Reductions in Force in the US – Considerations and Best Practices

Conducting a reduction in force (RIF) is one of the most challenging and sensitive actions a company can take. They are inherently emotional, exhausting and distressing. They can also create significant legal and employee relations risks, even when conducted with the best of intentions. To mitigate potential litigation exposure and business disruption, it’s critically important to carefully plan and execute against that plan. Below are some best practices to keep in mind when conducting a RIF.

Note that this article focuses on requirements for US employees. If your company is laying off employees in other countries, consult with local counsel early in the process. Employment laws vary widely across jurisdictions, and you may encounter a very different – and potentially more stringent – set of requirements for layoffs outside the US.

Consider and document the business rationale

First, consider whether job eliminations are truly necessary. For example, if financial considerations are driving the RIF, consider whether there are any alternatives, such as short-term/temporary layoffs, a voluntary early retirement incentive program, salary freezes or reductions, hiring freezes, shortened workweeks or workdays, or voluntary unpaid leaves of absence. If you decide that a RIF is necessary, ensure that the reasons (e.g., cost reduction) are memorialized in writing. A clear written record is the foundation for defending the decision later.

Define objective selection criteria and evaluate selections carefully

Once you’ve decided to conduct a RIF and memorialized the business rationale, you should carefully choose selection criteria for the RIF. Some common selection criteria include an employee’s qualifications or skill sets, salary level, tenure, past performance, productivity and the feasibility of other employees absorbing the duties of the laid-off employee. Be objective (including in documenting the decisions) to mitigate the risk that a laid-off employee could assert that unlawful factors were considered, such as age or past protected activity.

Once you have established selection criteria, you should instruct managers in the selection process and application of the criteria to select employees. Before finalizing any selections, consider working with employment counsel to review the selection process and decisions, including evaluating any terminations in sensitive situations, such as when an employee on the list is on a leave of absence. Employment counsel can also help you conduct an analysis of the RIF under the US federal Worker Adjustment and Retraining Notification (WARN) Act and applicable state analogues.

Don’t forget the legal considerations

Any large-scale RIF in the US is likely to implicate federal, state and/or local laws triggering onerous obligations for employers, such as the WARN Act or its state or local equivalents. These laws generally require companies to provide advance notice of certain layoffs and plant closings to a variety of individuals, with some states imposing significant additional obligations, such as severance payments. Even where severance is not legally required, companies should weigh nonlegal considerations for offering severance (including the amount) that supports a dignified offboarding experience for selected employees, such as the funds available, employee morale, stakeholder preferences and possible reputational impact. If you are offering severance benefits and release agreements as part of the terminations, you also will need to comply with the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act, which impose a lengthy consideration and revocation period for a release of claims under the ADEA, as well as detailed disclosures regarding eligibility and selection criteria for the RIF and ages and titles of affected and retained employees. Some state laws also impose additional requirements for release agreements. You should seek the assistance of employment counsel to ensure all RIF-related paperwork and agreements are compliant with applicable law.

Communicate carefully internally and externally

RIF information control is crucial, both to avoid the premature disclosure of a planned RIF and to reduce the risk of misinformation. For example, an inadvertent disclosure can significantly impact employee morale and productivity and can even lead to departure of employees otherwise not impacted by the RIF.

When it comes to internal communications, decide early on who will know what information and when they will know it. Ensure that even among managers, confidential information is shared only on a need-to-know basis. One way to get ahead of this is to disseminate a carefully crafted communications plan to key executives and managers in advance. This will help align RIF messaging among management and decision-makers and ensure everyone is on the same page. It can also help ensure a uniform message that avoids words or phrases that could be misconstrued as biased.

It’s equally important to have a thoughtful external communication plan, as what is publicly stated (or not stated) by your company in the lead-up to a RIF can later become harmful facts in the hands of potential plaintiffs. An effective plan can include a communications and/or public relations strategy that describes when and what information will be made about the RIF to different external groups, such as customers or clients, news media, and the general public. Ideally, all communications should be reviewed in advance and scripted, to avoid misstatements and offhand comments that could be used later in litigation. If possible, route inquiries through a single spokesperson to limit conflicting statements that could become evidence in future disputes.

Best practices for RIF day

The day of a RIF can be very difficult for a company and its employees. You should think through the plan for RIF day carefully, including the following:

• How to handle the termination meetings (particularly for remote employees)
• Applicable paperwork (including any severance agreements, final pay and required disclosures)
• Potential security concerns
• Returning company property (again, consider how this will work for remote employees)
• Disconnecting access to IT systems
• How to address any follow-up questions from continuing employees

In addition to logistics, managers and human resources members tasked with meeting with affected employees should receive instruction on conducting the termination meetings, including delivery of the news with respect and compassion and how to respond to common employee questions related to the RIF. Guidance documents, such as talking points and FAQs, can help personnel stick to the script and ensure consistent messaging for each affected employee.

You should also have a plan for the remaining employees. RIFs can be stressful even for the employees who were not laid off, since their colleagues and friends may be among those let go, and they may be anxious about their own job security. For example, a transition plan that addresses questions or concerns about the RIF, tackles employee morale issues and communicates plans for the company moving forward can be helpful. At the same time, you should avoid promising or implying continued employment for remaining employees or making blanket assertions that there won’t be more RIFs in the future.

Anticipating post-RIF issues

After a RIF, it’s important not to let your guard down. You should stay alert to post-layoff challenges, including impacts on employee morale, productivity and concerns about fairness or job security. You should also be mindful of legal risks, especially when rehiring, as any new hires could be viewed as replacements, raising potential discrimination concerns. Developing a rehiring plan, considering factors such as when and how to rehire, whether RIF-ed employees are eligible for rehire, what positions will be filled and whether those positions existed in the same or substantially the same form prior to the RIF can help avoid claims that the layoff was improper. On the flip side, further layoffs after a RIF may also trigger additional legal requirements under the WARN Act or similar state laws.

As the saying goes, “By failing to prepare, you are preparing to fail.” With careful and thoughtful RIF planning using the guideposts discussed, you can navigate this difficult process.