The legal press is full of bad news regarding the economy’s effect on law firms. Hardly a day goes by without news of layoffs and even the dissolution of firms considered to be robust just months ago. The same media have noted no shortage of employment law work, which is true for us and colleagues with whom I have spoken.
Layoffs and cost-cutting measures often give rise to employment law claims. Employees’ insecurity and long periods of unemployment motivate them to seek help, whether from government agencies or lawyers.
The employment lawyer’s gain is employers’ potential loss. Given the time and expense litigation and settlements consume, employers should focus on risk avoidance now more than ever. Maintain Employees’ Dignity and Respect
There is no law that requires employers to be humane to employees when delivering bad news such as layoff notices. Nevertheless, many lawsuits I have defended might have been avoided if the employer had handled things differently. Several plaintiffs have told me so during their depositions.
There is no way to entirely mitigate the negative feelings that involuntarily termination inevitably brings. But employers need not make the experience as unpleasant as possible. A little consideration costs very little, requires no lawyer and can make all the difference.
For example, announcing layoffs via e-mail, text message, sticky note, etc., while perhaps more efficient, may signal that management has no appreciation for employees’ service during the good times, or the hardship a layoff brings. It may be wise to select a less impersonal way of communicating layoff information if at all possible. Similarly, timing a layoff to coincide with a religious or family-based holiday may create more trauma than necessary.
An employer has the right to fire an “at will” worker at any time and for any lawful reason. But employees who are genuinely surprised the employer was unhappy with their performance are much more likely to sue. Timely, honest performance feedback will help the employee accept the discharge. Meeting the employee in a private location to conduct the termination may help minimize embarrassment. Waiting until the end of the day to have the employee clean out his or her personal belongings may do the same. And, contesting unemployment when the high standards for denial of such benefits likely cannot be satisfied may motivate an employee to find a lawyer.
Effective handling of employee complaints regarding workplace conditions and perceived harassment can go a long way to avoiding litigation. When employees feel no one is listening or taking them seriously, they are more likely to seek and find third-party help.
Reductions in Force
Good employee relations practices are always important. But legal compliance should not be underestimated, either. From a legal standpoint, layoffs naturally entail a higher risk of wrongful termination lawsuits.
The primary defense to discrimination lawsuits is a “legitimate, nondiscriminatory business reason.” To support this defense most effectively, layoff criteria should be as consistent and objective as possible (based on things such as length of service or numerical productivity). Subjective performance evaluations or skills assessments, while lawful, are easier to attack as biased.
The decision to close an entire office, department or business stream is easier to justify from a legal standpoint, particularly in defense of a discrimination claim. Selective layoffs of a portion of employees within a business unit (e.g., 20 percent of call-center workers, three out of 12 salespeople) are riskier. Although pure economics may be reason for the overall reduction in force, that is not an automatic justification for managers’ choice of whom to lay off.
Statistical analysis of the workforce before and after layoff may be helpful, particularly when larger numbers are involved. But statistics alone will not uncover a manager’s decision to lay off someone who has asked for reasonable accommodation or complained about discrimination.
If managers cannot convincingly convey the legitimate reason for the layoff to the human resources department, they likely will not be able to provide justification to a former employee’s lawyer or a human rights agency. Therefore, management should review the basis for each individual person selected for layoff, as compared with the similar workers retained. If some workers are offered transfer, reassignment or a pay cut in lieu of layoff, these decisions, too, should be examined for discrimination or retaliation against those selected for job elimination.
WARNing and Special Effects
Employers must consider whether a plant closing law mandates advance notice of layoffs or shutdowns. The federal WARN Act has been around since the late 1980s. But states are now implementing their own “baby” WARN Acts. California enacted its own law a few years ago and efforts are under way to amend it. New York and New Jersey recently enacted plant closing and mass layoff laws that differ considerably from the federal statute. Even some cities have their own “plant closing” laws.
Employers with collective bargaining agreement may have contractual or legal obligations to bargain with unions over the decision to lay off, or just the effects of the decision (such as separation pay and benefits continuation).
Please Release Me
Many employers offer separation pay in connection with layoffs, although not legally required to do so. It is prudent to condition separation pay on the employee’s agreement to a release. But an unenforceable release can result in a client very unhappy with the lawyer who reviewed it.
Employers should resist the temptation to rely on separation agreements from prior layoffs or forms found on the Internet.
Competent counsel should review them to ensure they are updated for legal developments. For example, the new Family and Medical Leave Act regulations expressly permit releases of claims under that statute; some courts previously held such releases were not permitted. Also, releases of federal age discrimination claims are governed by specific rules, which courts continue to interpret.
Employers should also be careful not to include in releases illegal or unenforceable terms.
Here are just a few examples: It is unlawful in California to compromise claims for wages that are concededly due. Releases of workers’ compensation claims in California are unenforceable without the approval of the Workers’ Compensation Appeals Board. Federal courts or the U.S. Department of Labor must supervise certain federal wage claims. Employers cannot include unlawful restrictive covenants in separation agreements. Their enforceability will depend on state law. However, some ERISA-governed severance plans may give employers greater flexibility.
Finally, the new economic stimulus bill contains important changes to the law regarding benefits continuation under the statute known as COBRA. These changes will affect whether employers should offer subsidized benefits continuation as part of the consideration for a release.
Other Cost-Cutting Measures
Employers may make a number of cost-cutting decisions apart from layoffs that create potential liability. For example, employers may wish to reduce operating hours with a concomitant reduction in wages. For “non-exempt” employees, the employer need only pay for hours worked. But forcing an “exempt” employee (e.g., manager) to work four days per week may not justify replacing the furlough day’s wages with accrued vacation. Reducing an exempt worker’s (e.g., manager’s) salary because of a reduced workload may affect the employee’s exempt status in California.
Along the same lines, employers in California may seek to reduce liability for “daily” overtime by implementing alternative workweek schedules (such as four 10-hour shifts instead of five eight-hour ones). These are subject to strict statutory and regulatory requirements. The Legislature, however, just implemented some changes making it easier to implement these schedules (Assembly Bill 5, which amended Labor Code Section 511, became effective early last month).
Employers may wish to change bonus or commission plans to save payroll costs. It may be lawful to do so prospectively, depending on the bonus or commission agreement. A poorly drafted plan may be difficult to change. Once wages are earned under a plan, they may not be forfeited.
Employers should always consult with competent employment lawyers about these and other matters before liability accrues. An hour of preventive counseling could yield hundreds of hours and millions of dollars in savings.