Layoff notices are a sign of the times. But a mishandled layoff can lead to significant liability in a variety of ways.  

WARN Act Requires 60 Days Notice  

Employers in “survival mode” may resort to a layoff as a way to cut costs quickly, but they must not overlook the notice requirements of the Worker Adjustment and Retraining Notification (WARN) Act. For employers with 100 or more full-time employees, WARN generally requires 60 days notice of a “plant closing” affecting 50 or more employees, or a “mass layoff” of 500 employees (or 50 employees if that is 33 percent of the workforce) at a single site of employment.  

Less notice may be permitted where the employer can prove that the shutdown or layoff was not reasonably foreseeable 60 days in advance, or that full notice would have interfered with efforts to obtain business or capital needed to avoid or postpone that event.  

Violations of WARN can result in liability for up to 60 days’ wages and benefits for each affected employee, and state laws may be more restrictive or impose greater penalties. Therefore, employers should ensure that any layoff complies with the WARN Act, and any state counterpart, or that the cost of non-compliance has been adequately considered.  

Spike in Age Claims Underscores Common Layoff Threat  

Age discrimination claims have jumped 29 percent since 2007 and almost 50 percent since 2006, the U.S. Equal Employment Opportunity Commission (EEOC) reported on March 11, 2009. In 2008, 24,582 claims were filed, compared to 19,103 in 2007 and 16,548 in 2006.  

These figures are especially troubling for employers in a down economy, because layoffs frequently spawn age discrimination claims. In addition, this is the first national recession since the U.S. Supreme Court held in Smith v. City of Jackson, 544 U.S. 228 (2005) that the Age Discrimination in Employment Act (ADEA) permits claims for “disparate impact,” a form of unintentional discrimination in which facially neutral criteria have a greater impact on protected workers. Thus, employers must be particularly careful when laying off employees who are age 40 or older.  

To reduce the risk of age-based layoff claims, employers should: (1) use age-neutral criteria for the selection process where possible; (2) train the decision makers in the selection process; (3) be prepared to articulate good reasons why older workers were let go when younger workers were retained; (4) conduct a statistical analysis of the comparative ages of those retained and those let go; and (5) document every step of the process.  

Proper Handling of Age-Claim Releases Essential  

In today’s hyper-litigious society, employers often condition payment of severance on the signing of a release of claims. To be enforceable, all such releases must be (1) comprehensible; (2) signed voluntarily; and (3) supported by “consideration” to which the employee would not otherwise be entitled. However, releases of age discrimination claims (i.e., by those age 40 or older) require much more.  

Under the Older Workers Benefit Protection Act (OWBPA), a release of age claims must: (1) be written in a manner “calculated to be understood” by the average person asked to sign it; (2) specifically refer to the Age Discrimination in Employment Act; and (3) not apply to claims arising after it is signed. In addition, the employer must: (1) advise the employee in writing to consult a laywer before signing the release; (2) give the worker at least 21 days to consider the release before signing; and (3) allow the employee seven days to revoke the release. Where more than one older worker is affected, the 21-day “consideration period” is increased to 45 days, and the employer must provide specific “separation information” to each person who is asked to release age claims, including:  

  • a description of the “decisional unit” from which persons were selected for layoff;
  • the criteria used to decide who would be laid off and who retained;  
  • the time limit for signing the release;  
  • the job titles and ages of those selected for layoff; and  
  • the ages of those in the same job classifications who were not selected for layoff.  

The EEOC imposes additional barriers to an effective release of age discrimination claims. Under 29 C.F.R. 1625.23, a release agreement may not:  

  • preclude the worker from filing a charge of age discrimination with the EEOC or filing suit to challenge the validity of the age-claim release, or penalize the worker for doing so;  
  • require the worker to “tender back” the consideration if he/she files suit under the ADEA anyway; and  
  • terminate payments to a worker who successfully challenges the validity of the release agreement (although such payments “may” be offset against any subsequent recovery by the worker under the ADEA, in the court’s discretion).  

Failure to comply with even one of the requirements of the OWBPA invalidates the release of age discrimination claims entirely. See Kruchowski v. Weyerhaeuser Co., 423 F.3d 1139 (10th Cir. 2005). On the other hand, several of the provisions of 29 C.F.R. 1625.23 may be contrary to the OWBPA or beyond EEOC’s authority to impose. Finally, some states have laws that are even more protective of older workers. Therefore, employers should consult with experienced employment counsel before seeking any release of age discrimination claims, in a layoff context or otherwise.

New COBRA Subsidy: Pay Now, Refund Later

Employers must now subsidize the premiums paid by certain ex-employees and their beneficiaries for continuation of group health insurance coverage under the “COBRA” provisions of the Employee Retirement Income Security Act. On March 19, 2009, the U.S. Department of Labor issued model notices to help employers comply with the new requirement, enacted in February as part of the American Recovery and Reinvestment Act of 2009 (ARRA). See www.dol.gov/cobra.  

Under ARRA, COBRA-eligible employees involuntarily separated since September 1, 2008 (and their beneficiaries), are entitled to a 65 percent subsidy of their COBRA premiums starting March 1, 2009, and a second chance to elect COBRA coverage in light of the new subsidy. Employers pay the subsidy and claim a credit against their payroll taxes. High-income employees may opt out in order to avoid repaying the subsidy as a tax. Employers with fewer than 20 employees may be required to provide the subsidy for continuation coverage under state law, but a second chance to elect such coverage may not be required. Employers should consult with employment or benefits counsel for more details.