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1. What does the term "layoff" cover?
2. What kinds of lawsuits get filed as a result of layoffs?
3. Does the WARN Act apply to all layoffs?
4. Are we required to have a written layoff policy? What should it
cover?
5. Are there required guidelines we must use in choosing employees
for layoff?
6. We have several employees out on legally required leaves. Can we
still lay them off?
7. Do we have to pay laid-off employees severance?
8. What about vacation pay?
9. What are our obligations regarding health insurance?
10. Do we have to rehire everyone we laid off if work becomes
available?
A layoff is never easy,
but if improperly implemented, it also can result in lawsuits. Find
out the questions you need to answer to ensure a smooth layoff and
reduce chances of legal action.
[Creating HR Policies or Employee Handbook?]
No organization wants
to go through a layoff, but often it is the only viable option.
Whether your reduction is because of a downturn in business or the
realignment of priorities, the process is likely to be gut wrenching
for everyone involved. For employers, however, the potential impact
is more than just emotional. If you do not conduct the layoff
properly, you could wind up facing costly — and embarrassing —
lawsuits. To help you avoid this outcome, we have answered the most
common questions employers have about their legal obligations during
a layoff.
1. What does the term
"layoff" cover?
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The term generally
refers to a termination action that is based on the need to
eliminate a job position or positions on a temporary or permanent
basis for business-related reasons. A layoff typically focuses more
on an overall reduction in force than on the individual who occupies
the targeted position, although performance may be one criterion for
making specific layoff choices (see question 5, below).
Temporary layoffs
generally refer to work situations that are expected – although not
guaranteed – to be short-term, and where employees anticipate being
recalled to work. Temporary layoffs are made for nondisciplinary
reasons and usually are the result of business fluctuations,
contract cancellations, or economic recessions. Permanent layoffs
are reductions in force where there is no expectation that employees
will be called back to work. Permanent reductions in staff should be
characterized as such so that employees will not expect to be
rehired.
2. What kinds of lawsuits get filed as a result of layoffs?
Layoffs can result in a
number of different legal claims, but often generate employment
discrimination claims. These claims typically result from layoff
decisions that appear to disproportionately affect employees who are
protected class members (for example, because they are minorities,
female, disabled, or over 40). Age discrimination claims are
particularly popular after layoffs since older workers tend to be
more highly compensated and may be selected because of their higher
salaries. In addition, layoffs that appear to target an employee or
a group of employees who have engaged in legally protected
activities, such as filing workers’ compensation claims or engaging
in union activity, may result in legal action.
Also, layoff and recall
decisions are more likely to generate legal claims if the employer
makes these decisions without definite guidelines or if they are
based on subjective criteria. To limit these claims, your best
defense is to be able to demonstrate business-related and
job-related reasons for decisions. (See question 5, below.)
3. Does the WARN
Act apply to all layoffs?
No. The Worker
Adjustment and Retraining Notification Act (WARN Act), the federal
law requiring covered employers to provide at least 60 days’ advance
notice of certain layoffs, only applies to employers with 100 or
more employees nationwide and is triggered by larger-scale layoffs.
Specifically, the advance notice must be provided for layoffs that
will cause an employment loss during any 30-day period for either:
(1) one-third of the workforce and at least 50 employees; or
(2) 500 or more employees (regardless of whether this constitutes
one-third of the workforce) at a single work site. It also requires
employers with 100 or more employees to give 60 days’ notice of a
facility closing if it will cause an employment loss for 50 or more
employees. The required 60-day notice period may be reduced in
limited circumstances. Because of the complexity of the WARN
requirements, if you think your layoff may be covered under the law,
you should consult legal counsel.
4. Are we required to have a written layoff policy? What should it
cover?
No law requires
employers to have a formal layoff policy and not every employer
really needs one. Organizations in which layoffs are rare or limited
to small numbers can usually address the topic on an as-needed
basis. A written layoff policy is useful for: businesses that are
downsizing, restructuring, relocating, or closing facilities;
organizations experiencing mass layoffs; or companies operating in
industries where fluctuating demand creates the need for frequent
layoffs and recalls.
Layoff policies
typically include provisions for carrying out a layoff, employee
selection criteria, recall provisions (in the case of temporary
layoffs), and benefits information. Subscribers to the
Personnel
Policy Manual and HR Policy Answers on CD will find a
sample policy in Chapter 210, Layoff and Recall.
5. Are there required guidelines we must use in choosing employees
for layoff?
