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Planning and Implementing a Reduction in Force

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Planning and Implementing a Reduction in Force: Critical Issues; Key Decisions; and Process

Prepared and Presented by: Jeffrey B. Oberman

PLANNING AND IMPLEMENTING A REDUCTION IN FORCE:
CRITICAL ISSUES; KEY DECISIONS; AND PROCESS

Presented By

Jeffrey B. Oberman

I.                   INTRODUCTION

At some point, your company may need to consider a workforce reduction (“reduction in force” or “RIF”) in order to contain labor costs and maintain efficiency.  Typically, these decisions are based on economic or market factors; companies are deciding to “down size” portions of their work force, and even to eliminate entire working units.  Developing a cohesive and supportable workforce reduction plan is essential to control the process and the outcome.  This article will outline the planning process and highlight the critical issues and decisions that companies ought to consider and make when designing and implementing reductions in force.

II.                LEGAL ISSUES

A. WARN ACT.

1. Well before any work force reduction is implemented, determine whether your tentative plans implicate an obligation to provide advanced, formal notification under the Worker Adjustment and Retraining Notification Act (“WARN Act”) or similar state statutes.  See 29 U.S.C. § 2101-09

2.   To determine your WARN Act obligations, you will need the following data and information:

a.  The total number of full-time employees at the facility as of the date separations are scheduled to begin (“full-time” means employees who work more than 20 hours per week and have been employed for more than 6 of the preceding 12 months).  WARN applies to businesses that employ at least 100 employees (excluding part-time employees) or 100 or more employees who in the aggregate work at least 4,000 hours per week (excluding overtime).

b. The number of full-time employees who will be separated from employment because of the work force reductions, and the expected date(s) of their separations.

c.                   The total number of full-time employees at the facility as of 30 days and 90 days prior to any employment separations.

d. The number of full-time employees who have been involuntarily separated from employment during the last 30 days and also during the last 90 days.

e.  Identify all employees (whether part-time or temporary) and all contract employees (regardless whether they are employed by an outside service) who may be affected by your tentative plans.

f.  In addition, begin to develop a list of job titles of positions that may be affected by your plans, the number of employees in each position, and the name of each employee currently working in each position (you will need these lists as attachments to any WARN notices).

3.  Once you have gathered the above information, you will need to plug it into your WARN analysis.

a.  Evaluate all potential exclusions and exemptions under WARN.

b.  If notice is required, prepare notices.  The Department of Labor estimates that, on average, it takes 120 hours to evaluate your WARN obligations and prepare and deliver notices.

c.  Deliver notices, if possible, at least 65 days in advance of the beginning of any employment separations (WARN requires 60 days advance notice, measured from date of receipt). Whenever possible, hand-deliver notices.  Posting notices is insufficient; all required parties must receive a copy of the notice.  Notice must also be delivered to the State and the chief elected official of the unit of local government where the closing or layoff will take place.

d.                  Carefully monitor dates of employment separations.  If postponements are necessary, you must issue “supplemental” and/or “new” WARN notices.

B. STATE PLANT CLOSURE AND MASS LAYOFF STATUTES.

1.  General Rule. Under Minnesota state law, employers considering a decision to institute a plant closing, substantial layoff, or relocation of operations located in this state are encouraged to give notice of that decision as early as possible to the Commissioner of Economic Security, the affected employees, the affected employees’ representative, if any, and the local government unit in which the affected establishment is located.  Minn. Stat. § 116L.976.  See the Minnesota Department of Employment and Economic Development’s (“DEED”) website (http://www.deed.state.mn.us/dw/PlantClosings.htm), which explains the services that its Rapid Response Team can provide to employers and dislocated workers.

2. Definitions.

a.  “Substantial layoff” means a permanent reduction in the work force, which is not a result of a plant closing, and which results in an employment loss at a single site of employment during any 30-day period for at least 50 employees, excluding those employees that work less than 20 hours a week.  Minn. Stat. § 116L.17, subd. 4(f).

b.  “Plant closing” means the announced or actual permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment, if the shutdown results in an employment loss at the single site of employment during any 30-day period for 50 or more employees, excluding employees who work less than 20 hours per week.  Minn. Stat. § 116L.976, subd. 1(b).

3.  Differs from WARN Act. The Minnesota law differs from WARN in that it applies when 50 employees are affected, but does not require that these 50 employees also constitute 33 percent of the workforce at the site of employment.  Further, the Minnesota statute does not provide for any penalties for non-compliance.

