HR Magazine, October 2000: Employee Layoffs vs. Terminations for Cause

By Paul Falcone Oct 1, 2000

HR Magazine, October 2000

Vol. 45, No. 10

A layoff may be the easy way out, but it may expose you to a lawsuit.

Managers who want to avoid the confrontation associated with progressive discipline and termination often look to the path of least resistance—a no-fault layoff. But layoffs aren’t always the easy-out solution that you, the supervisor, may be seeking, and you’re typically better off pursuing a legitimate termination for cause via progressive discipline.

The reason: Managing employee performance problems via progressive discipline holds employees accountable for their actions, establishes a performance improvement plan that actively involves the company in the employee’s rehabilitation and creates a defensible written record to demonstrate workplace due process.

Still, many managers prefer to pursue a layoff because it lacks the ongoing confrontation associated with progressive discipline and because it appears to provide a quicker solution to a problem. However, certain guidelines need to be followed when considering a layoff. Specifically, you will need to evaluate the appropriate employee to be laid off, how long you could survive without refilling that employee’s position and what could happen if the layoff is legally challenged.

Eliminating Positions

If you opt for a layoff, keep in mind that a layoff involves eliminating positions, not people. In other words, your written records must reflect that a position is being eliminated because of a lack of work or other financial constraints, and the individual who currently fills that position will be affected because there’s no longer a job to which to report. If removing a problem performer is your goal, then eliminating that individual’s job may be a big mistake. After all, you still need to get the work done.

Second, remember that the term “layoff” is often a misnomer for “reduction in force” (RIF). A RIF is defined as an elimination of a permanent position that results from a lack of work; in comparison, a “layoff” has been historically viewed as a temporary employer action that removes workers from the payroll for limited periods of time. In the entertainment business, for example, production employees may be laid off when one production ends, only to be re-employed once a new production opportunity surfaces.

Employers more commonly use the term “layoff,” but you’re better off using the terms “RIF” or “position elimination” in your written records when referring to the elimination of a permanent position.

How do you determine which employee should be separated? Remember, you cannot arbitrarily select someone for a layoff simply because he is your weakest performer or because he happens to be in the position that is being eliminated. As a rule of thumb, you’re obliged first to identify a position that is no longer necessary for some legitimate business reason; second, you must then identify the least qualified person in the department for the remaining duties.

Identifying the Least-Qualified Worker

Once you have identified the position to be eliminated, how do you determine who is the least qualified person to assume the remaining responsibilities in the business unit? First, develop a list of all employees in that group with similar titles or responsibilities. For example, if you’re looking to eliminate one of three executive assistant positions in your marketing department, then list all the assistants—or people who handle administrative duties—in the department on a sheet of paper.

Second, review the nature of the remaining work to be done after the position is eliminated. For example, if the executive assistant position reporting to the vice president of marketing is being considered for elimination, then document the responsibilities that will remain in the unit after the RIF. (Job descriptions are very helpful for such comparisons.) In this case, answering phones, coordinating travel arrangements, composing written correspondence and developing PowerPoint graphics presentations may be the remaining key tasks after the RIF.

Third, you need to determine which one of the three executive assistants is the least qualified to assume those remaining duties. In essence, you need to compare the essential job responsibilities, skills, knowledge and abilities of all three employees. In addition, review the employees’ annual performance reviews, tenure and history of progressive discipline to create the appropriate written record. It also would make sense to review their work experience prior to joining your firm, so that tenure alone doesn’t outweigh other considerations.

Finally, once you have the documented comparison for the three employees who could potentially qualify to perform the remaining work, it’s time to determine who is the least qualified individual. If that individual is the person you originally targeted for the layoff because of ongoing performance problems, then you may be safe in separating his employment.

On the other hand, if the substandard employee arguably is not the least qualified individual (based on your review of all relevant criteria including performance evaluations and other written records), then you would have to lay off one of the other two executive assistants. Of course, that would mean that a layoff would no longer be a viable alternative. Therefore, you’re back where you started and would have to revert to managing that individual’s performance via documented progressive discipline.

Leaving the Position Unfilled

But wait. There is another key consideration to determine if a layoff is the appropriate employer action when faced with substandard employees. You also must keep in mind that courts and juries have certain expectations about employers’ responsibilities when eliminating positions and laying off workers. The logic is simply this: If a company has a legitimate business reason to eliminate a position, then it probably shouldn’t need to recreate that position in the near future. If the company were to do so, it could appear to a judge or jury that the company’s original action was pretextual. In other words, the court could be persuaded that the so-called “layoff” was really a termination for cause in disguise. This could obviously damage the company’s credibility during litigation.

