A Checklist To Planning and Implementing a Reduction in Force

Over-Arching Concerns

1. Recognize The Likelihood Of A Lawsuit And Act Accordingly. RIFs and reorganizations are frequent targets of litigation, particularly claims of age discrimination and breach of contract. They should be developed and implemented with the recognition that all of the employer's actions may be subsequently challenged on a variety of different legal theories. Further, the review may be conducted by a jury comprised of men and women whose sympathies typically lie with the employee and who have little or no understanding of your business. All actions must be undertaken against this backdrop.

2. Document. Don't fall into the trap of doing everything right but then not being able to prove it in court at a later date. Document the entire procedure, start to finish.

3. Recognize Which Claims Are Likely. The most common RIF-related claims are age discrimination, breach of contract, retaliation and, oddly enough, disability discrimination. Little evidence is needed to establish prima facie claims under these theories.

A prima facie retaliation claim is perhaps the easiest to state. If the employee engaged in any protected activity shortly before the decision to discharge, that may be all he/she needs to at least file a claim. Protected activities include filing for workers’ compensation, filing or testifying in an EEO-related lawsuit, requesting reasonable accommodations and filing an internal claim of harassment, to name the most common. The employee will argue that the temporal proximity between the two events evinces a retaliatory motive. The employer will then bear the burden of disproving the inference.

Contract claims typically rest on labor contracts, employee manuals or alleged oral promises. The typical claim is that the RIF was not implemented in accordance with a particular process allegedly prescribed by one or more of theses sources (e.g., seniority was not controlling when it allegedly should have been).

Age discrimination claims may be brought under two theories. The first is a claim of disparate treatment. The former employee must prove that the company discharged him or her, or otherwise treated him or her differently, because of his or her protected characteristics. As a practical matter, however, direct proof of an intent to discriminate is not required. Rather, if the employee can cast doubt on the credibility of the stated reason for discharge, he or she is entitled to argue, without any direct evidence, that the real reason for the discharge is discriminatory. This puts a premium on an employer using provable selection criteria and being candid with targeted employees.

Alternatively, a discrimination claim may be brought on a disparate impact theory. This theory provides that facially neutral practices or procedures (including selection criteria for a RIF) may nevertheless be unlawful if the practical effect of their application is to disproportionately harm a protected group of employees. Proof of intent is not required. In addressing disparate impact claims, courts typically review the demographics of disproportionate impact on protected groups.

Finally, employers frequently experience disability-related claims raised by numbers of the workforce who were not RIF’d. These typically rest on claimed mutual impairments resulting from the stress and uncertainty of the entire process. Employers should consider any reasonable steps to anticipate and address this phenomenon, such as making an EAP available and giving careful consideration to items 4, 5 and 6 of this checklist.

4. Address The Concerns/Expectations Of Workers Who Are Retained. Don’t forget about the people you are keeping. They doubtlessly are experiencing a number of mixed emotions and have many questions: Is the RIF over? What is my job security? Do I want to continue working with a company that has had to go through this process? Why should I remain loyal to this company? How could they let Joe go after 10 years? Etc. Anticipate these concerns and address them. For example, at the conclusion of the process, consider closing the office and holding a brief off-site meeting to formally bring the entire event to closure. Merely showing employees that you are aware of their concerns is a big step in the right direction.

5. Do It All At Once. Avoid at all costs the need or possibility of a secondor third RIF in the near term.

6. Communicate With Employees. Many employers decide not to disclose to employees the fact of an impending layoff. Common reasons include (a) the belief that early disclosure causes otherwise unnecessary anxiety since employees have no control over whether they will be targeted in the RIF, and (b) the fear that many of the best employees will resign and seek employment elsewhere. In most instances, neither reason is particularly persuasive. Most employees want to know what is planned before it actually happens. Early and full disclosure may create more short-term anxiety, but it will create less long-term anger, which is the typical (and more damaging) result of a sudden, unforeseen mass elimination of jobs. And while some good employees may leave early, that possibility frequently is blown out of proportion.

