by Sonia J. Buck, Esq.

Brock & Scott, PLLC *

USFN Member (AL, CT, FL, GA, KY, ME, MD, MA, MI, NH, NJ, NC, OH, PA, RI, SC, TN, VT, VA)

With the ongoing changes in the workforce and the manner in which large organizations such as law firms and mortgage servicers conduct business, consideration must be given to applicable employment laws that come into play when an employer downsizes its workforce. Reductions in force (RIFs) can implicate several employment laws due to the potential for affecting protected classes and other concerns. This article focuses on federal laws involving large scale employer reductions in force.

Discrimination and Disparate Impact

One important consideration involves the potential for discrimination claims associated with reductions in force. Reductions in force typically do not appear discriminatory on their face, in that they do not specifically target a protected group. Decisions are typically based on economic factors, salaries, department restructurings, and other “legitimate business decisions” not intended to impact people based on their membership in a protected class. If, however, the group of employees affected by the layoff suggests a disproportionate dismissal of older employees, females, employees with disabilities, or any other group protected by federal or state employment discrimination laws, discrimination claims could ensue. Such claims are couched in terms of “disparate impact” discrimination. Caution should be used to avoid discrimination in the form of the disproportionate impact on employees or a group of employees.

The Age Discrimination in Employment Act

The Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. § 621 et seq., prohibits discrimination on the basis of age in programs and activities receiving federal financial assistance. When it comes to reductions in force, age discrimination based on disparate impact is a highly litigated issue.

In Meacham v. Knolls Atomic Power Laboratory, a research laboratory engaged in a RIF. 554 U.S. 84 (2008). To determine whom to terminate, the company asked supervisors to rank employees based on three factors: performance, flexibility, and critical skills. Id. Of the 31 employees who were let go, all but one was over the age of 40. Of these dismissed employees, 26 filed suit against Knolls for age discrimination under the ADEA. Id.

The United States Supreme Court ruled that exemption from liability for disparate impact claims under the ADEA for employer actions based on reasonable factors other than age creates an affirmative defense, for which the employer bears both the burden of production of evidence and the burden of persuasion of its merits. Id. at 87. In other words, it is up to the employer to prove beyond a preponderance of the evidence that legitimate business reasons resulted in the termination decisions. All aspects of the termination decision-making process, especially with respect to deciding which employees to fire, should be clearly documented. All RIF policies and procedures should be followed precisely and without exception. When a layoff might result in older employees being let go, there is a potential for ADEA claims. This is an example of why hiring a consultant to assist with large layoffs might be a good idea.

Worker Adjustment and Retraining Notification Act

The Worker Adjustment and Retraining Notification Act (“Warn”), 29 U.S.C. 2101 et seq., requires most employers with 100 or more employees to provide a 60-day written notice of any “plant closings or mass layoffs of employees” (reductions in workforce). A “plant closing” is “the permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees excluding any part-time employees.”

Any large employer planning major RIFs must comply with the Warn Act and give proper notice. Failure to do so could result in lawsuits by affected employees and a civil penalty of up to $500 for each day of violation. 29 U.S.C. § 2104(a). This penalty may be avoided if the employer satisfies the liability to each aggrieved employee within three weeks after the closing or layoff is ordered by the employer. Id.

Uniformed Services Employment and Reemployment Rights Act

Those men and women protecting our country constitute another class of employees that should be considered in terms of any reduction in force. Federal law protects military employees through the Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C. § 4301 et seq. The intent of USERRA is to ensure that employees do not lose their civilian employment status and benefits simply due to their service to our country. USERRA provides them with the opportunity to return to their civilian employment upon completion of their military service. Employers must reinstate returning military personnel to the same position and with the same benefits, pay, and seniority they would have enjoyed had they not left their civilian job to serve the country. Also, under USERRA, for the first 30 days of an employee’s military leave, the employer must continue the employee’s existing health, dental, and life insurance at no additional cost to the employee.

If a service-member becomes disabled due to military service and becomes unable to perform the job duties, an employer is required under USERRA to employ the returning soldier in a job that is the “nearest approximation to” the prior position. In addition, a service member cannot be fired without cause for up to one year (depending on the length of military service) after reinstatement, regardless of most states’ “employment at will” status or an employer’s personnel policies. USERRA also contains anti-discrimination provisions, such that hiring, promotion, and termination decisions cannot be made solely based on present or anticipated membership in the armed services.

USERRA does contain an exception for any reductions in the workforce that would have included the military employee; however, it is the employer’s burden to prove that the defense applies. Complete and concise records for any reduction in force should be maintained to prove the service member’s position was part of the reduction.

Employment Leave and Reductions in Force

Employers should also be mindful of layoff decisions affecting employees in a job-protected leave status, such as under workers’ compensation laws, FMLA, or USERRA. An employer is prohibited from considering an employee's absence on protected leave as a factor in deciding whether to lay off that employee.  This does not mean, however, that such employees are protected from layoffs generally. An employee on leave is not protected from discharge if the employee would have been laid off regardless of their leave status. An employer must be able to prove that the employee would have been terminated had they not taken the leave. If, for example, the employee’s entire department was let go, that might be an easier showing than if only the employee on leave were impacted and none with similar positions who were not on leave.

Other Considerations

Other RIF considerations include the typical legal requirements on employers when any employee terminates for any reason. For example, COBRA notification may apply. The Consolidated Omnibus Budget Reconciliation Act (29 U.S.C. § 1161 et seq. is a health insurance program that allows eligible employees and their families continued health insurance benefits when the employees lose their job. Under COBRA, it is incumbent upon the employer to notify employees of their COBRA rights. Also, under wage and hour laws, employees need to be paid out all accrued but unused vacation time.

Union employees also have some protections from layoffs within the provisions of their union contracts, also called collective bargaining agreements (“CBAs”). The CBA between a union and the employer sets forth rules that must be followed when a union company conducts a reduction in force.

The larger the employer, the more likely it is the employer will be subject to federal laws governing reductions in the workforce, and the more risk that claims may arise. With so many employees being terminated in a RIF situation, compliance will be a top priority. Often, employers wish to utilize a professional consultant to assist them in working their way through an RIF, and to minimize risk from the beginning of the decision to reduce the workforce. Proper planning and consultations with experts are recommended to any large employer contemplating a reduction in force.

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USFN Report - Winter 2022