HR Management & Compliance

Reductions in Force: How to Do It the Right Way Without Getting Sued

Sales are down. Expenses are up. You’ve tried everything and it looks as if your only alternative is to eliminate jobs. These not uncommon circumstances can turn into a high-stakes gamble, particularly because the graying of the American workforce puts you at risk for expensive age bias claims. So when you’re facing a restructuring, it’s critical to make sure you can defend your actions if you’re sued.


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Careful Preparation Is Key

If laid-off workers challenge you, it’s important to show you had legitimate business reasons for eliminating their jobs. Before taking action, develop a written plan that includes these critical elements:

  • An explanation of your reasons for the reduction in force, such as plummeting sales, excessive overhead, or unnecessary duplication of responsibilities.
  • A summary of your goals and how the downsizing will help achieve them.
  • A list of job functions that can be eliminated or consolidated.
  • An analysis of how many workers have to be let go and how you will choose them.
  • A description of the job classifications after the layoff and the employee skills needed to fill those jobs.

Selecting Workers for Layoff

The most difficult-and risky-part is deciding who to let go. The safest method is to follow seniority. The last-hired, first-fired approach is least likely to be challenged. But your oldest and most senior workers may not be your best and, what’s more, they may be among the highest paid.

That’s why many employers would prefer to focus on job performance and skills. This method may yield better results, but it’s more complicated and exposes you to increased risks.

Here are some suggestions that can help you justify your decisions and avoid age bias charges:

  • Carefully evaluate employees. Dennis Cook, a partner in the Sacramento law firm of Cook, Brown, Rediger, & Prager, recommends that you do a written evaluation of every worker close to the time of the layoff. Assess current performance and whether the employee has the job skills you’ll need after the layoff. Remind supervisors in writing that they may not use illegal criteria, such as age, sex or race, in their evaluations.
  • Check past reviews. Compare the new evaluations with recent performance reviews. If they aren’t consistent or reconcilable, analyze why. Keep in mind that you could have a tough time explaining why a worker’s last review was negative when there were nothing but glowing evaluations in the past.
  • Document selection decisions. Prepare a written explanation of your legitimate business reasons for choosing to lay off each affected employee. If you transfer or relocate others, explain why you didn’t give the laid-off employees the same opportunities.
  • Assess impact. Analyze whether your plan will have a disproportionate effect on older workers, women or minorities. This assessment can be complicated and you may find that you need expert help from an employment law specialist.

Exit Incentives

Before turning to involuntary layoffs, many companies solicit volunteers to leave in exchange for an early retirement or other incentive package. These programs are legal, so long as they’re not designed to get rid of older workers. Here are some ways to make sure you aren’t violating their rights:

  • Use factors other than age. Cook says it’s okay to offer an early retirement or exit incentive based on length of service. For example, you could extend the offer to all workers with more than 10 years of service. But it can be risky to limit your offer to older workers, such as only those over 55 or even over 40.
  • Give employees time. Allow those affected adequate time to consider their options. One court, for example, said that 24 hours wasn’t enough (see CEA October 1996). And don’t threaten or pressure someone to accept the incentive.
  • Get releases. Have employees who accept the special benefits sign a waiver stating they won’t sue you over the layoff. And remember that you must follow special guidelines for waivers by employees over age 40. (See CEA October 1996 for details on the federal Age Discrimination in Employment Act.)

Also, a waiver of age bias claims in a reduction in force is legal only if you inform employees in writing of the following: who is eligible for the incentive; the time limits to accept the offer; and the ages and job titles of those selected for and excluded from the program.

Carrying Out Involuntary Terminations

In the case of involuntary terminations, employees may be less likely to sue if you handle the layoff notifications carefully. There are several steps you can take to help the process go more smoothly:

  • Move quickly. Some experts believe terminations should be carried out in one day to minimize the disruption at work. However, if you have 100 or more employees, you may be subject to the Worker Adjustment and Retraining Notification Act (WARN), which requires you to give employees at least 60 days advance written notice before a plant closing or large layoff. For details, contact the Department of Labor at (202) 219-5577.
  • Make discussion short and honest. A highly placed manager or executive should tell each employee why they are being laid off. Keep the discussion brief, candid, and compassionate. Make sure the worker understands the termination is final. And don’t forget to document what was said in the interview.
  • Offer severance. As Janet Paraventi-Holt, Human Resources Director for Managed Health Network points out, severance pay can soften the blow of termination, making workers less likely to sue and more willing to sign a release of claims. Plus, remaining employees will feel better if they see outgoing employees treated fairly. Other benefits may also help ease the trauma, such as paid COBRA coverage or continuation of group medical insurance (if your health insurer allows this), and outplacement assistance.
  • Provide answers about pay and benefits. Anticipate worker questions about pay and benefits and prepare written answers in advance to hand out to affected workers.
  • Consider letters of recommendation. Although many employers these days are reluctant to give references and with good reason, you might want to consider doing so when a large scale layoff is involved. A brief letter stating that you have eliminated the worker’s position for business reasons as part of a reduction in force could make it easier for employees to find new jobs. They’ll be less likely to sue if they’re back to work quickly.

Take Care of Remaining Workers

Seeing co-workers laid off is bound to cause employees who stay to fear for their own job security, which could prompt them to leave. To stem sinking morale and rising stress, it’s important to communicate regularly with your remaining employees about how your business is doing. But don’t make promises you can’t keep. For example, don’t tell employees that there won’t be any more layoffs, unless you’re absolutely sure.

Keep in mind, too, that even before you begin the layoffs, it’s critical to communicate with supervisors and gain their support since they’ll likely have their own apprehensions. And if your managers don’t understand what’s going on, it will be difficult for them to present the changes in a positive light to your workforce.