The Legal Lowdown on Layoff Decisions

Although turbulent economic times are gradually evolving to calmer tides, the hiring and firing process will still be an ever-present fixture in the professional world.  While companies are busy locating and hiring key talent to fill their swivel chairs, it is equally important to remember the incessant necessary evil of cutting ties when an employer-employee relationship is on the rocks.  This equation can become even more complicated when a company is considering a layoff, a termination based primarily on economic/financial reasons.  Employees are oftentimes a company’s biggest expense (think wages, benefits, and other overhead costs), and to streamline and foster business, it can be necessary at times to eliminate overhead through downsizing staff. And, like every decision, especially ones that have so much at stake and involve a high level of emotions, there is a right and a wrong way to approach the layoff process.  This is a conversation many of us don’t even want to think about, especially with our newfound optimism on the employment/economic forefront; however, layoffs can occur even in healthy economic times, and it is important to contemplate in case it becomes a reality for your company.  Below are important considerations from a Nolo.com legal article written by Lisa Guerin, J.D. 


Deciding to Do a Layoff

Companies that consider layoffs are usually trying to cut costs in order to dig the company out of a hole or make it more profitable. But keep in mind that layoffs can be costly in other ways. For example, the company may have to pay severance packages, remaining workers’ productivity and morale may decline, and the company might even be faced with a lawsuit, depending on how the layoff is conducted.Given the risks, companies should carefully consider whether they really need to conduct layoffs and whether they can do so legally.

Consider Alternatives to Layoffs

In some cases, less painful alternatives can do the trick. These might include:

  • a freeze on hiring, promotions, or pay raises
  • a freeze on filling positions left vacant when employees leave voluntarily
  • cutting other costs
  • pay cuts
  • asking employees to take time off or reduce their hours
  • reducing authorized overtime, or
  • providing voluntary termination incentives to allow employees to decide whether to quit in exchange for a package of benefits.

Avoid Legal Problems

If you’ve considered the alternatives and a layoff is still your best option, make sure you are on solid legal ground before you do anything. In order to avoid legal trouble, do the following:
Have a legitimate business reason. Your company should have valid, business-related reasons for the layoff. Otherwise, you invite lawsuits from disgruntled employees.  A decrease in sales, loss of a credit line, or overstaffing are legitimate reasons for a layoff; trying to get rid of older workers or punishing union supporters are not.
Check written personnel policies. Some companies lay down their own specific rules as to when, and how, the company may conduct a layoff. Know the rules and follow them.
Review actual policies and past practices. Even if your company doesn’t have written policies regarding layoffs, it may have established a company policy by actions or statements. For example, if a company has always paid severance to workers it laid off in the past, it may have to do so now.
Check employment contracts. If a worker has an employment contract with the company, check it carefully to make sure you can lay off the worker for economic reasons. The contract also might require severance.
Review collective bargaining agreements. If the workplace is unionized, check the collective bargaining agreement for any limits or rules on laying off workers.
Consider offering severance or other termination benefits. Even if the company is not required to offer severance or other termination benefits, consider doing so anyway. It’s a good way to show laid off employees, retained employees, and the general public, that the company values the workers’ contributions and is concerned for their welfare.  

http://www.nolo.com/legal-encyclopedia/making-layoff-decisions-29949.html;jsessionid=FF5AD28A2796BA53AC3AAA2DD4134E28

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