Layoffs, different from terminating one employee for poor performance, are when an employer terminates many employees at one time due to budgetary restrictions, economic downturn, or lack of business. This newsletter applies to medium sized companies (15 + employees), particularly in the construction industry.
While layoffs can be an important tool to preserve the long-term viability of a business, they also present significant legal, financial, and operational risks if not properly planned. Before implementing a reduction in force (“RIF”), employers should carefully evaluate the legal implications and develop a thoughtful strategy that minimizes risk and preserves employee morale.
Determine the Business Reason for the Layoff: Employers should clearly identify and document the legitimate business reasons supporting the workforce reduction. Common reasons include:
- •Declining revenues or profits
- •Reduced workload or backlog
- •Loss of major customers or contracts
- •Reorganization or restructuring
- •Elimination of redundant positions
- •Technological changes or automation
The rationale should be well documented before any employment decisions are made. Contemporaneous documentation can become critical evidence if a terminated employee later challenges the decision.
Evaluate Selection Criteria Carefully: One of the most common sources of litigation following layoffs is the claim that employees were selected for unlawful reasons. Employers should establish objective, job-related criteria whenever possible, such as:
- •Skills and qualifications
- •Certifications or licenses
- •Performance history
- •Attendance records
- •Productivity metrics
- •Business necessity
Subjective factors should be used cautiously and consistently. Before finalizing selections, employers should review the proposed layoff list for potential disparate impact on protected groups, including employees based on age, disability, race, sex, national origin, religion, or other protected classifications.
Consider Employees on Leave or with Medical Conditions: Employers frequently ask whether employees on medical leave, workers’ compensation leave, or other protected leave can be included in a layoff.
Generally, employees are not immune from layoffs simply because they are on leave. However, employers must be able to demonstrate that the employee would have been selected regardless of the leave status. However, particular attention should be given to employees who may be protected under:
- •The Family and Medical Leave Act (FMLA)
- •The Americans with Disabilities Act (ADA)
- •State leave laws
- •Workers’ compensation anti-retaliation statutes
Additional review is advisable whenever an employee has recently disclosed a medical condition, requested accommodation, taken protected leave, or filed a workers’ compensation claim.
Review WARN Act Obligations: Large layoffs may trigger notice requirements under the federal Worker Adjustment and Retraining Notification (WARN) Act or similar state laws. The federal WARN Act generally applies to employers with 100 or more employees and may require 60 days’ advance notice for certain plant closings and mass layoffs.
Consider Severance Agreements and Releases: Many employers offer severance benefits in exchange for a release of claims. Properly drafted severance agreements can significantly reduce litigation risk by obtaining waivers of potential claims, including: discrimination claims, retaliation claims, and wage and hour claims.
Special rules apply when employees age 40 or older are asked to release age discrimination claims under the Older Workers Benefit Protection Act (OWBPA). Group layoffs involving employees over age 40 require additional disclosures and review periods.
Protect Confidential Information and Company Property: Before separation occurs, employers should develop a plan to recover employer provided equipment, terminate system access, protect confidential information, and preserve company data. A coordinated approach between management, HR, payroll, and IT can reduce both legal and cybersecurity risks.
Develop a Communication Strategy: How a layoff is communicated often has a significant impact on employee relations and future litigation risk. Managers conducting separation meetings should be trained on what to say—and what not to say.
Consider the Impact on Remaining Employees: Layoffs affect more than the employees who leave. Remaining employees frequently experience uncertainty, decreased morale, and concerns about future job security. Employers should communicate the business rationale for the workforce reduction and provide a clear vision for the future of the organization. Transparent communication can help maintain productivity and retention during a difficult transition.
Advance Planning Is Critical: A well-planned reduction in force can help an organization navigate economic challenges while minimizing legal exposure. Employers should engage experienced labor and employment counsel before finalizing layoff decisions to evaluate potential risks, review selection criteria, analyze WARN obligations, and prepare severance documentation.
Sarah Bachich and Bruce Loren of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. Loren & Kean Law is a boutique law firm concentrating in construction law, employment law, and complex commercial litigation. Mrs. Bachich focuses her practice in employment law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. Mr. Loren and Mrs. Bachich can be reached at bloren@lorenkeanlaw.com or sbachich@lorenkeanlaw.com or 561-615-5701.
