WORKFORCE REDUCTIONS AND ALTERNATIVES

1. Preliminary Steps:  Identifying the Objective.

   1. Determine overall objective:  amount of cost savings required

   2. Consider practical concern: avoid wrongful discharge lawsuits

      Key questions: 

      1. Are you willing to pay for it by offering severance in return for a release?

      2. How much are you willing to pay?

   3. Review existing written policies and procedures

      1. Employment contracts

      2. Severance policies and plans

      3. Past practices (especially memoranda outlining practices)

      4. Consider whether modifying any plans or policies should be modified.

   4. Identify tactical goals

      1. Number of positions to be eliminated

      2. Locations/units where positions will be eliminated

      3. Specific positions to be eliminated

      4. Speed of implementation

      5. Across the board cut (or) targeted at eliminating department or business unit

2. Alternatives.

   Consider all alternatives for implementing necessary costs savings and avoiding litigation

   1. Without reducing headcount -

      1. vacation use (encouraging or requiring)

      2. extra time off / extended leaves
         But: time loss payments for EE's on worker compensation leave 

      3. Pay reduction and fewer hours

         Pro's: 

         • management avoids making painful decisions about who goes and who stays

         • generates some savings with minimal costs and risks

         • spreads the risks

         Con's: 

         • employees not accept pay cuts

         • top performers leave and go where salaries are maintained 

         • possible wage and hour complications 

   2. Headcount reductions

      1. Attrition

      2. Hiring freeze 

      3. Not renewing contract, temporary or other contingent workers

         Pro's: 

         • minimal risk and costs

         • may be less of a problem for employee morale

         Con's: 

         • time: takes too long to realize savings 

         • not targeted 

         • may require shifting and reassignment of personnel

         • minimal savings available

         Note: Alternatives most often utilized as a first step before resorting to a layoff are attrition (63 %), hiring freeze (49%), nonrenewing contract workers (21 %) and encouraging use of vacation time (20%) (Society for Human Resource Management Layoffs and Job Security Survey, as reported by the CHH Labor Law Reports-Employment Practices (December 20, 2001)). 

   3. Incentive programs

      Pro's: 

      • permits better targeting of jobs and units

      • recognizes employees for past commitment to firm

      • helps retain employees who remain

      Con's: 

      • expensive

      • creates future expectations and entitlement mentality

      • discourages quits and retirements in future

   4. Involuntary terminations

      Pro's: 

      • permits targeting

      • savings recognized where and when needed

      Con's: 

      • lawsuits more likely

      • difficult and time consuming task of identifying targets

3. Implementing a Workforce Reduction

   1. Special factors to consider:

      1. Is employee in a protected category?

      2. Was employee qualified to fill another position?

      3. Warning signs: facts which could indicate discharge decision was due to protected category status:

         • job duties assumed by someone outside protected class, younger, less experienced employee 

         • overall RIF numbers indicating protected category targeted or disproportionately affected

   2. Protected Classes:

      • Race

      • Age, particularly over 40

      • Disability or illness

      • Sex

      • Religion

      • National Origin

      • Physical or Mental Disability

      • Complainers (Safety, wage & hour laws, etc.)

      • Workers' compensation claimants

   3. Considerations for Individual Departments:

      • Any possibility of meeting RIF targets through voluntary resignations or early retirements?

      • Is a job function being eliminated?

      • If not, who will be performing the function--compare protected category status

      • Could the individual involved perform remaining jobs (for example, previously held the position)--compare protected category status

      • What are chances the eliminated position will be restored downstream?

      • Is there a clearly understandable business reason to select this person/job function?

      • If job performance entered into the decision, does the personnel file provide backup?

   4. Selection criteria: use objective considerations

      1. Elimination of job functions

      2. Length of service

      3. Performance

         1. Using past performance reviews
            
            Was there an effort to insure consistent ratings across departments?
            
            Do those reviews consider and weigh factors you want to consider in the selection process?
            
            Does it consider skills required after workforce reduction (especially, if jobs are to be combined or reshuffled)?

         2. Consider using special performance review process.

      4. Skills

   5. Overall Facility Considerations

      • How does effect on each protected category (particularly age, sex, race) compare to makeup of plant work force in general (separate analysis for office and shop)?

   6. Watch What You Say

      • Avoid comments which can be interpreted as targeting protected category status--"won't be too much gray hair around here anymore"; "you're having a hard time keeping up with the times"; "you haven't been pulling your weight"; "clearing out deadwood".

      • This includes comments to anyone, not only person being let go.

4. Early Retirement Incentives

   1. Changes in qualified plans: exit incentives may be targeted to employees eligible or approaching eligibility for nonqualified plans. 
      
