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7 Legal Issues Your Organization Needs To Know About Reductions In Force

02 April
by Aley Brown
9 minute read

What is a reduction in force? And what legal issues will it cause your organization?

Well, if you ask the Society for Human Resource Management (SHRM), a reduction in force (RIF) is:

“A permanent cut in head count..” Or: “A permanent termination..”

In more complex terms, though, a reduction in force happens when an organization must permanently reduce headcount. And, it can happen for many different reasons: to reduce costs, to alter business strategy or to relocate your brick and mortar facility.

You can download our reduction in force letter here.

reduction in force

When your HR team decides to have a RIF event, you must be mindful of all of the legal issues that can arise from it. This will allow you to prepare ahead of time to mitigate any situation that could make your organization liable.

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To help with this, we will be covering the following legal issues and laws in this blog:

  1. The WARN Act
  2. ADEA
  3. COBRA
  4. FMLA
  5. USERRA
  6. Worker’s Compensation
  7. EEOC

So to start off, let’s cover the WARN Act:

1. WARN Act

The WARN Act is a federal law that has regulations on how your organization should provide notice to employees that will be let go during a reduction in force. “WARN” stands for “The Worker Adjustment and Retraining Notification Act”.

According to LexisNexis:

“In general, this statute is designed to require employers to provide employees with 60 days notice of layoffs due to plant closings, sale of business or financial hardship.”

There are several nuances to this law that you should be aware of:

  • The WARN act applies to your organization if you have over 100 full-time employees
  • The WARN act applies to all publicly and privately held companies
  • The WARN act applies to all organizations that are for profit or not for profit
  • A WARN notice must be provided to all affected employees, regardless of position
  • A WARN notice must be given if there is a plant closing or a mass layoff (for more on what qualifies as plant closing or mass layoff, visit the LexisNexis site and chat with your corporate counsel)

HR professionals should also know that the WARN act only applies to situations deemed a loss of employment, so it doesn’t apply to terminations based on poor performance or subordination.

For more information on these nuances, make sure to check out the LexisNexis site, and speak with your organization’s legal team.

reduction in force

2. ADEA

The ADEA stands for “Age Discrimination in Employment Act”. This law protects workers over the age of forty from being discriminated against on the sole basis of age.

Here is a more indepth definition from HR Hero:

“The Age Discrimination in Employment Act prohibits an employer from refusing to hire, firing, or otherwise discriminating against an employee age 40 or older, solely on the basis of age. Thus, an employer can’t deny an employee pay or fringe benefits when the only justification is age. Nor may an employer classify employees into groups on the basis of age in a way that unfairly deprives workers of employment opportunities. For example, an employer may not relegate all older workers to a particular level of employment within a company and then decline to promote them.”

So, if people over the age of 40 become unfairly impacted by your reduction event, this will create legal issues for your organization. Whether it be intentionally or not, you can still get in trouble with the law if this group is unfairly impacted.

For example, let’s say your manufacturing organization has to reduce human capital costs by 20%, so you eliminate 30 workers. If a large portion of those workers are over the age of 40, as compared to the workers that you didn’t let go, you could be at risk for a lawsuit.

Your legal team should always advise you on this law before you notify employees of a reduction in force so that you can minimize the risk of a lawsuit.

3. COBRA

COBRA stands for Consolidated Omnibus Budget Reconciliation Act.

The American Cancer Society has a perfect and simple explanation of it:

“It gives employees the right to pay premiums for and keep the group health insurance that they would otherwise lose after they:

  • Reduce their work hours
  • Quit their jobs
  • Lose their jobs

Most people can keep the insurance for up to 18 months. Some people may be able to keep it a few months longer.”

So how would this cause legal issues? Well, if the employees that have been let go do not receive all the proper documentation to set up COBRA, or were never given the ability to sign up for it, your organization is a target for a lawsuit.

reduction in force

As always, make sure to ask your corporate counsel about this, and take the proper steps to make sure all of your employees that are being let go in the RIF have the proper COBRA documentation, and are aware of how to get set up.

It is always a good idea to have HR speak with each person specifically about COBRA and then document each conversation.

4. FMLA

FMLA stands for the “Family and Medical Leave Act”. It allows employees to take up to 12 weeks of unpaid leave each year.

Sounds simple, right?

