WPA in the News

How to Manage Terminations and Layoffs in a Recession

April 17, 2009
Employment Relations Today: Questions-and Answers Column (Vol. 36, Issue 1)
By Lynn Lieber, Esq.

This article was published in the journal Employment Relations Today.
Reprints are available online at Wiley InterScience.

Correct handling of employee discipline, terminations, and layoffs is crucial, especially in a down economy. It is the responsibility of human resources professionals to ensure their organizations follow excellent disciplinary practices and properly conduct terminations and layoffs during these turbulent economic times.

Few supervisors enjoy managing discipline and discharge issues. An “undeserved” separation from employment due to, for example, a downturn in the economy, can be especially difficult. Now more than ever, HR must take the lead in workforce management, including, when necessary, conducting layoffs or terminations of employees in a systematic, logical, and effective manner.

WHAT CHALLENGES DO ORGANIZATIONS FACE IN MANAGING THEIR WORKFORCE IN A DOWN ECONOMY?

One of the most difficult tasks many organizations face in arecession is making decisions regarding terminations and layoffs. In times of a down economy or recession, employers often have to juggle:

Differentiating between terminations and layoffs;
Protecting the organization from legal liability;
Handling layoff meetings;
Allaying fears of remaining employees;
Keeping top employees from going elsewhere; and
Remotivating remaining employees after layoffs.

All these considerations must be taken into account while thepressures of budget cuts, diminishing revenues, and customerretention are at an all-time high.

HOW SHOULD AN ORGANIZATION DIFFERENTIATE BETWEEN TERMINATIONS AND LAYOFFS?

During a recession, the words “termination” and “layoff” are an all-too-familiar part of our vernacular. However, terminations and layoffs are very distinct types of separation from employment and must be handled differently. Terminations are dismissals from employment for cause, or for violation of organizational standards, policies, and procedures. Progressive discipline steps should be taken with regard to all terminations, especially in recessionary times.

Many organizations seize on recessionary times as an opportunity to eliminate a problem employee’s job as a “softer” way to terminate the worker. However, eliminating an employee’s job position to solve performance problems can actually result in liability to the organization. The employee (and his or her attorney) might be able to show that the position was not actually eliminated but was filled by another employee. An attorney might be able to prove in court that the “elimination of position” was just a sham and that discriminatory reasons were actually the cause of the termination.

Layoffs are separations from employment due to lack of work, departmental restructuring, downsizing divisions, changes in lines of product or business, etc. Layoffs are not “for cause” and often affect groups of employees rather than individual employees.

Many employers make the mistake of using a layoff as an excuse to terminate an employee who should actually be dismissed for cause. Dismissing someone by using an inaccurate reason is an invitation to a lawsuit.

Confronting a layoff situation can be managed effectively by employers if they have already identified their top performers and their most reliable workers. If possible, organizations should avoid laying off these two groups of people. Since layoffs inevitably put more stress on remaining employees, retaining dependable, productive people who can take on more responsibilities is critical to managing through turbulent times.

Another element of workforce reductions where HR has a critical role is communication. Simply stated, management should communicate as openly as possible. Not only does truthful, consistent communication ease the stress for departing employees and for their supervisors, but also it builds trust with the remaining employees. Employees who see their coworkers caught by surprise or treated in ways that seem unfair will leave the organization as soon as the economy makes that possible. If employers do not retain these top employees, the organization will suffer just as the economy is picking up.

WHAT ARE THE LEGAL CONSIDERATIONS REGARDING TERMINATIONS AND LAYOFFS?

In most states, private sector, nonunion employees can be terminated “at-will.” Employment at-will means that the employment relationship may be terminated for any or no reason, with or without cause or notice, at any time. If employees are hired at-will, employers generally have more leeway in terminating their employment.

However, there are many exceptions to at-will employment, such as employment contracts, statutory considerations (terminations are illegal if they are based on any of the protected categories – sex, gender, race, national origin, disability, pregnancy, religion, etc.), public policy exceptions (you cannot terminate an employee for filing a workers’ compensation claim, or for “whistle-blowing”), for engaging in group activities to protest working conditions, or for refusing to commit an illegal act on the employer’s behalf.

Certain states have “implied covenants of good faith and fair dealing,” under which employers can be found liable for acting in bad faith regarding an employment relationship. There are also “implied-contract” exceptions to at-will employment, through which an employer may be bound by promises contained in the organization’s employee handbook or by oral promises guaranteeing continued employment. Documentation of all discipline and termination actions is critical so a judge, jury, or other fact-finder does not determine that the termination decision was a pretext for discrimination or any exception to the at-will doctrine.

There are both state and federal laws that can apply to layoffs. Following are two federal laws that come up frequently.

