Reductions in Force: Top Considerations
The following article originally appeared in Affluent Magazine.
Companies across the board are laying off staff. Many reductions-in-force (RIF) result in employees filing lawsuits against the employer, primarily involving class action claims of discrimination based upon age, race and gender. The potential damages in RIF class action litigation can be enormous. Here are the top 10 factors to consider when management is facing substantial declining revenues.
1. Alternatives to RIFs
While short-term savings may make a RIF attractive, employers actually may incur substantial hidden costs, over the long term. Terminations may eliminate a disproportionate number of older, female, and minority employees. This creates the potential for class action and individual wrongful discharge lawsuits. Consider alternatives like furloughs, extended vacations, pay freezes or reductions, shorter work weeks and voluntary leaves of absence.
2. Voluntary Separation / Early Retirement Programs
Voluntary RIFs involve an employer soliciting volunteers for a RIF severance package. An employee who selects himself for termination, in exchange for severance benefits, will be hard pressed to argue that his selection was based on impermissible criteria. The risk of lawsuits can be minimized, through the use of a severance agreement which includes a waiver of claims against the employer in exchange for severance benefits.
The downside of voluntary RIFs is that the employer has limited control over which, employees volunteer. A voluntary RIF may result in an exodus of talented employees while low performers decide to stay.
3. Furloughs
With a furlough, an employer requires employees to work fewer hours or take a certain amount of unpaid time off. An employer may furlough all employees one day a week and pay them for only 32 hours instead of their normal 40 hours each week.
4. Involuntary RIFs
One of the primary goals of a workforce reduction is to cut costs and become more competitive. If done wrong, a RIF can leave the organization vulnerable to litigation and actually make the business less profitable.
5. Problem: Unclear RIF Criteria
A failure to articulate and document the need for a RIF can lead to problems if the RIF is challenged as discriminatory. Merely stating that the economy is bad is insufficient. The employer must be prepared to demonstrate how the economy is affecting the employer and what alternatives to a RIF have been evaluated.
6. Discrimination Issues
Most legal challenges to RIFs are based upon the selection criteria the employer uses to determine who stays and who goes. The paramount consideration is to be careful that the terminations are based on non-discriminatory factors.
7. Severance Benefits
Federal law does not require severance pay for private-sector employees. Severance pay can be beneficial by fostering goodwill among departing employees and lessen the likelihood of them filing employment claims.
8. WARN
Depending on the total number of employees and the number and timing of employment losses, the federal Worker Adjustment and Retraining Notification Act ("WARN") may require employers to provide 60 days written notice of mass lay-offs.
9. Unionized Employers
Many companies that experience economic distress necessitating a RIF are unionized. Unionized employers typically have many hurdles to jump through before implementing a RIF.
10. Communication
RIFs invariably generate feelings of disloyalty and distrust among affected employees. If RIFs are improperly handled, those feelings can cause employees to file lawsuits. Employees value employers who keep them informed of developments that could affect their jobs. Communication fosters loyalty, morale, and, productivity.