How long does the position need to remain unfilled? That depends on the state governing your business. Due to the fluid nature of statutes of limitations, it is best to contact an attorney to find out your state’s current restrictions. In California, for example, a one-year statute of limitations on many unlawful employment practices means that a former employee may file a complaint up to one year from the date that the unlawful practice occurred. However, that filing period may be extended in certain circumstances. So, to stay on the safe side, California employers wait at least 12 months before filling a previously eliminated position.

What could happen if this California employer were willing to gamble and fill the position after, say, six months? If the former employee learned that his previous position was filled and he then engaged the services of a plaintiff attorney to pursue the matter, damages sought would be similar to a wrongful termination or unlawful discrimination claim. If you were held to a for-cause standard of termination, you could bear the burden of providing documentation to show that you had reason to terminate the employee because of substandard job performance, inappropriate workplace conduct or excessive absenteeism.

As is typically the case with layoffs, though, employers aren’t prepared to show proof via progressive discipline that performance was a problem. As a result, an out-of-court settlement would probably need to be reached. Damages could include reimbursement for lost wages, compensation for emotional distress, plaintiff attorneys’ fees and, in egregious cases of employer misconduct, punitive damages.

Progressive Discipline

The better way to handle substandard performance is with progressive discipline in the form of documented warnings signed by the employee. It is true that documenting discipline can be confrontational. The path of least resistance is avoidance, and formally criticizing a subordinate’s efforts is difficult for all of us. And of course, the discipline process takes time. One of the fundamental elements of workplace due process is that the employee be given an adequate amount of time to demonstrate improvement.

Still, progressive discipline is fair because it gives you, the employer, the opportunity to put your cards on the table and relate your performance expectations. It gives the employee a chance to assume responsibility for improving the existing perception problems. And it makes both sides accountable for the outcome. The employer has the opportunity to extend an olive branch, invite the worker back into the fold and proactively rehabilitate that individual by providing extra training and one-on-one attention. The employee will typically shed the “entitlement mentality” shared by so many workers while holding himself accountable for furthering his career with your company or, in essence, firing himself.

What further obligations do you have in this performance rehabilitation process? First, you have to make sure that your disciplinary documents have the “teeth” necessary to withstand legal scrutiny. You can accomplish this by concluding each document with the language: “Failure to provide immediate and sustained improvement may result in further disciplinary action up to and including dismissal.” With such language in place, a former employee will have a more difficult time claiming that he didn’t realize that his position was in serious jeopardy.

Second, you must document your good faith efforts at improving the situation. For example, in the “performance improvement plan” section of the disciplinary warning, document:

“On Monday, May 30, you are scheduled to attend a four-hour seminar on PowerPoint that will be taught by our information technology department to increase your level of computer competence. A copy of our attendance policy is attached. Please read the policy immediately and see me if you have any questions.”

Why is it so critical to document your affirmative efforts at helping the employee to improve? First, your documented efforts will demonstrate good faith as a responsible employer to reach out and help the individual and to provide due process. Like it or not, juries tend to side with former employees rather than large corporations, so you have to go the extra mile to prove your willingness to help. More importantly, people tend to respond in kind. A goodwill outreach on your part most likely will be met with a reasonable, goodwill acceptance on the employee’s part.

Progressive discipline may seem like a lot more work than a no-fault layoff when you believe that removing a poor performer needs to be accomplished quickly. However, progressive discipline gives your workers a chance to learn that the problem exists, fix it and sustain their performance. It’s open, it’s fair and it makes a better—and more defensible—record.

Layoffs, in comparison, should occur only when elimination of positions is inevitable due to a lack of work or other financial considerations. Because of their complications and limitations, they should not be substituted for handling individual performance problems.

Paul Falcone is director of employment and development at Paramount Pictures in Hollywood, Calif. He is the author of three books published by AMACOM, including 101 Sample Write-Ups for Documenting Employee Performance Problems: A Guide to Progressive Discipline and Termination (1999) and 96 Great Interview Questions to Ask Before You Hire (1997). This article represents the views of the author solely as an individual and not in any other capacity.


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