David Harmon: Hi, I’m David Harmon.
Mariya Gonor: And I am Mariya Gonor.
David Harmon: And we are the Employment Strategists. Welcome to our podcast. Our episode, entitled Navigating Layoffs and Reductions in Force. So Mariya, let’s talk about what’s going on in the current economic climate regarding layoffs, reductions in force. There’s a lot going on.
Mariya Gonor: Nearly 400 companies have laid off more than 124,000 employees in 2024.
David Harmon: So, it’s really appropriate for both employers and employees to understand this landscape and how best to navigate it. So, there are employer obligations, employee rights. and best practices that we would like to discuss with you.
Mariya Gonor: We find that a lot of times smaller to mid-size employers make a lot of mistakes when engaging in a reduction in force, which we’ll call RF going forward, because they don’t believe or they don’t recognize or realize that some of these statutes that we’re about to discuss will be applicable to them because they’re thinking that mass layoffs really apply to companies that are laying off thousands and thousands of workers and it’s just simply not so.
David Harmon: A big part of this is planning. This is not something that can be executed on an accelerated time basis. It can be scheduled, but there are multiple steps that need to be taken in order to execute any type of mass layoff effectively and in compliance with the law.
Mariya Gonor: And unlike our typical episodes where we cover the issues that are concerning employers and employees as we cover the topics, here we will address the employer considerations to first, because those are so vast, and then towards the end of the episode, we will cover the employee concerns.
David Harmon: So, let’s start talking about what the preliminary options are before layoffs.
Mariya Gonor: Of course. A lot of the times, employers believe that a layoff is the only solution as a cost-saving measure to reduce staff. Before doing a permanent or temporary layoff, employers should consider a possibility of reducing the hours for their employees first.
David Harmon: And then they can look at possible pay cuts as well, and then furloughs. And maybe in looking at this, the economics will not require a mass layoff, but maybe just a more moderate reduction in force.
Mariya Gonor: Engaging in these cost reduction measures, as opposed to RF, actually has significant benefits for employers because it allows you to retain the staff that’s been loyal to you, if you can. It also allows you to retain people who have institutional knowledge of the company and also minimize disruption.
David Harmon: So, it’s very important to also consider retention agreements as well, where you may be terminating some of your headcount, but you want to retain the top performers. And you may also want to issue a retention agreement, which includes additional compensation and has some potential restrictions also associated with that.
Mariya Gonor: Oh, yeah.
David Harmon: Some restrictive covenants can be introduced into that as well.
Mariya Gonor: Yes. When employees see significant reductions in force, a lot of them will start worrying about their own positions and it’s not uncommon for them to start looking for other opportunities elsewhere, not realizing that they are a key person that the employer would want to retain.
David Harmon: So, if an employer decides that a permanent layoff and a more widespread reduction in force is warranted based on the cost-saving benefit of doing so, let’s talk about some of the steps that should be taken in connection with such a move.
Mariya Gonor: And you know what, David, you’re completely, 100 percent correct. The key here is planning and also documenting whatever decisions that are going to be made by the employer. Documentation of those decisions, documentation of the factors is going to be key in minimizing employer’s potential exposure to liability.
David Harmon: Board meetings, board minutes, proper resolutions, making sure that the selection criteria are met. And the selection lists are in compliance with the law, including the Older Workers Benefit Protection Act and the ADEA, which is the Age Discrimination in Employment Act.
Mariya Gonor: As always, in employment law, we’re dealing with two separate sets of rules for, actually maybe even more than two, but at the very least, it’s the federal law that the employer has to comply with, and then the state law, in the state in which the employer is located or whether rifts are happening. If the rifts are happening nationwide, then the employer needs to look to the specific state law in which the rifts are actually happening.
David Harmon: So, one thing that employers should consider in order to minimize risk is to offer voluntary separations. Which could include just, separation packages for certain employees, as well as looking across the board at the number of employees who are there and offer early retirement which might include vesting of a lot of the equity that’s been, in the bank for these particular employees and benefits that go beyond just the normal separation.
Mariya Gonor: If voluntary retirement or voluntary reduction in force is not an option, then very first step in the planning process for the employer is to determine how many employees are being laid off. The number is extremely important because past certain thresholds, the employer must comply with the Federal WARN Act. It’s the Workers Adjustment and Retraining Notification Act, and also State Mini WARN Act. These require a certain amount of days of notice to the employees, to the affected employees that their jobs are going to be terminated. And on state levels, in some states such as New Jersey, in addition to the notice period, the employer also must provide severance.
