New England Biz Law Update
Is the economy continues to sputter, many employers – large and small – are realizing they may have to let some of their workers go.
But while shaving the salaries of some employees may help the companies’ bottom line, it could also invite trouble with state and federal regulators, or lead to lawsuits – particularly if the company did not plan ahead for the worst, experts say.
“There is no question that when jobs are scarce, people are much more likely to contest losing their current job,” said Michael Hanlon, a partner in the Philadelphia office of Blank Rome, and head of the firm’s Employment, Benefits and Labor practice group. “The real difficulty is that employers are woefully unprepared when reduction-in-force situations come up.”
The reason?
Very few companies have solid, carefully-planned systems of evaluation in place. Without a clear policy dictating how employees are selected for RIF actions, employers could be adding legal troubles to their list of problems in a down economy.
“We always encourage our clients to develop a comprehensive game plan to address any kind of reduction in force action,” said Maritoni D. Kane, counsel in the Chicago office of Mayer Brown. “They should develop criteria for reduction in force actions, and clearly communicate those criteria and make sure they are consistently implemented [by] those who are going to make the decisions about employees.”
Also, don’t think that one plan fits all.
Even adhering to the “80 percent rule” established by the Equal Employment Opportunity Commission may not be enough. This “rule” suggests evidence of an adverse impact if following a RIF the ratio of workers within a protected class is less than 80 percent of the ratio before the layoffs.
“A lot of companies will just do the 80 percent rule, but that is not a real, statistical test,” said David P. Lamoreaux, vice president and co-leader of the labor and employment division of CRA International, which provides statistical analysis on discrimination law and wage and hour compliance issues.
“Eighty percent is a rule of thumb,” Lamoreaux said. “It can’t tell if you are going to have issues with how workers are evaluated down the line. It can give you a false sense of security during risk assessment.”
The work doesn’t stop once a plan is in place. Plans must be consistently checked and policed. “It makes the decisions more defensible,” Kane said. “You wouldn’t want to have some department leaders following the game plan, but another department head just making their decisions based on a subjective view which may or may not have a disparate impact.”
Disparate impact claims
The need for a plan is especially important to stave off a flurry of disparate impact claims. It may seem logical for an employer seeking to streamline its budget to try to keep the best employees with the lowest salaries. But since workers who have been on the job longer have the higher paychecks – and are more likely to be over the age of 40 and within the protection of the Age Discrimination in Employment Act – employers need to be careful.
“Going by seniority is problematic,” Hanlon said. If you don’t have a plan for evaluating employees with clear criteria, “there is not a lot you can do in the short term to fix that.”
Maintaining a policy that clearly documents necessary skills, training and continuing education requirements can also stave off disparate impact litigation later.
“[In] the IT field,” Lamoreaux said, “skill sets may have changed and people may not have updated [them]. If you can’t document that and you are faced with litigation, you may run into trouble explaining those processes.”
Also, claims of retaliation are increasingly surfacing in RIF situations, and they may become even more of an issue in the wake of two recent Supreme Court decisions expanding the ability of workers to sue for retaliation.
The court in CBOCS West v. Humphries, No. 06–1431, held that employees can bring retaliation claims under 42 U.S.C. §1981 as well as under Title VII. In Gomez-Perez v. Potter, No. 06-1321, the court affirmed the right of federal workers to bring retaliation claims under the ADEA.
“You didn’t always have the retaliation claims you have today,” Hanlon said. “Suppose someone made a complaint about someone 11 months ago. Now that person gets ‘riffed.’ Did that person get riffed because he complained?”
Acting before a company finds itself in a layoff situation is crucial. “In a RIF situation, decisions are being made under pressure,” Hanlon said. “Usually there is not a lot of time to make these decisions. A company is realizing ‘we really need to do this’ and it often happens pretty quickly. You need to be able to support the judgments [being made] if those judgments get challenged.”
Other factors to consider in RIF actions include making sure all benefits requirements are met under ERISA, and ensuring workers understand their rights under the Older Workers Benefit Protection Act. This includes the right to consult with an attorney in the event of a RIF action, and making sure that any action is consistent with the terms of any collective bargaining agreements.
Failure to WARN could be costly
Under the federal Worker Adjustment and Retraining Notification (WARN) Act, companies with 100 employees or more planning a mass layoff plan must give employees at least 60 days’ notice prior to any action. More states also have so-called “Baby WARN” laws that can cover employers with as few as 50 employees.
Failing to adhere to the requirements of the law can result in a company being hit with statutory damages.
Many employers who violate the laws do so out of sheer lack of knowledge.
“The key WARN issue is that a lot of employers aren’t even aware of it,” said Kane, who authored a client update that includes a myriad of issues related to RIF situations, including a summary of state and federal WARN requirements. “And unfortunately when the decision gets made to reduce the work force, those decisions are fast and furious. The key to WARN is giving adequate notice.”
It is also important to remember WARN requirements in situations where companies are being bought out, and some or all of the acquired employees are let go. If the employees are let go before the sale, the original employer is held responsible under warn. But if they become employees of the buyer employer, they are responsible for meeting all WARN requirements in the event of a mass layoff situation after the sale.
The key is consulting with legal advisors who may see potential issues on the horizon before they happen. “The funny thing is, these issues aren’t new,” Kane said. “We just highlight it so that companies out there don’t forget there are various areas of exposure for them given the economic climate.”
The best way to reduce the likelihood of litigation is to make the RIF process as easy as possible on employees. Companies can offer compensation or benefits to laid off employees, for example.
“It improves the morale of employees if they get some monetary amount that will tide them over,” Kane said.
Also, employers can consider offering job placement training, or offering to cover some of the COBRA premiums or other benefits.
