Layoffs & Reductions-in-Force: Avoiding the Legal Pitfalls & Perils

Unfortunately, in today’s economy, plant closures and downsizings have become all too common. Treating employees with fairness and dignity are always necessary and good business practices. Fairness is also key to minimizing the risk of post-layoff employment discrimination lawsuits, which can end up costing the business more than was saved from the layoff.

Because an ounce of prevention is worth a pound of cure, here are some tips for employers to consider before restructuring the company’s workforce:

1. Document the Business Purpose for the Layoff: The key phrase here is “business purpose.” Layoffs driven by a well-defined, documented business purpose are less likely to violate employment discrimination and other laws than layoffs broadly aimed at lowering payroll expenses.

2. Retain Legal Counsel: One size does not fit all. Employers considering layoffs or other workforce restructurings should engage legal counsel early in the process. Reductions-in-force require knowledge of many cross-sections of employment law. For example, among the legal issues that Searcy Law Offices addresses in workforce restructurings are:

Employee Contract Obligations

Collective Bargaining Obligations

Employee Handbook & Company Policy Obligations

Employee Benefit Rights & Employer Obligations

Employee Leave Rights & Employer Obligations

WARN Act Notices

Hiring and Promotion Freezes

Employee Severance & Separation Benefits

Employee Releases

Standardized Exit Procedures & Interviews

Protection of Company Property, Trade Secrets & Confidential Information

Legal Analysis of Layoff List (assess risk of potential employment discrimination claims based on race, color, sex, religion, national origin, age, disability, and other protected classes).

3. Identify Neutral Company Decisionmakers. Individuals involved in the decision-making process should be neutral, objective, and unbiased. It may help to ensure that diverse groups are represented in the decision-making process. Neutrality minimizes the risk of employment discrimination lawsuits. In addition, if an employee does sue the company, the decisionmakers will be the company’s key witnesses and first line of defense.
4. Identify Objective Selection Criteria: To ensure fairness, let the business purpose guide the selection criteria, which should be objective and free from bias. Once a preliminary list of individuals selected for layoff is developed, the list may need to be adjusted to cure problems that existed in the selection criteria. Adjustments should be subjected to legal analysis (as should the the final layoff list) to ensure that there is no disparate, discriminatory adverse impact on a protected class of people.

5. Be Consistent: Fairness and consistency are the keys to minimizing the risk of employee lawsuits from layoffs. Focusing on the business purpose, engaging legal counsel early in the process, identifying neutral decisionmakers, and using objective selection criteria are important factors to ensure fairness. Inconsistent application of the selection criteria or excepting certain employees from layoffs based on subjective criteria should be avoided. Such exceptions often become “Exhibit A” in a costly employment discrimination lawsuit.