Selection Principles Are Key to Limiting Legal Risks in RIF

CHICAGO—The selection of employees who will be laid off in a reduction in force (RIF) should follow rules of the road set before the selection process begins, Holly Silver, the new manager of Philip Morris International’s global law practice, told attendees of the Association of Corporate Counsel’s annual meeting on Oct. 30, 2007.

The establishment of selection criteria “is always at the beginning of a reorganization,” observed Silver, who has helped oversee approximately 50 reorganizations. HR and management typically meet with attorneys at the outset and set up a timeline for the downsizing. “Everyone says ‘fine,’ ” but some participants often pressure attorneys later to finish their work in a shorter period of time, she said.

Attorneys’ review of the RIF is the last step, Silver noted, saying she usually asks for two weeks. “You need a big group of lawyers” to work on this and can’t “shortcut it.”

Sometimes at the outset of a RIF, management will hand lawyers a list of employees who need to go. Silver said she discourages the use of such lists, cautioning that in litigation “those lists will kill you.”

Silver gets involved in the process as soon as she has a “whiff of a reorganization.” She reassures HR and management that “superstars will always rise to the top.” Some workers in the middle, though, might end up being laid off.

Selection Criteria

Because selection criteria are crucial to making the selection process objective, Silver recommended making the criteria easy for management to understand. Permissible selection criteria include:

• Functional/technical skills.
• Communication.
• Teamwork.
• Leadership.
• Task achievement skills.
• Past performance reviews.

Impermissible criteria for selection include:

• Protected class.
• Proximity to retirement.
• Outstanding claims.
• Leave status.
• Protected conduct (e.g., whistle-blowing).

In creating a numerical ranking system, Silver similarly urged employers to “keep it simple,” such as having a scale that adds up to 100. She recalled once instructing managers to use even numbers from 0 to 10 with six, for example, being somewhat on track, and four going off track. Managers turned in employee rankings of one, three and five.

Ground Rules

Ground rules set at the outset can simplify the selection process as well. Silver has applied the following ground rules for RIFs:

Keep exceptions to an absolute minimum. “To start to create exceptions is the worst thing you can do,” Silver remarked. “The high person stays. The low person goes—end of story.” Otherwise, the basic premise that the selection process is based on objective numbers is undermined. Silver said the only valid exception is in sales when someone might have a lower score on the selection criteria but much more experience in a sales territory. Silver said she thinks these exceptions are defensible, “but I don’t like them.”

Check backup documentation. Inevitably, a manager will say the wrong person has been selected to go. “How many times have you heard that?” Silver asked conference attendees. Attorneys nevertheless should not tell employers to change the score. HR and managers might be encouraged to see whether the scores are defensible, she said. There might be mistakes in the calculations—such as inconsistencies between layoff selection and performance review ratings or simple addition errors—that, if caught, might prevent the wrong person from being laid off.

Avoid interviews in the layoff selection process. Silver said some managers think interviews can be helpful in the selection process for RIFs, but she doesn’t find them particularly useful in legal defense. If a new job is being created, the employer’s counsel may not be able to talk the manager out of an interview. But in these circumstances, Silver said, the interview is likely to be “a nightmare.”

Decide before starting what to do when there is no performance review. Employers should use the same procedures when going through performance reviews during the layoff selection process for all employees. In some reorganizations, Silver has used just the most recent performance review, while in others the two most recent. There are plusses and minuses to each approach, she noted. Regardless, some employees will be without performance reviews. Such employees may be new or on leave during the performance reviews, or sometimes a review even may have been lost.

Let temps go first. Temps should be laid off before employees are displaced, she said.

Restrict relocations to workers in certain positions. Silver recommended restricting relocations to a select level of employees (e.g., vice presidents and directors would be considered for relocation but managers and those below would not) for administrative reasons. She recommended reducing employers’ workload and legal exposure by getting a preliminary showing of interest within the group of employees eligible for relocation.

Limit demotions. Demotions can increase potential liability because the demoted person often “does not have the technical expertise,” Silver said, adding that the demoted worker often “will fall to the bottom.”

Don’t bump incumbents. The bumping of incumbents is highly risky, Silver warned.

Institute a hiring bar on replacing laid-off employees for one year. A hiring bar will discourage managers from getting rid of employees they don’t like just to replace them.

Seek volunteers. Silver recommended that employers consider soliciting volunteers to be laid off, saying that it is a great way to reduce employers’ legal risk. She noted that management often “views volunteers with great wariness,” fearing that the wrong employees will volunteer. But Silver said employers “can control it” by declining to accept volunteers’ offers. She recalled working at one reorganization where the use of layoff volunteers prevented anyone else from having to be laid off.

Empathize. Silver noted that layoffs are “a time when lawyers need to be human. Don’t get panicky. Try it.” After all, she said, “juries humanize these” situations. Those involved in the layoff selection process also should “humanize it, so you can sleep at night.”

Allen Smith, J.D., is SHRM’s manager of workplace law content.