When a Reduction in Force is Necessary for the Health of Your business, Do it Right!

Without a doubt, reductions in force (RIF) confront business owners and managers with having to make some of the most difficult decisions they might ever have to face. While one may dread the unfortunate effects of a RIF on one’s employees, their spouses and families, such effects can be the least of the challenges, as RIFs are laden with legal pitfalls as well. But when a business faces the need to consolidate operations and/or job functions, including the possible lay-off of existing staff, a RIF can be accomplished in a carefully considered – and considerate – manner, and with minimal legal exposure.

  • Whether brought on by a down economy or a merger or acquisition where economies of scale dictate staffing reductions, establishing and then maintaining certain procedures and standards can help a business avoid legal claims and even hard feelings. The following bullet points offer guidance for such times:
  • RIF decisions should be driven by legitimate, non-discriminatory business requirements. While people do matter, job functions and operational necessities must govern the decision-making processes. Relying on objective criteria to assess which positions are to be eliminated is less likely to result in claims of discrimination than introducing subjective criteria into the process. Citing hard data, such as production statistics, seniority, or a failure to meet specific performance criteria is always preferable to citing less clear-cut factors, such as performance evaluations or an employee’s perceived “attitude.” Needless to say, it is difficult at best to defend the subjective views of management as to any particular employee’s performance in a RIF.
  • The Age Discrimination in Employment Act (ADEA) establishes certain protections for employees over 40. Employment costs can be a big part of any RIF analysis and can often result in the selection of a group of highly paid (read: older) employees for termination. While decisions based strictly on cost are not illegal per se, salary and benefit costs are often perceived as a proxy for age, thus generating age discrimination claims. Moreover, severance or early retirement packages commonly offered to RIF employees can involve legal complexities such as releases of claims to be executed by the departing employee. Ensuring the legality of the structure of such packages can be complicated, making consultation of ADEA guidelines and other applicable statutes imperative.
  • Consider establishing a RIF Committee. Even if not comprised of members of various legally protected employee classes (e.g., age, sex, or race), which of course is preferable, a RIF Committee can significantly minimize claim exposure when members have formally conferred before final decisions are made. Decisions made by committee can withstand claims that an illegal factor had any bearing on RIF determinations. Regardless, having the input of multiple disciplines in an organization is always desirable as it eliminates “finger pointing” as to who decided to select any particular person for layoff.
  • Employers should perform a statistical analysis to ensure that a particular protected class of the selected group is not disproportionately affected by a RIF, even if the employer has taken precautions to avoid such discrimination. If the numbers uncover a “disparate impact,” the RIF can be reconfigured to avoid unnecessary exposure. Looking at a RIF from all angles is a wise move.
  • Document the reasons underlying the overall RIF decision, as well as the reasoning behind individual discharge selections. Conduct and document exit interviews and write post-termination letters setting out other legal obligations (of which there can be many). Good documentation can go a long way toward proving that decision-making was non-discriminatory and was simply based upon good business judgment.
  • Employers conducting a RIF should “script” any termination meetings, and document any follow-up exit interviews, so that no uncertainty remains as to what was said, or by whom, as to the reasons for discharge and/or the answer to any questions posed by any affected employee.
  • Avoid replacing discharged individuals for a reasonable period of time. The filling of the job functions of a laid off employee shortly after a RIF – particularly if only a few positions were affected and the replacement is the demographic antithesis of the discharged employee – can fuel legal claims. Instituting a hiring freeze for a reasonable period of time following a RIF can establish a sufficient buffer to preclude complaints for alleged discrimination.

Employers conducting a RIF (or contemplating doing so) should consult with competent labor counsel to consider these and any number of other potentially applicable laws, contracts, and policies as it pertains to affected employees.

For those interested in discussing this topic in more detail, please contact Fred Mendelsohn at fmendelsohn@burkelaw.com or 312/840-7004.

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