Labor & Employment Developments Blog

As businesses begin the process of re-opening, many are finding that due to changed conditions, they are overstaffed. One possible solution to this problem is a reduction in force (RIF). In planning a RIF, there are a great many factors for employers to consider in the current environment, including the points listed below.

Selection Criteria: In any RIF, the method used to select the employees who will lose their employment is one of the most critical factors. The safest route from a litigation avoidance standpoint is to use neutral criteria such as date of hire seniority - for example, you need to eliminate two employees from a ten person group and the two most recently hired are selected. While this approach is relatively safe, employers often want to retain their best performers and they may not be the most senior. Similarly, certain skill sets that are viewed as critical to the business may not be held by all employees introducing additional complexity. The bottom line is that any introduction of subjective criteria into the selection process, e.g. performance, skills, productivity, brings with it a greater risk of litigation. Employers must weigh these competing interests carefully and determine what level of risk they will accept. 

Older Workers’ Benefit Protection Act (“OWBPA”): In a RIF that impacts employees over 40 years of age, employers seeking releases in return for severance must comply with the OWBPA. The statute itself is very specific, imposing several requirements on the form and timing of releases. You can find detailed information in one of my prior posts.

WARN Act: Most employers did not issue WARN notices for furloughs on the basis that the anticipated layoff would be less than six months. If and when furloughs become permanent via a RIF (or extend beyond six months), employers must reconsider their notice obligations. By the same token, employers considering RIFs must consider any state law notification requirements in so called state mini-WARNs or other statutes. 

PPP Loan Forgiveness: Under the Paycheck Protection Program (PPP) created by the CARES Act, loans may be forgiven if businesses use the proceeds to maintain their payrolls and pay certain other expenses. As a result, employers who have taken out PPP loans need to carefully consider the impact of a RIF on their PPP loans and potential loan forgiveness.  

Anticipating Litigation: 2020 has already been a difficult year and for employees who lose their jobs in a RIF, it will become more difficult. When employees have little chance of replacing lost employment, litigation naturally increases. This will likely be the case in the immediate future. As a result, employers should take extra care to analyze and document their decisions in connection with any RIFs. There are so many issues to deal with in the workplace at this time and managers are pulled in many different directions. Regardless, decisions should not be made in haste and documentation will be critical in defending lawsuits that may not be filed for several months after memories have faded.

If you are considering or planning a RIF, contact any member of our Labor & Employment Group, or the KMK Law Coronavirus (COVID-19) Response Team for further assistance.