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Common Questions in Layoffs
Free Download: Layoff and Recall Policy

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?                            [Download Free Policies]

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.


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This article is not intended as legal advice. Readers are encouraged to seek appropriate legal or other professional advice.

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