We recently assisted one of our clients, a large professional services firm, with the issues under federal and state employment laws in connection with reducing their workforce. While employers with 150 or more employees (75 for California employers) must comply with notice requirements when laying off 50 or more employees (e.g., WARN Acts), laying off employees may expose a company and its management to potential liability if the layoffs are done in a way that violates the law—no matter how large or small a employer’s size and operation.

When deciding which employees will be selected for lay off, the employer’s criteria should be as objective as possible and based on a good faith business decision of economic necessity. In the event of a challenge by an employee or a group of employees, courts generally uphold the employers’ decision unless the former employee(s) can show that the company’s decision is a “pretext” for selection using unlawful factors. Pretext often means that the company’s decision is “unworthy of belief.” A court may find a pretext if the former employees can establish that the termination was the result of discrimination, for instance, based on a protected class and not based on a business decision of economic necessity. Protected classes are those employees who are covered by anti-discrimination laws which include race, color, creed, sex, gender identity, age (over 40), national origin, ancestry, physical or mental disability, veteran status, current military status, marital or registered domestic partner status, medical condition (e.g., cancer), and/or sexual orientation.

We worked with our client to identify a list of objective criteria for lay-off selection. In most cases, the objective list includes: (1) What work needs to be done? (2) What skills are necessary to do the work? (3) Who has those skills? (4) Who are the top performers?

We then reviewed the list with our client to evaluate their potential exposure and claim risks, and whether the list suggests that unlawful factors may have been used to select certain employees over others or whether the result of the objective factors will have an adverse effect on those in protected classes. For example: (1) Are any of the selected employees in a protected class? (2) Have any of the selected employees asserted claims against the company in the past or asserted a legal right against the company (e.g., an internal sexual harassment complaint)? (3) Have any of the selected employees exposed unlawful activity of the company to management or the government (e.g., fraud on customers or the government, or failure to follow wage/labor laws)? or (4) Are there any written employment contracts, or collective bargaining agreements, employer policies or past practices that apply?

Once the lay-off list was finalized, we determined that WARN Act notices were not needed. Finally, we counseled our client on communicating the layoff, so that both the affected employees and the other employees feel that the company has acted fairly. This reduces the risk of claims and it sends the right message to the remaining employees.

Source: Report To Plan Sponsors