Handling Employee Layoffs as a Business Owner
HOW TO IMPLEMENT A LAYOFF
Employers often think of layoffs as a cost-cutting strategy. However, business owners can frequently employ a variety of strategies—discussed in my blog on avoiding a layoff—to help them stay profitable and retain employees during difficult economic times. Nevertheless, when you exhaust all available options for keeping your workforce intact, downsizing can quickly become a complicated task. Careful planning and methodology implementation to protect both the employer and the employee is required.
Plan
To implement a layoff requires planning. While employers lay off workers because there isn’t enough work or as a cost-cutting measure, layoffs create potentially significant legal costs if carelessly handled. Knowing the difference between an illegal layoff and an unfair layoff can help your company decide how to handle a layoff in a legal and ethical manner. Being laid off is an emotional event that can leave employees feeling wronged, especially if they believe their treatment was unfair, and/or they believe management is not sharing the company’s financial pain. The company should exude empathy and fairness when alerting personnel of the layoff.
Create a Method
The best way to minimize legal exposure when implementing a reduction in force is to create a record of decision-making and implementation processes. There should be a written format, detailed methods, and a structured guideline. In the case of a mass layoff, employees must be provided with a written, dated notification. There should be a business justification for the layoff, for example, the loss of a major contract. Employers must document how the reason for the layoff affects business and why particular employees must be laid off. The layoff notice should provide employees ample time to plan and prepare for the layoff.
Consider Severance Pay
While there is no legal requirement in the Fair Labor Standards Act to provide severance pay, employees will frequently offer it based on the length of employment and employee’s contribution to the business. When and how you provide the final paycheck is an important factor that requires consideration.
Coordinate with Human Resources
Work directly with Human Resources throughout the process to help the company navigate and foresee the adverse impact of the layoff. Some employees sign a written employment agreement that guarantees employment for a certain period. If such an employee is laid off, the employer could be liable for breach of contract and resulting penalties. In addition, collective bargaining agreements may also limit an employer’s freedom to lay off employees without paying compensation.
Consult an Attorney
Every potential or planned layoff creates a number of critical, and possibly expensive, legal issues. Remedies can include job reinstatement and payment of back wages. Five major federal laws protect laid-off employees. States have specific laws addressing employment, to ensure a layoff is legal, check with a local attorney. Consult the company’s in-house counsel or other designated company attorney throughout the entire process to protect the company from costly litigation and to ensure no laws are inadvertently broken.
Follow Federal and State Laws
Employment in most states is “at will,” meaning an employee can quit, or the company can fire an employee without cause. However, companies still have to follow federal and state employment laws covering issues such as discrimination, whistleblowing, and layoff notices. The Department of Labor (DOL) administers and enforces more than 180 federal laws covering many workplace activities. For example, U.S. Equal Employment Opportunity Commission (EEOC) regulations prohibit employers who target particular groups by laying them off in disproportionate numbers. Some of the EEOC protected groups include race, gender, nationality, skin color, disability, or age (over 40). Other issues that can create legal liability for employers when planning and carrying out layoffs include retaliation, worker’s compensation claims, WARN Act, USERRA, FMLA, COBRA, poor documentation, inadequate document retention, employees protected by whistleblower laws, and poorly crafted severance agreements and waivers.
Company Image
Following a specified procedure will save the company money and promote a positive image to competitors who hire your former employee. Laid-off employees are, essentially, great employees. Their future employer will see a quality, high-performing employee that your company trained. Therefore, utilizing appropriate lay off methods will have a positive effect on your company’s image.
In conclusion, the company must allow a long-term view towards the future to guide their decisions for planning and implementing a layoff. A well-planned layoff will enable your business to bounce back when it once again needs to hire skilled talent. In addition, understanding the difference between laying an employee off and terminating an employee will serve the company’s long-term view of maintaining a professional image to its competitors. To learn more about the difference between termination and a layoff, please read my blog about termination.
FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing employment contracts and other commercial agreements with an eye towards the client’s best interest. If you need to consider your legal options, call us at (832) 305-5529 or email our managing member victoria@filippovlaw.com. For questions concerning your businesses employee layoffs, contact a business attorney at Filippov Law Group, PLLC by calling (832) 305-5529.
This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.
© Copyright 2015 FILIPPOV LAW GROUP, PLLC
Read More
Averting Employee Layoffs as a Business Owner
In the current economic downturn, when companies of all sizes are searching for different ways to cut costs, a layoff is often one of the first tactics considered. However, alternative methods of labor cost reduction can help businesses avoid a reduction in force. Considering alternative options also provides employer’s evidence that alternatives to layoffs were considered or tried. One thing to keep in mind when questioning the pros and cons of a layoff is the possibility of being short-staffed, the consequent need to rehire and train new staff when the economy recovers, and the cost of losing valuable institutional memory. Here are some lay of the alternatives:
OPTIONS TO AVOID LAYOFF
Shared Work Program
The Shared Work Program is unique to Texas employers and provides an alternative to layoffs during an economic downturn. The program allows companies to reduce normal weekly hours for a minimum of 10 percent of their targeted employees by at least 10-40 percent. Lost wages are supplemented with partial unemployment benefits. Shared Work program offers flexibility by allowing the company to:
- Implement multiple different plans for each department affected,
- Return workers to full-time status for short periods of time without affecting the plan,
- Layoff workers who were originally in the plan and still maintain the plan as long as the requirements are still met.
