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 firstname.lastname@example.org.