Why a Layoff Is Not an Alternative to Terminations for Cause

​One of the biggest mistaken assumptions in the workplace is that companies can simply lay off their weakest performers rather than proceed with progressive discipline. In almost all cases, progressive discipline is the method of choice when dealing with substandard performance or conduct issues. To simply make the person and problem magically disappear via a no-fault layoff may feel like the path of least resistance, but it often leaves managers unaccountable, workers neglected and the organization vulnerable.

Here's what you need to know so you can avoid this potentially dangerous landmine.

The Path of Least Resistance

Managers who want to avoid the confrontation associated with progressive discipline and termination often look to a no-fault layoff because it appears to provide a quicker, cleaner solution to ending employment. No confrontation, no disagreement and no conflict necessary: simply a "position elimination" removing the poor-performing employee from the workplace, coupled with a severance package and a promise not to contest the individual's application for unemployment insurance.

But there are certain legal and practical guidelines you need to follow when considering a layoff. Specifically, you should determine the appropriate employee to be laid off, how long you'll have to wait before refilling that position and what could happen if you are legally challenged for having improperly laid someone off.

Keep in mind that you eliminate positions, not people. There's typically a budget shortfall that needs to be addressed by eliminating a position or a redundancy in work processes that triggers the need to eliminate a role. In other words, your written records must reflect that a position is being eliminated because of a legitimate business need, and the individual who currently fills that position will now be affected because there's no longer a job to report to.

"If removing a problem performer is your goal, then eliminating that individual's job may be a big mistake," according to Jeff Nowak, management-side employment attorney at Littler Mendelson P.C. in Chicago. "After all, you'll still need to get the work done."

Even if you already have a specific employee in mind, determining which employee should be separated once you've established a legitimate business reason to eliminate a position can be challenging.

"Remember, you can't arbitrarily select someone for a layoff simply because he is your weakest performer or because he happens to be sitting in the seat that's being eliminated," Nowak said. "Instead, you must first identify the least-qualified person in the department or unit to assume the remaining duties after the restructuring occurs. The least-qualified person on paper, however, may end up being your best (albeit newest) performer."

Let's look at an example to clarify these concepts. Assume you're looking to terminate a poor-performing employee by eliminating one of three administrative assistant positions in your marketing department. Since there are three individuals who currently fill that role, you have a pool to choose from and your company will be required to conduct a "peer group analysis" to see which of the three is the least qualified to assume the remaining job responsibilities once the position is eliminated.

Initially, develop a list of the three employees in that group with similar titles and responsibilities, ideally under attorney-client privilege with your outside employment counsel. Then review the nature of the remaining work to be done after the position is eliminated. For example, if the assistant position reporting to the digital/social media team is being considered for elimination, then document the responsibilities that will remain in the unit after the reduction in force. (Job descriptions are immensely helpful for such comparisons.)

Next, determine which of the three assistants is the least qualified to assume those remaining duties. In essence, you'll be comparing all three employees' essential job responsibilities, tenure, prior experience, skills, knowledge, abilities, education and professional certifications. In addition, review the employees' annual performance reviews and history of progressive discipline to evaluate existing performance records. It would also make sense to review their work experience before joining your organization so that tenure alone doesn't outweigh other considerations.

Finally, determine who is the least-qualified individual. If that employee is the person who was originally targeted for the layoff because of his ongoing performance or conduct problems, then you may be safe to separate his employment.

"But it's rare it works out that way," Nowak said. "It's very often the case that the underperforming employee is arguably not the least-qualified individual (based on your review of all relevant criteria). In fact, the underperforming worker you'd like to lay off typically has the most tenure, coupled with a long history of performance reviews that 'meet expectations.' Under such circumstances, it could be exceptionally risky to select that individual for layoff (should a plaintiff's attorney later challenge your conclusion)." 

Since your records don't support separating the problematic employee in question, then you'd have to lay off one of the other two assistants. Of course, that would mean the layoff would no longer be a viable solution since you can't use it to separate the one administrative assistant who's causing all the problems. Therefore, you'd have to revert to managing that individual's performance via documented progressive discipline.

Obtaining a Signed Release Agreement

Many organizations wisely look to obtain a signed release of claims from a laid-off or position-eliminated worker. Such a release requires that the employer pay or provide the worker some form of legal consideration, which means something of value that the employee isn't otherwise entitled to, making the release binding and enforceable.

"Typically, post-separation severance, payable either as salary continuation or in a lump sum, constitutes the consideration supporting the release agreement," said Jacqueline Cookerly Aguilera, labor and employment partner at Morgan Lewis & Bockius LLP in Los Angeles. "However, employers can offer additional or alternative forms of consideration to support a release, such as COBRA reimbursement, payment of a full or prorated bonus, acceleration of stock vesting, forgiveness of a debt and/or outplacement assistance, among others." 

But releases can get expensive. While a common formula for non-executive employees may be one week or two weeks of pay for each full year of service, severance for executives could range between three and 12 months or more of pay, either as a lump sum or as salary continuation payments. Executive-level employees typically have employment agreements that include severance obligations upon termination without cause. Further, depending on circumstances, release agreements may not be foolproof. For example, if an employer attempts to backfill the position of an at-will employee soon after telling the employee that the position is being eliminated, and the former employee finds out, expect a challenge.

"Depending on the facts, a former employee may claim they were fraudulently induced to sign a release agreement and that the employment termination was pretextual for discrimination (e.g., based on age, race or another protected characteristic)," Aguilera said. "While fraud may be difficult to establish, best practices dictate waiting at least six months—and ideally, longer—before filling a position that was recently 'eliminated,' whether or not the employer obtained a release. If an employer doesn't wait and instead immediately fills the position, be prepared to establish that some new or unexpected business need arose, requiring the position to be filled or that the position substantively changed from the one that was just eliminated."

The last thing you need is to defend your termination decision or your release agreement. Accordingly, when it comes to termination, honesty is the best policy. Manage out poor-performing employees with progressive discipline. Hold employees accountable for their performance, attitude and behavioral deficiencies, and then coach, counsel and document substandard performance and other work deficiencies. But remember to provide the employee an opportunity to cure deficiencies. If the poor-performing employee doesn't improve, then terminate the employee for well-documented reasons so the termination decision is not a surprise. 

Hiding a termination decision behind a "layoff" or an "elimination of position" may appear to be the easier, non-confrontational path, but it could leave a company exposed should the employee learn that the position was not eliminated and a new employee was hired as a replacement.

Paul Falcone (www.PaulFalconeHR.com) is a regular contributor to SHRM Online. He is CHRO at the Motion Picture & Television Fund in Los Angeles and author of 101 Tough Conversations to Have with Employees; 101 Sample Write-Ups for Documenting Employee Performance Problems; 96 Great Interview Questions to Ask Before You Hire; 2600 Phrases for Effective Performance Reviews; The Performance Appraisal Toolkit; and 75 Ways for Managers to Hire, Develop, and Keep Great Employees (HarperCollins Leadership, SHRM and AMACOM Books).