The U.S. economy was already on the brink last month when the Wall Street-fueled financial crisis came and pushed it over the edge. Organizations nationwide are being forced to slash costs, which often means cutting payrolls.
Too often, however, employers make tactical errors during layoffs. Here are six key steps to help keep layoffs as legally painless as possible:
1. Consider alternatives. Because of their devastating impact on morale, layoffs shouldn’t be Plan A. Work with execs to draw up other alternatives that reach the same goal. Example: cutting hours (not jobs), freezing salaries, restricting overtime, exploring job sharing, or asking for volunteers to go part-time or take a furlough (see box for more options).
2. Communicate early and often. If you provide regular updates on the performance of the department and the company, employees may be upset by a layoff, but probably not surprised.
Once you make the decision, don’t delay. It’s best to break the news early in the week and early in the day. Be concise and explain how the person’s layoff fits into the big picture.
Employees will be in shock, so provide them with written info surrounding the severance package, COBRA rights, career counseling and how to handle returning of cell phones and other company equipment.
3. Check current policies. If you have an existing policy stating how you handle layoffs, follow it. If it needs to be revised, do so before the layoff.
4. Be foreWARNed. The federal Worker Adjustment and Retraining Notification (WARN) Act requires larger employers (100 or more employees) to give workers at least 60 days’ notice before certain layoffs, including:
- A plant closing that results in job loss for at least 50 employees
- A mass layoff of at least 50 employees who comprise at least 33% of the workforce
- A layoff of at least 500 employees.
Failing to meet WARN notification deadlines is costly. Also, make sure you check state law. Many states have their own WARN laws.
5. Avoid discriminatory choices. Both federal and some state discrimination laws apply to layoff decisions. Employers can’t choose employees to lay off using discriminatory criteria (e.g., age, gender, race, etc.).
Using subjective criteria (e.g., perceived value to the company) is also riskier than using objective criteria, such as length of service.
Also, businesses can’t use otherwise neutral criteria to select people to lay off if it leads to a disproportionate impact on employees in a protected class. That’s why some employers create charts that show how a planned layoff would affect various protected classes.
Tip: If you consult an attorney when planning a layoff, which is wise, these charts become subject to attorney-client privilege, keeping them legally confidential. If no attorney is involved, documents showing a company knew its plan would create a disparate impact could be revealed in litigation.
6. Craft legal severance pay packages and lawsuit waivers. If you offer severance pay, require employees to sign a waiver-and-release agreement in exchange. Such an agreement can encompass all types of legal claims—from harassment to unpaid overtime pay—other than claims for vested benefits or benefits such as unemployment comp or workers’ comp. Have your attorney review any waiver agreement before you ask workers to sign.
Waiver-and-release agreements for laid-off workers age 40 and older must contain special provisions in order to be enforceable. For those workers, the agreements must contain information about the layoff, including the criteria used, and the job titles and ages of all those eligible and all those not eligible. Older workers are permitted up to 45 days to consider such an agreement, and they can revoke an agreement up to seven days after they have signed it.
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