by Keith McMurdy
Even as we watch the stock market slowly recover, organizations are still laying off employees and searching for ways to cut overhead. It’s important to keep in mind that cutting staff often has implications beyond the hurt feelings and added work for the skeleton crew that remains.
If your organization is eliminating even one job, plan it carefully. A hasty layoff can create legal problems that cost more down the road than keeping the employee would have.
Here are 10 things to consider:
1. Consider the new COBRA subsidy. If you lay off workers, that cuts payroll. But the American Recovery and Reinvestment Act of 2009 says your organization has to pick up 65% of a departing employee’s COBRA payment for nine months if the involuntarily separated worker elects to stay on your health care plan.
2. Document your business reasons for the layoffs, whether you’re terminating one person or 1,000. Unless you can prove that you had a legitimate business reason for a reduction in force, you could expose yourself to discrimination claims.
3. Know the WARN Act. The Worker Adjustment and Retraining Notification (WARN) Act, which requires organizations to give employees ample notice before a layoff, isn’t just a federal requirement for big companies. States and even some cities have their own versions of WARN that apply to smaller organizations and smaller layoffs than the federal act covers. Check state and local laws for requirements that apply to you. And if you’re closing a plant in a state other than the one where your headquarters is located, check with that state as well.
4. Forget about asking a laid-off employee to sign a waiver saying he or she won’t sue you for the termination in exchange for the severance package that your employee handbook has laid out. If you have a severance policy, you have to pay that severance whether the employee signs a waiver or not. You can offer additional severance to those you ask to sign releases. That’s an added expense, so offer it only to those who might sue.
5. Weigh part-time implications. Consider the benefits quagmire you might create if you bump full-time workers to part-time status. You’ll wind up with employees who lose eligibility for health coverage but continue to participate in the 401(k), for instance. Be aware of the mix-and-match scenarios and the administrative burden that could create.
6. Beware of requests for from employees whose hours you’re cutting back. If you agree to let someone take to care for a family member instead of switching to a part-time job, you’ll add job protection for that worker. Likewise, be prepared for a rash of disability claims when you’re preparing to do layoffs. A worker out on disability leave has job protection.
7. Keep a close watch on overtime hours if your organization decides to freeze overtime. Employees might believe that the organization will pay them if they work overtime, but it’s not obligated to once you announce a freeze. A tip: Don’t assume overtime starts after 40 hours a week. It’s less in some states.
8. Review your before you announce changes. You might not be able to discontinue a 401(k) matching program or retiree medical benefits, for example, unless you amend the plan first. Know whether your benefits are discretionary or mandatory before you make a change an employee could sue you over.
9. Consider accrued leave. Factor in employees’ rights to use accrued vacation time if you reduce the amount of paid time off workers can take. Your state could require you to allow someone who earned a vacation day before you changed the policy to use it or to be paid for it in lieu of taking the day off.
10. Update your employee policies and personnel manuals as soon as you change a policy. That way, the rules employees are referring to are the ones in practice.
Author: Keith McMurdy is an attorney with Fox Rothschild, a Philadelphia law firm, and author of the www.employeebenefits.foxrothschild.com). Contact him at (215) 299-2000.Legal Blog (
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