Layoffs?
Yes, there are alternatives
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In today’s tough economic climate, reductions in force (RIFs) are increasingly being used by employers to cut costs. According to the most recent statistics from Department of Labor, the 18 months from
December 2007 (the start of the economic “recession” according to the National Bureau of Economic Research) and May 2009, there were 37,059 mass layoffs, each involving at least 50 people or more. To date, unemployment is at a 26-year high.
Certainly, reductions in force can provide employers with a way to manage this current business crisis, but they also pose practical problems and legal risks that may negate any short-term benefit. But there are alternatives to reductions in force that may be more effective in the long-term.
Obviously, given the various negative can cause, employers should consider alternatives that will cut costs without damaging the company’s ability to successfully conduct business. Reductions in force can severely affect companies by causing the more talented and experienced employees, who are generally more mobile, to seek other employment to avoid being involuntarily terminated. RIFs damage workers’ morale and otherwise negatively impact productivity and public perception.
Employers should consider all alternatives before turning to RIFs, and there are a variety of options: reductions in hours and wages, the elimination of overtime, temporary facility shutdowns, freezes on hiring and wages, use of contract labor, postponement of capital improvements, elimination of certain bonuses, travel and other non-essential expenses. Importantly, employers should implement any of the compensation changes prospectively and provide advance notice of these changes in compliance with West Virginia law.
If alternatives are not implemented before a reduction in force, workers may conclude that the layoffs are simply an excuse to get rid of “dead wood” and they may be more likely to sue over the terminations.
Written Plan
Prior to instituting any cost-cutting measures, the company needs to prepare a written plan. This will be the “blueprint” of the cost-cutting measures that will guide the implementation of the process.
This documentation should clearly explain in detail what measures must be taken, the goals to be achieved, why other measures may not be viable and ultimately describe the circumstances when a reduction in force may have to be implemented if the alternative measures are not effective. This will benefit the company in that it requires management to develop a clear plan of action that identifies the goals to be achieved as well as creates a record of the deliberative process used to develop the plan.
This blueprint is a key part of an employer’s defense should eventually an RIF occur and litigation follow.
Voluntary Severance Program
One of the first alternatives employers should consider is a voluntary severance program. Certainly, it is best from a risk standpoint if workers agree to voluntary leave in exchange for severance package offers that include a full release of claims. These programs can achieve the necessary long-term cost savings and minimize the legal risk.
Of course, the downside of such programs includes the initial expense of the severance packages, as well as the risk that the more talented and experienced employees may take this opportunity to seek more stable employment. Importantly, in order to be enforceable, a severance package offered in exchange for a release of claimsmustcomplywithspecificfederal and state laws. Therefore, employers must be careful in preparing any such releases to ensure compliance with the law.
Furloughs
A close alternative to voluntary severance programs is temporary unpaid furloughs. The advantage is that good employees can be retained for the future when the economy makes a turnaround, and it still provides essential cost savings. However, the use of furloughs is not practical for all businesses and the obvious disadvantage of this measure is that it is only temporary and therefore has a limited effect.
Reduction in Wages/Hours
Another commonly used alternative is the reduction of wages and hours. However, federal wage law issues must be considered. For non-exempt employees, with no contractual limitations, on a temporary basis they may be paid less for less work as long as they are paid minimum wage or higher. However, for exempt employees, reducing the wages and hours may possibly jeopardize their exempt status under federal wage law. Therefore, as these measures can involve significant legal issues, they should be carefully reviewed with legal counsel.
Review and Communication
Before implementation, employers should do a final review of the employees selected and affected by any program. This review should include those not involved in the initial development of the plan, such as outside counsel, and should take into consideration whether or not it disproportionately affects or excludes people in legally protected categories, such as age and race.
Following the review, but prior to implementation, the program must be clearly communicated to employees and the economic reasons for changes must be explained. If employees are asked to sacrifice, they need to understand why it is necessary. Equally important is answering any questions the employees may ask and avoiding any promises that could raise false hopes or expectations for the future.
In summary, there are effective alternatives to reductions in force; however, any cost-saving program should be designed for the particular needs of each employer while at the same time avoiding potential legal problems. Ultimately, a reduction in force should be one of the final cost-saving measures implemented and all alternatives to an RIF should be explored prior to beginning mass layoffs.
W. Scott Evans is a member of Jackson Kelly PLLC. His practice is composed of defense litigation representing employers in a wide range of federal and state employment matters including lawsuits involving claims of age, race, sex and disability discrimination. Evans also devotes a portion of his practice to advising employers in labor and collective bargaining issues and representing employers in arbitrations concerning collective bargaining disputes.
