A reduction in force ("RIF") refers to permanent termination of employees as part of a planned program due to an employer's need to reduce payroll costs or headcount in response to changed business circumstances. Commonly known as a "layoff or downsizing," it is important for private employers conducting reductions in force to be aware of the various federal and state laws that are potentially implicated, as well as best practices to follow.
Assess whether a reduction in force is necessary and whether alternative options would be more beneficial.
There are risks, costs, and controversies associated with a RIF. Consider other cost-cutting measures such as hiring freezes, unpaid leave offers, shortening workweeks, and pay cuts.
Prepare a plan of action for conducting the reduction in force.
Include management, legal support, and human resources to determine how the RIF will be carried out and ensure that the proper laws and procedures are followed.
Be mindful of state and federal laws implicated when conducting a RIF and execute the reduction in accordance with these laws.
Federal Laws:
- Avoid Discriminatory Practices: It is important for employers, before enacting a reduction in force, to ensure that the plan will not disproportionately impact groups protected under federal anti-discrimination laws. Consider the following when conducting a RIF:
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- Age Discrimination in Employment Act of 1967: Protects employees over age forty from employment discrimination. In 1990, Congress amended the Age Discrimination Act with the Older Workers Benefit Protection Act ("OWBPA") which imposes specific requirements for releases covering Age Discrimination in Employment claims.
- Title VII of the Civil Rights Act: Prohibits employers from discriminating against employees because of race, color, religion, sex, or national origin.
- The American with Disabilities Act of 1990: Prohibits employers from discriminating against individuals with disabilities.
- Uniformed Services Employment and Reemployment Rights Act of 1994: Protects service members and veterans from discrimination due to their current or prior service, and adds "a reemployed employee may not be discharged without cause [f]or one year after the date of reemployment if the person's period of military service was for 181 days or more" or "[f]or 180 days after the date of reemployment if the person's period of military service was for 31 to 180 days."
- Compliance with the Family and Medical Leave Act of 1993: Protects employees on leave for family or medical reasons. Applicable to private employers with 50 or more employees. Under this act, it is illegal for an employer to fire an employee for exercising protected leave.
- Comply with the Work Adjustment and Retraining Notification Act of 1988 ("WARN"): Congress enacted the WARN Act in 1988 to assist workers in the process of transitioning from one job to the next. Employees covered by the Act must receive written notice of the loss of their jobs at least 60 days in advance of layoffs and plant closings. An employer falls the Act if:
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- The organization employs 100 or more employees (not counting employees who are part time, that is, who work "an average of less than twenty hours per week or a person who has been employed for less than six of the twelve months before the date of notice"); or
- The organization employs100 or more employees (including part-time employees) who, in the aggregate, work at least 4,000 hours per week (not including overtime); or
- The organization conducts the closing of a facility or discontinues an operating unit, whether permanently or temporarily, affecting fifty or more employees; or
- The organization conducts a mass layoff affecting 500 or more employees at a single site of employment during a thirty day period or lays off at least fifty, but less than 500 workers, and these layoffs comprise one-third of the employer's active workforce of full-time employees at a single site; or
- In either of the two scenarios above, the organization conducts a temporary layoff of initially less than six months, but then extends it for longer than this for reasons that were not reasonably foreseeable.
- Determining WARN applies to an employer is a crucial, as violators must pay each employee back pay and benefits for the period of violation, up to sixty days and can be subject to civil penalties of up to $500 per day of violation. Employers may be exempt if 1) a company is faltering, 2) there are unforeseeable business circumstances, or 3) a natural disaster occurs.
- Comply with the Consolidated Omnibus Budget Reconciliation Act of 1985("COBRA"): Provides workers and their families who recently lost health benefits with the option to continue receiving those benefits for a certain period of time. This Act applies when employees are faced with life events, including transitioning between jobs, reductions in hours worked, losing jobs for reasons not caused by "gross misconduct," and others. It requires 30 days notice to employees after a qualifying event and an election notice within 14 days to qualified beneficiaries.
State Laws:
- Comply with State Anti-Discriminatory Laws.
- Adhere to State and Local WARN Acts.
Be aware of severance considerations and other benefits when executing a reduction in force.
Employers must also determine whether severance payments or other benefits are due pursuant to any employment agreements.
Execute the reduction in force.
Employees should be notified of their termination, which should also be communicated in a written document providing a clear reason for the layoff and the criteria used to make these determinations, as well as informing employees of any applicable severance payments and benefits they are entitled to. Consider exit interviews and make sure that employees do not have access to company property, including technology, identification cards, and privileged company information and documents.
Ensure the proper paperwork is filed and delivered.
Verify that all necessary documentation is filed. Publicly traded companies may need to file reflecting any material changes to the company. Verify that employees have received all necessary documentation pertaining to the termination, including information on final paychecks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
