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Thinking About Reducing Your Workforce?
By Martha Awiszus, Esquire
As a business owner, you may need to consider making a reduction in your workforce (RIF) to stay competitive in this economy. Frequently, a RIF is made without first considering its legal ramifications. RIFed employees may file claims against the Company, thus jeopardizing its financial integrity. An experienced employment attorney can help you make decisions that avoid litigation and enable you to hire new employees when the economy improves.
The Employment Relationship
Generally, all employment relationships are “at-will,” meaning the employer can terminate an employee without cause, at any time, for any or no reason, provided the reason does not violate a statute or public policy. Exceptions to the “at-will doctrine” may result in greater protection for some employees. You can avoid costly mistakes when downsizing by having counsel evaluate your situation.
Number of Employees
You must know the total number of all employees before implementing a RIF. This determines applicable state/federal laws; the employer’s compliance obligations; and rights afforded to employees. State law prohibits discrimination in employment when you have six or more employees. Employees may have rights under federal law when, for example, you have 15 or more employees (disability discrimination), or 50 or more employees (Family Medical Leave Act).
Policy Manual
You must confirm whether the Company provided employees with a “Policy Manual” because it can alter the “at-will” relationship. The Manual may obligate the employer to invoke progressive disciplinary procedures, or provide employee benefits, despite disclaimers stating it creates no contract obligations for employees. You should examine the Manual with counsel to determine whether employees may be entitled to legal protections that prevent the RIF from being implemented as initially planned.
Personnel Files and Employment Agreements
You must check the personnel files of all employees being considered in the layoff. The law protects employees 40 years of age or older and the disabled against discrimination in employment. (Documents concerning an employee’s medical condition must be kept in a confidential file that is separate from the employee’s personnel file.) Personal characteristics of targeted employees must be evaluated to ensure that including them in the RIF will not result in discrimination claims. You must confirm whether the employee signed any employment agreements because these agreements can change the at-will relationship. Some employers require employees to sign non-competition, non-solicitation and confidentiality agreements upon hire. The enforceability of these contracts is dependent upon many factors. You should review these documents with counsel so appropriate decisions can be made.
Impact of Layoff
You must assess the impact of the RIF on the workforce to make sure it does not have a disproportionate impact on groups of people protected under the applicable discrimination laws. You must discuss this topic with counsel in advance of any RIF.
Termination
You must pay all earned wages, vacation days and holidays to discharged employees on the discharge date and provide employees with written information regarding rights to continued health insurance under the state’s mini-COBRA law (2-19 employees) or COBRA (20 or more employees) and to unemployment benefits.
Moving Ahead
An experienced business attorney can help you understand the issues involved in a RIF, and related employment issues, to avoid legal claims by affected employees. This will enable you to develop new business and hire more employees when your financial condition improves. You should be proactive by consulting with legal counsel before making these decisions.
Martha Awiszus, Esquire
This article is provided for informational purposes only and does not constitute legal advice. You should consult with an attorney to address your situation.
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