In current economic times, more and more companies are turning to "reductions in force" or "RIFs." While RIFs can provide both short and long-term economic benefits, they are also among the most difficult events an attorney or human resources professional must oversee because of the emotional and economic impact they will have on employees, the myriad of complex laws that must be observed, and the enormous amount of work that is usually required in a very short amount of time. Thoughtful and careful planning is important not only to ensure compliance with legal requirements, but also help to minimize the adverse effects of a workforce reduction, further reducing the risk of lawsuits.
The following checklist provides some practical guidance to assist employers in implementing a reduction in force and to minimize legal risks. This checklist does not address all the possible issues arising from a RIF and we encourage you to consult with counsel as part of your planning and implementation of a RIF.
Planning and Construction of a Layoff
- Identify triggering events for layoff
- Identify possible layoff alternatives (e.g., pay cuts, schedule reductions, temporary shutdowns and vacation/PTO drawdown, reduction of contractor headcount)
- Identify affected sites and estimate number of affected employees for WARN and other analyses
- Establish the RIF management team: Identify the individuals responsible for communicating the RIF, performing job analysis, criteria selection, management training, individual employee evaluations, personnel file review, exit process
- Establish timing of RIF (One time? Rolling? Is there a need for staggered termination dates? Are transition periods needed for certain affected employees?) Create timelines for giving notice and implementing the RIF
- Identify high risk employees and confer with counsel regarding risks related to layoff of such employees, including those in:
- Protected categories
- On or having recently returned from leaves of absence
- Engaged in protected activity (e.g., worker's compensation claims, complaints about wages, safety, discrimination, etc.)
- Document the process and identify layoff selection criteria: (e.g., performance, tenure, seniority, redundancy, skill sets)
- Evaluate and rank employees
- Finalize the RIF list – sites and personnel
- Audit personnel files of affected employees
- Is performance history - reviews, salary increases, bonuses, etc. - consistent with decision to layoff?
- Any contractual severance rights?
- Express contract (e.g., offer letter, employment agreement, retention agreement, severance plan, change of control agreement)
- Implied agreements (e.g., historical severance practice (if any), oral commitments from management)
- Proprietary information and inventions agreements signed?
Key Legal Issues
Federal and California WARN
- Determine if Federal or California WARN notice requirements will be triggered; consult with legal counsel. For a comparison of the Federal and California WARN statutes click here.
- Provide WARN notices to affected employees or pay and benefits in lieu of notice
- Provide WARN notices to employees and government agencies
Adverse Impact Analysis
- Evaluate need for and scope of analysis
- Determine the relevant pool: Company wide? Group specific?
- Determine if there is a statistically significant adverse impact on protected classes (race, sex, age, etc…); if so, is there a "business necessity"?
Implementation/Deployment of Layoff
- Prepare separation letters/agreements
- Severance or other separation pay? If so, release?
- Timing of severance: lump sum or payment stream?
- Transition period?
- Determine if OWBPA triggered:
- Applies to employers that employ 20 or more employees in at least 20 workweeks during current or preceding calendar year
- Gives employees age 40 and over 45 days to consider and 7 days to revoke
- Prepare OWBPA information disclosure documents (job titles and ages of employees eligible or selected for program, and those not eligible or selected)
Messaging and Exit Process
- Prepare manager talking points for message to affected employees
- Prepare company-wide talking points
- Retrieve all company property
- Disable access to facilities and systems through coordination with IT/MIS Department
- Monitor electronic systems for misconduct
- Quarantine computing devices and retain email (for possible forensic analysis) if misconduct suspected
- Prepare for disruptive employees; consider having security in place
- Pay out on termination date all wages earned (includes accrued vacation/PTO and all other wages)
- If paying by direct deposit, ensure deposits post on termination date for California employees
- Promptly process commissions and outstanding expenses after termination
- COBRA: Notify plan administrator of qualifying event for affected employees