Dealing with Layoffs
As the coronavirus spreads and states are increasingly ordering business shutdowns, employers are faced with daunting decisions to ensure the continued viability of their businesses. This is to offer general guidance for non-unionized businesses that contemplate downsizing their workforce or reducing personnel costs. Please know we also remain available to assist our clients with any specific questions or issues as they arise.
Alternatives to Layoffs
It almost goes without saying, but businesses are well served assessing first less drastic measures to reduce personnel costs. These include furloughs, reduced hours, and lowered pay. In doing so, employers must ensure they comply with the Fair Labor Standards Act (FLSA). Employers that sponsor foreign workers for a green card or certain work visas may have additional obligations to notify the Department of Labor (DOL) or the United States Citizenship and Immigration Services (USCIS).
Non-exempt, hourly employees: Absent a written agreement to the contrary, an employer can reduce the number of hours per week or per day and pay such employees for just the hours worked. An employer can also prospectively reduce an employee’s hourly pay, as long as the pay does not fall below minimum wage.
Exempt, salaried employees: Employers need to structure any furlough or reduction in hours to ensure there is no loss of exemption under the FLSA:
Employers cannot adjust an employee’s pay according to hours worked.
Employees must be paid their full salary for any workweek in which they perform any work. If they work 2 hours in 1 week, they must still be paid their full salary. However, employees can be required to take a full week unpaid absence (and not be paid for that entire week).
Employees can be required to use vacation/PTO; they can be required to work 4 days and then use 1 day vacation/PTO so their weekly pay does not change.
Employers can reduce a salary prospectively (with no reduced workweek schedule), so long as employees still receive at least the minimum pay set by the DOL for the exemption. Employers must notify employees before any salary reduction.
Employers can prospectively adopt a reduced workweek schedule and commensurate adjustment in employees’ salaries, if the salary reduction is a bona fide change reflecting long-term business needs. It appears more and more likely that the coronavirus pandemic may have lasting impact on certain businesses and industries, so the risk that these measures may be considered temporary (and thus unlawful) is minimized. Employers should clearly notify employees before implementing the reduced workweek and salary plan, preferably one week in advance.
Employers must make sure no employee performs any work during his/her furloughed time. This means employees cannot check emails, answer phone calls, etc. during their time off. A signed written acknowledgement of such a policy is recommended.
Generally, furloughed employees remain employed. However, there is a danger that employees’ hours are reduced so they no longer meet the threshold and lose their eligibility for coverage under an employer’s benefit plans. Employers should check with their plan administrators and carriers to verify eligibility threshold requirements and work with them to ensure employees are given all required appropriate benefit continuation notices.
For more information about FLSA compliance for furloughs, reduction in hours and salary, see: https://www.dol.gov/agencies/whd/fact-sheets/70-flsa-furloughs
Layoffs
Employers may seek voluntary reductions (exit incentive programs) or involuntary reductions. Either option requires careful planning and implementation. Employers should document the reasons for taking these measures to demonstrate a business justification (RIF goals) and minimize the risk of disparate impact discrimination and other legal claims.
Selection Criteria
Employers must ensure they use a neutral selection process and remain in compliance with all anti-discrimination laws.
Employers must use objective, non-discriminatory and consistently applied selection criteria that further the RIF goals.
If possible, adopting pure seniority-based layoff criteria is the best way to minimize liability exposure.
Other objective criteria can include special skills, knowledge and training levels, productivity, performance (if supported by underlying documents such as performance evaluations or performance ratings), elimination of an entire job function, a particular department and redundant positions, and ability to perform remaining work.
Using high compensation levels as a selection criterion is not considered disparate treatment if it is not motivated by age. However, using this criterion can leave an employer more vulnerable to disparate impact claims under the ADEA because higher
earning individuals tend to be among the older and more experienced employees.
Whatever criteria are chosen, they MUST BE APPLIED UNIFORMLY AND CONSISTENTLY to minimize discrimination claims.
Selection Process
Employers should use a multi-layer review process whenever possible and make sure the selection decisions and accompanying reasons for each candidate selected are well documented. In so doing, employers are well-served to create an accurate and detailed written record, up-front, recognizing that a unique opportunity exists in the moment to shape now what a judge, jury and employee’s counsel will see in the future.
If performance is one factor, employers should ensure such selections are made by management personnel with personal knowledge of the employees at issue. If possible, multiple raters who know the affected employees should make independent evaluations without any knowledge of ratings given by other raters.
Employers should not rely solely on past performance evaluations and ratings as they are not usually designed for comparing employees based on skills or business needs.
Ideally, employers should create an independent review committee (preferably diverse and with some HR expertise) to review the initial selections to ensure the decisions comply with current guidelines, are consistent with the stated RIF goals, do not disparately impact any protected group or give rise to claims of retaliation for protected activity (such as preexisting claims, internal complaints, taking or requesting protected leave or whistleblowing activities).
Make sure the documentation accurately reflects the objective criteria and business justifications without subjective commentary; these documents will be discoverable in any litigation challenging the RIF.
Communicate the layoff decision in a compassionate manner.
Severance Plans or Packages
A severance package or plan (including voluntary exit incentives) can help minimize risks of liability associated with a layoff by requiring a release of legal claims in exchange for the severance payment. Any such plan should be fully vetted and drafted by legal counsel to ensure compliance with applicable laws. Some general guidelines:
There must be sufficient consideration for the agreement and release.
The severance agreement cannot simply offer payment already owed the employee.
An employer must comply with any pre-existing formal severance program.
An employer may have to follow an established past practice or custom of offering severance; consult with your legal counsel.
Benefits
Employers must pay each employee all wages earned up to the last day of employment. Although federal and Florida law do not require employers to pay any accrued vacation or paid leave, employers should follow their own internal policies and past practices. In addition, a layoff may affect the following
COBRA: Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with over 20 employees must offer group health plan continuation coverage (for 18 months) to all covered employees who lose coverage due to a layoff or reduction in hours. Employers must notify the plan administrator within 30 days of the termination of employment. Florida has an equivalent COBRA requirement for employers with under 20 employees.
Other benefit plans: Employers should review employee benefit plans and insurance policies to determine when coverage ends. Disability insurance carriers are particularly strict about requiring that employees be actively at work for coverage to apply.
Retirement plans: Under some plans, a RIF may trigger employees’ rights to obtain certain 401(k) plan assets while others may provide for subsidized benefits. Employers should review the qualified plans they sponsor to determine what if any benefits are provided in the event of a RIF.
WARN Act
Certain employers (primarily those with over 100 full-time employees) may be subject to
the Worker Adjustment and Retraining Notification Act (WARN Act). Generally, covered employers must give
certain advance notice of plant closings and mass layoffs. For more information about this law, see:
https://www.dol.gov/agencies/eta/layoffs/warn