HR Management & Compliance

Terminating Employees: New Legislation Protects Higher-Paid Older Workers; How To Cut Costs Without Breaking The Law

In a controversial ruling two years ago, a California Court of Appeal ruled that you could discharge high-earning employees over age 40 and replace them with lower-paid workers if your motivation was simply to save money. Labor organizations have sought to overturn the decision ever since, and now Governor Davis has signed legislation that does exactly that. With the new law, older workers will have more ammunition to challenge termination decisions. We’ll look at what you can and can’t do to cut labor costs in light of the new statute.

Use Caution When Considering Salaries

If you have five or more employees, it’s illegal in California to discriminate against workers age 40 and over because of their age. Under the new measure, which goes into effect January 1, 2000, it will be a violation of the age bias law to use salary as a basis for deciding who should be terminated if older workers would be disproportionately affected. As a result, efforts to save money by laying off employees at the higher end of your wage scale will now be riskier because these workers tend to be older and would be harmed the most.

400+ pages of state-specific, easy-read reference materials at your fingertips—fully updated! Check out the Guide to Employment Law for California Employers and get up to speed on everything you need to know.

Alternative Strategies

If you’re considering terminating workers who are 40 or over, the following approaches can help cut costs and avoid age bias claims:


  1. Stick to seniority or performance. Base terminations on factors such as seniority, qualifications and performance, not salary.


  2. Offer voluntary incentives first. Instead of terminations, many employers try thinning their workforce by offering a voluntary severance program. Obtain a signed release of potential age discrimination claims from older workers who participate, and be sure to follow the special rules that apply to such waivers.


  3. Avoid actions that suggest age bias. Train everyone involved in the layoff process that age-related comments – such as wanting to bring in “young blood” or “fresh faces” – are fraught with danger. Make sure managers and supervisors always understand the legitimate business reasons for your actions so they can properly communicate them to employees. Also, since disputes are common when older employees are replaced with workers under 40 with equal or lesser qualifications, always carefully document the objective reasons for your decisions.