Well things can start getting tricky if you have an employee out on FMLA while you are conducting a reduction in force. Can that employee be let go in the RIF?

In the short answer: it depends. You should chat with your corporate lawyer.

The long answer: your organization can layoff someone on FMLA as long as the reason for laying them off is not related to them being on FMLA.

For example, if you have an employee out on FMLA to care for their ailing parent, you cannot lay them off because of the time they are taking through FMLA. You could however lay them off if that person’s entire department was eliminated due to a change in strategy, such as discontinuing a product. This would be what SHRM calls a valid business reason.

When providing notice during a reduction in force to an employee on FMLA, make sure to proceed with caution. You should be able to prove with documentation that the termination was actually for a valid business reason.

5. USERRA

This law provides protection for employees at your company who take leave from work to participate in our government’s military. The law requires that your organization provide the same employment after the employee gets back from service that they had before.

reduction in force

There is one caveat though: the escalator provision.

Here is how SHRM explains this provision:

“This so-called escalator provision can be difficult for employers to grasp. An employee not only comes back to at least the same pay, benefits and seniority that he or she would have had but also is entitled to the pay increases he or she would have gotten, said David Henderson, an attorney with Nutter in Boston. The escalator provision may result in a returning employee getting a promotion."

SHRM goes on to say that the provision also goes the other way. For example, just like the FMLA law, an employee who left to serve in the military can still be let go if their whole department is let go. They could also be demoted or have their role change depending on what others in the role go through. It's an up and down - hence the escalator. 

Here's SHRM again:

"But the escalator requirement "goes up and down," he explained. If an employer demotes or lays off co-workers in the position that an employee held at the beginning of military leave, the company might lawfully demote or lay off him or her.”.

To avoid legal issues in regards to this law when conducting a reduction in force, provide documentation that shows there is a valid business reason for this position to be eliminated while the employee is/was serving in the military.

6. Worker’s Compensation

The legal issues surrounding worker’s compensation are very similar to those around FMLA. If you layoff an employee because they are on worker’s compensation, you will get into trouble, legally speaking.

But, being on worker’s comp does not make an employee immune from being affected in a reduction in force. Once again, if you can provide a valid business reason for their position to be eliminated, it should mitigate legal concerns.

reduction in force

For example, if John is out on worker’s compensation after injuring his back in your factory, and you eliminate his position because productivity is down due to his absence at the factory, that could result in huge legal risk.

But, if you eliminate John’s position because the entire factory is closing, and everyone will be losing their job, that is a valid business reason, which is legally acceptable.

7. EEOC

The Equal Employment Opportunity Commission (EEOC) protects employees in protected classes from being discriminated against. Here is the EEOC’s explanation of the classes it protects:

“The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information. It is also illegal to discriminate against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit."

As it applies to a reduction in force, you can avoid legal issues by making sure that you don’t have a disproportionate amount of employees in any one class being affected by your layoff.

To do this, make sure that the percentage of a protected class in the group of employees being affected by a RIF is the same percentage that class holds in your overall workforce.

For example, if your workforce is 40% female, than the amount of females in you group of employees being affected by a reduction in force should not be over 40%. Doing this will help to minimize legal issues in regards to this law.

reduction in force

If your reduction in force does disproportionately target a specific protected class you could be at risk for disparate impact or disparate treatment. Disparate impact is a type of discrimination that is unintentional. This could happen if you were to layoff an entire department that consisted of all females employees. Disparate treatment occurs when your organization intentionally discriminates against a protected class. Both forms of discrimination are illegal.

Since there are many protected classes, this process can very quickly get complicated. It is best to consult with your corporate counsel to ensure that you aren’t disproportionately targeting a protected class.

The Final Say

The laws we have covered are just scraping the top of the surface when it comes to potential legal issues that arise during a reduction in force. It is important for every member of your HR team working on your RIF event to have foundational knowledge of these laws to ensure minimal legal risk.

The purpose of these regulations is to protect employees from being unfairly impacted by a reduction in force at your organization. When in doubt, always go above and beyond to treat your employees respectfully when conducting a reduction in force (since that is basically what these laws are enforcing).

Now, this doesn’t mean that you can never have a reduction in force event if you want to avoid legal issues. It just means that you should have a valid business reason for the RIF, provide adequate timing for the notification, not unfairly target someone to be laid off, and also make sure that the employees’ needs are taken care in regards to benefits.

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