4.  What the Notice Must Contain. An employer providing notice under this statute, or the federal WARN Act, must report to the Commissioner of Economic Security the names, addresses, and occupations of the employees who will be or have been terminated.  Minn. Stat. § 116L.976, subd. 2.

5. Penalty. There is no penalty for failing to comply with this statute.  The statute is aimed at easing the impact of potential plant closings and substantial layoffs on the employer, the dislocated worker, and the affected community.  While compliance is not required, the Commissioner of Economic Security may contact the employer and request the information.  If this occurs, it is recommended that you provide the information.

C. USERRA

1.         General Rule. The Uniformed Services Employment and Reemployment Rights Act (“USERRA”) protects the employment and reemployment rights of any employee who serves in the U.S. armed forces.  38 U.S.C. 4301 et. seq. The law requires employers to reinstate returning armed services members to the job that they would have attained had they not been serving in the military with the same seniority, pay, status and other benefits.  An employer is not obligated to reinstate a veteran or reservist if the employer can show that “circumstances have so changed as to make such reemployment impossible or unreasonable…or such employment would impose an undue hardship on the employer.”

D. COLLECTIVE BARGAINING AGREEMENTS.

1. At the beginning of the reduction or shutdown process, identify all provisions which may, in any way, relate to the reductions or shutdown.

2.                  Pay close attention to the following:

a.                   Work preservation laws.

b.                  Seniority and order of layoff provisions.

c.                   Subcontracting restrictions.

d.                  Notice provisions.

e.                   Arbitration provisions and status quo agreements.

3.  Many contracts expressly provide that the status quo be maintained pending arbitration of whether a plant closing is contractually permissible. Even without this provision, a union may be able to enjoin a company from effectuating a plant closing pending arbitration. Plan in advance for such action and seek advice of counsel.

E. NATIONAL LABOR RELATIONS ACT.

1.                  Bargaining over the Decision

a.                   At the beginning of the shutdown or reduction process, even before announcing a “tentative” decision, you must determine whether you have an obligation to bargain over the decision with the Union under 8(a)(5) of the National Labor Relations Act, (“NLRA”), 29 U.S.C. § 151 et seq.

b.                  To engage in decision bargaining, the Company must go through the following steps:

(i)                 Advise the Union of tentative decision.

(ii)               Give the Union opportunity to request bargaining (during which time Union can propose alternatives).

(iii)             Formulate a final decision.

(iv)             Implement final decision.

c.                   Expect union requests for information after you announce tentative decision. The Union has a right to such “relevant” information or documents that may be reasonably necessary to understand and intelligently discuss the decision being addressed.

2.                  Effects Bargaining

a.                   Regardless of your obligations to bargain over the decision, the Union must generally be given an opportunity to bargain over the “effects” of a reduction and/or shutdown decision.

b.                  To satisfy effects bargaining obligations, an employer must follow these guidelines:

(i)                 Give reasonable advance notice prior to implementation of a decision.

(ii)               Reasonable advance notice means time enough to allow “meaningful discussion” regarding the effects of the decision.

(iii)             The Union must request effects bargaining (the right to bargain can be waived if the Union fails to request bargaining over the effects).

(iv)             The employer cannot present the Union with a fait accompli.

c.                   When an employer fails to effects bargain, the remedy is generally an order to “effects bargain” as well as employee reinstatement (if possible) with limited back pay. Restoration of status quo is generally not required.

d.                  If WARN Act notice is required, it is permissible to contemporaneously provide the Union with the opportunity to bargain over the effects of the decision to close the plant or restructure and reduce the workforce.

3.                  Waiver

a.                   A union may “waive” its right to bargain. Waivers include:

(i)                 Express statements in collective bargaining agreements.

(i)                 Past waiver conduct of the parties.

(ii)               Union inaction or failure to demand bargaining.

b.         An employer cannot rely too heavily on waivers. They must be “clearly and unmistakably established.”

4.                  Union Discrimination.  Section 8(a)(3) of the NLRA prohibits an employer from making decisions motivated by an “anti-union purpose.”  29 U.S.C. § 158(a). Make sure that workforce reductions and plant closings are not motivated by anti-union purposes.  Avoid anti-union remarks in bargaining, correspondence, internal memoranda and all communications.

