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Reducing the Risk of Wrongful Discharge Claims During Layoffs

by Kara Shea

In a previous article, I discussed the risks of some of the methods employers use to forestall layoffs (such as adjusting hours and compensation). This week, I’m going to assume the worst has happened and talk you through a layoff scenario, with the goal of reducing the risk of wrongful discharge claims and making the process as painless as possible for you and your employees.

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Follow your own policies
Does your company have a written policy addressing layoffs? If so, read it carefully before implementing layoffs, and make sure you follow your own rules for selection processes, notification requirements, and severance to the letter. But don’t worry — employers don’t have to have a preexisting written policy to lawfully enact layoffs.

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Exit incentive programs
Think about offering an exit incentive program if you can. Such programs, if implemented correctly, provide a fairly litigation-proof method of thinning your workforce because they permit employees to essentially select themselves for termination. However, they can also be disruptive.

Employers should consider the impact on employee morale of announcing possible layoffs far in advance, the disruption to ongoing projects, and the possibility that all the best employees might head for the door right away, leaving you with “the rest” for the duration.

Once an offer of severance is made, it’s difficult — and sometimes impossible — to retract. To avoid discrimination claims, employers also need to give careful consideration to the criteria used to select which groups of employees will be offered exit incentives.

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Severance Agreements
If an employer provides employees with any severance pay, through an incentive program or involuntary layoffs, it should always obtain a written release of all claims against the company in return. Otherwise, employees can take the severance money and still sue you for wrongful termination.

Special protections for older workers
If employers obtain a release from any employee who is 40 or older, they must ensure that it complies with the federal Older Workers Benefit Protection Act (OWBPA). If the release doesn’t conform to the provisions of the OWBPA, it will be invalid, which means the employee will be able to keep the money and still sue you for age discrimination, even though he signed a document saying he wouldn’t.

So what does the Older Workers Benefit Protection Act require? For starters, there must be a special reference to the OWBPA in the release itself. In addition, the employee has up to 21 days to consider the release and up to seven days to revoke it after he executes it. There are additional requirements for group layoffs.

For example, if an employer obtains releases from two or more employees as part of the same layoff and any of them are 40 or older, the employer must allow them a 45-day review period instead of 21 days. Also, the release must contain a list of all employees in the affected departments, their ages, and whether they were laid off.

Some employers prefer to forgo the OWBPA’s requirements, reasoning that the law applies only to one of the claims contained in the release so they’re willing to risk liability to avoid the notice requirements and waiting periods.

Age discrimination claims (both intentional discrimination and disparate-impact claims), however, are probably the most common type of wrongful discharge claim to result from layoffs. And when groups of employees are affected, an employer could be facing a potential class action. Therefore, it’s wise to work through the wording of your severance agreements with an employment attorney before implementing layoffs that might affect older workers.

Kara Shea is an editor of Tennessee Employment Law Letter and a partner with Miller & Martin PLLC, practicing in the Nashville office. She can be reached at (615) 244-9270.