Specific Considerations

1. Document The Decision-Making Process, Including The Reasons For And Anticipated Benefits Of The RIF.

2. Document Consideration Of Pros & Cons Of Alternative Actions Such As Voluntary Early Retirement Programs, Transfers, Hiring Freezes, Wage Freezes And Part-time Status.

3. Determine The Criteria To Be Used To Select Employees For Termination. Wherever possible, use objective, if not quantifiable, criteria such as productivity, elimination or duplication of job function, and seniority. If possible, use the same criteria in making all RIF determinations. If job performance assessments are among the criteria used, the employer must be prepared to defend the integrity of its performance appraisal system and its application of the system in selecting the specific employees for discharge. For example, be sure that all evaluations to be compared are current, complete, and similar in approach. Comparing a 1991 written evaluation of one employee with an incomplete 1993 evaluation of another invites legal challenge.

Consult counsel before using “cost,” measured by the dollar amount of an employee's salary and benefits, as a factor in RIF decisions. Some courts (and juries) view “cost” as a euphemism for age. If cost is used as the determination factor, consider nevertheless offering the reduced salary position to the older employee currently earning a greater salary.

If necessary, subjective criteria may be used for RIF decisions. However, the more nebulous the criteria, the more difficult they are to prove in a later proceeding.

4. Clearly Identify And Document The Selection Procedure And The Decision-makers. Consider giving decision making responsibility to a RIF committee. By disbursing responsibility among several people, the employer reduces the likelihood of a challenge that any particular participant is biased. If decision making responsibility is delegated to one or more individuals acting somewhat independently (for example, department heads), consider requiring all layoff decisions to be reviewed collectively by one or more persons before implementation. Try to inject some diversity into the pool of decision-makers by including managers that fall within one or more of the protected categories.

5. Provide The Decision makers With A Written Internal Statement Of The Well-Defined Selection Criteria.

6. Review All Written And Unwritten Policies And Procedures That Relate To A Reduction In Force And Follow Them To The “T”. This requires review of all labor contracts, employment contracts, etc. A full review of each affected employee's personnel file is recommended. A failure to follow policies or agreements can result in a breach of contract claim and can be used as evidence of pretext in a discrimination claim. Employee manuals, employment policies and offer letters are particularly dangerous sources of unintended employee rights, and should be reviewed by legal counsel.

7. Determine All Benefits And Compensation Due To Employees Upon Discharge. This includes but is not necessarily limited to accrued vacation, accrued comp time, accrued personal days, outstanding salary, pro-rata incentive compensation, COBRA rights, pension benefits and severance.

8. Analyze The Demographics Of The Pool Of Employees Targeted For Termination. Determine whether the pool of targeted employees includes a disproportionate number of persons who fall within one or more protected categories.

The protected groups requiring closest consideration are persons who are 40 years of age or older, women and ethnic minorities. With respect to each of these groups, determine:

(a) Their percentage representation within the pool of employees targeted for discharge and their percentage representation within the company’s workforce as a whole (prior to termination).

(b) Their percentage representation within the employer’s workforce as a whole following the RIF.

If the pool of employees targeted for discharge contains a disproportionate share of persons who fall within one or more of the protected categories, consider carefully whether there was anything in the selection criteria that may have resulted in bias, intentional or unintentional, and whether the criteria should be modified.

9. Review The Individual Circumstances Of Each Person Targeted For Layoff.

10. Determine The Most Appropriate Date, Time, Location And Method Of Communicating The Discharge Decision.

11. Determine Who Will Communicate The Discharge Decisions To Employees And Provide Those Persons With A Checklist, Outline Or Script To Follow When Conducting Exit Interviews. Also, consider having two individuals involved in the exit interviews. The purpose of the documentation and an additional attendee at the exit interview is to create documentary and oral evidence that will refute any claims that might later be made by discharged employees to the effect they were given certain promises at the exit interview or that certain admissions were made at that time.

12. Determine How Reference Checks Will Be Handled.

13. Determine How Vacant Positions (Not Being Eliminated) Will Be Filled.

14. Give The Employee Written Confirmation Of The Termination And Of The Reasons For The Termination.

15. Protect Assets, Including Confidential And Proprietary Information. The first reaction of some terminated employees is to walk out with company assets or sensitive competitive information. The exit interview should cover the employee’s obligations to the company in this regard. You may also want to review the materials the employee plans to take with him when he “cleans out his desk.” This can be presented as a protection for both sides, to avoid misunderstandings later.

