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It Isn't All 'Doom and Gloom' Out There...But Just In Case You Have to Implement a Layoff...

Lerch, Early & Brewer's Legal Update

Apparently not recognizing the irony dripping from his own words, NBC Evening News anchor, Brian Williams, recently introduced a “feel good” story by saying, “All we hear nowadays is ‘doom and gloom’ – but tonight we bring you a story . . . .”

It is unfortunate that the extent to which the news media has helped to deepen the current recession with its creative negativism cannot be fully measured. Nonetheless, it is apparent. In a brilliant piece in the Washington Post’s Outlook section on December 28, 2008, author Eric Weiner wrote:

“If the FDA regulated the media, it would require all stories about the economy to carry this warning: “Dizziness and pangs of existential angst may result. Do not read if you suffer from gloominess or are prone to bouts of anxiety. If you are near retirement age or work in the auto industry, consult with a physician before reading.”

He continued:

“I’m sure some of these [media] stories [stories about the economy] are true, or true enough to satisfy an editor somewhere, but there’s something else going on here: It’s what psychologists call “confirmation bias.” That’s the human tendency to seek out only facts that fit what we already know to be true while downplaying or ignoring contradictory evidence . . . . To a media covering a recession, everything looks like collateral damage. It’s the flip side of irrational exuberance: irrational despondency . . . . [A] sort of vicious cycle can take hold. The media reports bad economic news and gloomy forecasts. Consumers respond by hunkering down and closing their wallets. The media dutifully reports that consumers are hunkering down and closing their wallets, prompting consumers to hunker down ever more, which the media reports. Consumers respond by . . . .”

Thoughtful employers in the Washington, D.C. metro area realize that while all may not be “doom and gloom,” it still is not time for celebration for most of them. To the contrary, necessary steps must be taken to protect their businesses, so that they can survive and be in a position to spring back, as the recession recedes. It is sometimes necessary to lay off a group of employees, and to do so in a manner that diminishes or eliminates the likelihood that this action will be challenged in a charge of discrimination filed with the Equal Employment Opportunity Commission (EEOC) and any of its state or local counterparts. In this connection, the EEOC reported on March 11, 2009 that during its fiscal year ending September 30, 2008, discrimination claims had increased 15% to a new, all-time high. In particular, age discrimination claims had risen 29%. In addition, retaliation claims had climbed 23%, to become second in number behind race discrimination claims.

With these considerations in mind, we generally recommend that employers undertake a 4-step process before implementing a layoff/ reduction-in-force (RIF), with appropriate documentation prepared at each step. Not every step need be taken by every employer, but consideration should be given to the following:

1. The fundamental reason(s) for undertaking a RIF should be discussed at the highest level of an employer’s management.

There should be reflection on the economic conditions both outside of and within the company that appear to necessitate such action. Prior, non-layoff steps that may have been implemented, such as curtailing travel costs, reducing overtime expenses, implementing furloughs, etc., should be reviewed, and their unavailability for further implementation or lack of success in preventing the need for additional action should be discussed. Ultimately, a decision must be made as to whether sufficient business justifications exist — which are both legitimate and capable of being clearly articulated — for taking the difficult step of implementing a layoff. This decision and its underlying bases should then be documented.

Additional steps for consideration involve structuring the RIF in a manner that is consistent with the fundamental reasons for implementing it. Everyone involved in the decision should understand what the goals of the RIF are and must be able to explain them to lower echelon management and front-line supervisors, so that implementation is consistent with the justifications and goals on which senior management has made its decision.

2. Senior management is also responsible for the next step in the evolving process, that is, determining which areas or departments in the company can be subjected to a reduction in personnel with the least negative impact on the overall operation.

Here, consultation with other levels of management and supervision, for example, department heads, may be useful. Decisions with respect to the areas of the company in which layoffs are to be implemented should then be made in the same type of formal meetings among senior management at which the initial decision was made to take such action. Once again, document, document, document!

3. Now it is time to select the positions in each of the affected departments that will be reduced in number.

These decisions may perhaps most practically be made by those closest to the departments, that is, the lower echelon managers and front-line supervisors who lead the departments in question. They need guidance, however, in making their decisions. To that end, senior management again should be involved, this time in establishing the criteria for deciding which positions have the greatest and least value to the organization. Among the factors that may be considered in providing this guidance are: the ability of the department to absorb, or do without the job duties of the positions in which reductions will be made; the technical skills and abilities that are required for the positions under consideration; the level of training required for each of these positions; and the ability to replace the lost positions in the future, as the employer begins to grow again.

The decisions made by management and supervisors with respect to the positions to be downsized should then be reviewed and confirmed or altered by senior management. Again, senior management should record the relevant decisions and their underlying bases.

4. Now comes what may be the hardest part: deciding which employees in the positions that have been selected for reduction or elimination are to be laid off.

If an entire group or department is to be eliminated, the choices are obvious. More often, however, a pick-and-choose method among a group of employees has to be used, and senior management again must identify factors for making legitimate decisions. These factors may be objective, for example, seniority (a union-originated concept), disciplinary records, and compensation, or subjective, such as performance evaluations, skills, and cross-training flexibility and potential.

Once the criteria to be used have been decided upon (document, document, document), it is up to individual managers and supervisors to make their decisions. However, their decisions should be subject to review. They should be required to articulate to senior management how they reached each of their individual decisions. This will also help to provide assurance that the established criteria for layoff have been implemented and have been applied consistently. Senior management then has the responsibility of affirming or rejecting the decisions made by those who report to them. 

This article only provides a general overview of the principal steps to be taken in implementing a layoff. Such things as the need to undertake statistical analyses to confirm that decisions have been made, for example, without regard to age, to develop strategies for informing employees about their layoffs, to consider whether it is necessary to issue a WARN notice, to analyze the ERISA implications of the RIF, to decide whether to pay severance, and to develop the structure of any severance agreements are beyond the scope of this article. We hope, however, that this article provides guidance for any employer who is required to consider undertaking a RIF in an effort to
survive the current recession.

Ideally, documentation as discussed in this article will be prepared in a manner that will make it difficult for a plaintiff to obtain in discovery, that is, the documentation is protected under the attorney-client privilege. The reason for this is to protect against the inclusion of inartful statements in the documentation that may misstate the bases for the decisions made. To that end, among other things:

(i) documentation should be captioned “Privileged and Confidential—Prepared in Anticipation of Litigation,” and if the company’s attorney has been involved in the employer’s process, it should be addressed to him/her;

(ii) there should be limited, or preferably, no distribution of any report or other documentation, except on a strictly “need to know” basis; and

(iii) the matters addressed in the documentation should not be discussed in additional, informal meetings at which there is general discussion about various business matters, without the presence of counsel, at least telephonically.

Rick Vernon and Julie Reddig help employers to recruit, hire, train, manage, and, when needed, fire employees. For more information about layoffs, contact Rick at rgvernon@lerchearly.com or (301) 907-2818, or Julie at jareddig@lerchearly.com or (301) 961-6099.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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