Reductions In Force (RIF): Dos, Don'ts and Other Considerations

Saturday, November 1, 2008 - 00:00

Editor: Please tell us about your professional experience.

Leonard: I am a member of the firm's Labor and Employment group in New York City. My practice focuses on employment litigation, discrimination claims, counseling, restrictive covenants, wage and hour issues and anti-harassment training in the workplace.

Editor: In conducting a reduction-in-force ("RIF"), what selection criteria may an employer use?

Leonard: An employer needs to develop specific, neutral and business-related criteria to use in selecting employees for a RIF. For example, selecting particular positions for layoff because those functions are being outsourced is common today. Other criteria may include length of service with the employer, transferability of an employee's skills to other positions or performance. Employers should not deviate from the RIF criteria in selecting employees for termination. Otherwise, an employee might claim the termination decision was pretextual, because he or she did not fit within the selection criteria.

Editor: What kind of notice does an employer have to give of a RIF?

Leonard: Under the federal Worker Adjustment and Retraining Notification Act ("WARN") employers with one hundred or more full-time employees generally must provide 60 days advance written notice of a plant closing or a mass layoff, as defined under the statute. There are limited exceptions to this notice requirement, including unforeseeable business circumstances, a natural disaster or the "faltering company" exception. Many states also have adopted similar statutes. For example, starting on February 1, 2009, New York employers with 50 or more full-time employees must provide 90 days advance written notice of mass layoffs or plant closings.

Editor: What provisions should an employer include in separation agreements related to any RIF?

Leonard: An employer conducting a RIF should consider offering terminated employees releases in order to avoid discrimination claims. The Older Workers Benefit Protection Act ("OWBPA") lays out specific requirements that must be satisfied in order for a release to be enforceable. For example, in the context of a RIF, employers must provide employees at least 45 days to consider the terms of the release agreement and at least seven days following execution to revoke their acceptance. In addition, where an employer lays off two or more employees as part of a group termination program, the employer also must provide certain disclosure information, including a list of the job titles and ages of the employees selected and not selected for termination. Employers also should consider provisions such as non-disparagement, confidentiality, cooperation and return of property.

Editor: What about non-compete agreements?

Leonard: In New York and several other states, a non-compete agreement generally is unenforceable where the employee is laid off without cause. If an employer wants to prevent a laid-off employee from competing, the employer should consider including a non-compete clause in the employee's release agreement and paying the employee severance for the duration of the non-compete.

Editor: Are there any cost-saving alternatives to a RIF?

Leonard: An employer might consider a voluntary layoff or an early retirement incentive plan; however, too many employees may opt into the voluntary plan, thus preventing cost savings. Alternatively, too few employees may opt in, in which case the employer still may have to conduct a RIF.

Other cost-saving alternatives an employer may consider include eliminating discretionary bonuses; reducing salaries across the board (provided minimum wage requirements are met); restricting overtime; and retraining employees for other positions at the company.

Editor: What about protected classes?

Leonard: In conducting a RIF, in addition to selecting employees based on business-related criteria, employers also should conduct statistical analyses to determine whether the RIF has a disparate impact on a particular protected class. If the RIF adversely impacts a protected class, even if the selection criteria are neutral, the employer may violate anti-discrimination laws. Under federal law, protected classes include age, race, disability, national origin, gender and religion. Employers also must be aware of what classes are protected under state and local laws prohibiting discrimination. For example, in New York City, victims of domestic violence constitute a protected class under the Human Rights Law. Under New York State law, an employee's sexual orientation and predisposing genetic characteristics cannot be considered.

Please email the interviewee at lleonard@phillipslytle.com with questions about this interview.