ComplianceNovember 13, 2020

Sound business principles, communication are keys to downsizing

A company contemplating a reduction in force (RIF) has much to consider, including the possibility that it may be liable for doing it wrong. According to one expert, the best way to avoid the risk of liability is to do the right thing from a business, legal and human perspective.

"RIFs are the most difficult terrain to navigate," Barbara H. Patterson cautioned human resources professionals at a recent National Employment Law Institute conference in Washington. Patterson is an attorney with Advanced Healthcare, a Milwaukee firm.

Proper Business Decision?

An employer, Patterson said, first has to determine if a RIF is an appropriate business decision. To make that determination, it should consider the likely consequences of letting workers go. "When you remove people in any significant number you are changing the fabric of the organization," Patterson said.

A company has to be aware of how its employees will be affected during both the transition period and following the RIF, said Patterson. Not only is morale likely to suffer, but the company will lose knowledgeable people and practical know-how.

Alternatives to a RIF may be available, Patterson said. These might include employee retraining, reductions in hours and shorter workdays, or hiring freezes. Employees usually understand that companies need to go through changes. But businesses, when choosing alternatives, should make sure the alternatives have a pretty good chance of success, Patterson said.

Avoiding liability

Once a company concludes that a RIF is the right business decision, it should know how to avoid liability for charges such as discrimination. "A RIF is not an opportunity to get rid of everybody you don't like," Patterson said.

When deciding who to let go, a broad "cookie-cutter" approach may be the safest from a legal standpoint. But, Patterson suggested, it may take a heavy toll on employee morale. Instead, a company might decide who to dismiss based on performance evaluations. Patterson stressed that the company needs to keep ongoing records of an employee's high-performance ratings to protect against liability when other employees are let go.

Release forms

Companies that ask departing employees to sign release forms to protect against liability need to know what the forms must contain. The federal Older Workers Benefit Protection Act (OWBPA), for example, requires that a waiver must be in writing, understood by the employee and knowingly and voluntarily signed. It also must explicitly state that the worker is waiving claims under the Age Discrimination in Employment Act (ADEA), Patterson noted. And an employee who signs the waiver must receive consideration above and beyond what otherwise would be available.

A recent Supreme Court case made it clear that a release that does not comply with the OWBPA requirements cannot bar an employee's ADEA claims. The court ruled that a former employee who signed a defective release could keep her severance payment and still sue the company under the ADEA.

To avoid much of the risk of liability, Patterson said, a company needs to communicate with the employees who sign waivers. "If you're straightforward, you can avoid a lot of litigation risk," she said. For instance, the company should tell the employee what rights it is asking the employee to waive and what the employee will receive in return.

WARN Act and more communication

Companies should know that the federal WARN Act might require them to notify interested parties, including employees, unions and local governments, that it is considering a RIF. But Patterson noted that the WARN Act is very complex. Part of the challenge in making disclosures about a future RIF to several parties is to alienate the fewest people possible. Again, Patterson advised, a company should be straightforward in all its communications.

Companies also should consider offering outplacement services to employees who are leaving, both in an effort to avoid litigation and to assist the employees who are leaving. But Patterson said, "RIFs are not just about the people who have been reduced." A company should make sure its managers can answer the many questions remaining employees' will have. In all stages of a RIF, Patterson said, companies need to keep in mind the law and sound business principles, then communicate, communicate, communicate.

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