There is little doubt that the US economy is in recession. This will compel many employers to face the prospect of reducing their workforces, in addition to taking other cost-saving measures. Although the risk of legal problems increases in any employee termination implemented without careful planning, this risk is dramatically enhanced when multiple employees are terminated concurrently in a reduction-in-force ("RIF"). The following are some basic practices employers should follow in order to lessen the chances of a legal backlash when reducing staff.
Think Through the Reasons: Articulating business-related and documented reasons for the RIF before taking action will minimize claims that your reasons are pretexts for discrimination. A prudent way to establish those reasons is through management identifying solid business justification showing both that: (1) the RIF is necessary to the company's business because there are no equally effective alternatives to achieve the company's business goals; and (2) the method of selecting the employees to be discharged in the RIF is not discriminatory.
Establish Objective Selection Criteria: To avoid claims of discrimination from those affected by the RIF, establish objective, business-related criteria that will be used in selecting the employees to be terminated. Length of service, performance, attendance and cross-training are commonly considered candidates for such criteria. In addition, business circumstances may justify a company applying different selection criteria from one department to another and from one job title to another. Once designated, however, consistency in applying the company's selection criteria is necessary to minimize risk.
Test the Outcome: After preliminary decisions have been made as to the company's selection criteria and how the criteria are applied, employers should test the outcome to identify whether the RIF will have a discriminatory impact on any specific protected group. Courts generally find that such an impact occurs where -- irrespective of whether an employer intends to discriminate -- a RIF results in termination of a disproportionately greater number of employees in one protected group than similarly positioned employees without that protected characteristic. For example, a RIF in which 92% of the terminated employees are women flags the potential that the RIF could be found to have an illegal disparate impact on women.
Whether such an impact really exits should be determined before implementing the RIF. This determination can be made through a statistical or other mathematical or statistical analysis of the company's data concerning its employee population before and after the contemplated RIF. An appropriate disparate impact analysis may demonstrate that an ostensibly suspect RIF, like one leading to termination of 92% of a protected group of employees, is actually entirely legitimate. As the United States Court of Appeals for the Sixth Circuit recently decided in Shollenbarger v. Planes Moving & Storage (October 20, 2008) such an analysis may show that no discriminatory impact has occurred even in a RIF that was 92% female. The Court there found that because the employer's unit in which the RIF occurred was predominantly female, a "rudimentary statistical analysis" proved that the 92% female selection rate was "perfectly consistent with a random selection from an 89% [female] pool. [That] result does not demonstrate disparity, much less a significant disparity that can be connected causally to the challenged employment action." A disparate impact analysis may show that your company's contemplated RIF is as defensible as that in Shollenbarger or instead warrants modification of the selection criteria or their application. In either event, thoroughly performing the impact analysis before implementing a RIF can help protect employers from the cost and distraction of potentially complex and costly disparate impact claims.
Train Managers: Time and effort should be invested in training managers to apply selection criteria correctly and consistently, and human resources should be prepared to review all decisions to make sure they are correct. Additionally, if managers are to communicate the decisions to employees, they should receive coaching on how to give the news accurately and how to respond to the inevitable questions that both terminated and remaining employees likely will ask.
Severance Packages: Many employers offer severance to employees who are terminated in a RIF. Severance generally should be provided only to those employees who sign appropriate release agreements. Such agreements need to comply with various legal requirements in order to ensure enforceability, especially when employees are 40 years old and older.
Security Precautions: Employees who are terminated can cause significant damage to an employer's confidential information and other property, especially if they have access to sensitive equipment, such as computers. It is extremely important to take reasonable steps to avoid foreseeable breaches in security by terminated employees.
Union Employees: Employers contemplating a RIF including any employees in a collective bargaining unit must comply with the terms of the bargaining agreement applicable to the union employees. In addition, even where a bargaining agreement is silent on the company's obligations in connection with a RIF, unionized employers generally are obliged to bargain with the union about the effects of the RIF on employees in the bargaining unit.