Q As a result of the economic downturn, we must lay off approximately half of our workforce. In considering whom we should select, it occurs to me that we could save the most money by laying off higher-salaried, nonmanagement employees. However, our higher-salaried employees tend to have the most seniority and therefore are among the older employees in our workforce. Do we have a problem if we use this strategy?
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A More likely than not, if you use salary level as the only criterion for selecting workers for the reduction in force (RIF), you will run into problems. While salary level may be a legitimate factor in determining which employees to lay off, it cannot be the determining factor if it adversely affects older workers.
In 2005, the U.S. Supreme Court ruled that age discrimination claims based on a facially neutral policy or practice that has a disparate impact on older workers may serve as the basis for age discrimination claims. However, you can avoid liability if you can show that the policy or practice leading to the disparate impact is based on reasonable factors other than age. Thus, while it is theoretically possible to escape liability by showing that factors other than salary level played into the decision, relying too heavily on salary may ultimately lead to liability for age discrimination because higher salary correlates to years of service, which in turn correlates to age.
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Last November, several experts reported to the Equal Employment Opportunity Commission (EEOC) on the difficulty that age discrimination poses to older workers’ efforts to maintain or seek employment (see Employers Seeking Savings: Beware the Cost of Age Discrimination).
One alternative to a RIF that you might consider is an early retirement or exit incentive strategy for workers of a certain age or tenure with your company. The Older Workers Benefit Protection Act amended the Age Discrimination in Employment Act (ADEA) to address the legality of early retirement incentive programs and to affirm the validity of properly structured programs. However, all programs must be truly “voluntary” and consistent with the “relevant purpose or purposes” of the ADEA.
While salary level is a legitimate criterion for selection of employees for a RIF, it cannot be the only criterion, particularly if it results in a disparate impact on older workers, so be careful not to put too much emphasis on employee pay. As an alternative, you may wish to look at structuring a lawful early retirement or exit incentive program with the assistance of an experienced employee benefits attorney. But whatever you do, be careful. The strategy you choose can be the difference in a win-win situation or ill feelings, bad publicity, and legal liability.