Layoffs based on business necessity are permissible, but problems arise when an employer does not properly implement a layoff. Equally important to understand is how layoffs may affect existing or subsequent claims raised by other employees.

A. Follow A Two Step Process When Implementing A Layoff

1. Demonstrate Business Necessity  
Unfortunately (in a business sense), these days employers may find it far too easy to establish that a layoff is based on business necessity.  The need to reorganize or to reduce the number of employees due to a downturn in business should be well substantiated by internal company documentation.

2. Layoff Selection Process  
While there may exist clear and compelling business necessity to implement a reduction in force, the employer may face liability if it does not carefully analyze which employees are to be included in a layoff.  Courts have found that an employer was justified in implementing a reduction in force, but concluded that the selection of the actual employee(s) laid off  was motivated by an illegal reason such as the person’s age.  The employer should do the following to minimize the likelihood of such a claim:

a. Identify the list of employees being considered for a layoff (“Target Employees”) and document the business reasons why those particular individuals have been identified, such as lesser seniority, performance, relative skills of the employees and other reasonable business criteria.

b. If there are other employees in the same or similar positions who are not being laid off, the employer should document why the Target Employees are being considered for layoff while the others have not been selected.

c. If only some of the Target Employees are ultimately selected to be laid off, there should be documentation which expresses the company’s reasoning as to the selection of those actually laid off.

d. When the employer has identified those to lay off, an evaluation should be made as to whether the layoff affects a disproportionate number of employees in a “protected classification,” such as age, race, gender or other classification which may raise the issue of discrimination, harassment or retaliation.  For example, if 8 of the 10 employees to be laid off are over age 40, the employer must be able to clearly articulate and establish the legitimate business reasons why those particular employees were selected.  If there is a concern of being able to establish such business justification, the employer should reconsider those to be laid off. 

Also, keep in mind that if you are implementing a group layoff and are presenting the employees with a release of claims in return for a severance package, the release agreement proposed to employees over age 40 must include certain information about those being laid off and those employees who will not be impacted by the layoff. Additionally, if the layoff is part of a plant closing or mass layoff, the employer may be subject to the state and/or federal Worker Adjustment Retraining Notification Act which requires advance notice to employees of such a layoff.

B. How A Layoff Or Termination May Affect Other Employee Claims

The layoff or termination of an employee may have significant and unintended negative consequences to existing or future claims filed by other employees. An employer should consider the following when deciding to terminate or lay off an employee:

a. The departing employee may be an important witness in potential or existing litigation.  If so, it is critical for the company to apprise counsel of potential terminations or layoffs when such action is first contemplated.  Such employees may be hard to later track down, their memories may fade or they may become hostile to the company.

b. If a departing employee has relevant information regarding litigation, consider obtaining a declaration under penalty of perjury to memorialize the employee’s knowledge before it becomes faded or the employee becomes hostile to the company.  If the departing employee is being offered a severance agreement, consideration should be given to tying any installment payments to the departed employee’s continued cooperation in any litigation or potential litigation.

c. Implement safeguards to ensure that the departing employee’s e-mails, to the extent potentially relevant in litigation or potential litigation, are not deleted.  The company should issue an internal records hold notice to identify files and electronic documents which are not to be deleted.  Such a records hold notice should be periodically reissued within the company to account for new hires while such litigation is pending or threatened.

d. Obtain from the departing employee information as to where important files or e-mails may be located.  Advise the departing employee to not delete any e-mails, discard any documents or remove anything from the company’s premises.