While no business owner wants to conduct a layoff, it sometimes becomes a business necessity for an employer to reduce its workforce. The sports broadcasting industry was rocked this spring when ESPN conducted a mass layoff of its anchors, reporters and analysts. The layoffs were purportedly driven by declining subscribers, dipping advertisement revenue and rising programming costs. Despite its stature as the “Worldwide Leader in Sports,” ESPN was compelled to make changes.
There are many legal pitfalls employers must avoid when downsizing. Here are 10 important factors employers should consider when conducting a reduction in force to avoid conflict and potential claims of discrimination and wrongful termination:
- Employers must comply with federal and state labor and employment laws that prohibit discrimination in termination decisions. To reduce the risk of discrimination claims by impacted employees, take time to carefully plan and scrutinize the selection process. Think about who will be the decision makers. Determine what criteria will be used to determine who will be retained and how much weight will be given to each factor. Apply the criteria consistently.
- Use objective measures when possible (i.e., seniority, sales revenue, hours billed, etc.). Subjective criteria such as “attitude” or being a “team player” are more likely to be challenged as pretext or phony. If subjective measures are considered, ensure that selections are made by management who have personal knowledge of the employees.
- Document the selection process so you can combat any claims that the process was biased or rigged. A lack of documentation opens the door for impacted employees to argue that prohibited (i.e., discriminatory) factors were considered.
- Challenge the decision makers on selections, especially as to the employees “on the bubble”. These are the employees who are more likely to initiate a lawsuit claiming wrongful termination/discrimination if they are terminated.
- Pay special attention to employees who are selected for layoff who have filed complaints of discrimination, harassment, a hostile work environment, or improper pay, or are on a medical leave of absence. Employees who have engaged in such “protected activity” are not immune from termination, but you need to scrutinize their selection to ensure that only legitimate, non-discriminatory criteria are considered.
- Conduct a disparate impact analysis to ensure no protected class is disproportionately affected. Make adjustments if there is a disparate impact on minorities and confirm that legitimate, non-discriminatory reasons support the selections.
- Confirm that selection process is consistent with any written company policies. If individuals are employed subject to an employment contract, review the contract provisions regarding termination and make sure to comply with any notice requirements.
- Ensure compliance with the Worker Adjustment and Retraining Notification (“WARN”) Act. The WARN Act is a federal statute requiring covered employers to provide employees 60 days advance notice before closing a plant or conducting a mass layoff. Covered employers that do not satisfy the WARN Act’s requirements or qualify for an exception may be liable to affected employees for back pay and benefits. Be aware that some states have enacted their own versions of the federal WARN Act.
- Use severance agreements with enforceable release of claims. To this end make sure that the releases are supported by consideration. You cannot simply offer money and benefits already owed to the employee. You must give something of value beyond what the employee is already entitled to receive. To lawfully release a claim of age discrimination, the releases need to comply with the Older Workers Benefit Protection Act (“OWBPA”). The OWBPA’s requirements for a group release can be tricky, so make sure you consult with legal counsel.
- Conduct exit interviews and remind employees of any obligations that continue after their employment ends including non-disclosure and other restrictive covenants. Ask pointed questions that will reveal whether the employee has returned all company equipment and information.
In addition to this list, it is important to remember that losing employment can be a traumatic event for the employees being let go. Be thoughtful and compassionate when communicating the decision itself and when responding to any questions that may arise.