Conducting a layoff can be a difficult and delicate process.  The first step in any layoff is to determine which employees will be terminated.  In the current business environment, the last thing any employer wants is an employee bringing suit!  So, how can employers start off on the right foot to avoid a lawsuit by a disgruntled former employee?

At home

In the U.S., a company should use legitimate, nondiscriminatory factors in selecting who to layoff.  Best practice is to use objective factors, including performance and productivity.

Most employment relationships in the energy industry in the U.S. are at-will, meaning either the company or the employee can terminate employment at any time and for any reason.  Accordingly, in the U.S. it is not necessary for a company to explain the reason why the employee is being terminated.

WARNING: Companies should tread lightly when evaluating salary for layoff purposes because it can oftentimes correlate with age.

For example, if a company decides to lay off many of its highest earners, it may inadvertently be laying off many of its older workers, raising a potential age discrimination issue.  To avoid these types of discrimination issues (and others) in connection with a reduction in force, the company should consider conducting an adverse impact analysis (with the help of counsel) to determine the layoff’s impact, if any, on any protected groups.

Abroad

Outside the U.S., companies should consider a different approach.  While taking steps in the selection process to avoid potential discrimination claims (as defined under local law) is prudent, threshold questions include:

  1. Are specific selection criteria mandated by local statute or otherwise?
  2. Which employees are protected from termination?

For example, Germany, Italy, and China require employers to follow specific social selection criteria in a layoff.  In the Netherlands and Malaysia, it is either recommended or required for an employer to select employees for layoff based on the “last in, first out” principle (i.e., the employees with the least amount of tenure must be the first ones to be terminated).  Various other categories of employees also may be deemed “protected” under local employment laws, meaning companies will be prohibited from terminating them in connection with a layoff.

Generally, outside the U.S., there is no concept of at-will employment.  This means that in most cases a company must show specific grounds for termination.  As a result, in most countries, it is unlikely the drop in oil prices or a moderate change in the company’s financial condition will be sufficient.  Instead, a company may be required to explain a genuine business reason for the termination (e.g., restructuring of the company, closure of a plant, etc.).  Or, the company may need to show that without termination of the employees it will have to file for bankruptcy, or that it has explored alternatives to a RIF and that termination of employment is only a last resort.

And one more thing…

Whether the layoffs are domestic or abroad, companies should analyze whether the affected employees are governed by a collective bargaining agreement, severance policy, or individual employment agreement.  If so, the terms of those agreements need to be carefully scrutinized to determine whether they impact who can be selected for a layoff and otherwise impact the terms of the layoff.

Check back next Wednesday for the latest RIF Series post.