      Adjustments to qualified plans may include --

      1. Reducing age requirement for eligibility for early retirement;

      2. Providing credits for extra years of service

      3. Offering early retirement benefits under certain circumstances

      4. Supplemental or "bridge" retirement benefits for employees not eligible for retirement or for social security

      5. Post-retirement salary continuation

      6. Shorter period of times for determining final average compensation (e.g., three as opposed to five years)

      7. Acceleration of employees' pension commencement date

      8. Retiree medical coverage (possibly to bridge time to medicare eligibility)

   2. Benefits to employer of this approach: 

      1. Reduce need for involuntary terminations.

      2. Reduce risk of litigation.

      3. Increase employment opportunities for remaining employees

      4. Perception of fairness / increase morale among remaining employees

   3. Problems with this approach:

      1. Must be voluntary

      2. ADEA issues if cut added monthly supplement on age basis (reaching age 65)
         
         Exception: monthly supplement may be permissible when it serves a as bridge to eligibility for social security benefits 

      3. Creates expectations for future reductions

      4. Costs (especially when needing to reduce costs)

      5. Wrong employees accept incentive

      6. ERISA compliance costs 

      7. Discourages retirements when benefit not offered

      8. Most experienced workers are lost

5. Severance Benefits

   1. Lump sum cash payment

   2. Salary continuation for a period of time 

   3. Pay for unused vacation time

   4. Outplacement services

   5. Unemployment Compensation

   6. Acceleration of stock purchase rights

6. Conducting the Involuntary Termination
   
   Some guidelines to consider:

   1. Select the most appropriate persons to conduct the termination.

   2. Have two company representatives at each termination meeting.

   3. Organize and prepare for the termination session.

   4. Don't waffle: state up-front the purpose of the meeting and tell the employee that he or she is being terminated.

   5. If recall is not possible, say so. Do not give false hope of re-employment.

   6. Tell who made the decision and how it was made.

   7. Explain efforts made to avoid the layoff. (If you looked for alternative assignments, explain what was done.)

   8. DO BE sympathetic.

   9. DO LISTEN and do let employee vent and tell you why everything the company is doing is wrong or unfair. Simply acknowledge that you hear them and understand that is their opinion without agreeing with them. 

   10. Review Company's benefits and offers of assistance.

   11. Explain policies on references.

   12. Always be honest and straightforward.

   13. DO NOT debate fairness of decision.

   14. DO NOT make negative statements about person or his or her performance.

   15. DO NOT patronize employee or suggest that this could be good for employee.

   16. DO NOT be cold, hard-hearted or unsympathetic.

   BEST PRACTICE TIP: Don't lie or mislead about any aspect of the decision-making or selection process, including what criteria was used or who made the decision. If the termination is litigated and the company is caught in a lie, then a pretext may be established foreclosing the possibility of summary judgment and forcing the case to a jury trial.

7. Release and Waivers

   1. Minimum legal requirements for valid releases:

      1. Release of claims was knowing. 

      2. Release was voluntary.

      3. Release was supported by adequate consideration.

      4. Release is for past claims -- not future claims.

   2. Elements:

      1. Key items to include:

         1. release of claims

         2. binding on heirs, estate, successors

         3. non-admission of liability

         4. no right to reinstatement

         5. consideration - the agreement should recite what item of value was given to the outgoing employee in exchange for his or her release over and above what the company was otherwise obligated to pay the employee

         6. purpose of release - the agreement should recite that its intent is resolve all possible disputes or claims that may have arisen from employment and termination of employment.

         7. covenant not to sue [but see part D.2 of this heading]

         8. acknowledgment of voluntariness

         9. acknowledgment that claims have not been assigned

      2. Other common clauses

         1. Confidentiality clause

         2. Non-disparagement clause

         3. Rules for construction of agreement

         4. Severability

         5. Choice of law - apply Oregon law

         6. Choice of forum -- such as, in State of Oregon

         7. Mandatory arbitration of disputes
            
            Note: EEOC will not be bound agreement to that any dispute will be resolved by arbitration. EEOC v. Waffle House, U.S. Supreme Court (January 15, 2002).

         8. Integration clause 

         9. Attorney fee shifting clause

      3. Common negotiable items:

         1. amount of severance

         2. references

         3. unemployment benefits

         4. continuation of benefits

         5. outplacement assistance

   3. Releases under ADEA/OWBPA 
      
      Special requirement for release and waivers under the Older Worker Benefit Protection Act (OWBPA) amending the Age Discrimination in Employment Act (ADEA), codified at 29 U.S.C. § 626 (f)(1):

      1. Release must be written so average individual can understand it.

      2. Release must note that rights waived include rights arising under Age Discrimination in Employment Act (ADEA).

      3. Release does not waive a person's future rights or claims.

      4. Consideration (i.e., something of value) must be given in exchange for the release in addition to what the employee would have received under established plans or policies.

