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Take these 4 steps before you implement a reduction in force

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in Discrimination and Harassment,Employment Law,Firing,Human Resources,Office Management,Records Retention

by Ugo Ukabam, Esq.

As the recession continues, many employers have had to turn to reductions in force as an unfortunate yet necessary cost-saving measure. The U.S. unemployment rate is at 10%, and about 15 million Americans are out of work. Count on some of those former employees to sue.

Recent government data confirm a trend toward litigation. The EEOC reported a 15.2% increase in private-sector discrimination charges in 2008 compared with 2007. And 2008 saw the largest yearly increase ever in race and age discrimination cases.

The reasons for the correlation are many. A tough job market means an increased likelihood of significant wage losses or pay cuts for workers. Laid-off workers have lots of down time in which ill will can fester. And RIFs breed the possibility of lawsuits involving several employees, which are more attractive to plaintiffs’ attorneys.

Faced with this trend, employers considering implementing RIFs must understand the legal and practical issues that can trap the unwary. Taking these four steps can minimize the risks of lawsuits.

1. Anticipate the risks

Discrimination and other employment-related claims can arise from any adverse employment action.

Be sure to document the RIF process from start to finish, including discussions that take place during termination meetings. Document the business necessities underlying the RIF. Identify an objective process used for selecting employees.

Review each employee’s personnel file for legal risks, such as membership in a protected class or past complaints that could support a whistle-blower claim. Review the overall picture to see whether they point to a discriminatory impact, even if your criteria seem nondiscriminatory. If you offer voluntary retirement plans instead of layoffs, ensure that the plans are truly voluntary and don’t require employees to choose between accepting the plan or being laid off.

2. ID contractual obligations

You must comply with policies contained in your employee handbook, even if they contain contract disclaimers. Review individual contracts for provisions addressing such things as notice prior to termination and whether changes to salary or benefits can be done at will.

Finally, determine whether any proposed action is subject to collective bargaining, which would give higher-rated employees certain rights that could affect the selection process.

Failure to comply with contractual obligations can lead to liability for breach of contract, statutory penalties and attorneys’ fees.

3. Know your notice deadlines

Covered employers should be sure that layoffs comply with the minimum notice requirements of the federal Worker Adjustment and Retraining Notification (WARN) Act and any applicable state plant-closing statutes. (There is no state law requiring employers to give notice. However, if you have locations outside Minnesota, check the laws in those states.)

Inform employees of the RIF in a respectful manner. Consider when to tell them, whether advance notice is advisable, whether it’s best to inform employees individually or as a group, where to conduct termination meetings and which managers to involve.

4. Consider severance issues

Consider conditioning severance pay on the release of legal claims.

Severance agreements require advance planning. The Age Discrimination in Employment Act (ADEA) requires individuals affected by a group termination to have at least 45 days to consider the agreement and receive a disclosure form providing the ages and titles of employees affected and not affected by the RIF.

The ADEA provides for a seven-day period (and the Minnesota Human Rights Act provides a 15-day period) for employees to change their minds and rescind the agreement. Employers usually avoid paying benefits until those intervals have passed.

There are other release-related ADEA requirements you’ll need to consider. They are yet another reason to consult your attorney before implanting a RIF.


Author: Ugo Ukabam, a principal at Gray Plant Mooty, concentrates her practice on employment law. She can be reached at (612) 632-3367 or ugo.ukabam@gpmlaw.com.

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