Worker Adjustment and Retraining Notification Act

This complex law (referred to as the WARN Act) applies to certain employers, including those with 100 or more full-time employees. Though it has many special rules and exceptions, it generally requires 60 days advance notice of a mass layoff or closing, or 60 days of pay instead of the notice.

Older Worker's Benefit Protection Act

Some employers provide workers who are downsized with a severance package in exchange for signing a release of claims against the organization. This Act dictates details about those releases that apply to workers who are 40 years old or older. For example, an employee has up to 21 days to think about the release and, even after he or she signs it, can revoke it within certain time period after signing. In group-layoff situations, the law gives employees an extra 24 days to consider the release.

HOW SHOULD AN ORGANIZATION PREPARE FOR LAYOFF MEETINGS?

Many organizations utilize scripts during layoffs so that supervisors know exactly what they should – and shouldn't – say to employees. Initially, supervisors may worry that this will come off as insincere or too rehearsed, however, there are many benefits to scripting what to say beforehand, including:

Supervisors will know what they should tell employees.
Supervisors will know what they should not tell employees.
It limits the chances of making a legal misstep.
It makes it more likely the action with take place smoothly and facilitates a good transition for the employee.

Both the organization's legal department and HR should be involved in constructing a script for supervisors to use in this situation. Supervisors should tell employees that many factors were taken into account when determining which members of the department would be laid off. Management should explain that factors other than longevity were taken into account. Those factors may include:

Performance reviews;
Progressive discipline administered;
Skill sets; and
Education levels and certifications.

Often, during organizationwide layoffs, supervisors are consulted regarding which employees in their department should be laid off. When making such a difficult decision, many supervisors choose to compare employees based on a number of criteria. Especially in large departments, it may be easiest to do this task on paper.

However, such documents – generally intended to ensure the process is fair and objective – can actually be used against the supervisor and the organization should a former employee sue. Supervisors should be especially careful not to consider factors that are unlawful – such as race, gender, national origin, or other categories protected by law – when making these decisions. Before writing anything down, supervisors should consult with HR or their legal department.

Additionally, comments that relate to any of the protected categories must be scrupulously avoided. For example, comments, even positive comments, regarding age – such as “You’re only in your 40s--you can begin another career” can be used as evidence that the employee was terminated or laid off because of their age.

Layoffs are difficult for everyone involved, including those employees who are not laid off and remain at the organization. Many worry about the treatment of colleagues, as well as whether they will be next to be laid off. Ineffective communication from management will not only fuel inaccurate rumors, but also will negatively affect morale. Addressing the issue head-on is the best practice in this situation.

WHAT SHOULD OCCUR BEFORE THE TERMINATION OR LAYOFF MEETING?

Dealing with terminations and layoffs can be a daunting task, especially with the added pressures of increased scrutiny of budgets, revenues, and other financial concerns. The following checklist will assist in making sure terminations and layoffs are carefully thought out, making the separation legally defensible for the employer and paving as smooth a transition as possible for the departing employee under the circumstances.

Determine whether the employee will be given a severance package, and work with the legal department on the details/timing of such package.
Cut a final paycheck for the employee that includes all unused accrued vacation time. Be sure to include any earned commissions.
Be prepared to tell the employee how the organization will address the issue of health-care continuation.
Issue any outstanding expense reimbursements.
Notify the accounting department to remove the employee from payroll.
Determine which managers should know about the termination/layoff and notify them.
Decide who will conduct the termination/layoff meeting.
Schedule ample time between meetings. If you are having layoff meetings with individual employees, schedule at least a half an hour between meetings so people are not talking outside the office or bumping into each other when they may be upset after the meeting.
Choose someone to serve as the employee’s point of contact after the termination/layoff meeting.
Decide if you will have an exit interview with the employee and determine who will conduct it (if in person).
Determine whether the employee had access to confidential information and take steps to protect the information.
Create an action plan for distributing the employee’s current projects to coworkers and supervisors.
Decide who will handle reference calls from potential future employers and script the response.
Decide what you will tell the employee’s coworkers about the termination/layoff.
If you think the employee might be violent, consult with the legal department and security personnel for guidance.
Have the employee’s password, computer privileges, and phone turned off.
If your organization assigns parking spaces, remove the employee’s name from the list and reassign the space.
Cancel the employee’s corporate credit card and long-distance phone card (if applicable).
Collect all organization property, including confidential files, client lists, manuals, corporate credit card, car, laptop, cell phone, pager, keys, and building/security pass.
Remove the employee’s name from all organization lists (phone, email, interoffice mail, etc.). Identify someone to handle any mail that that is delivered for the employee.

Following this checklist can ensure the terminated employee leaves the workplace with outstanding questions resolved and that the employer can continue operations with minimal disruption to the workplace.

Back