F. ANTI-DISCRIMINATION LAWS.

1.                  Federal Anti-Discrimination Statutes. The following federal anti-discrimination statutes apply to RIFs:

a.                   Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of race, color, religion, sex, and national origin.  42 U.S.C. § 2000e et seq.

b.                  The Age Discrimination in Employment Act (“ADEA”) protects employees age 40 and over.  29 U.S.C. § 621 et seq.

c.                   The National Labor Relations Act (“NLRA”) protects against discrimination on the basis of Union membership.  29 U.S.C. § 151 et seq.

d.                  The Rehabilitation Act of 1973, which applies to federal contractors, protects qualified individuals with a disability.  29 U.S.C. § 701 et seq.

e.                   The Americans With Disabilities Act (“ADA”) protects qualified individuals with a disability.  42 U.S.C. § 12101 et seq.

2.                  State and Local Statutes. A myriad of state and local statutes not only mirror protections under the federal statutes, but also go beyond federal protections.  These state and local statutes, therefore, also must be consulted.  The Minnesota Human Rights Act (“MHRA”) prohibits discrimination on the basis of race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, disability, sexual orientation, or age.  Minn. Stat. 363A.08.  The MHRA, Minnesota Whistleblower Law and Minnesota Workers’ Compensation law all protect against retaliation.  Under the MHRA, an employer engages in unlawful retaliation if it takes an adverse employment action against the employee because he/she filed a discrimination charge or lawsuit, or participated in an investigation.  Under the Whistleblower Law, an employer may not take adverse action against an employee who, in good faith, reports a violation (or suspected violation) of any federal or state law or rule.  Under the Workers’ Compensation law, an employer may not retaliate against an employee who files a workers’ compensation claim.

3.                  Class action potential.  If workforce reduction intentionally or unintentionally impacts protected classes, then an employer might be at risk for liability to an entire class of employees.  During a RIF, be aware of:

a.                   A disproportionate number of employees subject to the RIF who are over age 40.

b.                  Intentional discrimination.

c.                   Disparate Impact. A “disparate impact” on protected classes is prohibited, even if it is not intentional.  A disparate impact arises from significant statistical disparities between retention rates for individuals in protected and non-protected classes.

4.                  Individual Claims.  Employees subjected to a RIF may file claims against the employer, such as:

a.                   Discrimination:  Intentional or Disparate Impact.

b.                  Contract claims, particularly due to oral promises and handbook or other policy language.

c.                   Public policy, whistleblower and retaliation claims.

d.                  Claims that the RIF was a “pretext” to cover up an illegally motivated termination.

e.                   ADA, FMLA, workers’ compensation issues.  Are there employees on leave who will be affected?

5.                  Company Policies. Prior to implementing an RIF, review the following materials to ensure that your plans follow stated Company procedures:

a.                   Review all Company policies, bulletins, handbooks, distributions, benefit plans, etc. to ensure that there are no inadvertent references to protected characteristics.

b.                  Review the same to determine if you have any actual or “implied” contractual commitments.

c.                   Review any affirmative action policies or plans (if applicable).

G. FMLA

1.                  General Rule. The Family and Medical Leave Act (“FMLA”) provides an entitlement of up to 12 weeks of job-protected, unpaid leave during any 12-month period to eligible, covered employees for the following reasons: 1) birth and care of the eligible employee’s child, or placement for adoption or foster care of a child with the employee; 2) care of an immediate family member (spouse, child, parent) who has a serious health condition; or 3) care of the employee’s own serious health condition. It also requires that employee’s group health benefits be maintained during the leave.  29 U.S.C. § 2612.  The U.S. Department of Labor’s FMLA website provides many tools and resources for employers to use in complying with the FMLA.  See http://www.dol.gov/compliance/laws/comp-fmla.htm.

 

2.                  Exceptions. In addition to denying reinstatement in certain circumstances to “key” employees, employers are not required to continue FMLA benefits or reinstate employees who would have been laid off or otherwise had their employment terminated (had they continued to work instead of taking FMLA leave), for example, due to a general layoff.

H. PREEXISTING DUTIES TO PROVIDE BENEFIT PAYMENTS/INSURANCE CONTINUATION.

1.   Determine the source of any duties to provide benefit payments to employees.  These payments may include the following:

a.                   Severance pay;

b.                  Accrued vacation;

c.                   Earned sick and/or personal days; and

d.                  Accrued bonuses and/or commissions.

2.                  Sources to review include:

a.                   Personnel policies and employee handbooks;

b.                  Individual employment contracts;

c.                   State statutes; and

d.                  Collective bargaining agreements.

