When the Reaper threatens an enterprise in an atrophying economy, businesses must find ways to reduce spending to offset diminishing revenues. The swiftest and surest way to trim costs is to prune the workforce. Though layoffs are bitter medicine for affected employees, they are often necessary for the remaining workers and for the company itself. In February 2001 more layoffs were reported than ever before; 60 percent more employees were cut in March than in February.
Employers who implement a “reduction in force” (RIF) risk lawsuits by dismissed employees, so they must obey statutes governing RIFs. Employees face their own issues: whether to volunteer for layoff, and whether to ask for, or accept, separation benefits. Employers are not legally required to give employees any money during a layoff, so the simpler decisions reside with the employees. Many sue, believing they have been selected for layoff for some illegal reason. Thus, employers must proceed carefully to ensure they do not violate any employee rights. Many companies have learned the hard way how important it is to fully understand the legal risks of layoffs.

For example, First Union recently paid $58.5 million to 239 former employees who sued the company following a layoff, claiming that the company had engaged in age discrimination in selecting them for layoff. Recently, Westinghouse and Northrop Grumman agreed to pay $14 million to approximately 700 former employees to settle age discrimination claims arising from a series of layoffs. On the other hand, in some layoffs, particularly when skilled counsel guides the companies, no employees ever file suit. A company may reduce its liability by proceeding carefully, by understanding the legal hazards, and by complying with the guidelines set forth in this article. LEGAL CONSIDERATIONS
The chief considerations for an employer are: whether to conduct a voluntary or involuntary separation (layoff); what statutes govern, and how to comply; and how to structure a RIF to minimize the liability of lawsuits.

* VOLUNTARY SEPARATION PLAN: Employers should first consider whether to implement a voluntary separation plan. Under such a plan, the company calls for volunteers to resign in exchange for some stated package of benefits, such as a separation payment. From the employee’s perspective, the key advantage is control over the decision to remain or to depart in exchange for the benefit package. For the employer, the key advantage is reduced legal exposure for wrongful termination actions. That is, an employee who has voluntarily departed likely cannot prevail in an action for wrongful termination. Courts have traditionally held that a truly voluntary separation plan is legitimate and nondiscriminatory. There are two disadvantages for an employer: the most valued and credentialed employees are the most mobile, and hence may be the most likely to opt for the benefit package and volunteer for separation, leaving the employer with the least mobile employees; and such plans can be expensive.