As we find ourselves firmly in the middle of Q1 of 2023, the avalanche of layoff headlines that started last quarter just keeps coming. Whether you follow the school of thought that the US entered a recession in summer of 2022 (after two consecutive quarters of negative gross domestic product) or not (given a strong labor market and corporate earnings growth), more and more companies are having to address overzealous pandemic hiring and the backlash from soaring company valuations. One comparatively “easy” place for multinational companies to cut costs — US workforces, where employment is generally “at-will” and absent contractual entitlements or triggering statutory notice requirements, layoffs can be carried out relatively quickly. With that said, as always, moving too quickly can create headaches that actually can be avoided — or at least dulled — with a little planning.
Here are four tips to keep in mind when planning layoffs in the US:
- Beware of the WARN(ings)
Larger layoffs have the potential of triggering the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act) (and analogous state laws, known as state “mini-WARN acts”) statutes. These statutes impose notice and information obligations, which can be tricky to keep track of, and carry potentially heavy penalties for noncompliance.
Federal WARN requires employers to give advanced notice to affected employees in the event of a covered mass layoff or plant closing. Under the WARN, employers must provide 60 days’ notice of termination to the impacted employees, union representatives (if applicable), and certain government authorities. Under some state mini-WARN acts, 90 days’ notice is required. Click here for more on WARN.
- Tip: WARN should become part of the layoff checklists (again), with teams (re)sensitized to the impact on timing and costs if triggered.
2. Avoid Disparate Impact on Protected Groups
An adverse impact analysis conducted by counsel under privilege is key to identifying whether planned personnel actions result in “statistically significant disparities” for protected characteristics, like race, gender or age. This step in the restructuring process is imperative to protecting the company against potential disparate impact discrimination claims down the line and proactively addressing any issues with employee selection criteria. This could mean re-reviewing the selection criteria, making any necessary adjustments, and rerunning the employee selections and analysis.
- Tip: For our HR readers, this means giving your business partners a heads up that you will need time to partner with employment counsel to scrutinize tentative layoff selections to understand and mitigate the impact on protected groups, and that they may need to make changes to their employee selections as a result.
3. Comply with the Older Workers Benefit Protection Act
Covered employers must comply with the OWBPA to effectively release claims under the Age Discrimination in Employment Act (ADEA) when employees are asked to waive age discrimination claims in exchange for severance pay.
The OWBPA establishes detailed requirements for a “knowing and voluntary” release of ADEA claims, including very specific notice and revocation periods for employees 40 or more years of age. And, there are additional disclosure requirements when waivers are requested from a group or class of employees thereby significantly impacting the timeline of group layoffs.
- Tip: Simply put — it takes time to validate decisional units and prepare required OWBPA disclosures.
4. Don’t Forget About Extra Time to Finalize ERISA Severance Plans
Employers should iron out the details of employee separation packages early on in the planning process, building in enough time to prepare and implement an ERISA severance plan if this is legally required or otherwise advisable. Depending on the complexity of the company’s separation package, an ERISA severance plan can take several weeks to finalize.
- Tip: Once the plan is finalized, the company will need to implement the plan through its usual process, which may require board approval and additional lead time.
Even if Benjamin Franklin wasn’t an employment lawyer, he was right when he said “An ounce of prevention is worth a pound of cure.”
As larger (and rolling) layoffs are becoming more the norm than the exception, employers are facing planning issues that may only have arisen infrequently in prior layoffs. This does not negate the ability to move forward swiftly, but rather just means that some of the most material planning steps need to become part of our “layoff vernacular” again. By understanding the triggers, requirements, timing and risk mitigation opportunities of WARN, disparate impact analyses, OWBPA disclosures and ERISA, US employers can avoid, or at least dull, potential layoff-induced headaches.