|
In the wake of the tragic terrorist attacks on New York City and Washington, D.C., many companies may face the difficult decision of downsizing their workforce in order to ride out an economic slump. While downsizing is a traumatic experience for all concerned there are ways in which a company can minimize this trauma for its employees and avoid legal liability for itself.
Document Your Decision
The first step in any downsizing program is to identify the business reasons leading to the downsizing decision. Next, identify the goals the company wants to achieve with the downsizing. Third, determine which downsizing options will help the company achieve its goals. Fourth, determine how the company selects which employees leave the company. Last, but by no means least, document the process. Should your employees challenge your downsizing decisions as discriminatory, documenting the downsizing process establishes the employer's non-discriminatory reason (its defense) for its actions.
Know Your Downsizing Options
Once your company decides to downsize, it needs to determine how it will accomplish the reduction in force. Voluntary exits are the preferred method of downsizing a company for several reasons. First, employees leaving of their own free will are less traumatized by the downsizing decision. Second, if the company is bound by a collective bargaining agreement there may be less restrictions on the company if its employees choose to resign than if the company has to involuntarily downsize according to the terms of a collective bargaining agreement. Third, it is unlikely that a company will violate state or federal discrimination laws if the employee knowingly and voluntarily elects to resign.
Voluntary Exits
A successful voluntary exit plan requires that a company offer an attractive severance package to induce its employees to leave. Although severance packages can be costly, a mixture of monetary and non-monetary incentives can keep the cost reasonable. Some possible exit incentives include:
- severance pay;
- bonus;
- subsidized COBRA coverage;
- continued group insurance coverage;
- vesting in pension and/or profit sharing plans;
- adding years to the employee's length of service so they qualify for retirement benefits;
- Social Security supplement until employee is eligible for social security;
- not contesting the employee's application for unemployment benefits;
- providing references; and
- out-placement assistance.
Companies looking at a large reduction in force should consult with legal counsel or their Employment Retirement Income Security Act (ERISA) plan administrator to verify whether the severance package it offers to its employees qualifies as a welfare benefit plan under ERISA.
Whatever combination of incentives a company offers, the compensation must be over and above that which the employee normally receives at termination if the employer is going to ask for a release and waiver from all employment related claims. That is, an employee's regular wages, accrued vacation, accrued leave time, etc., cannot form the basis of the severance package if the employee normally receives those wages/benefits upon leaving the company. If an employee elects to take early retirement or agrees to a voluntary exit, the employer will want to have the employee sign a "General Release and Waiver" releasing the employer from all employment related claims. If the employee is over 40 years of age special considerations apply. These considerations are discussed later in the newsletter.
Involuntary Layoffs
If the voluntary exit plan does not achieve the required results, employee layoffs may be required. If there is a collective bargaining agreement, seniority may be the only criteria for the layoffs. If no collective bargaining agreement exists, the company is free to determine its own criteria. These criteria may include some or all of the following:
- length of service;
- absenteeism (do not count Family and Medical Leave Act absences or disability related absences);
- quality/quantity of work;
- education;
- experience;
- skills; and
- part-time / full-time status
Once the company selects the candidates for layoff, it should analyze its selection to ensure that the downsizing does not disproportionately affect a particular group. For example, if the company recently implemented a diversity-in-hiring program and it chooses to reduce its workforce by seniority, the employees with the least seniority may be ethnic minorities and/or women. If the selection criterion captures a large percentage of any particular group, the employer should base its selection on other criteria or consider adding additional criteria to eliminate a disparate impact on any one group.
Waivers Under the Older Worker Benefit Protection Act
Under the Older Worker Benefit Protection Act ("OWBPA") which amended the Age Discrimination In Employment Act ("ADEA"), an over-40 employee may waive their rights under the ADEA provided the waiver is knowing and voluntary. A company seeking to have its employees sign a General Release and Waiver of employment rights would be wise to follow the OWBPA's guidelines for all exiting employees regardless of whether the employee is over or under 40 years of age. The OWBPA requirements for waivers concerning an exit plan affecting a group or class of employees are:
- The waiver must be in writing, drafted in plain English and geared to the level of understanding of the individual signing the waiver -- no "legalese".
- The waiver must specifically refer to the waiver of rights under the ADEA and must refer to the ADEA by name. While the ADEA is the only Act that must be mentioned by name, a company is free to include other state and federal discrimination statutes such as Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA) and the Worker Adjustment Retraining Act (WARN) in the scope of the waiver.
- The waiver must accurately describe any advantages or disadvantages to signing the waiver without exaggerating or minimizing their effect. For example, a company may insert a clause stating that the employee understands they are giving up any and all rights they may have to sue the Employer that relate in any way to their employment and/or the conclusion of that employment.
- The waiver must advise the employee to consult an attorney before signing the agreement.
- The waiver must state that it applies only to a waiver of rights or claims arising on or before the date the employee signs the waiver. The waiver provisions cannot apply to future rights or claims the employee may have after they sign the waiver.
- The waiver must recite, in detail, the consideration provided for the employee's waiver of their rights. It is a also a good idea to outline the benefits the employee receives at termination and distinguish those benefits from the consideration provided for the waiver.
- The waiver must give the employee 45 days in which to consider the waiver. The parties can agree to shorten this period. The parties may also agree that any changes to the waiver will not restart the 45-day waiting period.
- At the beginning of the 45 day consideration period, the employer must inform the employee, in writing, of the group of individuals covered by the exit incentive program, the eligibility factors for the program, the time limits applicable to the program, the job titles and ages of the eligible or selected employees and the ages of employees in the same job classification or unit who are not eligible or selected for the program.
- The waiver must give the employee 7 days to revoke the waiver after he/she signs it. The parties may not shorten this period. The waiver is not effective until the 7 days have expired.
While the waiver can cover many aspects of the employment relationship, a company should understand that the agreement is only between the company and the employee. While the employee agrees to give up any rights or claims he/she may have to bring a lawsuit against the employer, the agreement does not apply to any state or federal agency charged with enforcing employment related laws. This means that agencies like the Equal Rights Division of the Wisconsin Department of Workforce Development, the Department of Labor, the Equal Employment Opportunity Commission or the Justice Department may conduct an investigation or file a charge on a former employee's behalf as these agencies are not bound by the waiver.
Mass Layoffs and Plant Closings
Downsizing involving a permanent or temporary plant closing, a closing of one or more facilities or mass layoffs may fall under the Worker Adjustment and Retraining Notification Act (WARN) and/or Wisconsin's plant closing laws. Under these laws, a company may have to provide a 60-day advance notice of a plant closing or mass layoff. If you feel that your company may be covered under these acts, you should consult legal counsel for compliance advice.
Communicating the Decision
No company can eliminate the stress of job loss for its employees but it can minimize it. Let your employees hear the truth from you as opposed to rumors from co-workers. Your employees already know things are not "business as usual." Explain the circumstances you face and what action you have taken so far. Explain why those actions did not work and what you must do now or in the near future. Be sure to save some time for answering your employees' questions. Remember that your employees want to know how the situation affects them. Tell them. After downsizing, maintain communication with your employees. Employees who remain often shoulder greater loads when their co-workers depart. Strive to motivate your remaining employees by offering new employment opportunities, cash awards, plaques or even a simple "thank you" for a job well done. Honest communication between the employer and employee is the key to making your downsizing successful.
For more information about downsizing and other employment law issues, call Krukowski & Costello, S.C. at (414) 423-1330, or e-mail educational services.
|
