Federal Law > Discipline & Termination > Reductions in Force and WARN

Reductions in Force and WARN

American industry has significantly constricted the work force over the last ten years and will continue to reduce work force staffing levels in the years to come.1 This chapter focuses upon some of the legal and practical issues associated with reductions in force.

How should employers reduce their work forces? When an employer chooses to engage in cost cutting by reducing the size of the work force, what selection criteria are commonly used for reducing the number of employees? While some employers may base reduction in force decisions on a number of different criteria, many companies will rely almost entirely upon past job performance to determine who will be laid off. An employer must be prepared to defend the chosen performance criterion and its application to the selection of specific employees for layoff. Where employers move away from job performance to other selection criteria, they must recognize the possibility that the criteria may be challenged on the grounds that they allegedly conceal an intent to discriminate.2

Layoff selections based upon performance. Employers should be mindful that failure to use performance-based selection criteria can lead to a charge that "subjective" criteria served as the basis for the employer's decision.3

Thorough task-oriented evaluations. Courts which have analyzed performance-based layoffs are much less prone to find discriminatory conduct where the evidence shows that a thorough, task-oriented evaluation of the employees focused upon the specific skill categories used in previous performance evaluations.4

Instructions and guidance given to evaluators. An employer contemplating a reduction in force must understand the necessity for providing written guidelines to evaluators who are responsible for choosing the employees to be impacted by the downsizing. The written guidelines should be clearly drafted in a manner to be readily understandable by a judge or jury should they be introduced in subsequent litigation. The guidelines should describe in detail the criteria to be utilized in choosing employees for termination. The guidelines should also stress that the evaluators clearly document the rationale for their choices in a manner which would permit a third party to understand the criteria utilized for selection and the comparative analysis which culminated in the selection of a particular employee. The courts have sent a clear signal to employers that written guidelines will be critical to a determination of whether the employer discriminated in its choices in implementing a reduction in force.5
In addition to providing written guidance, the employer should insure that each evaluator acts independently and objectively. Where evaluators compare notes and act in a summary or routine fashion, the assigned ratings and choices may later be determined not to be objective.6

Uniform performance evaluations and appropriate due process protections. Uniform and consistent performance evaluations are critical for rebutting discrimination claims. If an employer has evaluated employees inconsistently or has utilized performance appraisal procedures and forms which are not uniform, the employer's claim of objectivity will quickly be impeached. Further, an employer will also be penalized for the failure to offer candid performance evaluations for members of its work force.7
Employers should also insure that supervisors have not engaged in capricious or arbitrary evaluations of employee performance. The careful employer will see to it that performance evaluations are "signed off" by higher level supervisors and that employees are given the right to comment on their evaluations to insure that common sense "due process" safeguards have been implemented.8

Non-performance based selection criteria. On occasion, employers will seek to make reductions in force based upon criteria other than evaluated performance. Decisions to reduce members of the work force based upon criteria other than performance are permissible provided the criteria chosen do not discriminate against members of protected classifications. Typically, in a reduction in force situation, age is the most likely protected classification to be implicated in an unlawful manner. As a consequence, it is useful to look at some of the criteria for selection which can be arguably related to age.

Seniority. Where an employer seeks to utilize an inverse seniority system in selecting employees for layoff, the courts have been supportive of the employer's decision. Section 4(f)(3) of the Age Discrimination in Employment Act exempts actions by an employer which observe the terms of a bona fide seniority system. Where, as an example, an employer expressly used evaluation standards which provided extra consideration for retention for those personnel ". . . with long company service and over 40 years of age . . .", a court permitted a reduction in force of the least senior employees even though it arguably favored older employees. Gill v. Union Carbide Corporation, 368 F. Supp. 364, 368 (E.D. Tenn. 1973).

