Tips for Planning Reductions in Force
November 17, 2008
We know that the recent financial crisis and related economic downturn unfortunately are causing many employers to consider ways to reduce operational expenses, including through workforce restructuring and layoffs. We offer a few preliminary considerations: any such reduction-in-force (RIF) must be carefully planned and executed both to minimize exposure to liability under various employment laws and to mitigate negative effects on employee morale and operations. The following are some issues for employers to consider as they grapple with whether and how to implement a layoff.
- Is a Layoff Necessary?
- Voluntary or Involuntary Program?
- Develop Uniform Selection Criteria
- Conduct a Layoff Analysis
- Is Advance Notice Required
- Severance and ERISA
- Asking for a Release
- Don't Forget Immigration Implications
- Don't Lose Sight of Termination Basics
Is a Layoff Necessary?
An important threshold question is whether a layoff is even necessary or appropriate. The typical objective in a layoff is to reduce expenses through the paring down of payroll and benefits related costs. Such cost savings may make a RIF attractive, but large-scale reductions also entail substantial costs, both in upfront severance-related compensation, and in longer-term, often hidden costs, such as legal expenses associated with claims by terminated employees, attrition of valued employees, and downstream costs of hiring again when economic circumstances improve.
Alternative methods to achieving expense reductions should be considered before a RIF is implemented. Are there other reductions in expenses that can accomplish the same goal without hampering the company’s future ability to compete? Such alternatives can include hiring freezes, wage freezes, postponement of wage increases, reduction or elimination of annual bonuses, reduction in fringe benefits, reduced work hours, transferring potentially affected employees to open or vacant positions, and engaging in more selective performance-based terminations.
Download the Foley Hoag Tips for Planning Reductions in Force eBook (.pdf)