Best Practices for Workforce Reduction (Layoffs, etc)

Conducting a layoff or reduction in force (RIF) is a difficult process that employers may have to face. We've outlined steps employers should follow to ensure compliance during the layoff process. This article also includes notification letter templates for layoffs and RIF due to COVID-19.

When carrying out workforce reductions, you need to be mindful of the challenges and risks as an employer in terms of disparate treatment, or adverse impact on protected employee groups. Several options are available when planning necessary workforce reductions, which are discussed below. In addition, it is a good idea to research federal Equal Employment Opportunity Commission (EEOC) and state fair employment practice laws to minimize inherent risks of potential discriminatory charges.

Although it is virtually impossible for any employer to ever truly obtain risk-free status in implementing workforce reductions, carefully orchestrated and executed downsizing plans used in conjunction with good documentation and layoff policies (which have been reviewed by legal counsel) can be an employer's strongest defense against allegations of discrimination. Employers in unionized environments need to take additional precautions to ensure that any existing collective bargaining agreements are not violated.

How to Conduct a Layoff

Step 1: Select Employees for Layoff

After an employer has designed its future organizational structure, a system for determining who will stay and who will go must be created. The selection criteria should be designed to identify the employee traits that will be instrumental in meeting the company's goals. Several factors can be used in deciding the selection process, including seniority, performance, job classification or job knowledge and skills. However, an organization should not consider criteria such as leave status or protected conduct (i.e., whistle-blower). By aligning the future goals of the organization with the best selection process, the company will be able to determine its success going forward. *See Criteria in Selecting Employees for a Workforce Reduction

Step 2: Avoid Adverse Action/Disparate Impact

An organization should review the selected employees for layoff to determine if an adverse (disparate) impact exists for a protected class. Protected classes include individuals who are members of a certain race, color, ethnicity, national origin, religion, gender, genetic information, age (40 or over), those with a disability or those who have veteran status. States may have additional protected classes, such as sexual orientation, marital status or smokers. Any protected class that may have a disproportionately larger percentage affected by the layoff (e.g., employees reaching retirement age) will need to be evaluated and substantiated. 

Step 3: Review Federal and State Worker Adjustment and Retraining Notification (WARN) Act Regulations to Stay Compliant

Employers must determine if the WARN Act will apply. The WARN Act requires employers conducting a large-scale layoff to provide 60 days' notice to affected employees (few exceptions apply). Employers must inform affected employees if the layoff is permanent or temporary, and if the latter, what the expected duration is. Employees must be notified of their expected separation date. Employers should clearly outline the process for recall rights and applying for future positions with the company if applicable. In addition, a number of states have enacted "mini-WARN" legislation that extends notice requirements to smaller businesses conducting layoffs. Reviewing state laws will be important given that mini-WARN Acts often impose additional requirements that differ from federal law.

Step 4: Review The Age Discrimination in Employment Act of 1967 

Age discrimination involves treating an applicant or employee less favorably because of his or her age. The Age Discrimination in Employment Act (ADEA) forbids age discrimination against people who are age 40 or older. Under the ADEA, it is unlawful to discriminate against a person because of his or her age with respect to any term, condition, or privilege of employment, including hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training. Harassing an older worker because of age is also prohibited.

Step 5: Determine Severance Packages and Additional Services

Many employers offer severance packages to their displaced employees. A written severance package policy allows employees to realize the steps involved in the involuntary termination. Employers are not obligated to provide severance to laid-off employees under federal law, but severance packages may lessen the chance of legal action filed on behalf of former employees. Some states, however, have specific criteria for required severance. Severance packages may include salary continuation; vacation pay; continued, employer-paid period of benefits coverage; employer-paid COBRA premiums; outplacement services; counseling and resume workshops; and more.

Step 6: Conduct the Layoff Session

Sitting down with an employee who is about to be laid off will be difficult, but if handled professionally, it may reduce potential anger and resentment from the employee. Employers must ensure that they are prepared for this meeting and that all information has been collected and available to the employee. Employers will want to be sympathetic and explain the reasons for the layoff, review health benefits and COBRA election procedures, 401(k) options, outplacement services, and the rehire process, if available. Employers may also want to provide information on the unemployment process, along with any other job placement information available for displaced workers. It is also recommended to review the severance agreement with the employee and answer any questions the employee may have before leaving the company. Employers may also want to offer to answer any questions that employees may have over the next several weeks. If an organization has an employee assistance program, then this information should be provided as well to aid those employees and family members affected by the layoff.

Step 7: Inform Workforce of Layoff

Notifying the remaining workforce of the layoffs that were conducted will help squelch potential rumors. The employer may also want to communicate the company's financial position and its commitment to meeting company goals and objectives going forward with the current workforce. Many of the employees the employer is addressing had built strong friendships with the laid-off co-workers, and they will be anxious to know their future with the company as well. Employers should be prepared to honestly communicate and answer questions to keep morale and productivity high going forward. Employers will need everyone on board and aware of the future challenges to be successful.

What criteria should be used in selecting employees for a workforce reduction?

Seniority-Based Selection

With seniority-based selection, the "last hired/first fired" concept is used. Because seniority-based systems reward employees for their tenure, there is a lower risk that older workers will sue employers for age discrimination under the ADEA. However, using seniority does not protect the employer from further risks for potential discrimination against other protected groups.  In addition, using seniority-based selection may require the employer to retain employees with outdated skills or less technologically savvy employees. 

Employee Status-Based Selection

Employers who have part-time or contingent workers on their payrolls may want to lay off those workers first to ensure greater job security for remaining core workers. Unless an employer's workforce is made up largely of contingent workers, this method alone may not be sufficient to meet downsizing needs, and it may need to be used in conjunction with other selection criteria.

Merit-Based Selection

Although this method of selection is often a preferred choice among managers because of its added flexibility for weeding out marginal or poorly performing employees, it should be scrutinized carefully. Because merit selection criteria are based either in part or in whole on performance information (which is not always objective, may contain rater biases and may not be well documented), this method has not been proven to provide an accurate qualitative means for ranking the differences among individual employees' performance in selecting employees for layoff.  Employers choosing to use this method should carefully document the decisions for retaining or reducing all employees in the selection pool. 

Skills-Based Selection

With this type of system, it is sometimes possible for employers to retain those workers who have the most sought-after skills. However, be aware that this method may cause a company to retain younger workers with needed and versatile skill sets, and to lay off older workers who may not have the necessary skills. The older workers are protected from discrimination by the Age Discrimination in Employment Act. Once again, clear documentation should be maintained. 

Multiple Criteria Ranking

Although all of the above methods can be equally effective when planned carefully, perhaps the most effective method of selection is using a combination of all the criteria previously discussed. Below is a sample of the ranking criteria used by some organizations that have implemented selection policies that are based on multiple criteria such as seniority, skill, and performance considerations.

  • Employee's long term potential and attitude
  • Employee's skills, abilities, knowledge, and versatility
  • Employee's education and experience levels
  • Employee's quantity and quality of work
  • Employee's attendance history 
  • Employee's tenure within the company

Disclaimer: This information is provided as a self-help tool and does not constitute legal or financial advice. Laws, regulations and lending products are changing daily and decisions as to whether or how to use this information and/or what actions to take in response to the COVID19 Pandemic are solely those of the employer. The providers of this information disclaim any and all responsibility and liability for its accuracy, completeness or fitness for your particular business purposes.