Skills analysis. Employers may utilize a "skills analysis" approach for a reduction in force provided there is objective evidence that the employer has made rational, non-age based decisions in screening skills and individual personnel. Although decision makers could be personally familiar with the apparent general ages of some of the specific job holders, an objective skills analysis approach will be successful in avoiding consideration of age as a determining criteria.9 An employer should also insure that the elimination of positions does not ultimately produce a result where younger employees are favored for performance of the consolidated job functions in the remaining positions following the job elimination.10

Productivity measures. Productivity may be a valid non-discriminatory criteria for choosing personnel in a reduction-in-force. However, the employer should insure that "objective", quantifiable, attainable productivity standards are utilized as the criteria for measurement. Further, the productivity goals should be clearly articulated and uniformly applied to all individuals within the selected job classifications under consideration. Finally, the employer should also insure that measurement of productivity is objectively verifiable and uniformly assessed for each person under consideration for elimination.11

Compensation. Compensation can be a problematic criteria for selecting individuals for a reduction in force. Often, this seemingly "objective" criteria will be condemned if it is arguably linked with age. Differentiation based on the coverage cost of employing older workers as a group is unlawful, except with respect to employee benefit plans exempt under Section 4(g)(2). Nonetheless, mere evidence that a terminated employee was more highly compensated than a retained employee will not necessarily condemn the termination as being impermissibly based upon age." Holley v. Sanyo Manufacturing, Inc., 771 F.2d 1161, 1167-1168 (8th Cir. 1985).

Pension eligibility. Employers who attempt to utilize pension related criteria as a basis for reduction in force will frequently find themselves faced with an age discrimination claim premised upon the argument that the protected classification of age is an integral part of pension eligibility.12

Preparatory steps for a reduction in force. The information above describes some of the legal pitfalls which employers can experience in attempting to reduce personnel from the work force. In addition to avoidance of the legal problems described above, there are a number of specific actions which employers should take in order to accomplish lawful reductions in force. While obvious, these points are often neglected by employers in their haste to move forward with thinning of the work force.

Among the steps employers should take to avoid RIF problems are the following:
1. Identification, in writing, of the rational, nondiscriminatory business reasons which require the reduction in force. The reasons should be described with sufficient clarity to permit a jury to fully understand the employer's decision.13

2. The employer should carefully document the economic savings to be accomplished through the reduction in force. The documentation should specifically describe and account for the savings. In addition, the RIF documentation should describe the reduction selection criteria and the manner in which the criteria were applied to individual employees.

3. The employer should clearly identify the selection procedures, as well as the decision makers involved in the reduction in force decisions. The employer should carefully monitor the written reduction in force policies and procedures to insure that they are followed by all of the decision makers.14

4. Compliance with WARN. The employer should comply with the provisions of WARN. The Worker Adjustment and Retraining Notification Act (WARN) requires that employers of 100 or more employees give at least 60 days advance notice of a "plant closing" or "mass layoff" as defined by the Act. WARN applies to employers contemplating a reduction in force involving 50 or more employees. Under WARN, the employer must give 60 days advance notice of termination to the employees, the state department of economic development, and the governmental officer in charge of the local taxing authority. Among the items which an employer should review in determining the applicability of the statute are the following:
(a) Clearly identify the business entity responsible for making the employment decision.

(b) Determine whether the entity employs 100 or more employees.

(c) Determine whether the employment decision involves (1) a plant closing resulting in an employment loss for 50 or more full-time employees, or (2) a layoff resulting in employment loss for 33% of the full-time employees and equal to at least 50 full-time employees or 500 full-time employees regardless of the percentage of employees.

(d) Determine whether the employer's situation fits one of the statutorily provided for exceptions such as (a) faltering business seeking capital (b) unforeseeable circumstances, or (c) a natural disaster.

An employer who fails to provide the required notice is liable to the affected employees for back pay and benefits for the period of the violation. In addition, WARN provides for payment of the employees' attorneys' fees should they prevail. The cost of ignoring the statutory requirements can be significant.

5. Explore ERISA coverage for any offered severance programs. Severance programs are generally covered by ERISA. This is true even if they are deemed to be informal programs.15

Settlement agreements and releases. If an employer enters into a settlement agreement or release with an employee as a result of a reduction in force, the Older Workers Benefit Protection Act (OWBPA) may apply. The OWBPA sets forth procedural prerequisites for valid waivers of employee rights under ADEA. The specific requirements of the Older Workers Benefit Protection Act are in Chapter Thirty-Six.

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