      5. The employee must be advised in the release to consult with an attorney.

      6. The employee should have at least 45 days to sign the release if part of an exit incentive or other termination program; otherwise, only 21 days need be given.

      7. The release is revocable for seven days after execution.
         
         Additional requirements applicable to exit incentive programs or other termination programs:

      8. A description of the group of individuals covered by the program.

      9. A listing of all program eligibility factors.

      10. The time limits applicable to the program.

      11. A listing of job titles and ages of all eligible employees in the group.

      12. A listing of job titles and ages of all ineligible employees in same job classification or organizational unit.

      29 C.F.R. 1625.22(f)(4). 

   4. EEOC limitations on releases:

      1. Tender back and other penalty provisions on ADEA releases:

         1. The rule:
            
            
            An ADEA release may not include any of the following penalty provisions: (1) a requirement to "tender back" any benefits, such as cash payments, before the claimant may challenge the release; (2) an obligation to pay the employer's attorney fees if the challenge to the release is unsuccessful; (3) a payment of damages to the employer for an unsuccessful challenge; or (4) a clause permitting the employer to abrogate its obligations under the agreement (that is, the commitment to make severance payments) if the employee challenges the release.

         2. EEOC's enforcement: 
            
            EEOC has indicated that if any prohibited penalty provisions are included in a release, not only are such provisions void, but their mere inclusion may invalidate the release of the ADEA claim.

         BEST PRACTICE TIP: Employers who include any of the prohibited penalty provisions in a general waiver and release form add a disclaimer that such provisions do not apply to the release of ADEA claims.

      2. Covenants not to file a charge:
         
         The release should not include any covenant not to file a charge with the EEOC or not to cooperate with the EEOC. EEOC takes position that such waivers may constitute unlawful retaliation. See EEOC Enforcement Guidance on Non-waivable Rights (4/17/97).
         
         BEST PRACTICE TIP: EEOC has recognized that an employee can release right to recover in his own lawsuit and in any action brought by EEOC. 

8. Worker Adjustment Retraining and Notification Act (WARN) 
   
   Under the WARN Act, an employer must provide 60 days notice or "back pay for each day of violation" at a compensation level not less than the higher of the last regular wage or salary or the highest wage or salary in the prior three years PLUS cover employee benefits for the period of violation. 

   1. Are you a covered employer?

      1. Do you employ 100 or more full-time employees? or 

      2. Do you employ a workforce that works combined total of 4000 straight time hours per week.

      3. Who is counted as an employee?

         1. Part-time employees working 20 or more hours per week (or, in aggregate they exceed the 4000 hour per week limit).

         2. Employees working more than 6 of 12 months preceding the event. 

         3. Laid off employees with a reasonable expectation of recall. 29 C.F.R. § 693.3(a)

         4. Temporary employees. 29 C.F.R. 639.3(c)(2).
            
            Note: No notice is due to temporary employees although included in the headcount.

   2. Is the event covered by WARN?

      1. Is it the result of a "plant closing?"

         • Does it result in loss of employment for 50 or more full-time employees at site within any 30 or 90 day window?

         • A plant closing can include the closing of a building or an operationally distinct product, operation or specific function with a single site of employment.

      2. Is there a "mass layoff?"
         
         A mass layoff occurs when the expected employment loss exceeds six months and

         • It covers at least 33 percent and 50 active full-time employees at a single site of employment are within any 30 or 90 day period, or 

         • Whenever 500 or more full-time employees at a single site suffer an employment loss within a 30 or 90 day period.

         A mass layoff includes a reduction of hours of more than 50 percent during each month of any six month period.

      3. Is it an asset sale? 

         1. The asset sale of a business, taken alone without actual loss of employment, is not an event triggering WARN Act notice requirements. See International Alliance v. Compact Video Services, Inc., 50 F.3d 1464 (9th Cir. 1995). 

         2. In a sale of a business, the WARN Act expressly places the responsibility for providing notice of a layoff on the seller through the effective date of the sale and on the buyer after the effective date of the sale. 29 U.S.C. § 2101(b)(1).

      BEST PRACTICE TIP: If possible, the sale agreements should include a provision obliging the buyer to hire the existing employee complement on similar terms, and to bear any WARN Act liability.

   3. Exceptions to coverage:

      1. Where the employer is unsuccessful in seeking capital to invest in the business, which if obtained and invested, would have precluded the need for the shutdown. 