David Harmon: So, once the determination has been made as to how many employees are being let go, the next is to look at selection criteria. And that requires a significant amount of documentation. And these selection criteria involve seniority, They involve whether some employees are higher paid than others, the ages, the gender, race. This has to do with all of the EEOC protected characteristics and that should be examined as well because employers want to make sure that the risk of disparate impact to avoid claims of discrimination and or retaliation. That is scrutinized and looked at. So, essentially the selection. of individuals for termination has to be scrubbed essentially for these risks.
Mariya Gonor: So, there are certain categories that courts have held are okay for the employers to consider, which are categories in the selection criteria. To determine whether employees could be either kept or terminated. And these categories are, of course. Seniority within the company, performance, of course, any performance claims have to be supported by underlying documentation showing evaluations or performance ratings, special skills that an employee may have, again, outside of that employee’s, any kind of immutable protective characteristics, productivity of an employee, which I think goes hand in hand with performance really, elimination of a job or department Right? If you’re eliminating an entire department, the courts have held that that is an acceptable selection criteria and elimination of redundant positions.
David Harmon: In addition, this all has to be looked at, as I mentioned earlier, against federal and state anti-discrimination laws, not just, as I mentioned earlier, the Age Discrimination and Employment Act or the Older Workers Benefit Protection Act. There’s a list of statutes that both at the state and federal level local as well that would govern the risks, and those have to be looked at as well to make sure that there’s no violation in doing so.
Mariya Gonor: Once the employees have been selected, there should be a list compiled. And once the list is compiled, then employer, preferably with counsel, preferably with a committee of their managers or other people in charge, and hopefully, the committee is a diverse committee comprised of women, men, people of color can take a look at the list and evaluate that list for disparate impact. You want to make sure that this list does not disproportionately affect people who are over 40 in the protected characteristic, or because of age, or people who may have disabilities, or women. Right, all of these things need to be considered, and if it appears that there is a disparate impact, perhaps it’s time to go back to the drawing board, look at your selection criteria, and re-evaluate it with the factors that are objective and not prohibited on the basis of race, gender, or any other protected characteristic.
David Harmon: Another issue that needs to be examined is whether someone being terminated is just coming back from leave, whether someone is on leave, whether someone is a whistleblower and has filed a complaint. Those are special risk areas that need to be assessed by an employer before making the determination to terminate those particular people. That’s all part of the evaluation which should be reviewed with counsel to fully and thoroughly evaluate the risk.
Mariya Gonor: It is definitely a good idea to get the protection of the attorney-client privilege when the employer engages in these evaluations of the potential exposures and risks. Exactly what David just said, whistleblowing activities should be reviewed it may not be something that employers are thinking about as they’re compiling the list, but a serious consideration that should be accounted for in the analysis.
David Harmon: One other thing is that anyone it’s not only whistleblowers. It’s any complaint, whether sexual harassment, hostile work environment, whatever it may be. Any type of complaint that’s been brought to HR, that raises the level of risk for the company in terminating that particular employee. So that needs to be fully vetted with counsel. That’s not to say that simply because someone filed a complaint they cannot be laid off but it is an issue to discuss with counsel.
Mariya Gonor: It’s important to remember for employers that objective criteria should be used for evaluation of selection criteria. And I’m stressing it over and over again because it’s extremely important to document. The criteria that was selected and extremely important to maintain the objectivity of it because you don’t want to claim from an employee saying that I’m only terminated because my manager doesn’t like me or sexually harass me or engaged in some other inappropriate conduct towards me and that’s how I got clumped into the list of the terminated employees.
David Harmon: So, another step in this process is for employers to evaluate. And probably with the advice of counsel as to whether, it’s appropriate or best to offer separation agreements, separation, and general releases, which are obtained from the employee.
Mariya Gonor: Yeah, because it allows an employer to minimize the risk of a claim.
David Harmon: So those separation and general release agreements. have certain, uh, requirements under various laws, which are tax laws, that’s Section 409, Cap A, under the IRS Code, COBRA, immigration laws, as well as the ADEA and Older Workers Benefit Protection Act, which under a warrant type of termination would require the, uh, of consideration to be provided to each employee, and then seven days to revoke. So, there are a wide range of statutes that counsel should be able to handle and address within the context of these agreements.