Workweek Alternatives
Utilize an alternative workweek such as 4-day/10 hour days or 3-day/12 hour days, with no overtime. The company has the option to propose alternate work schedules to different “work units” within the company. Alternative workweeks require notices before implementation.
Go Virtual
Implementing a virtual office that utilizes software packages allows managers to videoconference with employees or view their work progress, along with a sound policy dictating expectations and responsibilities of employees is a new trend to cut costs. The company should keep in mind the use of personal devices, reporting mechanisms, timekeeping procedures, length of the arrangement, compensation, and OSHA obligations when considering a virtual office.
Take a Break
Temporary shutdowns, forced vacation, and/or offering extra days of unpaid leave are all viable options, but before considering this, the company must review collective bargaining agreements and relevant policies. Exempt employees cannot work for the length of the temporary shutdown or else they are entitled to their full workweek pay. Also, exempt employees cannot be forced to use their vacation time unless they receive proper notice of the shutdown—90 days.
Freeze the Nonessentials
Utilize hiring freezes, wage reductions or freezes, cut bonuses, cut unnecessary travel, postpone non-vital equipment upgrades, and cancel office perks and company gatherings. When implementing such measures be sure to be fair and avoid any partiality. Always review policies before implementing new measures. You can also offer retirement packages to employees close to retirement.
Offer Retirement Packages
This provides employees who desire to retire the opportunity to do so now. It also serves the company as a voluntary layoff and eases the pressure to reduce personnel. One downside to offering retirement packages is that the company has no control over who will take advantage of the opportunity to retire and who will not.
Ask For Help
Request employee suggestions for reducing cost and increasing productivity—this will increase morale and ease insecurity. In addition, request new estimates from suppliers and their competitors to ensure you are not overspending on supplies. Your supplier may be able to assist you in cutting costs and saving money.
Bring an Intern
Replace part-time staff and contractors with retired employees who already know the company practices and/or interns. Work with local colleges/universities to establish a guideline to create for-credit internships, thus reducing company costs while pro-actively marketing your company image by turning out future talent trained by your company.
Insource Jobs
Bring in an employee from a department that is not busy to assist the department in need of assistance. This will boost employee loyalty and morale. Not to mention the positive impact it will have on your company’s image.
Swap the Coworker
Swap or lend employees to another company to learn new methods and strategies. The positive note is that the new organization will take on the employee’s salary and further training. Be sure to clearly outline expectations and the length of internment.
When cutting business costs fails to address the needs of the company, and a layoff is imminent, it is important to understand the many methods available to avoid litigation. The business justification for a workforce reduction should be well documented along with all preventative measures taken. You can read further about layoff implementation in our next post in this series.
FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing employment contracts and other commercial agreements with an eye towards the client’s best interest. If you need to consider your legal options, call us at (832) 305-5529 or email our managing member victoria@filippovlaw.com. For questions concerning your businesses employee layoffs, contact a business attorney at Filippov Law Group, PLLC by calling (832) 305-5529.
This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.
© Copyright 2015 FILIPPOV LAW GROUP, PLLC
Read MoreCrucial Provisions for a Favorable Employment Termination Agreement
If an employee has the opportunity to negotiate her termination, she can bargain for a number of provisions to protect her rights, or to protect her ability to enforce them through a settlement agreement.
The first section of this entry highlights provisions that can best achieve those ends for an employee. In contrast, the second section explains a number of provisions most important to an employer, which an employee will want to guard against.
A. PROVISIONS ADVANTAGEOUS TO THE EMPLOYEE
Fundamental Matters
The settlement agreement should state clearly whether it will be a “structured settlement,” in which the employer makes periodic payments to the employee. The employee should ensure that the settlement agreement details which account will fund these payments, when they will be made and by whom, by what means, and to what address and recipient.
The settlement should also clearly state the “venue” for any enforcement action, i.e., in which state or court these actions must be filed, as well as which state’s law will apply.
