Who stays and who goes? Featured

8:00pm EDT August 26, 2008

Economic times are tough and production is down. You come to the grim realization that layoffs will have to be made. But how do you decide whom to let go? How important is seniority, and should it overshadow the performances of the workers?

“There are no laws that provide employers a formula as to how to make those decisions or whom to select,” says Kevin T. McLaughlin, the labor and employment practice group manager for Greensfelder, Hemker & Gale, P.C. “And there are no limits to the number of people you can lay off.”

Smart Business spoke to McLaughlin about the difficult decisions involved in employee layoffs.

Outside of a union, are there any laws regulating how to conduct an employee layoff?

At a certain threshold, there are laws that require specific notice, and there are penalties if the employer fails to provide that notice. The most applicable law is the federal law known as the Worker Adjustment and Retraining Notification Act (WARN), which applies to companies that have more than 100 employees and states that employers must provide notice 60 days prior to the layoff.

The law applies in a number of situations: First, if the company is closing a facility with at least 50 workers or if the company is laying off 50 or more employees at a single site and those 50 workers comprise at least one-third of the work force at that particular site. Second, if there is a layoff of 500 people or more. Third, if there is a reduction of hours of at least 50 percent for 50 or more workers at a single site for six consecutive months.

What about collective bargaining agreements (CBAs) with unions?

Outside of a claim of discrimination, the only way an employee can claim he or she cannot legally be laid off is if the employee has a contract that protects his or her job. Individuals, such as CEOs, typically have those types of contracts. Union contracts almost universally have some type of layoff clause that does not necessarily restrict the employer’s right to lay an employee off but rather tells the employer the proper way to do it.

Layoffs are always subject to the question: ‘Will the layoff lead to a claim of discrimination?’ You really see this most often in the private sector, and the most common type of discrimination claim in layoff situations is based on age. If you have to lay people off, that decision is usually economically driven and most often that means that the people making the most money are the ones who have been there the longest, and typically those are the older employees.

One way to protect against discrimination claims is for employers to have separation or severance agreements with their employees. Many times, when there are massive white-collar layoffs, you will see an offer of severance, such as early retirement, as part of the package. There are specific, unique legal requirements for these types of severance agreements.

Are white-collar workers feeling more of the pinch these days?

Certainly, there are more white-collar workers being laid off and part of the reason is employers’ response to the mounting pressure to cut costs across the board. Typically, your white-collar employees are going to be some of your highest paid employees.

For example, if you’re dealing with a field where technology is an issue, many times a newer, more recently trained employee can work at a cheaper rate than someone who has been around for a long time. Also, many employers ‘run lean,’ which means they are consolidating job functions into one position and expecting more out of the remaining employees. These people are affected by the layoffs of other employees, as well, as they are now being required to perform the functions of two or more people.

How does an employer decide who stays and who goes?

There’s a distinct difference between the union setting and the white-collar setting. There is almost always a CBA in the union setting that will dictate how the layoff has to happen. The most common layoff criteria in a union contract is seniority. The newest employee is generally the first to go, and, of those laid off, the most experienced employee is the first to be recalled. I try to negotiate skill and ability as factors in determining layoffs and recall into CBAs, as I’ve had clients complain that they have been forced to get rid of newer employees and lose some of their best workers in the process.

Outside the union contract, the employer tries to balance the need to cut costs with what skills they need to keep in the workplace. Employers must determine at what point they can cut costs enough to make the layoff effective without impacting efficiency to the point that they cannot get the work done that needs to get done.

KEVIN T. MCLAUGHLIN is the labor and employment practice group manager for Greensfelder, Hemker & Gale, P.C. Reach him at (314) 345-4758 or ktm@greensfelder.com.