      2. Unforeseeable business circumstances. 29 U.S.C. § 2102(b).

      3. The closing is of a temporary facility or the closing or layoff is the result of a particular project or undertaking and employees were hired with the understanding that their employment was limited to the duration of the facility, project or undertaking

      4. The closing or layoff constitutes a strike or lockout not intended to evade the purpose of the Act.

   4. Measuring the 60 days back pay due:
      
      How this 60 days is measured differs depending on the location: 

      1. Rule governing Oregon, Washington and other western states:
         
         Pay in lieu of notice is to be based on working days. In Oregon, an employer failing to provide notice must provide back pay based on days the employee would have worked during the 60 day period and not for each day of the 60 day period. Thus, if the employees typically work only five eight hour days each week, then they would receive no more than five days pay for each week. 

      2. Alternative interpretation applicable in some areas: 
         
         U.S. Court of Appeals for the Third Circuit (Pennsylvania, Delaware, New Jersey) interprets WARN Act as requiring an employer to pay 60 calendar days such that the regular daily rate is calculated and multiplied by the number of days of violation up to 60 days. Thus, if no notice is provided in Pennsylvania, an employee receives 60 days pay. 

   5. Offset of the severance pay plan 
      
      If there is a current severance pay plan and the specified severance constitutes an obligatory payment, such obligatory payments can not be offset from the WARN Act payment.
      
      If the severance pay plan, however, specifically provides for an offset of WARN Act payments, then an offset may be possible.
      
      Note: If the employer reserves the right to terminate the plan (even if no offset is provided), then such an amendment could be made.

   6. Who must be notified?
      
      The WARN Act requires notice to - 

      1. Union, if employees are represented, or directly to individual employees if not represented.
         
         Note: Notice must be given to all part time employees (whether included in headcount).

      2. The state dislocated worker unit, and 

      3. The chief elected official of the local government unit in which you are located (i.e., mayor if within city limits or the county commission chair if outside city limits).

   7. What must the notice contain?

      1. Notice to the Union representative must contain:

         1. Name and address of the employment site where the plant closing or mass layoff will occur, 

         2. Name and telephone number of a company official to contact for further information;

         3. A statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect;

         4. The expected date of the first separation and the anticipated schedule for making separations;

         5. The job titles of positions to be affected and the names of the workers currently holding affected jobs.

      2. Notices separately provided to the State dislocated worker unit and to the chief elected official of the unit of local government are to contain:

         1. The same information a through d above and

         2. Job titles of positions to be affected, and the number of affected employees in each job classification;

         3. An indication as to whether or not bumping rights exist;

         4. The name of each union representing affected employees, and the name and address of the chief elected officer of each union.

      3. Notice to each affected employee who does not have a representative is to be written in language understandable to the employees and is to contain:

         1. A statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect;

         2. Expected date when the plant closing or mass layoff will commence and the expected date when the individual employee will be separated;

         3. An indication whether or not bumping rights exist;

         4. Name and telephone number of a company official to contact for further information.

         Note: Addresses the Oregon and Washington agencies that must be notified and for some local governments are attached in appendix B.

   8. Voluntary Retirement Program - no WARN Act implications.

9. Union Bargaining Obligations

   1. Review terms of collective bargaining agreement:

      1. Is there a provision governing layoffs?

      2. Is there a provision regarding severance pay?

      3. Are there any other provisions that address layoffs, shutdowns or closings?

   2. Bargaining obligations:

      1. Generally, there is no bargaining obligation over decision to layoff, unless specifically required in the collective bargaining agreement. 

         1. But bargaining over the decision underlying the layoff may be required in limited circumstances where 

            1. It results from subcontracting, plant closing or relocation; and

            2. Labor costs are a factor in the decision.

         2. If the layoff is caused by the employer going out of business or liquidating, then there is no obligation to bargain.
            
            But consider whether there are related companies or affiliates: could one argue that they are part of a single enterprise such that the layoff is merely part of plant closing or relocation?

      2. "Effects" bargaining:
         
         Generally, an employer must be willing to bargain over the "effects" of the decision, including when and how the layoff will be implemented.

      3. Meeting the obligation to bargain:
         
         Notice should be given of the decision and an opportunity to bargain over that decision or its effects (as appropriate) before it becomes final. 
         
         The sooner notice is given the more defensible it is.
         
         Bargaining simply means conferring in good faith without the necessity of agreeing or making any concessions.

      BEST PRACTICE TIP: To avoid unfair labor practice charges, the prudent approach is to notify the union as early as practical and be prepared to meet and confer both as to the decision and the effects even if it is doubtful that there is a bargaining obligation.

   Appendix A
   
   SAMPLE OLDER WORKER RELEASE LANGUAGE

The following language complies with the Older Workers' Benefit Protections Act and should be included in any release that will be used for a worker over 40, who is being terminated is part of an exit incentive program or other employment termination program:

Appendix B

ADDRESSES FOR WARN ACT NOTICES

© 2002 Newcomb, Sabin, Schwartz & Landsverk, LLP.
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