No. Employers have wide
discretion in determining which employees are to be laid off. To
prevent discrimination claims, however, you are best advised to use
business-related and objective criteria, such as length of service
(seniority), performance, job skills, and job elimination. In
designing a layoff selection system, most employers combine one or
more of these criteria. Here are several points to consider:
Length of service.
Some employers base layoff decisions primarily on length of service
because of its perceived fairness and ease of implementation. In
addition, many union contracts require seniority to be a primary
consideration in determining layoffs. However, relying solely on
this criterion has its downsides. You can lose employees with
expertise, initiative, and leadership ability who lack the seniority
of less talented workers. In addition, a seniority-based layoff
system may defeat efforts to create a diverse workforce, since it
can have an adverse impact on recently hired women and minorities.
Performance.
Many employers prefer to lay off unproductive, mediocre, or problem
employees before those who are more effective and skilled. However,
if you base layoff decisions on performance appraisals or rankings,
you must be careful to implement the evaluation system in a fair and
consistent manner so that it accurately reflects employee job
performance. If evaluations are biased, overly subjective, or
carelessly conducted, the resulting layoff decisions may adversely
impact women, minorities, or members of other legally protected
classes and, thus, lead to discrimination claims.
Job skills.
Employers who have specialized training and job skill requirements
will often rely more heavily on a skills inventory analysis in
making layoff decisions. The use of this selection criterion
requires that the skills, knowledge, and training for each employee
be accurately documented and properly used for job decisions.
Job elimination.
Using this method, layoff decisions are made without specific
reference to individual employees and are based instead on an
assessment of the relative value of particular positions. This
approach does not require the employer to make personal assessments
and tends to carry less of a stigma for the affected employee.
Voluntary layoff incentives.
Some employers offer incentives, such as severance pay and continued
health insurance, to entice employees to volunteer to be laid off.
This approach is attractive since it allows employees to choose
their exit and, as a result, is less likely to result in legal
action. However, it also has significant drawbacks, most notably the
possibility that your best employees will take you up on your offer.
6. We have several employees out on legally required leaves. Can we
still lay them off?
Employees who are on
leave protected by law (such as the
Family and Medical Leave Act and
the Americans with Disabilities Act) generally should be treated the
same way as if they were actively employed. In other words, if the
employees would have been laid off had they not been on leave, you
may select them for layoff. However, employees may not be selected
simply because of their leave status. Therefore, if you target an
employee on leave for layoff, you need to be able to show that the
employee would have been laid off regardless of the leave status,
for example, because the employee’s department has been eliminated.
7. Do we
have to pay laid-off employees severance?
No, the payment of
severance is entirely up to the employer’s policy. Some employers
offer severance pay to provide extra economic help to employees
while they adjust to their job loss. Employers that provide
severance pay often require employees to sign a release of all
potential employment-related legal claims in exchange for the
payment.
8. What about vacation pay?
Depending on your
location, state law regulating the payment of accrued, unused
vacation at termination may be triggered in a layoff. In particular,
if the layoff is permanent or leads to termination, employers in
states that require payment for accrued vacation may have to pay out
the vacation at that time. Similarly, if you have a policy or
practice of paying out unused vacation at termination, you should do
so for permanent layoffs. If you are not obligated by law or your
existing policy to pay the unused vacation, you may volunteer to
make these payments as a goodwill gesture when the layoff is
permanent or when it is expected to exceed 30 days.
9.
What are our obligations regarding health insurance?
Under the
Consolidated
Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more
employees that provide a group health plan must offer qualified
beneficiaries the opportunity to continue coverage, at their own
expense, for up to 18 months, when they lose coverage as a result of
a termination, including a layoff. Most states also have health
insurance continuation requirements.
10. Do we have to rehire everyone we laid off if work becomes
available?
No. In the absence of a
collective bargaining agreement or other binding agreement to
recall, an employer is not required to rehire laid-off employees and
may hire other applicants rather than recalling these employees. As
a practical matter, many employers maintain recall policies during
temporary layoffs so that they will have a pool of trained employees
available to return as work becomes available. Before developing a
recall policy, you should carefully consider what factors to use in
selecting employees for return. The selection criteria should be
based on the employer’s expected business needs at the time of
recall and may include the employee’s job classification,
performance records, ability to perform the available job, and
ability to perform more than one function.
Although a layoff
decision is never easy, it has become increasingly necessary for
many employers in today’s economic environment. The key to
successful implementation is careful planning and attention to
detail. If you plan ahead and conduct the layoffs properly, you not
only reduce the risk of litigation but improve your chances for a
smooth transition. |
Personnel
Policy Service, Inc.
