The risks of reductions Featured

8:00pm EDT May 26, 2009

The current global financial crisis has sent shockwaves throughout virtually every sector of the economy. Employers across the country are responding to this uncertainty by reducing expenses, either through the reorganization of business units or the reduction of staff through voluntary and involuntary group termination programs.

Those initiatives, while certainly effective, also present a wide range of employment law risks, according to Lynn C. Outwater, a managing partner with Jackson Lewis LLP.

“Employers must do what they have to do, but they should do so cautiously and with awareness of the legal and practical landmines,” says Outwater.

Smart Business spoke with Outwater about how employers can guard against risks, particularly in the face of increasing discrimination charges and employment lawsuits.

How are employers responding to this crisis?

Everyone understands that things are not the same in this economy. Worsening economic conditions often necessitate adverse employment actions. Yet, employment litigation and discrimination charges are increasing. Simply taking action without thought will not save you, because it could cost more than it saves. If you find that you have to slash employment expenses, the only way to proceed in this environment is to follow best employment practice tips and avoid outcomes that are less desirable than the status quo before you implement the adverse action.

What employment law risks are presented by reductions in force?

Before you take any adverse action, whether it is a layoff or not, here is what you should think about. First, focus on benefit issues. Are you impacting a pension plan? Are you triggering withdrawal obligations? Did you give adequate ERISA (Employee Retirement Income Security Act) notice? Second, be knowledgeable about relevant laws and different statutes, whether WARN (Worker Adjustment and Retraining Notification Act), COBRA (Consolidated Omnibus Budget Reconciliation Act) or ERISA.

Also, carefully consider the criteria for making these decisions. The more valid and objective the criteria, the better. Document everything, because if there is a lawsuit
you will have to prove that what was done was job-related or consistent with business necessity.

Would a third-party view the action as fair or appropriate? Even though the law doesn’t require you to be fair, if you do something that seems unfair, the likelihood of a lawsuit or discrimination charge is much higher.

All the money you needed to save goes out the window with the expense of defending employment litigation lawsuits, or worse, you can be hit with unfavorable outcomes, including an administrative agency or a jury finding there was discrimination.

How can employers select criteria that limit the risk of a lawsuit?

Length of service is usually a safer criterion. Eliminating all the employees in one job classification is another way to minimize risk. However, in this day and age, many employers want to keep their best and most talented. In these circumstances, utilize more objectives and reliable criteria, such as every employee who received the lowest rated performance appraisals or ‘anyone who was disciplined in the last year’ will be let go first. You could also base the selection on productivity or customer satisfaction achievements.

Employers can also rank employees based on the skills and abilities they will need in the future. For instance, everyone who is left will have to know how to make our new product, or how to use a particular computer program, or must speak five languages. The more objective the criteria, the more likely your decisions will be upheld and understood.

How can employers be sure their selection criteria will hold up under legal scrutiny?

Make sure the decision-making and criteria you’re using are as objective as possible and consistent with the documented performance of that person up through the selection. Cases are lost because of inconsistencies. For example, a manager states, ‘I’m letting you go because you don’t show versatility,’ but written in last year’s performance appraisal is that the individual is ‘very versatile.’ It has to be a very thoughtful process. Make sure what you think you know about people is supported by what has been said, or written, about them in the past.

How can employers help their employees understand the reasoning behind their actions?

Communication is critical when adverse action is taken. You should not only communicate with those who are adversely affected but also with those who are not. Articulate a cohesive message on what you did, why you did it, what it means to the future of those who are still there and where the company goes from here. You want to have good morale after an adverse employment action.

Employees generally understand the need for adverse action, but they don’t understand it if it is not articulated well or if they think the way something is carried out is unfair. For example, if you suddenly surprise people one afternoon and you have security guards escort people out, and then you don’t talk about what you did or why you did it — obviously, that is not recommended. While not illegal, this is not a best employment practice.

How do you keep employee morale up after an adverse employment action?

Inspire the remaining employees and enlist their support. Really focus in on those who remain with you. Make sure they understand that they are an important part of the team going forward. If they recognize that you did what you had to do for the good of the whole, going forward you will still have the committed employees you will need.

Lynn C. Outwater is a managing partner with Jackson Lewis LLP. Reach her at (412) 232-0232.