3.                  Many states require the payment of “accrued vacation pay” and, in some cases, other “accrued” benefits (i.e., sick pay, holiday pay, bonuses/commission) by statute or case law.  Careful attention should be given to the law in your state.

4.                  Some states and territories have enacted legislation to provide certain “severance benefits” in the event of either a “plant closing,” “relocation” or the sale of a business.  Check your state law carefully to determine whether such obligations exist.

5.                  The federal Consolidated Omnibus Budget Reconciliation Act (“COBRA”) applies in all states.  26 U.S.C. § 4980B.  COBRA requires employees to provide continued coverage under group medical, dental and other health care plans, for previously covered employees and dependents.   Terminated employees and their dependents must be given notices regarding their opportunity to purchase continued coverage up to 18 or 36 months after the layoff or termination, at a cost of up to 102% of applicable group rate.  In Minnesota, similar insurance continuation obligations are required with respect to life insurance.  Minn. Stat. § 62A.17.

6.                  Different COBRA notice rules apply depending on whether health care benefits are provided by multi-employer funds under a union contract, or company-sponsored group health care plans.  Generally, employers must notify plan administrators within 30 days of a layoff or termination.

I.                   ERISA AND PENSION PLANS.

1.                  Identify all pension, profit sharing or retirement plans in effect at the facility well before implementation of the RIF.

2.                  If the RIF or plant closing will cause a partial or complete termination of any of these plans, serious consequences are implicated under the federal Employee Retirement Income Security Act (“ERISA”).  29 U.S.C. § 1001 et seq. These consequences include, but are not limited to, potential withdrawal liability where the Company has been participating in multi-employer retirement plans.

3.                  Consult an employee benefits counsel immediately if your plans implicate ERISA covered pension, profit sharing or retirement programs.

III. DEVELOPING YOUR WORKFORCE REDUCTION PLAN

A.                VOLUNTARY REDUCTIONS.

1.                  Consider Voluntary Reductions.

a.                   Voluntary reductions are legally safer than involuntary reductions, but you will lose ability to control the selection process.

b.                  Consider early retirement plans or other voluntary severance packages.

2.                  Severance, Early Retirement and Benefits. Determine terms and conditions of severance, early retirement packages, benefits and related needs.

a.                   Decide whether to prepare a formal, written ERISA plan.

b.                  Make necessary amendments to benefit plans and insurance documents.

c.                   Plan ahead to facilitate the passage of required board resolutions.

d.                  Tie these to an effective release of claims.

3.                  Necessary Disclosures.

a.                   Ensure that every eligible employee receives full disclosure regarding the benefits being offered and any conditions for receiving the enhanced benefits.

b.                  Avoid making future promises, as you may need to make involuntary reductions if an insufficient number of employees self-select.

c.                   Take steps to assure that the plans are truly voluntary, without any direct or indirect coercion or other pressures.  Set up systems to assure there is no such pressure; to assure that any such pressure is reported and dealt with; and to assure that all employees are well informed pursuant to various laws.

d.                  Create all related documentation and election forms.

e.                   Assure that any releases satisfy the Older Workers’ Benefit Protection Act (“OWBPA”).  29 C.F.R. § 1625.22.

B.                 INVOLUNTARY REDUCTIONS.

1.                  Severance, Early Retirement and Benefits. Determine the terms and conditions of severance, early retirement packages, benefits and related needs.

a.                   Decide whether to prepare a formal, written ERISA plan.

b.                  Make any necessary amendments to benefit plans and insurance documents.

c.                   Plan ahead to facilitate the passage of required board resolutions.

d.                  Tie these to an effective release of claims.

2.                  Plan Involuntary Workforce Reductions.

a.                   Define explicit business objectives and selection criteria.

b.                  Identify objective evidence of business declines or other needs to justify objectives, such as reduced profits, reduced market share, reduced business, excessive costs, need to reduce production, abandoning line of business, closing facilities, combining departments or functions, restructuring, delayering, etc.

c.                   Analyze Pre-RIF Work Force.

i.                    Review the current organizational charts. Assure that they are accurate.  If not, identify and correct errors.

ii.                  Perform EEO (equal employment opportunity) analysis of the current organization.  Review the overall statistics and also review the statistics by various subcategories (e.g., departments, job categories, skill levels, etc.).

