How to Reduce Risk in Workforce Reductions

If downsizing is necessary, is your organization ready?

By Jonathan A. Segal May 21, 2020
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legal trends

​Many companies have laid off employees as a result of the COVID-19 pandemic and subsequent business contraction. And though the wounds from recent reductions in force (RIFs) are still fresh, even more downsizing may be needed. Given the legal implications, it’s imperative to get RIFs right. 

There are a number of key steps at the beginning and end of the process. They include defining why there’s a need for a RIF now, determining whether the process will be centralized or decentralized, considering HR’s role under either approach, conducting an adverse-impact analysis under attorney-client privilege to determine if the layoffs may result in unlawful discrimination and communicating the results. 

There are a lot of critical steps between the ones identified above. This article focuses on the intervening steps: the guts of the decision-making process.

Determine the Scope of the RIF 

An employer will need to determine which employees will be subject to the reduction in force, and then it should document how that determination is reached. 

Examples of scope include all employees, employees at a certain level or above, or employees at a certain location, in a certain department or in a certain business unit. 

Documentation of the scope of the RIF is critical for multiple reasons, including conducting the adverse-

impact analysis, as well as defining the “decisional unit” to obtain a viable waiver of age-discrimination claims.

Create an organizational chart that includes positions rather than names. Decision-makers should avoid focusing on specific individuals, except when such focus is appropriate in discussing performance.

If the process is decentralized, each decision-maker should obtain the chart only for positions subject to review in his or her area. HR should receive all organizational charts.

Identify the Positions to Eliminate 

For each affected group of employees, decision-makers will need to identify which positions to eliminate, combine or retain. Then they must document the reasons for eliminations or combinations. 

Merely stating that the company doesn’t need the position anymore adds almost no value. Instead, drill down: Why doesn’t the company need the position anymore? Are the job responsibilities less necessary in the context of business contraction? Can you save money by outsourcing? 

This documentation is important regardless of whether there’s a solo incumbent or multiple incumbents in a given role. But you’ll need to go further and perhaps address performance issues or seniority if there are multiple incumbents. For example, if you need only seven of 11 managers at a given location, how do you decide which four to lay off?

Apply Criteria for Multiple Incumbents 

If multiple people hold the same position, decision-makers must consider the criteria to apply in identifying who will be laid off. When different criteria apply to different groups of employees subject to discharge, there’s a risk that the differences could be exploited by laid-off plaintiffs to suggest that the criteria was selected to produce the desired result.

There may be legitimate, even compelling, reasons for applying different criteria to different groups, but the criteria should be scrutinized and documented. This is when HR plays a critical role, regardless of whether the RIF is centralized or decentralized. 

Seniority is the safest criterion from a legal perspective, but it may be the weakest from a business perspective. 

Performance is the best criterion from a mission perspective. However, it carries with it greater legal risk because performance evaluations almost always include some level of subjectivity. 

Employers may wish to consider a blended approach. Consider, for example, dividing employees into A, B and C players based on performance. An employer might lay off the C players first and then follow seniority but exempt the A players. 

Note that under most union contracts, seniority will play a critical, if not determinative, role. 

Consider ‘Bumping Rights’

Many union contracts provide for “bumping rights,” which enable workers who have more seniority to replace junior employees. Are there any bumping rights for nonunion employees? No, but employers may wish to consider extending the concept to nonunion workers, especially when a solo incumbent is let go. The following example helps illustrate why: 

Evan is a solo incumbent who has been with the company for 30 years and also has the necessary skills to do Susan’s job. Susan has been with the company for only five months. Are you really going to let Evan go and keep Susan? And, if you’re wondering whether you could adjust Evan’s pay because Susan’s position pays less, the answer is yes.

End on a Respectful Note

Perhaps the most important step employers can take to ward off liability is to treat laid-off employees with dignity and respect. A popular quote, often attributed to Maya Angelou, sums up this principle well: “People will forget what you said; people will forget what you did; but people will never forget how you made them feel.”

In my experience, employees who were laid off often go to lawyers because they feel they were demeaned. Provide people managers with guidance on what to say and how to say it. Remind them of things that they never should say, such as, “This is harder on me than on you.” The only thing that will be harder is the well-earned lawsuit.  

Jonathan A. Segal is a partner at Duane Morris in Philadelphia and a SHRM columnist. Follow him on Twitter @Jonathan_HR_Law.

Illustration by Adam Niklewicz.

Defining Performance

If employee performance is considered when identifying who will be laid off, employers should start with the most recent performance evaluations and ask themselves: 

  • “Should all elements of performance in the appraisal instrument be considered?” You could consider only those most critical given the circumstances, or you could consider all elements but weigh each one differently. Regardless, it’s important to document the thought process.
  • “What if the current evaluation doesn’t reflect current performance?” Document why.
  • “What if there are no evaluations?” Do them now.

HR can play a critical role in evaluating the evaluators when examining new and prior performance documentation. HR should look for, among other things:

  • Conclusory labels assigned without factual support (e.g., “weak communication skills”). 
  • Emphasis on motive and not outcome (e.g., “employee does not try”).
  • Words or phrases that sound like proxies for bias (e.g., “rigid,” “not committed” or “lazy”).

In each case, drill down with the evaluator. The problem could be how a thought has been expressed, not the thought process. —J.A.S.

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