Our company is going to go through a prolonged period of significant downsizing. A recent seminar told us to expect a retaliatory wave of unfounded allegations, grievances, and lawsuits by disgruntled employees. Can you suggest steps we can take to protect ourselves against these attacks? Should we retain specialists? What do you recommend we do? — Anonymous in California
Fear and insecurity experienced because of downsizing, layoffs, or any other type of significant restructuring may indeed spawn litigious employee responses as well as low morale resulting in poor productivity. Therefore, you are wise to want to identify and implement measures to minimize legal exposure and reduce loss of business effectiveness and efficiency. This requires work in three crucial areas:
- planning, analysis, and evaluation–before, throughout, and after the restructuring
- communication—with all stakeholders, including employees, customers, and vendors when necessary
- legal compliance—including proper notifications to local officials and agencies, ERISA (Employment Retirement Income Security Act) considerations, final pay, and separation agreements
Most employers will probably need to seek an attorney’s assistance in dealing with problems of downsizings and layoffs, as this is an area fraught with legal pitfalls.
(Readers, please note: This answer does not address unionized organizations that will have to abide by their collective bargaining agreements.)
Planning, Analysis, and Evaluation
An organization such as yours that has already done some level of economic and business analysis to determine that personnel reductions are necessary must then determine which jobs, departments, and individual jobholders will be terminated or otherwise affected.
Let’s say, for example, that your organization has decided to outsource all information technology functions, and that the transition will occur in phases to avoid major disruption of ongoing operations. Your first step will be to analyze workforce data. Create a spreadsheet of all employees considered in the organizational changes and include the following information:
- Age, race, hire date, job title(s) going back up to five years.
- Status, i.e., active or on leave of absence. (You will need to give special consideration if an employee is on workers’ comp, a Family and Medical Leave Act leave, etc.)
Also, compile the following documents:
- Performance ratings going back up to five years, including any correctional or disciplinary letters, and counseling sessions going back up to five years.
- Training or cross-training programs.
- Hire agreements and offer letters. (Be sure to review these documents.)
- Recorded complaint(s) and dates. (The actual details associated with a complaint, such as sexual harassment, should remain confidential.)
This workforce data will be critical throughout the restructuring process to ensure that consistent information is considered and evaluated.
Evaluation and Selection
Someone on your team must be very knowledgeable about California employment law and the legal implications of terminating employees. If you don’t have a human resources department to assist in the evaluation process, hiring a trained consultant or legal counsel is highly advisable. Also, insist that more than one manager or supervisor be involved in the evaluation process to avoid accusations of illegal bias.
There are many possible pitfalls in choosing who will be laid off. For example, let’s say your organization chooses to terminate the lowest performers first. Then, on analysis of those affected, you discover that a high percentage—much higher than the percentage in the whole employee population—is over age 40 (or members of another protected class). That’s a warning sign. Your terminations could expose your organization to legal challenge, especially if performance ratings and the documentation to back up those ratings are subjective, inconsistent, or otherwise open to interpretation.
Remember also that terminating an employee following any recent type of protected activity, such as filing a harassment or discrimination complaint, is more likely to result in a retaliation claim—meaning that the burden will be on you to prove that the termination was not unlawful.
Another sensitive area is terminating employees on protected leaves, such as FMLA/ CFRA or workers’ compensation.
Finally, properly maintaining the documents used for evaluating who would be laid off is critical in case a third party (such as a state agency or the U.S. Equal Employment Opportunity Commission) ever requires your organization to prove that its downsizing or reorganizing process was consistent and nondiscriminatory.
Communication
Once you have decided who will be affected and how, prepare a detailed timeline of communications and determine their content.
The communication plan should include the process you will use (e.g., e-mails, WebEx, meetings with individuals), who will be involved in creating the various pieces, who will deliver the news, and when. Use varying approaches to communicate with different groups, as follows:
To all employees:
This should include the “big picture,” explaining in general why the downsizing/reorganization is necessary.
To managers:
Explain their roles and timelines. Hand out scripts and allow managers to discuss any safety concerns they may have about certain employees. Be sure there is discussion regarding the need for consistency of message, how employees are allowed to gather items and leave buildings, and how computer security will be handled.
Supply checklists for all steps in that process, including what to collect, such as credit cards and keys.
Ensure scripts are prepared for every level of discussion, from general announcements to individual terminations. Consult with your attorney if you’re unsure what to say.
Create FAQ (frequently asked questions) sheets, and consider setting up an online Q&A forum to address issues such as benefits, final paychecks, references, outplacement services (if any), and unemployment insurance.
For affected employees:
Create an exit letter: a so-called “no-fault” letter for employees that states, “XYC Company has reorganized for business reasons, and the reductions in staff were necessary and not necessarily reflective of employee performance.”
For third parties:
Create letters to clients, customers, and vendors regarding how the changes will affect them (e.g., stating who will now be handling their account). This may curtail unnecessary conversations with affected employees.
To government agencies and local officials:
If your organization is subject to WARN (federal Worker Adjustment and Retraining Notification Act) and/or Cal-WARN, make sure all proper notifications are made in a timely manner.
Other considerations:
You may also need additional communication pieces. For example, if there are management, department, or job description changes, consider providing new organization charts, job descriptions, re- or cross-training plans, etc. The key is to communicate as much information as is prudent for effective ongoing business operations without violating individual privacy. The goal is to reduce employee uncertainty, an underlying cause of unproductive behavior.
Finally, it is critical to have an employment law expert review all communications.
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Compliance
Besides complying with the requirements mentioned above, you will need to ensure that any separation agreements comply with ERISA, ADEA (the federal Age Discrimination in Employment Act), and other statutes and laws. Enlist an attorney for the preparation, presentation, processing, and maintenance of these documents.
Final Pay
Make sure that wage payments, including any earned but unused vacation or paid time off, bonuses, and arrangements for any commissions and outstanding expenses that may be owed after termination, are made in compliance with state and federal labor codes. Fines and penalties for failure to make timely payments can be very steep.
Summary
A downsizing or reorganization of any kind or size can be very challenging for employees at every level. By thoroughly analyzing your workforce, carefully preparing and timing your communications, and researching and complying with legal requirements, your company may be able to reduce or even avoid legal allegations, complaints, and unnecessary morale and productivity issues.
Hang in there, Anonymous!
Diana Gregory, SPHR, is Senior Human Resources Specialist at the Walnut Creek office of Administaff, a professional employer organization and human resources outsourcing firm.