The economic crisis is taking its toll on employers. Businesses large and small are slashing payroll and laying off employees. Even government offices, faced with crippling budget cuts, are sending employees home on furlough. No employer wants to be in a position of needing to reduce its workforce, but more and more employers are facing this grim reality as the economy continues to worsen. An involuntary reduction in force (RIF) can be an effective tool for reducing workforce and shedding costs. RIFs also can lead to significant liability.
The primary exposure to liability associated with a RIF is a claim of age discrimination. A typical scenario is for a terminated employee to allege that his employer selected him for the RIF not because of the reasons annunciated by the employer, but because of his age. Indeed, an employee terminated during a RIF can maintain a claim of age discrimination merely by showing that he was: (1) 40 years old or older; and (2) replaced by a sufficiently younger person.
Employers are best able to defend against such a claim when they can show that, despite the former employee’s ability to establish a prima facie case of age discrimination, the RIF was carried out pursuant to valid selection criteria and was designed to retain the most qualified employees. In order to successfully utilize this defense — and, more importantly, to avoid a lawsuit in the first place — involuntary RIFs must be carefully planned. The following is a suggested preliminary checklist for any employer considering a RIF.
1) Written list of business reasons. The first step is for top management to identify in writing the business and/or financial reasons for the RIF, including economic savings and increases in efficiency.
2) Goals of RIF. Identify the goals of the RIF, such as labor costs to be eliminated or number of employees to be terminated.
3) Consider alternatives. Will less drastic alternatives achieve your goals? Consider alternatives such as shortened workdays, voluntary pay reductions, reductions of overtime, voluntary leaves of absence, and salary or hiring freezes.
4) Written selection criteria. If no viable alternatives exist, the next step is to generate a written internal statement of well-defined selection criteria for termination. Always consult legal counsel to assist with determining appropriate selection criteria. A mistake here could lead to significant liability down the road.
5) Identify selection procedure. Identify the decision-making sequence and persons responsible for those decisions. Involve your HR department.
6) Assure RIF policies are followed. Make certain that all written RIF policies are known and followed by the decision-makers administering the RIF.
7) Employment contracts. Be aware of any employment contracts which may remove an employee from the sphere of “at-will” employment.
8) Severance packages. Finally, consider severance payments coupled with written releases. Releases can protect you from future claims, but they must be carefully drafted in order to be effective. Consult legal counsel before offering a severance package.« Back to news