Wednesday, February 14, 2018

Reduction In Force -- Guidelines Before Implementation in 2018

By Monica Narvaez

The recent tax reform has provided many employers with the ability to increase hourly wages, issue bonuses and add jobs.  Unfortunately, the good news is not universal.  Some businesses are struggling to meet payroll and need to eliminate positions.  Others have decided to eliminate positions that are no longer “mission critical,” and add positions to perform duties that allow the company to remain relevant in this fast-paced economy.
   
When a business is faced with this situation, and reducing hours or pay is not an option, management may decide to conduct a “reduction in force” or RIF.   Typically, the term RIF is used interchangeably with the term “layoff”,  however, the two are actually different concepts.  A RIF is the elimination of a position from the table of organization.  In general, if the chosen position is currently vacant, the employer is free to change the duties, hourly pay, terms, and so on -- without issue.  However, if the chosen position is currently occupied, a RIF may result in a layoff of the employee, and several laws may have an impact on your plan.
 
If your company is considering a RIF, here are 4 topics to discuss:  

1. Which positions will be eliminated?

First, management must determine what the new organizational structure will look like and prepare a detailed plan.  At this stage, management, using its mission or business plan, creates a blueprint of the skills and work functions that are needed to make the company a success.   The focus is on the “why” and “what” aspects of the reduction.

Since this plan may be used to defend management’s decisions, it should be in writing, include the names of the managers making the decisions for future reference, the business reasons for eliminating positions (e.g., cut payroll costs, position no longer adds value to the organization, hire different skills), and which positions or duties are to be eliminated.

 
2. Which employees will be laid off?

After deciding which positions or duties to eliminate and what positions if any, to add, the next step is to choose which employees will be laid off or considered for transfer to a different position.  Once the list of potentially affected employees is created, it is worthwhile for management to consider any unintended discriminatory effects.   Are there more women than men?  More minorities than non-minorities?  Only workers over 40 being laid off?  Was an employee on disability leave and that is why the position was “not producing”?  If yes, is there a way to “even” the impact by selecting other positions?

Similarly, many employers are tempted to use a layoff to “finally get rid” of underperforming employees.  If the entire “layoff” is aimed to deal with underperforming employees, a better way to address the situation would be to begin documenting the issues and terminate if performance does not improve.  However, if the RIF includes both performing and underperforming employees, then an employee’s past performance is merely part of the overall considerations.)

Generally, management should conduct an analysis of every employee’s skills and knowledge and compare that to what the company needs going forward.  Lay-off decisions that are based on an objective, honest assessment of the knowledge, skills, and abilities an employee brings to a job will assist the employer in defending against potential legal claims.


3. Does the Worker Adjustment and Retraining Notification Act apply?

The Worker Adjustment and Retraining Notification Act (the WARN Act) is regulation at both the federal and state level that requires employers with 100 or more full-time employees1 to provide 60 days’ advance notice of a “plant closing” or a “mass layoff.”  While there are many, many nuances and requirements to the WARN Act, in general, plant closing and mass layoff are defined as laying off at least 50 employees at a single site of employment.

The WARN Act is intended to provide employees with notice of a layoff.  As such, it also alerts the employer that a failure to comply will result in owing each full-time employee back pay and benefits for the period of the violation, up to 60 days.  This could be very costly to an employer.


4. Will you provide a severance package?

There is no federal or Texas requirement to provide a severance payment at the time of layoff.  However, there may be a promise of a severance payment in the  employee handbook, employment policies, or an employment contract.  Even without a requirement, many employers wish to provide a severance to assist in the laid-off employee’s transition, or simply to obtain a waiver of any potential claims of discrimination.
 
In addition to specific language in the waiver, it is important to note that when an employee aged 40 or over is asked to waive his or her rights to file an age discrimination claim, they must be given 21 days for consideration.  In the case of a RIF, when two or more employees aged 40 or over are laid off, the window extends to 45 days.   Additionally, the employer is required to provide those employees with information on the ages and job titles considered for layoff.


Recent months have shown us how companies are being affected both positively and negatively with technological innovations as well as changes derived under the new President.  Many expect the changes to continue, and for some businesses changes will become a way of life.  Whether your organization anticipates a 2018 RIF or other transformation, stay abreast of relevant laws or work with someone who can help you stay informed, and be sure to document your plans and activities.

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  1. Federal and Texas law applies to employers with 100 or more employees. Each state may have a lower requirement

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