iii.                As required by OWBPA, determine the “decisional unit,” defined by EEOC regulations as “that portion of the employer’s organizational structure from which the employer chose the persons who would be offered consideration for the signing of the waiver.  29 C.F.R. § 1625.22(f)(3)(i)(B).

iv.                If delayering, know which manager performs which jobs, who reports to whom, and various flaws with current structure, etc.

d.                  Determine the post-RIF structure and tie this to business objectives.

e.                   If the RIF is not a result of a plant closure, create a new organizational chart, and show how it will accomplish the desired needs.  Focus on jobs and not people, justify all job changes, additions, eliminations, etc., and clearly tie any decision to new business objectives.

f.                   If creating new jobs, create new job descriptions.

g.                  Be sure any reallocation (i.e., transfer of people from one area to another) does not create an inference of discrimination.

h.                  Assure that the new organizational structure, and all decisions relating to it, tie directly to the overall business purpose of the underlying reduction in force.

i.                    LAST:  Select Individual Employees for Termination.

i.                    Be sure the method to select employees for departure is objective, and use a standard methodology.

ii.                  Analyze jobs, not people, if at all possible.

iii.                Be sure the job is not needed (i.e., that you will not need to quickly rehire somebody to perform those duties).

iv.                Decide whether all selected individuals will be laid off, or if some will be given an opportunity to ‘bump’ lower ranked employees.

v.                  Try to base decisions on purely objective criteria, such as length of service, or other objective data.

vi.                If possible, avoid using past evaluations.  These can be subjective and inconsistent from manager to manager, may not tie to the new business objectives, may not tie to the new company needs, and an RIF is not usually supposed to be based on individual performance.

vii.              If possible, avoid making decisions based on individual performance.  If you must view performance, measure your employees’ skills against new jobs and new structures, rather than past performance.  If using performance, consider creating an evaluation form used by all persons in the selection process.  Have managers/supervisors rank people in different categories, and explain their rankings based on legal and supportable reasons.  Compile results, and compare how different managers do the ranking.  (Note:  Remember that documentation could become a trial exhibit in any challenge to the RIF, so be sure that all documentation is designed to be comprehensible to a judge and/or jury.)

3.                  Review Impact Before Final Implementation.  Your Human Resources and Legal departments should confirm that all criteria were objectively applied.  Further, they should conduct an EEO analysis to determine whether protected classes have been disproportionately impacted.

C.                 ADVERSE IMPACT ANALYSIS

1.                  80 Percent Rule. The Equal Employment Opportunity Commission (EEOC) uses a “four-fifths rule” (or 80 percent rule) to analyze whether an adverse impact exists in employment decisions, such as during a RIF.  29 C.F.R. § 1607.4(D).  A selection rate for any protected group that is less than 80 percent of the rate for the group with the highest rate will generally be regarded as evidence of an adverse impact.  “Selection Rate” means the percentage of employees in a protected group (i.e., females) selected for termination due to a RIF.  The EEOC looks to factors such as population size, whether the differences are based on small numbers and are therefore not statistically significant, or whether special programs cause the pool of minority of female employees to be atypical of the normal pool of employees from that group.  The presence of adverse impact does not, in and of itself, make a selection system illegal.  Rather, a finding of adverse impact gives rise to a prima facie case, or a presumption of discrimination.

2.                  Two Standard Deviation Rule. The U.S. Supreme Court has held that when an employer’s selection of a protected group to be terminated in a RIF is more than two standard deviations below that of other similarly situated employees, there is “substantial reason, based on the statistical manifestations of the net effect of employers’ practices, to believe that employer has violated Title VII on a continuing basis.”  Teamsters v. U.S., 431 U.S. 324, 336 (1977).  The use of the two standard deviation rule is based on a probability analysis – it measures the rate of selection of employees from the protected group and non-protected group.

3.         Conducting the Adverse Impact Analysis. After the individuals subject to the RIF are identified, the employer should conduct an adverse impact analysis for selections based on race, gender and age using both tests discussed above.  Employers should consider having statistical analyses conducted by counsel for the purpose of obtaining legal advice about a possibly presumption of discrimination; that analyses will be protected by attorney-client privilege.

D. PREPARE ALL WORKFORCE REDUCTION DOCUMENTS.

Create the following documents:

1.                  Notice to participants.  Notice should include general reasons for downsizing, selection criteria, requirement of release and high-level review of benefits being offered.

