December 1, 2022
How to Reduce the Risk of Future Litigation When Reducing Your Workforce

How to Reduce the Risk of Future Litigation When Reducing Your Workforce

Lauren D Fierro, Amber S. Healy
Atkinson, Andelson, Loyo, Ruud & Romo

Given the current state of the economy, many employers are considering reductions in work hours and potential layoffs.  As businesses consider taking action to save money and prevent potential closure, they must do so carefully in order to manage and reduce risk of future litigation related to its actions.  This blog discusses the appropriate steps that a business must take when conducting a reduction in force (“RIF”).

From a legal perspective, not every layoff or separation of employment is a RIF.  A RIF occurs when an employer eliminates a position with no intention of replacing it, resulting in a permanent cut in headcount.  These reductions are usually due to economic pressures, lack of work, organizational changes, or other business necessities that require a reduction in staff.

Prior to any RIF, employers must identify the business need and goal to be accomplished so that the information is communicated in a consistent manner to employees.  In addition, employers must review the terms of any applicable collective bargaining agreements, individual employment agreements, and all written company documents and policies to ensure that the termination policies are being followed.  If possible, employers should consider transition assistance, such as outplacement services, which greatly reduces the risk of post-layoff claims.

Once the goal is established, an employer should prepare a matrix of potential layoff candidates.  Length of service, skills, versatility, and performance ratings may be factors used to determine who to terminate.  The matrix should identify all employees who will be affected by the RIF by department, location, or work unit and demographic data (i.e., sex, age, and race/ethnicity).  Employers should also give special consideration to those with a higher risk of future litigation, which includes, but is not limited to, workers’ compensation claimants; employees who recently returned from leave; employees about to vest in stock options, retirement plans, etc.; and complainants or potential “whistleblowers.”

Next, employers must conduct a disparate impact analysis, which is a statistical analysis of the current workforce and those selected for layoff, to ensure that the terminations are not adversely affecting a particular category of employees, such as older employees or employees of a particular sex, race, or ethnicity.  Where a disparate impact exists, employers must explore whether less discriminatory alternatives exist for selection of the employees for the RIF.  Absent that, employers should be prepared to defend why certain employees were selected versus others in the same unit who were not in a protected class.

Because a substantial number of lawsuits filed by former employees arise because of how the termination took place, not whyit took place, employers must also consider how to plan and carry out termination meetings.  To the extent feasible, meetings should be one-on-one, unless a large number of terminations are involved.  Meetings should be brief and a uniform message should be delivered by management.  Meetings should be informational, not argumentative.  Employers should refrain from using social media, e-mail, text messages, or other instant messaging to notify employees of the layoffs. Final paychecks and termination documents should be delivered immediately.  If severance agreements will be utilized, they should be provided accounting for any mandatory review periods and special requirements for group layoffs. 

In addition to the considerations set forth here regarding RIFs, you must also consider whether the RIF is subject to federal Worker Adjustment and Retraining Notification (“WARN”) or California WARN requirements, which are discussed in detail here.

Before conducting a RIF, employers should consult with experienced employment counsel to ensure that all appropriate steps have been taken to minimize the risk of post-RIF litigation.  Employers with questions about employee layoffs may contact the authors or their trusted counsel.

Reprinted with permission from AALRR.