Reductions-in-Force: FAQs

Reductions-in-force have become standard employer strategies for trimming workforces in tough times. Employers must analyze such layoffs to avoid discrimination lawsuits based on age, sex, and race, as well as comply with the Worker Adjustment and Retraining Notification Act (WARN).

To defend your layoff decisions against discrimination lawsuits, keep the following guidelines in mind.

• Review RIF documents and memos to make sure there are no inadvertent references to age or other protected characteristics.
• Use pre-selected, nondiscriminatory criteria, such as performance ratings, seniority, etc., to select employees for layoff.
• Review performance rating systems or other facially-neutral criteria for hints of bias.
• Be careful not to disfavor higher paid employees. Higher salaries are often associated with older workers, and some courts have allowed age-based disparate impact claims.
• Involve several layers of management in the decision making and, if possible, include individuals from protected classes in the process.
• Review managers’ decision-making processes in situations where they choose individuals to terminate from their departments. Are they following your company’s standard procedure? Are certain groups falling under greater scrutiny – or receiving greater job protection? The managers should have a legitimate business reason to explain any disparity.
• Make sure that voluntary severance and early retirement programs are truly voluntary.
• Designate one employee, such as an HR manager, to handle communications with employees. This helps to prevent the spread of misinformation.
• Treat employees respectfully when announcing layoff decisions. Face-to-face, one-on-one meetings are preferable; e-mails or voice mails are not. While large layoff numbers may call for a less-than-personal approach, at least leave the door open for answering employees’ questions. The worse terminated employees feel they have been treated, the more likely they will be to seek solace in court.
• Check documentation. You should be able to verify nondiscriminatory reasons for those picked. Also, develop a separate Equal Employment Opportunity profile (not for public consumption) in order to monitor potentially discriminatory stats of the RIF.

Termination decisions, especially during a RIF, are often called into question when older workers are let go and younger ones are retained — or worse — brought in. Before any of your managers start firing away, you should find out how they intend to handle ousted employees’ duties post-termination. If younger replacements will be hired or retained, it is likely to raise a red flag in court.

• Will a younger worker take over the terminated employee’s duties? If so, a court may question why the employee was fired in the first place.
• Will a new employee be hired soon after the termination? If so, the timing could look fishy in court. Even if the new hire doesn’t take over the terminated employee’s job, the court may wonder why the employee wasn’t transferred or demoted instead.
• Will the duties be assigned to a number of other employees? If so, then the terminated employee is not being replaced, according to one court, and an age claim will be harder to prove.

Most companies that have been through workforce reductions agree that a well thought-out plan that considers the needs of both the terminated employees and the survivors is the best way to minimize the negative effects RIFs have on the workplace. Here are a few key points your plan should include.

1. Be open and honest. Explain to employees management’s reasons for cutting back. By being candid, you can reduce the risk of morale-busting rumors. Answer employees’ questions as completely as possible.
2. Keep the survivors informed. Employees who survive a layoff will be concerned about how the RIF will affect then. Explain what the downsizing will mean in terms of retraining, changes in work assignments, and increases in workloads. Ask the employees for their suggestions on how to increase productivity and improve operations.
3. Publicize post-termination assistance. Communicate your efforts to help those who have been laid off to all employees. This not only helps the employees who have been let go, it also strengthens the morale of those remaining with the company.
4. Never downgrade former employees. In your efforts to sell the positive aspects of the RIF, avoid being overly enthusiastic. Also, be careful in the way you refer to employees who have been let go. Survivors may lose their trust in you if you bad-mouth their former co-workers.
5. Allow time for adjustment. You’re bound to run into morale problems and productivity losses from employees who have survived a downsizing. Unless the situation becomes out of control, give survivors a chance to get used to the new situation.

Employers should prepare for the possibility of rehire before laying off workers.

• Set a rehire policy first. Will laid-off employees automatically be contacted? Will they be given first priority if they apply? Will they have to compete as any other applicant would? Remember, whatever policy you decide on now, you must stick to it later, or risk legal liability.
• Explain your policy to employees at the time of layoff, so they know what they can or cannot expect in the future.
• Give employees a realistic outlook for their chances of rehire. If the company’s long-range plan doesn’t include building up staff, don’t sugarcoat the situation and give them false hope. Avoid being overly optimistic and giving employees the impression of a promise to rehire.
• Be straight with employees regarding the reasons they were picked for layoff. If you do not explain that poor performance played a part, it may be harder for you to defend a decision to not rehire.
• Reinstate benefits, tenure, seniority, etc. You may find yourself in legal trouble if you rehire employees without reinstating their benefits or giving them credit for past service.
• Be aware of the independent contractor trap. It may be risky to bring back laid-off workers as independent contractors, especially if they will be doing the same job and the same tasks, at the same desk. They are likely to be treated by the company as — and considered by the IRS to be — employees.