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If tight economy forces cost-cutting, avoid these 4 RIF pitfalls

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in Employment Law,HR Management,Human Resources

Layoffs are often an unfortunate reality, even as the economy continues its slow rebound. A layoff—or reduction-in-force or RIF—is a tricky, painful process for management, those who lose their jobs and even employees who remain afterward.

No matter how well or poorly management handles it, a RIF means an organization is traveling down a difficult road. Here are four critical and often overlooked RIF pitfalls that can make the route more treacherous than it needs to be.

1. No clear RIF criteria

Carefully choosing which jobs will be selected for a RIF is critical. For private employers, unless a union contract governs, selection of participants in a RIF is highly discretionary, but also risky.

For example, an employer determines 10 employees need to be laid off. Management selects the six most recent hires, but also four more senior employees labeled as “troublemakers.” If those troublemakers decide to challenge the RIF in court—perhaps claiming that they were selected for discriminatory reasons—the employer may have a difficult time establishing that the RIF selection criteria were legitimate.

To avoid potential discrimination liability, focus on specific categories of employees, rather than upon specific employees. Consider eliminating an entire department, or closing down an entire shift. Or focus on seniority.

This is not to suggest it’s wholly impermissible to focus a RIF on in­­dividual employees. You might target employees who scored below a certain threshold on performance evaluations. But ask: Evaluated objectively, was the evaluation process legitimate and fair, or does the RIF appear a sham, designed to allow management to hand pick participants while blaming a purportedly neutral criteria?

2. Flimsy excuse for the RIF

Similar to the first pothole, a failure to articulate and document the need for a RIF can lead to proof issues if the RIF is challenged as discriminatory.

Merely stating that the economy is bad is probably insufficient. Be ready to answer questions like: How is the economy affecting the company? Are specific departments overstaffed or underperforming? What alternatives to a RIF have you evaluated and rejected?

3. Lack of RIF notice

Following the economic woes of the mid-1980s, Congress enacted the Worker Adjustment and Retraining Notification (WARN) Act. It requires employers with 100 or more em­­ployees to give affected employees 60 days’ advance notice of a plant closing or mass layoff. Failing to anticipate the need for a RIF and give adequate notice in a timely manner can result in significant liability under the WARN Act.

A plant closing is a shutdown of a single site of employment (or one or more facilities or units within a single site of employment) that results in a layoff of 50 or more employees. A mass layoff is any RIF or combination of RIFs within a 30-day period that results in a layoff of either one-third of a company’s employees (if it’s 50 or more) or at least 500 employees.

Even if a RIF does not qualify as a plant closing or mass layoff, carefully scrutinize any series of RIFs. Under the WARN Act, if two or more RIFs occur at the same employment site during a 90-day period, and each RIF includes less than the minimum number of employees to create a notice requirement, the RIFs will be aggregated, unless the employer can prove that the employment losses are the result of separate and distinct causes.

4. Failing to minimize liability

Some employers provide severance benefits to employees affected by a RIF. Those benefits need not be wholly gratuitous. An employer can avoid future liability for a variety of potential post-employment claims by seeking releases of liability in exchange for severance benefits.

There are a few things to consider when obtaining releases. Employees with employment contracts, for in­stance, may be entitled to severance benefits notwithstanding the employer’s desire for a release.

Also, some liabilities may not lawfully be released. For example, the North Carolina Unemployment Secu­­rity Law provides: “Any agreement by an individual to waive, release, or commute his rights to benefits or any other rights under this Chapter shall be void.”

In addition, affected employees age 40 or older are afforded special treatment by the federal Older Workers Benefit Protection Act. In the case of a RIF, such employees must be allowed 45 days to consider any severance package that includes a release of age discrimination liability. The employees must be allowed seven days in which to revoke acceptance of any package that includes a release. And such employees must be provided information about the scope of the layoff.

Final note: This is only an overview of the risks involved in layoffs. Beginning the process early and with legal assistance is the first step to a successful, albeit stressful, reduction-in-force.

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