Make Time to Limit Liability for Layoffs

​Layoffs open employers up to the possibility of lawsuits under a wide range of laws, including the Worker Adjustment and Retraining Notification (WARN) Act, state "mini-WARN" requirements and the Older Workers Benefit Protection Act (OWBPA). Nonetheless, employers can adopt some practices to limit their potential liability. Here are a few examples of such practices in this second of a three-part series on layoffs.

Ted Hollis, an attorney with Quarles & Brady in Indianapolis, identified a number of steps employers can take to limit liability, including:

• Identify the business reasons for the layoffs and the documentation that exists supporting those reasons; secure copies of that documentation in a layoff planning file. 
• Consider how the size of the layoff will be determined—for example, a percentage of the overall workforce, a specific number of employees or a budget cut level. 
• Determine when the layoffs will occur—all at once or in stages. 
• Consider whether the reduction in force (RIF) will likely trigger a WARN event, or if it can be structured to avoid one. 
• Consider possible benefits and detriments to allowing employees to self-select by volunteering for the reduction, and of offering severance release agreements. 
• Carefully determine criteria that will be used to select individuals recommended for inclusion in the RIF. 
• Identify decision-makers who will select affected employees and provide an internal memorandum that describes the process and criteria to be used. 
• Ask the decision-makers to go through the process and make a preliminary list of recommendations about who should be included in the RIF and why. HR can then scrutinize these recommendations and raise questions if justifications for certain selections are unclear or appear weak. 
• Once the final list is prepared, HR should perform a statistical adverse impact analysis to see if any protected classifications of employees appear disproportionately affected and to confirm nondiscriminatory justification. 
• Determine whether severance will be offered to selectees, decide how it will be calculated and prepare releases that meet all OWBPA and Age Discrimination in Employment Act (ADEA) criteria for those employees age 40 or over. These requirements include the necessary statistical information to be provided to those employees, a 45-day period within which to consider signing the release, and a seven-day period to revoke after signing before it becomes enforceable, along with other language required by the ADEA.
• Have and execute a well-thought-out communications plan—internally, and possibly externally—to announce the layoffs.

Document everything, including the decision-making and selection process and the alternatives to a layoff considered by the company, said Robin Samuel, an attorney with Baker McKenzie in Los Angeles.

Disparate Impact Analysis

Run a disparate impact analysis for all layoffs companywide, divisionwide, departmentwide and maybe plantwide, said Gerald Hathaway, an attorney with Faegre Drinker in New York City.

A disparate impact analysis is a review that compares a protected class of the workforce to the protected class of those selected for the layoff, explained Dan Kaplan, an attorney with Foley & Lardner in Madison, Wis. If they don't align, there might be substance for a discrimination claim, he said.

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The adverse impact analysis should ensure that the layoff is not having an outsized impact on certain people based on a protected characteristic, such as age, race or gender, Samuel noted.

"If there is a disparate impact—statistical disparity of two standard deviations or more—take a close look at the selection criteria," Hathaway recommended. "If the selection criteria were based on a manager's subjective assessment of the workforce reporting to that manager, discard the layoff selection list and find objective factors," he said. Then, rerun the selection process using those objective factors.

One objective factor could be length of service with the company, Hathaway noted. "Seniority is pure, but if seniority is used, do not make exceptions unless extraordinary circumstances exist," he said.

While seniority is the easiest criteria to use, it doesn't help ensure the company winds up with the best employees, Kaplan said. Some employers instead review performance evaluations and rely on them as the objective factor.

"Have someone in a position to challenge the choices made," Hathaway recommended. "The defense of disparate treatment claims requires the articulation of a legitimate reason for selecting the person or persons for layoff. All choices must be justified."

Another alternative is to have selection criteria and employee selection decisions reviewed by a control group of managers to avoid claims that any one manager or supervisor discriminated in selecting the laid-off employees, Samuel noted.

Look for "red flag" employees who require additional analysis, such as employees on statutorily protected leaves or employees who have made workplace complaints or participated in workplace investigations, he said. "Confirm that inclusion of such employees in the layoff is defensible given the likelihood of a retaliation claim."

Train managers on selections and any communications related to the reduction in force, said Trina Ricketts, an attorney with Ogletree Deakins in Kansas City, Mo.

She also recommended that employers analyze any collective bargaining agreement obligations and carefully draft separation agreements if severance is being provided, ensuring they comply with any state or local requirements.

[SHRM members-only toolkit: Avoiding Adverse Impact in Employment Practices]

Releases

Get releases and make sure they comply with the OWBPA and relevant state laws, Hathaway added.

Be sure the release is enforceable.

"For employees whose employment is governed by a written agreement, there may be language in the agreement that contemplates severance upon separation from employment, which invalidates the severance payment as 'consideration' for the release," said Andrew Zelman, an attorney with Berger Singerman in Fort Lauderdale, Fla.

In some states, such as California, certain earned benefits, like vacation pay, are considered compensable, he added. Should a severance agreement include separation pay in lieu of earned vacation, the release would not be enforceable, Zelman said.

Layoffs are a "very stressful time for all involved," Ricketts noted. "Advanced planning can help reduce that stress."