Layoffs - How Business should handle "Pink Slips"

Layoffs are upon us. How do we go through this process? How do we decide who stays and who goes? What is an Adverse Impact? What does the Business need to pay those who are laid off?

Nobody likes having to go through layoffs, neither the business nor its workforce. However, as many businesses are facing this reality right now, we need to make sure that steps are taken to make sure that every person receives the dignity they deserve and that business does not unintentionally create future liabilities based on half-baked procedures today.

1) Worker Adjustment and Retraining Notification (WARN)

The WARN Act is a federal law and requires certain covered employers with 100 or more full-time employees to give workers a 60-day notice before a plant closing or mass layoff. A plant closing or mass layoff has several components to determining whether the company needs to comply with WARN Act. One way to consider is whether the proposed layoff will result in between 50-499 layoffs and the resulting workforce will be a 33% reduction from the prior workforce. Again, there are other ways that companies can trigger the need to comply with this law, but raw numbers is often an area that’s overlooked. If the WARN Act is triggered, Employers should provide the required notice and may also want or need to report to state workforce agencies in order to provide employees with an array of no-cost employer and re-employment services.

2) Adverse Impact Analysis - What, How and Why

Not surprisingly, but a poorly implemented reduction in force (RIF) (i.e. layoff) could result in litigation and liability that is far greater than the amount saved by the layoff. So before a RIF is implemented, there should be statistical analysis of whether it would result in an adverse impact by gender, race, age or other prohibited factors. If it would, it may be necessary to go back to the drawing board. Start an adverse impact analysis by listing the employees who would be laid off if the criteria were to be implemented. Then analyze whether certain protected classes are affected more than others by comparing the percentage of the protected class scheduled for layoff with the percentage of the protected class in the employer's entire workforce or the workforce subset selected for evaluation. For example, if black workers account for 20 percent of an employer's workforce but 80 percent of the employees scheduled to be affected by the RIF, this disparity may present a litigation risk. Similarly, if there is a disparate outcome based on other protected statuses (usually age, gender and race), then the company should reconsider its analysis and layoff plans. If adverse impact is due to subjective decision-making or evaluations, the RIF selection criteria should be revisited. Adverse impact cannot be corrected simply by making selections based on gender or race, because those selections would not be lawful.

3) Consulting Legal Counsel early

Yep, you guessed it. There is a potential that if this process is done wrong, then those employees who were laid off could have viable discrimination lawsuit claims. Involving legal counsel early in the analysis and decision making could not only ensure that these guidelines are followed, but also that any analysis could be protected as attorney work product. Even if the company does everything right, anybody can file a complaint. The best defense is to be able to clearly explain the process, the analysis, the results and the objective nature of everything that went into these difficult decisions.

4) Wild Card and Best Practices

Obviously, best practice is to make sure that Human Resources and legal counsel and involved in this analysis from the beginning. Reverse engineering the analysis could create issues in the future. Take a gut check of optics (legal technicalities aside) about whether nepotism or the appearance of such could impact layoff decisions. Document and implement an objective criteria for layoff decisions. Regularly update and review the company’s layoff policies. Be compassionate. Think through the logistics of how layoffs will happen. Keep in mind that a business is not a hollow shell, but instead is comprised of employees whose lives and families will be directly affected by the upcoming actions of the company.