2.                  Written fact sheet with answers to frequently asked questions.

3.                  Election forms.

4.                  Formal ERISA plan and summary plan descriptions.

5.                  Release of claims agreements, pursuant to OWBPA.

6.                  OWBPA disclosures.

7.                  Instructions and scripts for managers and supervisors.

E.                 RELEASES AND WAIVERS/OLDER WORKERS’ BENEFIT PROTECTION ACT (“OWBPA”)

1.                  Consider having each employee release any legal claims as a condition to receiving enhanced benefits as part of the RIF plan.

2.                  Releases are typically structured so that employees are offered early retirement incentives, severance pay packages and/or some form of additional compensation in exchange for a release of claims.  Early in the planning process, consider the availability of funds to finance incentive or extra severance payments.

3.                  Release and waiver programs, whether voluntary or involuntary, may be deemed to be “welfare plans” under ERISA.  Thus, an employer may have to follow certain ERISA disclosure and reporting requirements prior to the implementation of such a program. (Note:  ERISA requires the creation and dissemination of a “summary plan description” and the designation of a plan administrator who has certain “fiduciary” responsibilities with regard to the program.)

4.                  For a signed release to be a valid waiver of an employee’s age discrimination claims under ADEA, it must comply with the requirements of OWBPA, and must be signed “knowing and voluntarily” by the employee:

a.                   OWBPA provides for certain time periods that an employee must be given to consider the waiver and to discuss the waiver with an attorney.  In the case of most separation programs offered to a group of employees (i.e. two or more) an employee must be given 45 days to consider the waiver.  “Material” changes to the offer may restart the consideration period.

b.                  Employees age 40 and over must be given seven days to revoke the waiver after executing it.  The seven day revocation period cannot be shortened by an agreement of the parties.

c.                   The release must be written in “plain language geared to the level of understanding of the individual party to the agreement or individuals eligible to participate.”  The release must not exaggerate the benefits provided or minimize the restrictions placed on the employee by the release.

d.                  An employee cannot release claims that arise from events happening in the future.

e.                   An employee cannot sign a waiver that would affect the EEOC’s rights and responsibilities to enforce the ADEA.  An employee cannot sign a waiver that would prohibit him or her (or impose a condition precedent, penalty or other limitation upon him or her) from filing a charge or complaint, including a challenge to the validity of the waiver, with the EEOC, or participating in any investigation or proceeding conducted by the EEOC.

f.                   A valid release must be supported by adequate consideration.  This means that an employee must receive something of value in exchange for the release.  The consideration must be in addition to any benefits the employer is required to provide to the employee.

g.                  The release must refer specifically to ADEA rights, and must be written in terms that the average person can understand.

h.                  The employee signing the release must be advised in writing to consult an attorney before signing it.

i.                    The employer must disclose information including criteria for selection to participate in the separation program (“decisional unit”) and identification of the age and position of employees who were, or were not, selected to participate to the employee in order for the release to be valid.

5.                  Although OWBPA’s requirements and timetables do not explicitly apply to waivers of non-ADEA claims, courts may look to OWBPA to determine whether a release of other claims is “knowing and voluntary.”

6.                  For a signed release to be a valid waiver of claims protected by the MHRA, it must comply with the following requirements under Minn. Stat. § 363A.31:

a.                   The employee signing the release must be given 15 days to revoke.  If the employee rescinds his or her signature, the rescission must be delivered by hand or mailed within the 15 day period.  If delivered by mail, the rescission must be postmarked within the 15 day period, send by certified mail with a return receipt requested, and properly addressed to the released party

b.                  The employer must notify the employee in writing regarding the right to revoke.

7.                  Where an employer drafts releases for a group or class of employees who (have been offered an exit incentive or other termination program) to sign, in addition to providing 45 days for the employees to consider whether or not to sign the release, the employer must provide clearly written information regarding:

a.                   The class or group of individuals that are covered by the program;

b.                  The eligibility factors, if any, for employees to be covered by the program;

c.                   The job titles and ages of all individuals eligible or selected for the program; and

d.                  The ages of all individuals in the same job classification who are not eligible for the program.

29 C.F.R. § 1625.22(f)(3).  If an exit incentive or other termination

program continues over a period of time and applies to different groups of employees, the information packages must be cumulative and include information from the previous terminations.  29 C.F.R. § 1625.22(f)(4)(vi).

