Workforce Reductions: Key Legal and Compliance Considerations for Employers
As economic uncertainty continues, many businesses are evaluating workforce reductions. However, layoffs present significant legal and compliance considerations that employers must carefully navigate.
Our latest client alert outlines key factors, including:
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WARN Act Compliance – Understanding federal and state notice requirements.
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Age Discrimination Risks – Special considerations for employees 40+ under the OWBPA.
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Disparate Impact Analysis – Ensuring layoffs do not disproportionately affect protected groups.
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Severance Agreements – Navigating state-specific requirements and enforceability.
Employers should proactively assess these factors to mitigate legal risks before conducting a reduction in force.
High-Level Considerations for Employers Conducting Layoffs
As the economy remains in a state of flux, many employers across the country are contemplating whether they need to reduce headcount to account for unexpected costs. Even if employers are not actively considering such measures, there are important and oftentimes overlooked legal and practical steps that must be considered to avoid potential legal liability. This alert provides an overview of some of the key considerations for employers.
1. Worker Adjustment and Retraining Notification (WARN) Act
Employers with 100 or more employees should assess several months in advance, where possible, if they plan to conduct a reduction in force. In the event that they meet certain thresholds at the federal and sometimes specific state level, they may be required to provide advanced notice of the intent to conduct layoffs.
While the WARN Act’s requirements are nuanced, one primary scenario is when at least 50 employees are laid off if those employees make up at least one-third of the workforce. In this situation, employers must provide 60 days’ notice in writing. Additionally, many states have their own “Mini-WARN Acts,” each with slightly different requirements. It is critical that employers verify whether federal or state WARN Acts apply before moving forward.
2. Older Workers Benefit Protection Act (OWBPA)
In the event that an employer is offering severance payments to impacted employees, there are additional requirements when two or more of the impacted employees are aged 40 or older.
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Standard Offer: Typically, employees over 40 must be provided with 21 days to review the terms and 7 days to revoke.
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Mass Layoffs: In the case of layoffs involving two or more employees aged 40+, employees must be provided with 45 days to review and 7 days to revoke.
Additionally, the employer must provide these employees with a list of the job titles, ages, and employment status of those within the "decisional unit." Failure to abide by these procedures may invalidate age discrimination-related releases.
3. Disparate Impact Analysis
In addition to concerns about age discrimination, employers should assess whether a particular protected group is adversely impacted by a layoff. Before conducting a layoff, employers should collect and assess demographic data, including:
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Age and Race
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Ethnicity
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Sex/Gender
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Religion and other protected classes
The typical rule of thumb is the “four-fifths rule,” which states that a selection rate for any group that is less than 4/5ths of the group with the highest selection rate constitutes evidence of disparate impact. If results reveal a disparate impact, employers should either modify the list of impacted employees or ensure they have a legitimate, non-discriminatory business reason for the selection.
4. Severance Agreements and State Requirements
In many instances, employers offer severance agreements to impacted employees. Employers must be attuned to state-specific requirements, including:
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Release language and payout of paid time off (PTO).
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Final pay requirements and restrictive covenant enforceability.
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Required exclusions from releases.
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Limitations on non-disparagement and confidentiality provisions.
Furthermore, if employers have ongoing severance plans, there may be requirements to draft a formal severance plan and file it with the U.S. Department of Labor.
Conclusion
The concerns above represent some of the high-level risks and considerations employers must assess when engaging in reductions in force. There are many opportunities for legal pitfalls that employers should consider mitigating in advance.
The employment counsel at Bochner PLLC stands ready to assist you in navigating the complexities of reductions in force to ensure your business remains compliant and protected.
