Quick Hits

• Documenting both the business reasons for a RIF and the objective criteria used to select employees for termination is crucial to mitigating the risk of discrimination claims and other legal challenges.
• Employers may want to note the various federal and state legal requirements, such as the WARN Act and any applicable mini-WARN acts when planning and executing a RIF.

According to recent figures released by the U.S. Bureau of Labor Statistics, the U.S. economy added 254,000 jobs in September 2024 as the unemployment rate dropped to 4.1 percent from 4.2 percent. Also, in September, the Federal Reserve cut its interest rate for the first time in more than four years in an effort to keep the U.S. job market strong while continuing to fight inflation.

Still, concerns over the economy remain. Several companies have announced RIFs in recent weeks and more could be potentially on the horizon. RIFs are challenging for employers and employees alike and can often lead to discrimination claims or other legal challenges.

Here are five considerations for employers to reduce potential liability.

1. Contemplating Business Reasons

One of the primary employer considerations when planning a RIF is the business reason behind the reduction. Having a clear understanding is important, as the business rationale will guide which employees are selected to be part of the reduction and which remain. Whether the goal is to reduce salary expenditures, eliminate positions due to lost contracts, or outsource entire departments, human resources (HR) professionals and legal teams may want to be sure they understand those business needs and align their strategies with them.

2. Using Objective Selection Criteria

Employers may want to establish objective selection criteria to determine which employees will be affected by the RIF to help mitigate risks of discrimination claims or other legal challenges. Such objective criteria can include, among others, length of service, RIF-specific performance ratings, or elimination of specific job functions. If employers take the direction of performance-based terminations, employers may want to further look at annual performance reviews going back a few years to ensure those reviews are not inconsistent with the performance ratings used for the RIF to avoid potential discrimination claims or challenges from selected employees.

3. Documenting Business Reasons

Additionally, employers may want to consider documenting the business reasons and selection criteria for internal clarity and to withstand legal scrutiny. Employers that involve legal counsel may be able to protect advice and counseling related to such information under attorney-client privilege. However, ultimately, such documentation can also be pivotal evidence if the RIF decisions are challenged in court.

4. Following Severance Plans and Policies

Employers with existing severance policies or plans, especially those governed by the Employee Retirement Income Security Act (ERISA), should follow these policies meticulously. A formal severance plan can simplify the process for HR professionals and provide clear guidelines on eligibility and benefits. ERISA plans, in particular, offer advantages such as federal preemption, which can facilitate more favorable legal proceedings. Further, employers with set RIF/severance policies, or policies set forth in collective bargaining agreements governing selection criteria, may want to pay close attention to following those policies.

5. Understanding Federal and State Legal Considerations

Employers undertaking RIFs may want to note the various federal and state legal requirements, including the following:

• WARN Act. The Worker Adjustment and Retraining Notification (WARN) Act is a federal statute generally requiring employers to provide sixty days’ notice before plant closings and mass layoffs. Compliance with the WARN Act involves specific notification requirements to employees, union representatives, state dislocated worker units, and local government officials. Determining whether the WARN Act applies, especially to remote employees, involves a detailed analysis of where employees report and their work locations.
• Mini-WARN Acts. In addition to federal requirements, many states and even some cities have their own “mini-WARN” acts, which may have different thresholds and notice requirements. For example, some states have lower employee-count thresholds that trigger WARN notices, and states like New Jersey have specific severance pay requirements. Employers will want to stay informed of these varying regulations to ensure compliance.
• ADEA. The Age Discrimination in Employment Act (ADEA) imposes specific requirements on employers discharging employees over the age of forty, including a forty-five-day consideration period and a seven-day revocation period for a proper release of claims under the ADEA. Employers must also include specific disclosure requirements about the decisional unit, eligibility criteria, selection criteria, and the ages and titles of both discharged and retained employees.
• Additional State-Specific Requirements. State laws may impose additional requirements on release agreements, such as specific language, timeframes for consideration and revocation, and other provisions. Employers must be vigilant about these varying state requirements to ensure their release agreements are enforceable.