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May - 2001 - issue > Legal Advice
High-tech Layoffs A Quick Primer
Monday, November 17, 2008

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.

* INVOLUNTARY LAYOFFS: Involuntary plans can be less costly, because no laws require an employer to give employees money during a layoff. However, an involuntary layoff requires stricter adherence to applicable laws, and awareness of how to minimize the risks of wrongful termination lawsuits. LAWS GOVERNING LAYOFFS Employers must determine whether any federal and state laws govern the layoff. Under the federal Worker Adjustment and Retaining Notification Act (WARN Act), employers must give sixty days warning to affected employees of any “plant closing” or “mass layoff.” They must also warn union representatives, and the state and the local government. WARN imposes fines and civil penalties for noncompliance. The act applies to all for-profit and nonprofit companies with 100 or more employees. A “plant closing” is defined under the act as a temporary or permanent shutdown of a facility that results in job loss for 50 or more employees. A “mass layoff” is defined as a reduction in force that results in employment loss at a single site of employment of: at least one third of the employees at the site equaling at least 50 people, or at least 500 employees, excluding part time employees. However, exceptions to the act may enable a distressed company to avoid giving 60 days notice. For instance, if a company can show that it is a “faltering company,” as many technology companies unfortunately can, the act may not apply in its entirety. Unforeseeable business events or natural disasters may also provide exceptions.

Even if an employer implements a RIF plan that complies with applicable federal and state laws, the possibility remains that some disgruntled employees will sue. Employees are aware that federal and state laws protect certain retirement benefits, even in the event of a layoff. They are also aware that a company cannot choose them for a layoff on the basis of legally protected characteristics, such as race, color, sex, national origin, religion, disability, age and pregnancy status. On the other hand, an employer may select employees for layoff for any lawful reason. It is always best if the employer establishes objective, rather than subjective, selection criteria before the layoff.

Laid off employees can also look to letters offering employment and employee handbooks to see if they can be construed as contracts they can argue the employer breached. Employers should be careful to examine these documents before the layoff, and ensure that management complies with any promises or policies. If there is a collective bargaining agreement with a union whose members may be affected by the layoff, the employer must proceed carefully, and with the advice of legal counsel, to ensure they have constructed a RIF plan that complies with the collective bargaining agreement.

Many other legal and practical concerns can come up for employers and employees: dealing with unions, retirement benefits, stock options and other benefits are but a few. Here, as in so many other areas of technology business, high quality counsel from experienced human resources administrators, senior executives and employment lawyers should be sought and assiduously followed. Mergers, acquisitions, and a bleak economic environment that has caused business reversals and failures, all will lead to more layoffs in 2001 and the beginning of next year. Employers and employees alike should understand that these dire events are sometimes a part of doing business. If employers proceed studiously, armed with a well-conceived plan and sound advice, they may minimize inadvertent trespassing on employees’ rights, and in turn minimize the likelihood of lawsuits.

Manik Kumar Rath is an attorney with the national law firm of McKenna & Cuneo, LLP, where he represents technology, software and telecommunications companies in labor and employment matters, trade secrets disputes and business disputes. He can be contacted at rath@corp.siliconindia.com.

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