Business Law Compliance/Best Practices Employment Law Legal Topics

Reducing Your Workforce the Right Way

As this difficult economic situation continues, many employers are making the tough decision to reduce their workforce. But employers beware: If it’s not done correctly, a reduction in force can lead to an increase in employer headaches and costs.

Unlike plant closures or relocations, which generally do not raise discrimination issues because they have equal impact across the workforce, reductions in force require employers to make decisions that affect some, but not all, employees. This means that some downsized employees may bring discrimination claims alleging that the action was taken because of a characteristic protected under federal or California law, e.g., age, sex, religion.

As with most things, careful planning can go a long way toward avoiding violations and preventing lawsuits. Here’s a handy checklist of steps that employers and their counsel should consider as they implement a reduction in force:

1. Articulate the business need and identify the business goal to be accomplished.

2. Determine whether the reduction in force can be avoided or minimized by other cost-cutting measures such as salary or hiring freezes, voluntary attrition through early retirement plans, severance plans, enhanced benefit plans, or cutback in nonexempt hours.

3. If a reduction in force is unavoidable, determine whether the reduction should be limited to only identified departments, organizations, or levels of managers, or be applied across-the-board.

4. Once you determine the affected units or levels, identify the positions that need to be eliminated or consolidated.

5. Set the criteria for selection. If criteria are weighted, articulate the weighted formula. Although subjectivity is not per se unlawful, it’s best to use objective, weighted factors.

6. Rank multiple incumbents under the stated criteria. The lowest-ranked employees in the identified unit should ordinarily be the employees who are laid off, absent extraordinary circumstances.

7. After generating a tentative list of layoff candidates, check the list for adverse impact by protected category such as race, sex, national origin, disability, and age.

8. To ensure that the selection is based solely on legitimate business reasons, review the tentative list for:

  • “Whistleblowers”;
  • Workers’ compensation claimants;
  • People about to vest in, e.g., stock options, retirement plans.

9. Determine whether to provide additional compensation in exchange for a release of claims.

10. Once the final determination has been made, ascertain whether the reduction in force will trigger notice under the federal Worker Adjustment and Retraining Notification Act (WARN, 29 USC §2102(a)) or California WARN ( Lab C §1401).

11. Provide COBRA notice (Lab C §2807; see §§18.45).

12. Consider transition assistance such as outplacement.

13. Provide managers with guidance on how to communicate information to the workforce and how to manage the reduced workforce after the reduction in force has taken effect.

Everything you need to know about reductions in force, including a form notice to employees, is in CEB’s Advising California Employers and Employees, chap 18.

© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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