8.                  Case Law. Recent court decisions highlight the lack of clarity that exists in the practical application of OWBPA’s informational requirements.

a.                   Pagliolo v. Guidant Corp., 2007 WL 1040869 (D. Minn. 2007).  Employees who were terminated as a result of RIF, all but one of whom signed a release of potential claims in return for severance benefits, filed suit against five corporate subsidiaries of their employer, alleging violation of the ADEA, and seeking a declaratory judgment that the severance agreement and release was invalid under the OWBPA.  The Court held:

i.                    The release at issue was invalidated by the employer’s material misrepresentation – employer falsely overstated the number of terminations by at least 180-196 employees, and thereby understated the percentage of employees over age 40 who were terminated;

ii.                  The release was invalidated by the employer’s failure to properly disclose the “decisional unit” (“any class, unit or group of individuals covered” by the severance program – must be disclosed under OWBPA) for the RIF;

iii.                The release was invalidated because it was improper for the employer to aggregate employees of the six separate corporate subsidiaries into one “decisional unit” for the RIF; and

iv.        The release was invalidated because the “decisional unit” should have been limited by facility.

b.                  Thomforde v. Int’l Business Machines Corp., 406 F.3d 500 (8th Cir. 2005). As part of a RIF, IBM implemented an involuntary termination program.  Plaintiff was selected for termination and was provided with a General Release and Covenant Not to Sue.  According to the release language, it covered claims arising from the ADEA.  In another provision of the release, it was stated: “This covenant not to sue does not apply to actions based solely under the ADEA…That means that if you were to sue IBM only under the ADEA…you would not be liable under the terms of this Release for their attorneys’ fees and other costs and expenses…”  Plaintiff and his attorney understood the release language to mean that Plaintiff could still pursue his age discrimination claims as long as they were limited to ADEA claims.  IBM’s legal department would not confirm or deny the validity of Plaintiff’s understanding.  After signing the release, Plaintiff filed charges of age discrimination with the EEOC, which IBM sought to have dismissed based on the release.  After receiving a ‘right to sue’ letter from the EEOC, Plaintiff filed suit against IBM.  The 8th Circuit held:

i.                    The release was not written in a manner calculated to be understood by participants as required by OWBPA, and thus was ineffective to waive the employee’s rights under the ADEA.

ii.                  The release violated OWBPA because it did not explain the relationship between the release of claims and the covenant not to sue, and the language suggested that the terms were interchangeable.

iii.                The statutory requirements under OWBPA are strict and unqualified; if an employer fails to meet any of the requirements, the waiver is ineffective as a matter of law.

c.                   Ellison v. Premier Salons Int’l, Inc., 164 F.3d 1111 (8th Cir. 1999).

Plaintiff sued former employer for breach of severance agreement and for violation of the ADEA.  The lower court entered judgment in favor of employer.  The 8th Circuit held:

i.                    The review period requirements under the OWBPA are relevant only to determine whether the employee’s waiver of rights was “knowing and voluntary” under the ADEA.

ii.                  The review period requirements under the OWBPA do not forbid an employer from revoking an offer before the period expires.

iii.                The OWBPA is concerned only with the validity of agreed-upon waiver agreements, so it does not preempt common law contract formation principles such as rejection and revocation.

iv.                The OWBPA neither encourages nor discourages settlements, and it does not entitle employees to the best possible separation agreement in exchange for waiver of their ADEA rights.

vi.        If an employer does not offer a settlement, or if an employee rejects or the employer revokes an offered agreement prior to its acceptance, the OWBPA is not violated because the employee has not waived any claims under the ADEA.

IV. IMPLEMENTING THE REDUCTION IN FORCE

A.                COMMUNICATIONS.

1.                  Set up a precise timetable.

2.                  Institute a comprehensive communication/publicity plan to control the information given to the employees, customers, your industry and the public regarding your planned actions.

3.                  Identify the individuals who will be responsible for communications with the following:

a.                   Affected employees.

b.                  The remaining employee population.

c.                   Union officials.

d.                  The media.

e.                   Key elected officials (the governor, mayor, president of county board, etc.)

f.                   State agencies (i.e., dislocated worker unit).

g.                  Shareholders.

h.                  Customers, creditors, suppliers and vendors.

4.                  Appoint someone who will be responsible for coordinating the dissemination of all information and how and when it is to be communicated.

5.                  Provide training to HR professionals and managers who will be making decisions relating to the RIF.  Advance training may increase managers’ support for the RIF process, and allows them to understand their accountabilities under the policy.

