Current economic circumstances suggest that layoffs are coming. Indeed, in late March, Disney’s CEO, Bob Iger, announced the company’s plans to terminate more than 7,000 employees in the coming weeks, and Disney is not alone.[1]
If companies and HR professionals do not carefully plan group terminations, they could face long, expensive lawsuits filed by multiple terminated employees. This risk can be mitigated through using a nondiscriminatory decision-making process, reviewing the results, and, in circumstances where it is economically feasible, using severance agreements for terminated employees. Below are some considerations when planning for a workforce reduction.[2]
- Know the laws and documents that apply to your layoff.
- The Federal WARN Act[3] and similar state and local laws may require advance notice and regulatory filings before certain plant closings or mass layoffs. It is critically important to understand whether these laws apply to your group termination so that you can comply with such requirements well in advance.
- Collective bargaining agreements may dictate how layoffs must be conducted, who can be selected for termination, and what benefits terminated employees must receive.
- Review your company’s employment and operations policies and any employment agreements to be sure that any group termination complies with each as appropriate. This is particularly true for companies with written severance policies or employees with bonuses and other written incentive plans.
- COBRA[4] may require the continuation of group healthcare plans for terminated employees, so advance coordination with your benefits provider is encouraged.
- Pay laws that might impact what an employee is required to be paid on the employee’s last day of work, including any commissions that might be owed to the employee.
- Document and check your selection process.
- The business reasons for the group layoff should be well documented by leadership and supported by data. Likewise, the selection criteria for employees subject to the layoff should be documented and, whenever possible, supported by data.
- As we explained in an earlier post,[5] all termination decisions must be based on legitimate, nondiscriminatory factors. The best selection criteria is objective such as job position or seniority.
- Protected categories like age and race should not be a factor in determining which employees to terminate. To be sure that the selection criteria and process is nondiscriminatory, selection decisions should be reviewed for disparate impact or treatment of employees in protected classes. This is best done with the help of an experienced attorney.
- Consider providing severance benefits to terminated employees.
- Employees who are treated fairly and given benefits to help them transition to their next job may be less inclined to sue the company. Severance benefits should only be given in exchange for a valid release of claims against the company.
- For a severance agreement to be valid, they must comply with federal, state and local laws. The OWPBA[6] provides that severance agreements will only validly waive claims of age discrimination, a frequent claim made by employees subject to a workforce reduction, if they strictly comply with the Act. For example, the OWPBA requires that severance agreements include information about which workplace units were considered for reduction, the criteria used to make reduction decisions, and the ages of employees selected and not selected for reduction by job title.
- Finally, develop a communications and engagement plan for your remaining employees and stakeholders. Layoffs are hard on all employees, including leaders. Effective layoff plans focus on moving past the layoffs and keeping existing employees engaged.
When it comes to layoffs, failing to plan is planning to fail. We encourage you to contact an experienced attorney to review your layoff plans and results to mitigate the risk of employment litigation.
Related Services:
About the Author
Christy K. McDonald is a labor and employment attorney in the Grand Rapids office and can be reached at 616.336.1039 or CMcdonald@dickinsonwright.com, and her biography is available here.
[1] Jon Passantino, Disney Begins Laying Off 7,000 Employees, CEO Bob Iger Announces, https://www.cnn.com/2023/03/27/media/disney-layoffs/index.html (accessed March 27, 2023).
[2] These measures are in addition to having your layoff plan reviewed by an experienced employment lawyer who is familiar with applicable laws.
[3] Worker Adjustment and Retraining Notification Act, 29 U.S.C. §2101 et seq.
[4] Consolidated Omnibus Budget Reconciliation Act of 1985.
[5] https://hr.dickinson-wright.com/2022/02/07/practical-considerations-in-employment-terminations/
[6] Older Workers Protection Benefit Act.