Law Office Report - Spring 2009
When Downsizing is Rightsizing
Attorney Brian G. FormellaAs pundits debate the condition of the national economy and attempt to predict recovery, one thing is clear: If your business is considering whether to reduce the number of its employees, it will want to do so only after fully considering all of its options and the potential legal pitfalls. Listed below are three points to keep in mind if your business must consider a “reduction in force.”
Documentation
Whether or not your business plans on downsizing right now, the documentation that your business generates regarding employee performance, if done properly, will help it in defending against possible lawsuits from terminated employees. If you decide to downsize, your business will want to document two basic areas: a) employee performance, and b) the decision-making process that was followed to determine the extent of a reduction in force and who will be affected.Make sure that your documentation procedures are not in conflict with your employee handbook. Document the performance of your employees as often as necessary. Stay objective in your analysis. For example, stay away from describing personal characteristics that may form a basis for a discrimination complaint.
Selection of Which Employees to Lay Off or Terminate
Following Consideration of Alternatives
Consider whether the business’s goals may be met by job sharing, voluntary layoffs, or a business-wide reduction in hours. If the company must lay off or terminate employees, realize that such employees may be inclined to legally challenge their selection for dismissal. The astute employer will take the time to obtain counsel to learn about the state and federal laws that apply to the workplace, such as the Americans with Disabilities Act, the Wisconsin Fair Employment Act, the state and federal Family and Medical Leave Act, the Age Discrimination in Employment Act, and many more.The selection process should be carefully designed to include more than one level of analysis regarding who will be laid off or terminated. Restrict front-line supervisors to providing recommendations rather than being the final decision makers. This will increase the ability to nullify any claim of bias or prejudice. Decisions should be made that center on which positions and job functions should be eliminated rather than which individual employees to terminate.
Make sure that if the business is laying off older workers (federal and state age discrimination laws apply to people over 40), it does not inadvertently hire younger employees to replace the older employees shortly thereafter. Such action will raise an inference of age discrimination. Age discrimination laws do not mean that workers over 40 may never be terminated or laid off; however, any such layoffs must be conducted in a nondiscriminatory manner.
Determine whether your business will offer a severance package, and make sure you obtain a lawful release of claims from the affected employees.
Informing the Employees
It is not an easy task for most people to inform an employee that he or she will be laid off or terminated. It is usually better to have two company representatives break the news to an affected employee. How much information to convey to the affected employee will depend on the facts and circumstances of each situation, but a concise statement is usually better than a lengthy one. Be aware of health benefit continuation obligations.Conclusion
Downsizing is difficult. It can be fraught with legal impediments for the unwary. Prepare for the event as much as possible, and seek legal counsel to work with your business to design a downsizing plan that has the best chance of withstanding legal challenge.