Layoffs:
Some Thoughts on Avoiding Liability to Terminated Personnel
Over
the years, our firm has advised many employers on steps
to minimize exposure to lawsuits filed by employees terminated
in reductions in force. The layoffs recently announced
by AT&T and other companies, both big and small, have
again brought that subject to the forefront.
Step
One: Document The Rationale For The Reduction
An
employer typically undertakes force reductions only in
response to valid business considerations and only after
implementing other less drastic cost cutting measures.
The employer should document those facts before a force
reduction is made.
That
documentation need not be elaborate or complex. To the
contrary, the best documentation is a simple, clear,
and concise statement of the reasons that brought the
employer to the point of reducing personnel and the efforts
that were previously made to control costs. In our experience,
that type of written record tends to have as much, if
not greater, credibility with a judge or a jury than
multiple witnesses testifying about the same subject.
Step
Two: Determine The Requisite Scope Of The Reduction
Generally,
the employer should next determine the number of employees
to be terminated at particular facilities, job categories,
management levels, etc. Contemporaneous documentation
of those decisions should be prepared and maintained.
Step
Three: Determine The Selection Criteria
The
employer must select the criteria that will govern the
selection of individuals for termination and the weight
each criterion will be given. Lawyers always prefer the
use of objective selection criteria (e.g., years of service),
but subjective criteria may play a legitimate role, particularly
where management and professional employees are involved.
Once again, the employer should document the criteria
that were chosen, the reason for using the criteria,
and the instructions given to supervisors as to how the
criteria were to be applied.
For
example, one of our clients decided to use job evaluation
scores as a major selection criterion. That employer
also decided, however, that the first employees terminated
should be those who were on disciplinary probation. Hence,
the employer prepared instructions to that effect and
further explained to supervisors that only the employees'
last two evaluations should be used in the selection
process.
Although
not "bullet proof" or entirely objective since some rating
categories were subjective, that procedure was defensible
and the employer defeated all discrimination claims brought
by employees who challenged their terminations. Moreover,
that approach differed significantly from the process
used by other companies that have merely instructed supervisors
to "get rid of the employees you least want." That unguided
and unbridled approach is far riskier.
Step
Four: Do A Dry Run
The
old adage that "practice makes perfect" certainly applies
in this context. Accordingly, employers should do a dry
run of the reduction process to determine who will be
let go if the selection criteria are not modified or
waived.
Step
Five: Test The Application Of The Selection Criteria
The
employer should evaluate the data generated by the dry
run to see if there are any indications of exposure to
discrimination claims, particularly allegations involving
an entire class of minority employees or older employees.
That review does not require a sophisticated statistical
analysis. In fact, an eyeball review will frequently
disclose a potential problem. A rule of thumb, such as
the Federal Office of Contract Compliance Program's "Four-Fifths" Rule,
can also suffice.
Step
Six: Evaluate Whether Alternative Selection Procedures
Are Appropriate
If
an analysis of the reduction decisions reveals potential
discrimination issues, the employer should reexamine
the reduction criteria to see whether they can be defended
in a lawsuit. The employer should also consider alternative
criteria that would satisfy its business needs, but have
less of an impact on protected classes.
Where
selection criteria are necessarily very subjective, we
have participated in a case-by-case review of the selection
decisions. That review effectively "pre-litigates" potential
claims and may result in the alteration of particular
reduction decisions. That process can have the additional
benefit of validating the entire selection process.
Every
situation has its own unique considerations and issues.
The steps outlined above, however, provide a method for
identifying and reducing the risk of successful discrimination
claims.
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