16. Soften the Blow: Assist Departing Employees In Their Transition To New Employment. For example, consider providing severance pay, outplacement services, counseling, or letters of recommendation.

17. Consider Requiring Discharged Employees To Sign Releases In Exchange For Severance Or Some Other Benefit. In deciding whether to request a release, you need to take into account the fact that your request for a release may be introduced into evidence at a later date if the employee doesn't sign. It can be used as evidence that you knew you had violated the law. Furthermore, under the Older Workers Benefit Protection Act, to obtain an enforceable release of age discrimination claims the employee must be advised in writing to seek independent legal counsel. The result is that the release may cause exactly what it was created to avoida lawsuit.

In order for a waiver of age discrimination claims by an employee to be enforceable, a federal statute requires that the standards set forth below must be met:

Understandable Written Agreement: The waiver must be part of a written agreement between the individual and the employer and the agreement must be written in a manner calculated to be understood by the particular individual involved or by the average employee.
Specific Reference To The ADEA: The waiver agreement must state that rights or claims arising under the federal Age Discrimination in Employment Act (ADEA) are being waived. This means that general releases which, for example, simply state that the employee is waiving “all claims relating to employment and termination of employment are not enforceable as to claims of age discrimination under the ADEA.
Retrospective Only: The waiver cannot extend to claims that may arise after the release is executed.
Consideration: The individual employee can only waive rights or claims under the ADEA in exchange for consideration that is in addition to anything of value which the individual is already entitled to receive. It is advisable for this additional consideration to be recited in the waiver agreement.
Attorney Consultation: The individual must be advised in writing to consult with an attorney before executing the waiver agreement. It is again advisable to include a provision to this effect in the release.
Time To Consider: The individual must be given a period of at least 21 days to consider whether to execute the release. If, however, the employee wishes to enter into the agreement before this period expires, she may do so.
Revocation Period: The agreement must provide that, for a period of at least 7 days following its execution, the employee may revoke the agreement, and the agreement shall not become effective or enforceable until this period has expired.

A waiver requested in connection with an exit incentive or other employment termination program that is offered to a group or class of employees must meet all of the requirements for individual waivers listed above, with the following modifications:

Time To Consider: Each employee in the group or class must be given a period of at least 45 days, instead of 21 days, within which to consider whether to execute the agreement. An employee who so desires can execute the release prior to expiration of the 45-day period.
Additional Information Provided: At the beginning of the 45-day period, each employee must be informed, in writing and in understandable language, about (1) the class, unit, or group of individuals covered by the program; (2) any eligibility factors for the program; and (3) any time limits that apply.

The employee is also entitled to information concerning the job titles and ages of all employees eligible or selected for the program, as well as the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.

18. Avoid “Leaks”. One of the more demoralizingand costlymistakes made by employers is to inadvertently disclose to some employees a list of people targeted for termination. The all-too-frequent result is that one or more employees learn of their impending termination through a co-worker who makes some comment like “We sure are going to miss you around here.”

19. Be Candid And Comprehensive At The Exit Interview. If an employee is “riffed” because of poor performance, telling him a different reason to soften the blow or avoid conflict usually comes back to haunt the employer. If a lawsuit is filed, the manager who made the decision will be forced, sooner or later, to rely on the true reason, and the fact that the employee was told something else may lead the jury to conclude that unlawful discrimination was a factor in the discharge.

Be prepared to sever the employment relationship as clearly, cleanly and comprehensively as possible. Have all checks and necessary papers available so that on-going contact (and potential for additional trouble and hard feelings) is not necessary.

20. Consider The Implications Of The Worker Adjustment And Retraining Notification Act (“WARN”). This act requires all covered employers who are planning a “plant closing” or a “mass layoff” to give affected employees and local governmental agencies at least 60 days advance written notice.

(a) Is the employer covered by WARN?

