Employee Layoffs and Other Topics for the Recession

While not all companies are down-trending during the projected recession, employers should be sensitive to options regarding employees. With much belt-tightening, employers can take actions to improve their bottom line, but must be aware of the employment law ramifications.

Besides the layoff of trained staff, other measures may be viable preliminary options during a recession.

Recession Option 1: Being Explicit About Production Demands—In eliminating waste, employers should be sensitive to employees wasting time. Overly-long coffee breaks and personal phone calls are time away from production. Employer policies should specify expectations, but being explicit about production demands (raising quotas, clarifying and/or moving up deadlines, etc.) will force employees to work more efficiently and effectively.

Recession Option 2: Modifying Bonus Plans—Employers can modify discretionary bonus plans and programs (i.e., those that are not guaranteed) instead of having layoffs. Either eliminate bonus payments altogether (noting this decision as a layoff alternative), or restructure to tie bonus amounts directly to income and production. Reward employees with bonuses when there is income to pay them.

Recession Option 3: Attrition—Already vacant positions can remain that way without the company spending hiring dollars to fill them, where the work can be apportioned among other staff.

At times, however, layoffs may be the company’s only option during a recession. In those cases, there are many factors to keep in mind. The following are a few of the key issues that should be considered:

Legitimate Business Reasons—Layoffs must be based on demonstrable legitimate business reasons, including poor employee performance (i.e., the bottom performers of your workforce) and last in/first out (i.e., lay off the last hired).

Demonstrable Business Reasons—If an employee selected for layoff is a poor performer, there should already be a paper-trail of disciplinary notices, memos of counseling meetings and other records demonstrating the poor performance and opportunities given to improve. Can the employer prove this was the reason for selection?

Avoid Disparate Impact—Layoffs should not impact one protected category (race, gender, national origin etc.) more than another. For example, if all the older women in a department are let go, leaving only younger men, the women could assert discrimination claims, even if the women were allegedly selected as the poorer performers. The women laid off could claim the company was harder on them so that they appeared to be the poorer performers when, in reality, poor performing men were allowed to under-perform and slack on the job. Evaluate employees selected for layoffs for the appearance of discrimination and be prepared to justify selections.

Consider Severance Agreements—Providing severance pay in conjunction with an agreement containing a release of all claims against the company can provide a layer of protection as the company conducts layoffs. This can only be done if the company has not had a policy or past practice of providing its employees with severance pay without having them sign a release. Even in those cases, however, provision of additional severance pay may be an option.

Ensure Agreements for Employees Over 40 Comport with the Law—If your U.S. company has, or recently had, 20 or more employees, any severance agreements for employees over age 40 must contain certain protections (including 45 days to consider the agreement and 7 days to revoke it) and also must provide information regarding the ages of all individuals considered for layoff. Employment lawyers can ensure compliance with all legal requirements in this regard.

Consider Transition Agreements

Instead of layoffs, the company may also consider transitioning employees out of the company. Specifically, the company would advise those employees who would otherwise suffer layoffs that the company is looking to eliminate their positions but understands that it is easier to look for a job when you have a job. Thus, the company is going to be relieving the employees of the job duties and responsibilities (except, perhaps, for some transition responsibilities to another employee) and allow them time to go seek other employment while keeping them on the payroll and health insurance for some specified amount of time. The company would keep the employees’ phone extensions active, as well as their e-mail addresses and any mention of the employees on the firm’s Web site during the transition period. When the employees find work, they resign.

If employees do not find work in the designated period, they are laid off with a severance package as discussed above. The company also has the option of providing a lesser severance package even if the employees find work and resign should the company wish to obtain a release and waiver of claims. However, employees who find other work are typically less likely to sue their former employers than those who are out of work.

Creative alternatives and solutions to layoffs that focus on necessary production can often help companies survive troubled times and avoid pitfalls that can lead to lawsuits.

First Published on e-BIM.