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April
29, 2009
As
businesses are forced to downsize with increasing frequency these days,
company officials have to be careful the pink slips are issued properly.
While
the struggling economy, not surprisingly, is often the reason for the
layoffs, employers still must be cautious in implementing its work force
reductions.
"As
a company, you shouldn't be like, 'We're not going to make payroll next
week, let's fire some people,'" said employment attorney Mitch
Danzig, a partner in the San Diego office of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo. "That Band-Aid approach to layoffs is a recipe
for disaster. You should plan ahead and go the methodical way.
"You
have to come up with a uniform criteria for those who will be retained
or let go. (The reduction) needs to make clear that objective business
criteria are being used. You want to make sure you don't have a list
of 20 you're going to let go, first, and then come up with a list of
criteria that fits that group later."
San
Diego's Alison Alpert, a partner in the labor and employment practice
group of Best Best & Krieger, agreed.
"Employers
really do have to plan ahead of time, and they need to look into the
future," she said.
Among
the criteria that can be considered when making cuts is job performance,
longevity, expertise and productivity.
"Some
people think layoffs have to be based on seniority," said Chris
Hoffman, managing partner of Fisher & Phillips' San Diego office.
"That's not the case. It's one of the criteria that can be used;
certainly not a legally required one."
Whatever
layoff policies a company has in place, they should make sure to follow
them closely "to avoid the perception that they're using (the economy)
as a pretext to get rid of (employees) for another reason," Alpert
said.
More
and more of the reductions are done on a large scale, triggering the
Worker Adjustment and Retraining Notification (WARN) Act. The statute
has a federal version and a more restrictive California provision.
On
the federal side, businesses with at least 100 employees are governed
by WARN Act requirements, but in California that number is only 75.
Under the WARN Act, companies must give 60 days notice in the event
of a mass layoff, relocation or plant closing.
In
California, it is considered a mass layoff when 50 or more employees
are let go during a 30-day period while a relocation, which is not a
part of federal law, is the removal of all, or substantially all, business
operations to a location that's 100 or more miles away from the present
location.
The
penalties for not following the WARN Act can be significant, according
to Lonny Zilberman, a San Diego partner in the employment practice group
of Wilson, Petty, Kosmo & Turner. They include back pay for
all displaced employees for up to a maximum of 60 days, plus benefits,
like health care and stock options. The company also could owe $500
in civil penalties per employee for every day no notice was given.
Zilberman
said companies, in order to protect themselves from future liability,
will offer laid off workers an enhanced severance package, with additional
separation pay, medical coverage and access to outplacement services.
In exchange, the employee releases the company of all potential discrimination
claims.
"The
reality is there are economic forces leading to this decision,"
Zilberman said. "Most employees would take the outplacement services
or enhanced benefits or extra severance."
Any
waiver comes with specific requirements. For a waiver involving age-related
claims, employees must be given 45 days to consider the severance package.
Certain written information, which identifies who is eligible for the
enhanced severance program, must be given as well. This may include
specific job titles and ages for all eligible.
Companies
might not want to give a 60-day notice of layoffs for several reasons.
One, they don't want to make the rest of the staff nervous. Talented
workers who are kept may think they should start looking, just in case.
"It
also sends a message to competitors" that the company is in trouble,
Zilberman said.
There
is an exception to the WARN Act for companies that are actively seeking
capital for new business and don't want to discourage potential investors.
Sometimes
a company doesn't want to wait two months to make layoffs because it
needs to shed payroll quickly.
"The
primary problem is not being able to foresee what's going to happen
to the business in 60 days," Alpert of Best Best & Krieger
said.
Employers
not only should be aware of their obligations under the WARN Act, but
they also need to protect themselves from other employment-related claims.
"You
have to be careful to do (layoffs) methodically," Mintz Levin's
Danzig said.
Once
a company has made a list of employees to be cut, officials should review
the decision to make sure a protected group has not been singled out
accidentally.
Hoffman
of Fisher & Phillips said employers also should make sure they don't
have employment contracts with any of the individuals slated for release.
Those agreements could provide the employee with certain rights that
preclude a layoff.
"There
have been more lawsuits related in one way or another to reductions
in work force, and it will increase in the next year as well,"
he said. "There's some WARN-specific litigation you just didn't
see five years ago."
In
San Diego, with its high-tech, biotech and medical device industries,
there is another concern that comes with layoffs: security. Companies
want to make sure former employees don't take information with them
or make unauthorized copying before leaving.
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