force is that affected employees will come back and sue the company for discrimination based on race, age, sex, national origin, etc.
One way employers can protect themselves is to document the business reasons for the reduction in force beforehand. This document should explain the reasons behind each and every job reduction (i.e., “a need for cost savings”), and adds credibility to an employer’s argument that its reduction in force was implemented for legitimate reasons and through a process that was free of illegal discrimination.
How do I determine which employees to terminate?
Careful consideration must be paid to the selection criteria used for determining which employees are to be terminated in connection with a reduction in force.
Employers should select employees based upon legitimate criteria such as seniority, job category (i.e., temps, part-time, full-time) and job performance. It is a good idea to review the age, race, sex, etc. of those affected to ensure that one protected group is not being overly impacted.
Like the business justification, the selection criteria should be carefully documented and adhered to throughout the downsizing process.
Before implementing a reduction in force, employers should conduct a thorough audit of all written policies, memos and employee performance appraisals to make sure nothing contradicts the documented selection criteria. For example — it could be problematic for an employer to state that the selection criteria was based upon job performance, when one of the employees who was terminated had an extremely positive performance review for the preceding calendar year while another employee who was retained had a negative performance review.
How do I communicate to those affected?
Careful preparation should go into determining how to present a reduction in force to your employees and what exactly you (or whoever is delivering the news) should say. We recommend preparing a script ahead of time so that no important information is missed. Issues to be covered include the reasons for the RIF, the severance offered (if any), the details of the waiver/release (if applicable), when benefits end, and unemployment benefits.
In addition, employers should determine which employees, once notified of RIF, pose a safety/security threat to the Company’s property or to fellow employees. Employers should construct a plan beforehand to deal with such potential situations.
How do I handle references?
Employers need to determine how to handle references following a reduction in force. If your Company has a policy governing references, that policy should be strictly followed. Most employer’s policies limit references to “name and rank” (i.e., job title and dates of employment).
What about potential immigration issues?
Employers must pay special attention to the requirements for terminating an employee who is on a temporary employment visa.
There are rules regarding when you must contact the Immigration and Naturalization Service (INS) to notify them of the termination of the temporary worker’s petition, as well as whether or not you have to pay the travel expenses of a temporary worker’s return to their permanent residence.
Employers should review their Form I-9 documentation and consult with counsel prior to implementing a reduction in force or layoffs.
How should I treat those employees leaving?
In any restructuring, it is vital to do whatever you can throughout the downsizing process to preserve the dignity of the individual who is affected.
The message you are sending to those affected by a RIF will also resonate to your “surviving” employees, whose contributions are most critical at this time.
As you can see— there are many issues to consider when implementing a reduction in force that can have significant legal ramifications for your Company. As always, we recommend you consult an attorney before taking action to ensure that your Company is in the best possible legal position.
At Halpern Employment Law Advisors, we understand that maintaining your company’s competitive edge is of paramount concern to all business owners/employers. In addition, staying current on both HR and legal issues is key in today’s highly dynamic, but heavily regulated work environment.