It is no secret that recent reversals in many companies' economic fortunes have led to an increasing number of workforce reductions. Layoffs, however, will only enhance a company's efficiency if they are executed in accordance with applicable law. Indeed, a mishandled employment termination can lead to litigation, which may offset the benefits associated with a reduced workforce. From discrimination lawsuits brought by disgruntled employees to wage claims initiated by federal and state administrative agencies, the legal actions that emanate from employment terminations are difficult to defend and sure to undermine the morale of the surviving workforce. Employers contemplating layoffs, therefore, must be mindful of their legal obligations under a variety of federal and state laws. This is not necessarily an easy task. The laws regulating layoffs are significantly broader and more complex than many employers appreciate. For that reason, while some of the principal issues associated with employment terminations are discussed briefly below, employers should ordinarily seek guidance from legal counsel before laying off any portion of their workforce.
At-Will Employment
Despite the increasing number of statutes that govern the workforce, the bedrock principle of employment law remains the at-will doctrine, whereby an employee may be terminated for almost any reason and at any time. The first and most fundamental step toward terminating an employment relationship is to ensure - long before the layoff is even considered - that one's employees are employed on at at-will basis. This begins when employees are first hired. Indeed, employers should use offer letters that clearly state that the employment relationship is at-will and can be terminated at any time and for any reason by the employer and employee alike. Likewise, employers must ensure that no additional documents, such as non-competition agreements and employee manuals, or any other actions or representations jeopardize the employment-at-will relationship.
Discrimination Issues
An employment termination must be fully defensible in the event of a challenge under any of the various anti-discrimination statutes, including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and applicable state anti-discrimination law. Not surprisingly, the most effective means of achieving this objective is to carefully assess the grounds for the termination and, in particular in a reduction-in-force, the impact of the layoff. An employer must make certain not only that the reasons for the employment termination are non-discriminatory, but also that the impact of the layoff does not disproportionately affect a particular class of employees. Often this sort of review is most effectively performed with the assistance of counsel, as it allows most if not all of the documentation that is created to fall within the attorney-client privilege.
Workers Adjustment and Retraining Notification Act
Employers should allow sufficient lead time prior to instituting layoffs to comply with the federal Workers Adjustment and Retraining Notification Act ("WARN"). This statute requires employers with 100 or more employees to provide 60 days' notice to employees and governmental authorities in the event of a plant closing or mass layoff. Notification requirements under WARN can, in some circumstances, be triggered by a layoff of as few as 50 employees. There are certain exceptions to the advance notice requirement, as where a company suffers unforeseen business losses that do not allow for the full 60 days' notice. Yet employers should not be too aggressive in seeking a way out of their WARN obligations, as non-compliance can subject an employer to substantial liability.
As with many areas of employment law, states may have counterpart laws to WARN, which may vary, for example, in terms of the length of the notice period or the governmental authority that needs to be notified. Employment counsel can advise as to a specific jurisdiction's laws, if any, in this regard.
The Older Workers Benefit Protection Act
Many employers are unaware of their obligations under the federal Older Workers Benefit Protection Act ("OWBPA"), which applies to employers having at least 20 employees. OWBPA sets forth certain notification requirements in the event that an employer seeks a waiver or release from anyone at least 40 years old in connection with an individual termination of employment or an "exit incentive or employment termination program" ("Exit Incentive Program"). Specifically, employers conducting Exit Incentive Programs must provide affected employees with, among other things, information concerning the job titles and ages of all individuals eligible for the Exit Incentive Program. The details of this requirement are complex and, in many regards, open to some interpretation. Nevertheless, the failure to provide this information properly will jeopardize the enforceability of any release that the employer obtains from its employees, leaving the employer vulnerable to claims of age discrimination.
