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Reductions in Force: Some High-Level Issues To Consider
Thursday, March 2, 2023

As the country continues to navigate an economic downturn and employers discuss the possibility of reducing their workforce, employers should be aware that there are several layers to conducting a reduction in force, including potential additional disclosures, extended consideration periods and advance notice requirements.  Below is a high-level reminder of some issues companies should consider when preparing for a reduction in force.

1.  Evaluate the Decisional Unit

If an employer is considering a reduction in force, the company should first evaluate the potential decisional unit. This decision is generally driven by the business needs and/or the current state of the business, which is driving the decision to conduct a reduction in force. Will the company consider all employees in the reduction in force? Or will the company only consider certain departments for example? The decisional unit is generally a business decision, but employers should be cognizant of the fact that a focused and organized approach prepares a company for a smooth transitional period and is more likely to ensure compliance.

When evaluating the decisional unit, the company should also be mindful of the reason for certain employees’ selection in the reduction in force. Is a position or are positions being eliminated altogether? Is an entire department being eliminated?

When making these decisions, employers should always be careful to ensure the reduction in force selections are made on a non-discriminatory and non-retaliatory basis.

Employers should also review severance pay obligations, incentive, and equity compensation arrangements, etc. that may impact an employee who is ultimately selected for a reduction in force.

2.  Prepare OWBPA Disclosures

If employees who are 40 or older are included in the reduction in force, the release agreement for those employees must include certain Older Workers Benefits Protection Act (OWBPA) disclosures.  Generally, a company must include a description of the decisional unit, the reason for selection, a list of the job titles and ages of all employees selected for the reduction in force, and a list of the job titles and ages of all employees who were considered but not ultimately selected.

3.  Lengthen the Consideration Time for Employees 40 or Older

In addition to the OWBPA disclosures, employees who are 40 or older must be given forty-five (45) days to consider the release. This time period should be included in the release language that intends to ensure the employee is knowingly and voluntarily waiving certain claims.

4.  WARN Considerations (Federal and State)

Apart from the ADEA and OWBPA requirements, employers should also be mindful of federal Worker Adjustment and Retraining Notification Act (WARN) implications.  If a company meets the thresholds and the reduction in force constitutes an “employment loss” for 50 or more employees at a single site of employment (as defined by the WARN Act), companies may have to prepare certain advance notices.

To make matters more complex, there are also “mini-WARN acts” in some states. Employers should evaluate where employees are located and ensure the company abides by all federal and state requirements for reductions in force.

There are other implications and considerations employers should take into account, but the above points should serve as a reminder that reductions in force are complicated and require legal analysis to ensure compliance with federal, state, and local laws as well as contractual arrangements with employees.

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