For employers, one of the consequences of the current downturn in the economy is having to deal with layoffs and reductions in force as well as terminations, downsizing, and reorganization. So, what are the differences?
A layoff usually involves releasing people for a period of time with the possibility of recall. In most cases, however, the date the employees will be recalled is not known. A laid-off worker does not lose his or her seniority or length of service credit. Some layoff situations involve a combination of both seniority and length of service credit. It is not unusual for employees with little service credit (such as under six months) to be let go permanently, while employees with longer credit are eligible for recall. Generally, the job positions remain in existence and in the budget, but are simply left vacant.
Generally speaking, a reduction in force (RIF) is of a more permanent nature than a layoff. A RIF generally means that the employees are being let go with no prospect of being reinstated at any time in the foreseeable future.
In downsizings or reorganizations, job positions are actually eliminated and thus the persons occupying the positions are released from employment. In each of these situations per company policy or union agreement, the employees losing their jobs may be able to "bump" into other jobs based on seniority. There are several legal loopholes for employers who are "rightsizing."
Worker Adjustment and Retraining Notification Act (WARN)
No matter whether there is a layoff, reduction in force, or a reorganization, the employer must make sure that its action does not trigger the Worker Adjustment and Retraining Notification Act (WARN). This act requires employers to provide 60-day advance written notice to employees and local governments of 1) a permanent or temporary business closing affecting 50 or more employees; or 2) a "mass layoff" as defined by the Act, affecting at least 33 percent of the employees and at least 50 employees at a single site of employment during any 30 day period. If the employer fails to provide the notice, the employer faces substantial penalties, including back pay and benefits to each aggrieved employee for each day of the violation, up to 60 days, as well as a civil penalty of up to $500 per day.
Are You a WARN Act employer?
To be covered by the WARN Act, the employer:
- Must employ 100 or more employees (excluding part-time employees), or,
- Must employ 100 or more employees who, in the aggregate, work at least 4000 hours per week (exclusive of overtime).
- Subsidiaries are treated as separate employers or as part of parent companies, depending on the degree of their independence.
- In counting employees, those at all of the employer's sites are included, not simply the ones at the affected site; employees on leave status or on temporary layoff who have a reasonable expectation of returning are also counted.
The WARN Act cannot be avoided by laying off smaller groups of employees over a period of longer than 30 days. There is a 90-day aggregation rule. That means the employer must determine how many employees were laid off over the past 90 days.If the number of laid-off employees is over 50, WARN applies.
What is a "Mass Layoff"?
In order to be a "mass layoff" under the Act there must be a reduction in force, not the result of a plant closing, that:
- Results in "employment loss" at a "single site of employment";
- "Employment Loss" means termination (other than for cause, voluntary departure, or retirement); a layoff exceeding six months; or a reduction in hours of work of more than 50 percent during each month of any 6-month period.
- "Single Site of Employment" means either a single location or a group of contiguous locations.
- Occurs during a 30-day period; and
- Affects:
- at least 33 percent of the employees (excluding part-time employees) and at least 50 employees (excluding part-time employees);
or
- at least 500 employees (excluding part-time employees).
Who Gets Notice?
The employer is required to provide notice to any union, each affected employee not represented by a union, the State dislocated worker unit, and the chief elected official in the unit of local government where the closing or layoff is to occur (i.e. the City and/or the County).
Exceptions to the WARN Act
WARN does not apply to the completion of a particular project where the affected employees were hired with the understanding that their employment was limited to the duration of the facility or project. It also does not apply to strikes or lockouts.
The notice period may be reduced if the company is a "faltering company," meaning the employer who is "actively seeking capital or business" that could avoid or postpone the shutdown need not give the full 60-day notice if the employer "reasonably and in good faith" believes that giving the notice would preclude obtaining the needed capital.
The notice period may also be shortened under the "emergency" exception. This means an employer need not give the full notice if the plant closing or mass layoff is caused by "business circumstances that were not reasonably foreseeable" when the notice would have been required.
If you suspect that you may need to undertake layoffs or a reduction in force, be sure to check with legal counsel to make sure you have met all the criteria required by the WARN Act.
The Older Workers Benefit Protection Act (OWBPA)
Many employers decide that they wish to accomplish downsizing by using early retirement programs or by offering severance pay. Programs that pay a worker extra money to leave employment generally require the departing employee to release any right to sue the employer. This is a common precaution used by many employers.
However, any employee over 40 cannot give a full release of claims (i.e. a promise to never sue the employer for employment issues, including termination) for an age discrimination lawsuit without the release meeting stringent legal requirements as outlined in the Older Worker's Benefit Protection Act (OWBPA).
If the layoff or reduction in force involves only a single employee, and that employee happens to be over 40, the release must contain specified wording and timelines. If more than one employee is being fired or laid off, a valid release must contain other requirements, different wording than the individual release, and different timelines. If any of the required language is missing, the release is invalid, and the terminated employee can still sue the employer for age discrimination.
The OWBPA is a complex statute, and legal counsel should be involved in designing and implementing any downsizing program.