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The Proper Way to Reengineer Your Workforce

In the unfortunate event that you must layoff some of your workforce, be prepared to do it the right way.

By Johnny R. Duncan

This is the first of a two-part series dealing with the downsizing of a companyís workforce.

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  • As much as we donít want to face it, there comes a time when the economy demands that you reduce the workforce. It is a nasty thing and one that we all wish to put off as long as we can. The recent downturn in the economy and the slowly rising fears of a recession in the United States is forcing sign suppliers, manufacturers, retailers and installers to consider the size of their organization and if there is a need to make cuts in human resources. Everyone, including both white-collar middle managers and blue-collar workers, might have to bear the brunt of the cuts. And many companies that are not fiscally threatened are nevertheless electing to downsize in order to prepare for what they think may be difficult economic times ahead. Companies that are choosing to downsize rather than being forced to by economic difficulties have the luxury of time in which to plan and structure the cuts, thus reducing their exposure to legal liability.

    Many sign companies in the past have learned the hard way, downsizing is a process packed with potential litigation. Statutes provide employees with numerous avenues for legal challenges. Add to that the emotions created in the process, and the probability of litigation becomes that much greater. The smart players will undertake the downsizing carefully with focus on the legal and economic implications. In all cases, the responsible employer will be aware of the potential for litigation as a result of the downsizing and will take steps to minimize it.

    Before undertaking a reduction in force, legal advice is essential. The wise employer will obtain legal advice from an attorney, preferably one who practices in the rapidly changing area of employment law. Provided below are some issues for employers contemplating a RIF to consider, before undertaking such action.

    1. Be sure to document the reasons the downsizing.

    You may have various reasons for reducing your labor force. The downsizing might include the merger or consolidation of business units, the closure of a plant, an elimination of jobs, or, I hate to even say it, bankruptcy. The business purposes for the reduction might include a decrease in sales, technological changes, a poor financial forecast, overstaffing, or changes in the organization or the marketplace. Before undertaking a downsizing maneuver, you should ask yourself, "Could the goals of the layoffs be achieved through a hiring freeze, reduced hours, or placement of employees in affiliated businesses?" If not, be sure to document the business purposes of the downsizing. If the employer has proof it considered alternatives, it may be easier to convince a jury that the downsizing was necessary for purely business reasons.

    2. Know the profile of your workforce before undertaking the downsizing.

    As a practical matter, discrimination claims resulting from layoffs are usually based on age, sex or race discrimination. In order to know whether a planned layoff will have an adverse impact on a protected class, the employer should maintain data representing a profile of the age, sex and race of its workforce. If, for example, the employer's statistics indicate that the average age of the workforce increased after the downsizing, this obviously weakens the claimant's case.

    3. Be ready to defend the number of employees affected.

    Specify in writing the grounds for determining the number of positions to be eliminated in each business unit.

    4. Determine the potential costs of the layoffs.

    These include the cost of expert advice (including attorneys' fees), unemployment claims, severance pay, diminished employee productivity due to poor morale, and possible litigation costs.

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    5. Determine whether there are any contractual commitments or employee benefit plans that limit the employer's options.

    These might include individual employment contracts, collective bargaining agreements, written severance plans, or employee handbooks that may arguably commit the employer to following a particular procedure when undertaking a downsizing or terminations. Be sure to also check whether there are other employee benefit plans that provide special benefits to terminated employees.

    6. Attempt a voluntary downsizing first.

    It is sometimes possible to offer early retirement incentive plans (ERIPs) that includes an enhanced severance or retirement benefits to some employees in exchange for a release of all claims against the employer. Be aware also that such a plan may raise issues under the Employee Retirement Income Security Act (ERISA) and the tax laws. Your early retirement incentive plan may be subject to ERISA. Consult your attorney and/or tax advisor before planning such a program.

    This voluntary program is the ideal first phase for a workforce reduction. The risk of legal liability is reduced because employees elect to leave voluntarily. Make certain that each employee who elects to voluntarily leave sign a release in return for additional benefits that he or she will receive. Special rules apply to ERIPs under the Older Workers Benefit Protection Act, which is the next item addressed.

    7. If you must conduct an involuntary downsizing, consider offering a severance package in exchange for a release that complies with the waiver provisions of the Older Workers Benefit Protection Act ("OWBPA").

    If the employer cannot undertake a voluntary ERIP first, it should elect to terminate individual employees over a period of time, paying severance pay and/or early retirement benefits in return for individual releases to avoid litigation. The OWBPA imposes requirements on any release that purports to waive any age discrimination claim. These requirements are:

    • The release must be part of an agreement between an employer and employee, must be written in simple English and must specifically make reference to the employee's rights under the Age Discrimination in Employment Act ("ADEA") which are being waived.

    • The release must be limited to claims or rights which arose before the employee executed the release.

    • The release must be in exchange for something of value (usually money or benefits) which is more than is already entitled to the employee.

    • The employee must be advised in writing to consult with an attorney before signing the agreement.

    • The release must allow the employee a 7-day period in which to revoke the agreement after it is signed.

    • When the release is requested in connection with an ERIP offered to a group or class of employees, each employee must be given at least 45 days in which to consider the agreement; for a release outside a ERIP group termination program, each employee must be afforded 21 days to consider the agreement.

    • When a release is requested in connection with an ERIP offered to a group of employees, the employer must provide at least 45 days for deliberation by affected employees. Furthermore, the employer is required to disclose in writing in ordinary English the class, unit, or group of individuals covered by the program, the eligibility factors and time limits applicable to the program, and the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals of the same job classification or organizational unit who are not eligible or selected for the program.

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    Even if a release does not meet all requirements of the OWBPA, some courts have held that it may still be effective to release all claims, including age discrimination claims, if the employee ratifies it by continuing to accept the money or benefits paid under the release with the knowledge that the release does not meet the requirements of the OWBPA. Other courts, however, have required strict compliance with OWBPA by the employer before an employee is deemed to have waived an age discrimination claim.

    In a notice issued this spring by the Equal Employment Opportunity Commission (EEOC), the agency noted that an employee's promises not to file a charge of discrimination or to participate in an EEOC proceeding are null and void. The EEOC also observed that "Agreements extracting such promises from employees may also amount to separate and discrete violations of the anti-retaliation provisions of the civil rights statutes." EEOC Notice No. 915.002 (April 10, 1997). While it is clear that a private agreement can eliminate an individual's right to personal recovery, it cannot interfere with EEOC's right to enforce the ADEA or other statutes prohibiting employment discrimination.

    In our Part II, we will examine other issues that you should be aware of before undertaking a downsizing maneuver. These will include ERISA and the Worker Adjustment and Retraining Notification Act.

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