Question:

As the owner of a local business, I have been doing everything in my power to avoid laying off any employees. Unfortunately, as our business continues to struggle, I feel that layoffs are necessary. I would appreciate your input regarding layoffs, reasonable options, and the legal issues that I should be aware of.

Answer:

Times are hard for many businesses right now, and many owners and managers are asking for similar guidance. Like most employers, I am sure that you want to avoid layoffs if at all possible. Moreover, it is prudent to consider all options before making the decision to layoff employees.

First, an employer should take a long hard look at other methods of improving its bottom line such as cutting spending or increasing revenues. If these efforts are not successful and the decision is made to reduce payroll costs, several options are available. An employer may consider a hiring freeze that will result in certain positions remaining open. Employers may also consider eliminating contract and temporary workers, and overtime work.

Another option that can improve a business’s bottom line is to reduce employee wages, hours, or benefits across the board. For example, instead of laying off a few employees, all employees could be scheduled for thirty hour weeks instead of forty hour weeks. Alternatively, employers can reduce or eliminate certain benefits or lower employee wages by a certain percentage. Voluntary early retirement incentives may be offered, or employers can temporarily shut down operations for partial or full days to save operating and payroll costs. Employers should examine their business operation as a whole, to see if jobs can be consolidated, eliminated, or reduced to part time status. Employers may wish to assess the above-mentioned options to determine if lay offs can be avoided.

Employers sometimes forget to consider the costs associated with layoffs, such as the required planning expenses, legal fees, severance pay, contributions to unemployment benefits, and the loss of employee confidence, morale, and motivation. However, if an employer considers all reasonable options and ramifications, and concludes that layoffs are necessary, it is recommended that the employer carefully make layoff related decisions. First, the employer must develop and document the business reasons for the layoffs and the criteria used to decide which employees will be laid off.

The criteria must not discriminate against employees based on any legally protected class such as race/color, national origin/ancestry, citizenship, sex, religion, age, mental or physical disability, veteran status, medical condition, marital status, sexual orientation, or pregnancy. Moreover, the criteria must be applied fairly, and the application of the criteria must be documented. Some employers examine skill sets and business needs when making reduction in force decisions.

Once an employer has fairly applied the non-discriminatory criteria and decided which employees to lay off, the legal requirements surrounding layoffs should be assessed. In all cases, employers should ensure compliance with any company handbooks, policies, contracts, and collective bargaining agreements. In some instances, the WARN Act may require an employer to give notice of the layoffs before they become effective. Other laws require notice to the affected employees regarding unemployment benefits, continued health care benefits, insurance benefits, and disability benefits. Furthermore, there are laws regarding the timely final payment of earned and unpaid wages, vacation pay, and deferred compensation.

After making the tough decisions described above and ensuring compliance with the applicable laws, it is advised that employers communicate the decision to the affected employees in a compassionate manner. Moreover, if possible, employers should give those employees severance pay to assist in their transition to another job. Employees may be asked to sign a release of claims in exchange for the severance pay. Special rules apply to releases associated with a reduction in force. In closing, once an employer has weighed all possible options and rationally decided that layoffs are necessary, the layoffs should be conducted in a fair, considerate, and legal fashion.
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