A reduction in force (RIF) often seems the obvious cure to financial challenges, but there can be surprisingly high costs associated with a RIF. You may want to consider alternatives.
Consider these potential RIF costs:
Lawsuits. This is an expensive aspect of any RIF, but there are steps to take to minimize the risk. Most lawsuits around RIFs allege discrimination in the selection of people for layoff or termination. The safest way to avoid these suits, experts say, is to base selection solely on seniority. This method is quite safe, but most employers don’t want to use it. No surprise, they want to use a more subjective system so they can keep their best people.
Unfortunately, the more subjective the criteria, the harder it is to show a clear rationale. However you decide to pick, be sure you can articulate your basis for making your selections.
Furthermore, before finalizing, take a look at how your selections are going to look to an impartial outsider. If you ended up—no matter how good your intentions—selecting members of a protected group out of proportion to their presence in your population, that’s practically a guaranteed lawsuit. You’ll want to take another look at your process.
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Benefits. If your RIF will involve closing out a pension plan, check carefully about your liability. Some employers have been surprised by the costs of getting free of these plans.
Continuation of Group Health Insurance. COBRA requires employers with 20 or more employees to offer continued group health insurance after terminations for any of a number of reasons, including some layoffs. State continuation laws may provide additional rights.
Outplacement Services. As a matter of goodwill, some companies provide outplacement services to laid-off employees. It is a nice gesture, but there are costs.
Severance Pay. Severance benefits are not required by federal law and are only required by a handful of states. However, many companies do offer severance pay. These benefits are usually calculated by the employee’s length of service with the company (e.g., 1 week of severance pay given for every year employed with the company).
Unions. When contemplating a RIF, it’s a good idea to check your collective bargaining agreement; there may be expensive requirements there that will factor into your decision about a RIF.
The Longer-Term Outlook
Part of management’s job is to put out today’s financial fires, but another part of it is to envision the company that will emerge from today’s business climate, what it will look like, and what its talent needs will be. You may realize that you don’t want to lose key employees who will be necessary to manage your recovery when things turn around.
Alternatives to Layoff
Here are some of the ideas companies are using to avoid layoffs:
Work sharing. Work sharing allows employees to share the work that remains after jobs are lost. Under a work-sharing arrangement, employees may work a reduced week or work every other week. Their hourly pay remains the same but reflects the reduced hours. In some states, the unemployment compensation laws allow employees to collect partial unemployment benefits during a work-sharing period.
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Reduced pay. A reduction in pay works best if it is shared by all employees, including management. It may be attractive, or at least acceptable, to employees if their unemployment benefits during a period of layoff would be less than the reduced pay.
Early retirement. Some employers reduce their workforce by offering attractive incentives to employees who are about to reach retirement age. The advantage of retirement incentives is that they allow employers to cut costs without requiring employees to leave their jobs involuntarily. However, the employer may lose some employees it would prefer to keep.
Is Your Company Considering a RIF?
With the recession dragging on, more and more companies are struggling to stay afloat. Many are turning to layoffs and RIFs to cut costs. But you won’t save any money—and, in fact, you could be on the hook for more than you ever bargained for—if your staff reductions lead to lawsuits brought by former workers who claim you violated their rights.
It’s important to ensure that the employee selection process you use is fair and consistent. Also, even if your selection criteria are valid, you can get into trouble for failing to properly calculate final pay and provide proper notices to employees. You might also find that your severance agreements, if improperly drafted, fail to protect you from future litigation.
If you’re contemplating a RIF or layoff, our editors recommend a new 90-minute audio conference called How to Reduce Your Legal Risks in the Wake of RIFs and Layoffs.
The date is July 16. The time, 1:30 p.m. to 3 p.m. (Eastern time—adjust for your time zone).As with all BLR audio conferences, one fee trains all the staff you can fit around a conference phone, you can get your (and their) specific phoned-in or e-mailed questions answered in an extensive Q&A that follows the presentation, and your satisfaction is assured or you get a full refund.
What if you can’t attend on that date? Preorder the conference CD. For more information on the conference and the experts presenting it, to register, or to preorder the CD, click here. We’ll be happy to make the arrangements.
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