Mariya Gonor: Two things to consider for an employer when determining whether a separation agreement and a release is appropriate is that first of all, there has to be consideration offered to an employee. Something beyond what they’re already entitled under the law or their agreement. In other words, if the employee has an employment agreement that says that in the event of termination, I will be paid for, you know, three weeks, four weeks or whatever it may be, that cannot be offered as consideration because it’s something that they’re already entitled to. And while the waiting period could be shortened by the employee, if the employee doesn’t want to wait the entire 45 days. To sign the agreement, they sign it on day three, that’s perfectly acceptable. The revocation period of the seven days cannot be shortened.
David Harmon: Okay, so now we should turn to the employee perspective on layoffs.
Mariya Gonor: David, completely unprepared question, but what do you think is the biggest mistake that an employee can make when they get a separation package?
David Harmon: Sign it right away.
Mariya Gonor: Somehow, I knew that was going to be something you said, but yes, absolutely, right?
David Harmon: It should be reviewed by the employee. It should be reviewed with counsel. There’s a tremendous amount of legal obligations that need to be addressed. And one of those areas is certainly for the employee to look at any of the employment documents that are in place before receiving this separation and general release agreement.
Mariya Gonor: We’ve mentioned this before in our other episodes, but very frequently, employees believe that whatever is offered to them is non-negotiable. It’s a take it or leave it.
David Harmon: The important thing is to have it reviewed, evaluate it, look at the circumstances surrounding the termination, and, have an attorney evaluate whether or not you’re in a protected class, whether you have been mishandled through the termination and layoff, and then see whether there’s room to, go back and negotiate further.
Mariya Gonor: Yeah, you’ve got to check to make sure, first of all, whether you’re entitled to any kind of severance by law or by your agreement.
David Harmon: Yeah, through a severance plan or otherwise, yes.
Mariya Gonor: Although employers should not be doing this. Some employers are less than honest and they do clump in protected individuals into mass layoffs. For instance, if there was an active whistleblowing complaint or harassment complaint or an investigation that you’re being subjected to and all of a sudden you’re being terminated as part of the RF, that might’ve been a thing that was considered inappropriately.
David Harmon: Right. So, we recently had a case where there was a particular employee who was terminated, but this person was terminated without having received proper accommodation under the Americans with Disabilities Act. And so this was a specially protected person and the company was at great risk by including that person in the reduction in force. And as a result of that, the company was open to negotiate a more enhanced package.
Mariya Gonor: Another example that we also witnessed recently was an actual whistleblower who was terminated and there too we were able to negotiate a far more favorable separation agreement for the employee.
David Harmon: Right, so you know it goes under the adage of if you don’t ask you don’t get but I think before you even get there it’s important for employees to be properly counseled and to Do their own diligence on their own employment situation, both from a financial perspective as well as from a legal perspective. Okay, Mariya, we’ve reached the point in our episode where we talk about strategies for both employers and employees.
Mariya Gonor: Yes, from the employer’s perspective, communication. is key. There is significant importance placed on transparency and empathy during this process. A lot of the times this comes as a shock to employees, so employers are reminded to be considerate and empathetic.
David Harmon: There’s always a business purpose for doing so, and the economics is really the controlling aspect of any type of mass layoff. But yes, absolutely. There should be empathy in how these are delivered by HR to the individuals, some compassion. These are people who are being told their jobs are eliminated. They’re not going to have continued employment. Their life is being turned upside down.
Mariya Gonor: Absolutely. And what about the employee?
David Harmon: For the employee, there should be an assessment of what is available, how to file for unemployment benefits, looking at whether there are any state or local resources that can be provided, make sure the, uh, employee’s insurance is in place through COBRA, look at outplacement services that would provide office space, resume writing, and other type of job search report. Many of these items are covered in separation agreements or can be negotiated into separation agreements. And then also a matter of managing one’s mental health and the emotional impact of this significant change on one’s life. And then to look forward, look ahead, to reassess career goals, and explore new opportunities.
Mariya Gonor: Agreed. Absolutely. And as we said in the episode, consult an attorney, review the package with the attorney, make sure that you’re getting everything that you could potentially be entitled to.
David Harmon: And understand what it is that you’re signing and what you are asked to agree to.
Mariya Gonor: Yes.
David Harmon: Most important to understand it.
Mariya Gonor: That’s it for today’s episode, and while we hope you found our time together both informative and entertaining, please remember that this is not legal advice, should not be taken as legal advice, and one should seek counsel of their choosing with respect to each specific fact and circumstance.
David Harmon: If you wish to continue the discussion, please contact us at theemploymentstrategists@norris-law.com. Mariya and I will be looking out for your email.