Recent mergers and acquisitions and a volatile economy have prompted reductions in workforce. Although employers are familiar with the exposure associated with an individual termination, layoffs affecting two or more employees can present additional legal pitfalls.
Careful Planning Is a Must
When thinking of downsizing, employers should define and articulate the pertinent business needs for three reasons. First, pinpointing business needs focuses the downsizing decision, making legal claims easier to defend, and may uncover alternatives such as non-employment-related cost reductions or voluntary leave of absence programs. Second, identifying motivating factors and selection criteria minimizes the employer’s exposure to employment-based claims, though even legitimate motivations and selection criteria do not always protect an employer. Finally, clearly articulated and communicated business needs may dissuade effected employees from pursuing litigation while preserving the morale of unaffected employees. It is crucial to document all aspects of the downsizing decision through records such as financial statements, memos and emails.
Be Aware of Contractual Obligations
Before downsizing, the employer must consider representations or promises made to employees regarding workforce reductions, including those concerning the criteria used or procedures followed. Failure to observe such representations, including collective bargaining agreements, pre-employment representations and handbooks may result in breach-of-contract claims. An employer’s failure to follow its policies can fuel related discrimination claims.
Avoiding Discrimination Liability
Despite applicable at-will employment laws, employers may be exposed to discrimination liability if employees can show they were selected for layoff because of their membership in a protected class such as gender, race, national origin, religion, age, disability and, under Nevada law, sexual orientation. Class-action litigation is possible because layoffs usually include more than one employee. Employers should analyze whether employees selected for termination have recently taken a leave of absence covered by the Family Medical Leave Act (FMLA), filed a workers compensation claim, made a hotline call, filed an EEOC or NERC charge, are on the verge of vesting in their pension benefits or have engaged in some other protected activity in order to diminish their liability.
Selection Criteria
Before selecting which employees to layoff, employers should establish layoff criteria, including objective or subjective factors, or a combination. Objective factors can include seniority, productivity, disciplinary record, job skills and work experience. Subjective factors might include job performance, initiative and drive, contribution to the team, potential for advancement, and attitude. An employer must be able to validate its selection criteria because management discussions are discoverable in litigation. Although subjective factors might create more potential for legal challenges, using such criteria is not illegal. As a way to double check the validity of the criterion, employers can use a spreadsheet to spot potential problem areas such as concentrations of protected employees. The employer also should determine whether to use different selection criteria for different departments.
Affirmative Obligations
In addition to these potential pitfalls, other laws set forth affirmative obligations for employers considering reductions in workforce. For example, the National Labor Relations Act requires employers with unionized employees to bargain over the effects of the layoffs. Under the Worker Adjustment and Retraining Notification Act (WARN Act), certain employers must give 60 days advance notice to employees, certain local officials and any applicable bargaining representative prior to mass layoffs or other substantial reductions in force. In addition, most layoffs constitute a qualifying event under the Consolidated Omnibus Budget Reconciliation Act (COBRA) so that covered employers must provide affected employees with written notification of their right to elect continuation of healthcare benefits.