(i) Does the employer have 100 or more employees, excluding employees who have worked less than 6 months during the twelve months immediately preceding the date the WARN notice would be required or who regularly work less than 20 hours per week?

(II) Does the employer have 100 or more employees, including employees excluded under question (i) above, who in the aggregate work at least 4,000 hours per week, exclusive of overtime?

If the answer to either of these questions is “Yes,” the employer is covered. [Note: The 100 employee test for WARN coverage is generally applied at the time a WARN notice would first be required.]

The coverage determination requires counting of employees at all sites of work, including U.S. workers at foreign sites. Generally, employees on temporary leave or temporary layoff are to be counted as well, so long as they have a reasonable expectation of returning to the same or similar job in the near future.

(b) Has there been a “plant closing” or a “mass layoff” triggering WARN obligations?

(i) Does the employer intend to close an entire “site of employment,” or one or more “facilities” or “operating units” within a single site? And does the shutdown directly result in an employment loss for 50 or more full-time employees at that site within any 90-day period?

If the answer to both of these questions is “Yes,” in most cases, there has been a “plant closing” triggering WARN obligations.

(ii) Will at least 33 of the employees and at least 50 full-time employees at a single site of employment suffer employment losses within a 90-day period? Or will 500 or more full-time employees at a single site suffer employment losses in a 90-day period?

If the answer to either of these questions is “Yes,” there usually has been a “mass layoff” triggering WARN obligations.

[Note: The term “employment loss” includes (1) a termination, other than a discharge for cause, voluntary departure or retirement, (b) a layoff exceeding six months, or (c) a reduction in the hours of individual employees of more than 50% during each month of any 6-month period.]

(i) Was the plant closing or mass layoff caused by business circumstances that “were not reasonably foreseeable as of the time the notice would have been required”?

(ii) If a plant closing has occurred, as of the time notice would have been required was the employer actively seeking capital or business, which, if obtained, “would have enabled the employer to avoid or postpone the shutdown,” and did the employer “reasonably and in good faith believe that giving the required notice would have precluded the employer from obtaining the needed capital or business?”

(iii) Was the plant closing 'or mass layoff the direct result of a natural disaster, such as a flood, earthquake or drought?

21. Consider The Implications Of The National Labor Relations Act. Does the employer have an obligation to bargain with a union representing all or a portion of its employees concerning either the decision or the effects the decision will have on those employees? Although in many instances pre-implementation notice may be required, the law is unclear as to what amount of notice is necessary. Obviously, as much notice as is practical is the preferred route.

22. Comply With COBRA. If you now have or recently have had 20 or more employees and provide group health insurance, you are obligated under COBRA to provide terminated employees with the option of continuing their group health coverage at their expense, generally for 18 months after the termination (sometimes longer). Specific statutory notice must be given within 14 days of the job loss. (Note that for purposes of the 20 employee test, commonly controlled corporations are treated as a single employer.)

23. Comply With ERISA Regarding Severance Payments. If you have a policy of granting severance payments, or if you choose to grant severance payments in connection with a RIF, your severance program is probably an employee welfare benefit plan that must comply with the Employee Retirement Income Security Act (ERISA). Since a severance plan is not a pension plan, many of ERISA's requirements don't apply. But ERISA does require a covered severance plan to be in writing and to contain certain administrative and claim review provisions. Also, a summary plan description must be prepared and provided to employees, and filings must be made with the Department of Labor.

24. Consider The Impact Of The RIF On Any Qualified Retirement Plans. If you have a qualified retirement plan, a RIF may cause what is called a partial plan termination. If this occurs, you will be required to treat all affected participants as immediately vested under the plan. There is no hard and fast test for when a partial plan termination has occurred. But a rule of thumb is that if one or more RIFs over the course of a year or less result in the termination of 20% or more of the plan participants, the plan will be treated as being in partial termination. If a RIF is going to result in anywhere close to this 20% loss, ERISA counsel should be consulted.

25. Rally The Troops. (See number 4 of the Overarching Concerns section.)

26. Don’t Undermine the Stated Reason for Discharge. The most common mistakes are to re-create or hire people into positions that purportedly were eliminated. That makes the entire process appear pre-textual.