6.                  Maintain a “Company Backgrounder” which contains general information about the Company’s history, its operations (generally and locally) and the Company’s importance and involvement in the community. All individuals with communications responsibilities should be issued a backgrounder.

7.                  Press releases should be drafted and disseminated to local media during key points in the decision-making and implementation process. Consider issuing press releases at the following times:

a.                   At the announcements of the Company’s tentative and final decisions.

b.                  At the time WARN notices are issued.

c.                   On the dates employees are separated or the shutdown occurs.

8.                  Include a copy of the backgrounder with all press releases.

9.                  Before any press release is issued, employees, union officials and key elected officials should be notified of the contents.

10.              Press releases should include the following:

a.                   The general business reasons why action is necessary.

b.                  Quotes from high-level company officials regarding concern and support for employees and community.

c.                   All efforts made to ease employee transition (outplacement, retraining, incentive programs, extra compensation, etc.).

11.              In general, press releases should be pro-active, preemptive strikes, issued contemporaneously with company action, designed to alleviate the fears of community members and calculated to place a positive spin on a difficult situation.

12.              Choreographing Communications. The following guidelines should be helpful in planning your communication timetable:

a.                   Lay a foundation at the time of announcement of a tentative decision.  Inform employees and the Union, issue press releases (with backgrounder) and contact key elected officials. For employees and the Union, identify a person whom they may call for further information. Prepare a script from which that person may answer questions.

b.                  Prior to announcement of a final decision, prepare a press release, a script of speech for the person identified to announce the decision to employees, a general letter to employees, a letter to the Union, and a script for persons assigned to answer calls and questions.

c.                   Announce the final decision through a speech to the entire employee population (plus a letter) and a letter to all unions (followed by a personal meeting).  Inform key elected officials. Immediately thereafter, issue press releases.  In announcing a final decision to employees, give at least an outline of potential transition benefits which may be available.  Include such an outline in all other communications.

13.              Trouble-shooting:

a.                   Draft communications should be kept strictly confidential.  Leaks of information should be immediately addressed.

b.                  All supervisors and management-level employees should be informed enough to address any misinformation being disseminated amongst employees.

c.                   Mistakes in communications should be immediately rectified (media statements should be scrutinized for misinformation).

d.                  Follow-up on all releases of information, tie-up loose-ends, and do not let questions languish unanswered.

B.  FOLLOW-UP DOCUMENTATION AND INFORMATION.

1.                  Centralize, typically through human resources, all follow-up documentation and communications needs with respect to the following:

a.                   Pertinent election forms, releases, and other termination documentation.

b.                  Post-termination payments, benefits, COBRA, etc.

c.                   Unemployment compensation paperwork.

d.                  Responding to inquiries from former employees.

e.                   Responding to reference requests.

C. OUTPLACEMENT AND RETRAINING PROGRAMS.

1.                  Know what funds are available to provide for outplacement services and retraining programs.  The sooner your separated employees become gainfully employed, the better for everyone involved.

2.                  Work with the state dislocated worker unit as well as the department in your state in charge of unemployment compensation benefits and help employees obtain the following:

a.                   State-sponsored outplacement and retraining programs.

b.                  Unemployment benefits.

c.                   Lists of local employers who are in a hiring mode and may need employees.

d.                  What, if any, funds are available from the state to supplement a Company-sponsored outplacement or retraining program.

3.                  Canvass local employers to determine their hiring needs and the requisite skills and experience necessary.  Explore with them the possibility of hiring your employees.

4.                  Consider retaining independent outplacement services and management consultants to assist employees.  Perhaps have them come “on premises” to put on résumé writing and job interviewing programs.

5.                  Provide lists of resources that may be able to organize résumé writing, job interviewing and other outplacement seminars.

6.                  If extra benefits are going to be offered, draft an explanatory memorandum and cover letter for distribution to employees. Take into account lead time necessary for employee sign-up for outplacement services (i.e., tell employees of services at least two weeks in advance of their offer date).

D. HELP YOUR FORMER EMPLOYEES, AND MINIMIZE CLAIMS.

1.                  Be honest; avoid pretext claims.

2.                  Do not make promises that you might not be able to keep.

3.                  Be fair, objective and consistent.

4.                  Abide by post-termination obligations created by individual employment agreements, personnel policies, employee handbooks, state law and collective-bargaining agreements.

5.                  Treat your former employees with respect.

TC2: 538929 v01 09/04/2001
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