OWBPA further provides that releases must be carefully worded in order to effectively waive claims of age discrimination under the Age Discrimination in Employment Act. Generally, such releases must be drafted in such a way that they are easily understood, allowing an employee to waive any claims knowingly and voluntarily. To this end, a release of age discrimination claims must contain language confirming, among other things, that the employee has been advised to seek the assistance of an attorney. In the context of an individual termination of employment, an age discrimination release must also expressly state that the employee has up to 21 days to consider the release. In the context of an Exit Incentive Program, a release must also expressly state that the employee has at least 45 days to consider the release. In either case, the release must state that the employee has an additional 7 days after he or she executes it to revoke it. Compliance with these and other similar requirements is essential, for no employer wants to pay an employee severance, only to learn later that the release is defective.
Payment of Final Wages
Some employers are caught off-guard in terms of when to provide final pay to an employee whose employment is terminated, and what that final pay is to represent. Employers may be responsible for providing all final wages upon the employee's last day of employment, and for paying accrued and unused vacation time. Such is the case, for example, under the Massachusetts Payment of Wages Statute. Massachusetts employers should also be aware that, in most circumstances, they may not offset an employee's final pay by any amounts owed to the company by the employee, as this typically is considered a violation of the Payment of Wages Statute.
Continuation of Benefits under COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") provides that employers with 20 or more employees must afford laid-off employees the ability to continue coverage under their employer's group health plan, albeit at their own expense. Again, states may have comparable statutes applying to employers with fewer than 20 employees. For example, Massachusetts has a "mini-COBRA" statute that has similar requirements to COBRA for companies with fewer than 20 employees. Under both COBRA and the state mini-COBRA, employers must furnish terminated employees with a written notice explaining their rights and obligation under the law. Employees have 60 days within which to elect coverage. Generally, coverage continues for up to 18 months.
Some states require notification to laid off employees of their unemployment rights. For example, under Massachusetts law, employers must provide certain written documentation to terminated or laid-off employees concerning the procedure for applying for unemployment compensation benefits. Along with a final paycheck, such documentation should be provided to employees on their last day of employment.
Setting Expectations, Minimizing Surprise and Perception of Unfairness.
Invariably, it is the element of surprise and perception of unfairness that converts a departing employee into a litigious employee. Common sense and good business practice go a long way toward achieving this goal. For example, employers should be candid and truthful concerning performance reviews and avoid setting any expectations of job security. A poorly performing employee should not, absent extenuating circumstances, learn of his or her performance failures for the first time at the time his or her employment is terminated.
Conveying the Bad News.
On a final note, employers should develop a thoughtful, reliable plan for informing employees of the termination of their employment. When informing employees that their employment is being terminated, it is important, as with any performance review or disciplinary action, that two appropriate representatives of the employer meet with the employee. If there is any discussion during this meeting about the reasons for the employee's termination of employment, it is imperative that the employer describes the reasons truthfully and accurately. The failure to do so may make it difficult to defend the employment termination should the employee later bring a lawsuit.
In addition, as part of an exit interview, the employer should provide the departing employee with a copy of any non-competition, non-solicitation, confidentiality, and inventions agreement that was signed. The employer also needs to ensure that the employee returns all company property, such as a laptop, cell phone, and keys, as well as all confidential and proprietary information belonging to the company. Taken collectively, such actions will go a long way toward protecting the company's assets and discouraging the sort of dispute that could give rise to litigation.
Finally, an employer should consider whether the departing employee is likely to pose a threat of safety upon being informed of the employment termination. If so, employers should take appropriate steps. These steps include informing the employee of the employment termination in a conference room or workspace that is remote from the other employees and having a security guard present to escort the departing employee from the premises.
Ms. Sampson is a founding member of the Employment Practice Group at Lucash, Gesmer, & Updegrove, LLP, a law firm in Boston, Massachusetts, where she advises in such areas as employee hiring, firing, and classification, workplace policies and handbooks, medical and disability leave laws, discrimination and fair employment practices, including harassment prevention training, wages issues, executive compensation and benefits, and noncompetition, nondisclosure, and nonsolicitation agreements. Ms. Sampson also represents clients in employment litigation suits in federal and state courts, as well as before administrative agencies. She may be contacted via e-mail at: ssampson@lgu.com or by telephone at: 617-350-6800.
