Reductions in Force [Podcast]
In this episode of The Proskauer Brief, partners Harris Mufson and Evandro Gigante discuss considerations and best practices associated with reductions in force. Companies that make a business decision to reduce its staffing should consider what goals they are looking to achieve. Is it cost reduction or a consolidation of positions? Or is it to weed out lower performing employees? These considerations will tend to inform whether the employer decides to do a voluntary reduction in force or involuntary reduction in force. Tune as we discuss practical tips for employers considering a RIF.
Harris Mufson: Hello and welcome to The Proskauer Brief: Hot Topics on Labor and Employment Law. I’m Harris Mufson and I’m here today with Evandro Gigante, and on today’s episode we are going to discuss considerations and best practices associated with reductions in force. So, Evandro, we have seen more and more clients ask us questions and planning associated with reductions in force. Why do you think that is?
Evandro Gigante: Well, I think, Harris, we’re seeing clients more cost, conscious than they were perhaps in the last few years. Planning for the future and wanting to make sure that their staffing is going to align with their business needs.
Harris Mufson: So let’s just talk about rifs, generally speaking. Can you provide some practical considerations for what employers need to know when they’re contemplating large restructurings or terminations of multiple employees?
Evandro Gigante: I’d say, broadly speaking, a company that’s made the business decision to reduce its staffing really needs to think about what goals it is looking to achieve. Is it cost reduction, is it consolidation of positions? Is it weeding out, perhaps, lower performing employees? And that will tend to inform whether the employer decides to do a voluntary reduction in force or an involuntary reduction in force.
Evandro Gigante: Let’s talk a little about voluntary reductions in force. Can you describe what that is, and then what’s required for a voluntary rif?
Evandro Gigante: Sure. So, generally speaking, a voluntary reduction refers to a situation where an employer basically offers to a group of employees the opportunity to raise their hand, resign and leave the company, generally in exchange for some severance package. Oftentimes we tell clients that there is less legal risk associated with a voluntary reduction in force for the simple reason that employees are self-selecting. They’re raising their hands and deciding whether they want to take their package and leave. Of course, employers, on that hand, also have less control over the process. You can’t necessarily select who you want to go, and it’s actually important to make sure that you don’t encourage people to go in a voluntary situation.
Harris Mufson: And switching to involuntary, can you describe what that circumstance entails?
Evandro Gigante: Sure. So, in an involuntary reduction in force, a company looks at a universe of individuals and says, “These are the people who we’re going to terminate by eliminating their positions or taking other measures to let them go.” Of course, that decision does present more risk which I’m happy to talk about; but it also gives the employer more control over the process, in other words, making the selection decision itself.
Harris Mufson: Yeah, we’ll talk about the risk in a moment, but I just want to be clear because I think there some misnomers out there potentially in the market about what documentation is required in a voluntary versus involuntary reduction in force circumstance. And can you clear that up? Can you describe what documents, if any, are required for both scenarios?
Evandro Gigante: Sure. Generally speaking, it’s the same documentation. In other words, for a voluntary reduction or involuntary reduction, an employer’s going to want to decide whether it wants to have in place a severance plan, what that severance plan is going to provide, a separation agreement that lays out the terms of the separation and the terms of the severance and an Older Worker Benefit Protection Act disclosure statement. That’s a disclosure statement that accompanies any severance agreement involving a group termination where the individual receives essentially a list of the employees not by name but by job title and age, noting which individuals were selected for the termination and which individuals were not. That holds true regardless of whether an employer is doing a voluntary or involuntary—the only difference being, in a voluntary situation, rather than note which individuals were selected, the disclosure statement is going to identify which employees are eligible to take the package.
Harris Mufson: And you described earlier—used the term “group termination.” Can you explain what that means?
Evandro Gigante: Sure. So, for purposes of the Older Worker Benefit Protection Act, which is essentially an amendment to the age discrimination law in the United States, the group termination is really defined as the termination of two or more employees. So, it’s not that the separation program has to meet a certain threshold of employees, but really, as long as you’re terminating two or more employees, you’re in a group termination situation.
Harris Mufson: And that definition of two or more employees, right, is when there’s a joint decision in some respect. So there can be multiple employees terminated on the same day for performance reasons, for separate performance reasons but that would not trigger the OWPBA requirement, right, we’re talking about a circumstance where two or more employees are being terminating as a result of the same decision make process.
