Work force reductions

Unfortunately, the state of our current
economy has resulted in an increasing
number of layoffs. These layoffs often come in the form of reduction-in-force programs (RIFs), and companies conducting a
RIF need to consider the many state and federal laws that may come into play.

According to Jennifer Harris, an associate
in the Atlanta office of Baker, Donelson,
Bearman, Caldwell & Berkowitz, PC, smaller
businesses often fail to plan properly before
implementing a RIF and/or do not consider
the myriad laws that may be problematic.

Smart Business spoke with Harris on what
businesses need to know before pursuing
RIF programs.

What are some of the most common pitfalls
or mistakes you see when advising clients on
reductions in force?

The biggest mistakes I see are a lack of
planning and a failure to account for relevant
federal and state laws. In addition, there are
lots of companies that provide severance
benefits that are not otherwise required by
law or agreement but without requiring that
the separating employee execute a release of
claims.

What are some planning best practices for
employers?

  • Consider the scope of the RIF and the
    many state and federal laws that may come
    into play (including the ADEA and WARN) as
    well as current policies and procedures. As to
    policies and procedures, the company
    should, at a minimum, carefully review its
    handbook and all other sources of company
    policy and procedure and any governing collective bargaining agreements.

  • Carefully choose the criteria used to
    select employees for the reduction. This
    should generally be done prior to selecting
    the affected employees. A record should be
    kept of the selection decision, keeping in
    mind that the record could eventually be
    used as an exhibit in litigation.

  • Consider the use of specific (and trained)
    decision-makers who will make selection
    decisions as well as a committee to review
    those tentative layoff selections to ensure
    that established guidelines are followed.

  • Before any notices are sent, conduct an
    adverse impact analysis of the layoff list to
    detect patterns that may support a claim of
    discrimination. This analysis should be conducted under the direction of counsel. If the
    analysis shows that the reduction appears to
    have a disproportionate impact on a protected group, consider making adjustments to
    eliminate or minimize any unintended impact
    on one or more protected groups.

Are their any laws in particular that can be
problematic?

The most commonly overlooked statute is
the Age Discrimination in Employment Act
(ADEA), which applies to employers with 20
or more employees and prohibits discrimination on the basis of age. In the RIF context,
the ADEA requires that releases signed by
employees who are aged 40 or over comply
with the Older Workers Benefit Protection
Act (OWBPA), which is an amendment to the
ADEA. The OWBPA distinguishes between
agreements entered into both within and outside of the reduction in force context (called
an ‘employment termination program’).

Under the ADEA, an employment termination program is any program involving the
separation of two or more employees.

Specifically, if an employee 40 years of age or
older is terminated as part of a employment
termination program, the release agreement
must meet the following requirements: (1) it
must be written ‘in a manner calculated to be
understood by the individual’; (2) it may not
require an individual to waive rights or claims
arising after the date the agreement is executed; (3) the individual must receive valuable consideration, in addition to what the
individual is already entitled to as an employee, for signing the agreement; (4) it must
advise the individual of his or her right to consult with an attorney prior to executing the
agreement; (5) it must offer the individual at
least 45 days to consider the agreement; (6) it
must provide the individual seven days after
signing the agreement to revoke it, and the
agreement may not become effective until
this period has expired; (7) it must inform the
affected employee of any class, unit or group
of individuals covered by the program (commonly referred to as the ‘decisional unit’);
and (8) it must provide job titles and ages of
all individuals in the decisional unit who are
and are not eligible or selected for the program. These last two requirements are generally met through the use of an attachment or
exhibit to the severance agreement utilized.

In addition to the ADEA requirements, what
other requirements are there regarding the
release of claims?

The release agreement must be tailored to
the claims at issue as well as the jurisdiction.
For example, some states require that a
release contain a revocation period while
others do not. Similarly, the legal requirements regarding restrictive covenant provisions, such as noncompete and nonsolicitation provisions, vary widely across jurisdictions. It’s also important that employers not
exclude claims that cannot be waived from
release agreements as a matter of law. I suggest including a provision in the release that
specifically states that the employee is not
waiving claims that he or she cannot legally
waive by law.

JENNIFER HARRIS is an associate in the Atlanta office of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC who concentrates her
practice in labor and employment law. Reach her at (678) 406-8720 or [email protected].