Release Language
The agreement should include (a) a release of all parties from liability, and (b) a release of all possible legal claims the parties could file against each other. An employee should also negotiate for a mutual release, which has the effect that after signing the agreement, each party is finished dealing with the other.[1]
Consideration
To be enforceable, the terms of the settlement agreement must show that each party gives a form of consideration to the other, meaning that each will release a legal right or give something of monetary value to the other party. Consideration can take any of several forms of payment or legal right, but whichever the means, the agreement should contain as much detail on the exchange as possible. The parties should agree on the time, place, and means of payment; the specific person who will effectuate it; the right being released or the amount being paid, and from what account or other source, specifically.[2]
Cobra
The terms of the agreement should specify how the employer will continue to handle COBRA payments for the employee if they apply. The agreement should pinpoint (a) the date COBRA coverage will end, (b) whether the employer will have any further obligations to the employee regarding fringe benefits, (c) which party bears the responsibility to apply for COBRA continuation coverage, (d) which party will pay for the COBRA coverage, (e) and that the employer will provide the employee with notice of his/her right to obtain continuing COBRA coverage. [3]
Dismissal and Withdrawal of Claims
The agreement should also state that the underlying lawsuit will be dismissed with prejudice by a specific date, such that it cannot be filed again once the agreement is executed.
Non-Disparagement and Neutral References
The employee should bargain for a mutual non-disparagement clause, which bars each party from making negative or disparaging comments about the other, to ensure that the circumstances of the settlement will not negatively affect her future career. A neutral reference clause requires an employer to give an unbiased reference to future employers, disclosing simply the position the employee held and for what duration. A better option, the provision could require the employer to refer requests for references to its director of human resources, and require that person to make no disparaging remarks about the employee. The employee might also want a provision requiring the employer to destroy all records concerning or reflecting proceedings related to the employee and the settlement, such as EEOC proceedings or disciplinary measures.
Other Agreements
The settlement agreement should also explain how it will affect prior agreements between the parties, such as non-compete, or trade secret agreements. Specifically, it should state whether the settlement incorporates or renews the prior agreement, or whether it extinguishes them. Clarifying the status of former agreements will help an employee avoid suit by her employer after the settlement.
Liquidated Damages and Enforcement Procedures
The agreement should state in detail how disagreements over the settlement agreement will be resolved. It should state whether the parties must use arbitration and whether they must first meet for collaborative discussions. It should also state whether the parties will additionally have a right to equitable relief, i.e., a lawsuit based on the settlement agreement.
Safe-Harbor Provision
The employee should protect herself by ensuring that the agreement contains a provision that allows the parties a grace period to correct any alleged breaches of its terms, to avoid litigation over its enforcement.
“Zipper” Clause
The agreement should state that it takes the place of all oral agreements between the parties and that all amendments to it must be written and signed by each party. Doing so will mean that the parties may only refer to the written agreement going forward, and cannot rely on statements it does not contain.
Attorneys’ Fees
The agreement should detail how the parties will divide the legal costs of the settlement.
B. PROVISIONS EMPLOYER’S WILL WANT
Waiver of Claims, Or Admissions
An employer will likely seek to disclaim liability for the underlying allegations. An employee should limit this disclaimer, if possible, and limit the number of disclaimers in the agreement. Also, a number of claims can never be waived, including suits under the Fair Labor Standards Act. Thus, an employer often bargains for the agreement to include an acknowledgement by the employee of underlying facts. Yet the employee should be wary of what facts he would be admitting, and wary of making these acknowledgements at all. The employee should also negotiate for a mutual release of claims.
Confidentiality
This provision contains 3 components: (a) a provision that the parties will keep the existence of the settlement, and its terms, confidential; (b) a specific statement that each party must give if questioned about the claims; and (c) a penalty if either party violates this provision. The employer will also attempt to have the employee’s spouse and attorney agree to this term.
Violation of Terms
The employer will seek to prevent the employee from backing out of the settlement agreement by including a provision that if the employee files a claim against the employer or seeks to invalidate any provisions of the agreement, then she must return all payments made to her under the agreement.
Non-Assignability of Claims
The employer will want the employee to acknowledge that she has not assigned to another party any of the claims she has or may have against the employer. The employee should be careful, if possible, to retain the ability to assign these claims to an executor, personal representative, spouse, or perhaps a dependent.
C. FINAL THOUGHTS
In a settlement negotiation, if an employee keeps in mind the provisions important to an employer, she can better anticipate the employer’s demands. If the employee also adds to the agenda a discussion of provisions that favor herself, she can reach a better short-term bargain, prevent the employer from filing additional suits against her, and better protect herself for future phases of her career.
FILIPPOV LAW GROUP, PLLC provides sophisticated legal services and business advice to individuals and businesses of all sizes, ranging from start-ups to Fortune 500 companies. Our attorneys are experienced in negotiating, drafting and reviewing employment contracts and other commercial agreements with an eye towards the client’s best interest. If you need to consider your legal options, call us at (832) 305-5529 or email our managing member victoria@filippovlaw.com. For questions concerning your businesses employee termination, contact a business attorney at Filippov Law Group, PLLC by calling (832) 305-5529.
This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.© Copyright 2015 FILIPPOV LAW GROUP, PLLC
[1] Only a handful of claims may never be released, including workers compensation claims, unemployment compensation, and discrimination claims.
[3] Cobra applies to most employers with at least 20 employees, and usually also covers an employee’s spouse and dependent children. The maximum period for COBRA coverage is either 18 months, in the event of termination or reduction of hours, or 36 months, in the event of death, divorce, or separation.