Evandro Gigante: That’s right, so whether that decision making process again is a voluntary one or an involuntary one, the group termination program refers to a program where the company makes a decision to let go of a number of individuals, essentially for the same reasons as part of the same initiative.
Harris Mufson: So why don’t we talk about some practical considerations for employers who are contemplating a reduction of force. Can you speak to that?
Evandro Gigante: Sure. Practically speaking, you’ll want to assess how many people the employer is looking to terminate as part of a process. Generally speaking, as I said, two or more people will constitute a group termination, and once you determine the number—for example, if you’re going to be doing it involuntary—are you (1) tracking those numbers and the locations of those employees to make sure that we’re on top of any WARN obligations—those are federal and state laws that require notice of termination in advance—generally, what’s considered either a mass layoff or plant closing where a large number of individuals are terminated, and you’re also going to want to consider disparate impact testing in an involuntary situation. Meaning, you’re going to want to look at the data associated with the individuals you’ve selected to let go to make sure that the decision-making process is not having some disparate impact or unintentional negative consequence on individuals who may be protected under the law.
Harris Mufson: You mentioned WARN before that also state laws that are, I think—we colloquial refer to them as mini-WARN laws that also may be implicated too.
Evandro Gigante: Yes, absolutely, and then an employer really wants to stay on top of those numbers and make sure that it’s tracking where individuals are being terminated from and the numbers, because on the federal level, generally speaking, WARN is triggered where an employer terminates fifty or more employees; and if they do and meet other thresholds, the employer would have to give those employees sixty days’ notice. But in New York, for example, that threshold is dropped to twenty-five employees and the required notice is ninety day’s advance notice. So employers want to make sure that they’re staying on top of those requirements and tracking the numbers so that if they do hit WARN in a particular location, they’re prepared well in advance to provide the required WARN notices.
Harris Mufson: So, I think you and I are aligned: we agree that planning is extraordinary important when it comes to these sort of reductions in force. And so what sort of practical tips do you have for employers in terms of the planning process? What should they be thinking about and mapping out in advance of these sort of decisions?
Evandro Gigante: So, I tell employers it’s never too early to start thinking about these decisions. You want to be thinking about, again, how many people you’re planning to let go, what the reasons are, are we tracking those numbers, do we have in place the right policies and plans to provide employees with severance if that’s what we want to do, and are we comfortable with those severance formulas for those employees? I’d say, what my sort of biggest advance to employers is: plan early and plan often because these situations often take turns and twists when, for example some employees might have employment agreements that take them outside of the normal process when it comes to severance, some employees may be covered by different policies or procedure, with regard to severance, that employers need to be aware of.
And then, even more practically, once an employer makes a decision, puts together the paper work and basically implements the reduction in force, you also want to make sure that you’re managing the logistics. You want to make sure that you’re scripted in terms of the conversations you’re having with the employees. You want to make sure that the messages you’re delivering to them, and to the other employees in the organizations who might not be affected, are consistent. You even want to plan for things like: how are we going to get employees to return their property? How are we going to return their personal belongings and how do you manage the exit on the day of the separation? So, there are a lot things that go into the planning, and you want to make sure that you’re on top of all of that as early as you can be.
Harris Mufson: So you had mentioned briefly the concept of disparate impact and conducting a disparate impact analysis associated with a rif. Can you explain, how that is done?
Evandro Gigante: Sure. So, a disparate impact analysis generally is a statistical analysis that looks at what you’re selection rates are as between different races, ethnicities or ages. So, you want to make sure, in conducting that analysis, that the rate at which you’re selecting individuals who are in a protected class that isn’t statistically significant when compared to the rate at which you’re selecting individuals who might not be in a protected class, and if there is some statistical imbalance, right, an employer generally wants to know that in order to decide whether there are some other decisions it should be making or reevaluating, perhaps the decision making process itself. But I will say that when a disparate impact is found, even statistically, that does not mean that there is discrimination. All it means is that there’s an inference of discrimination and the employer has a number of defenses and arguments that they can be prepared to make in order to respond to such a claim.
Harris Mufson: Well, thank you Evandro for sharing your insights about reductions in force, and thank you for joining us today on The Proskauer Brief. Stay tuned for more insights on the latest hot topics in labor and employment law and be sure to follow us on Apple Podcasts, Spotify and Google Play.