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Posted: December 01, 2008

Legal Insights 2008: Work-force reductions

Labor laws you need to know

Holli Hartman
The business section headlines have not been pretty these days: American Express plans to eliminate about 7,000 jobs as part of "re-engineering"; Qwest plans to reduce work force by 1,200 before end of the year; Tenneco Inc. to eliminate 1,100 jobs as automotive market continues to shrink; Postal service looks to cut 40,000 in first layoff in history. As you read them, you may be thinking, "How do I tell employees that our company is next?" In a downsizing economy, there may be no other way to cut costs as steeply and as quickly as a work-force reduction. As of the end of October, 1.2 million people lost their jobs, with more than half of those jobs eliminated in August, September and October, according to the U.S. Bureau of Labor Statistics. The number of layoff events, which includes layoffs involving at least 50 workers at each business, reached a high that hasn’t been seen since right after the Sept. 11 terrorist attacks. All indications are that businesses will continue to tighten their payroll budgets through the fourth quarter of 2008 and even into 2009. Whether you are an employer with tens of thousands of employees or a small business with just a handful, there are certain labor and employment laws that you need to follow to make the process as smooth as possible and to reduce the chance of litigation. Here are just a few laws and resources to keep in mind if your company is about to form and execute a work-force reduction plan, or even terminate one or two employees. To fully minimize the risk of litigation, however, be sure to involve legal counsel knowledgeable in labor and employment laws in the planning process. There just is not enough space here to address all the pitfalls that can be encountered. *The WARN Act* The federal Worker Adjustment and Retraining Notification Act ("WARN") requires employers with 100 or more employees to give 60 days’ advance notice of a plant closing or mass layoff to affected employees or their representatives (such as labor unions), the state dislocated worker unit and the relevant unit of local government. Failure to warn employees exposes the employer to liability for civil penalties and payment of lost wages and benefits. WARN applies to all employers with at least 100 full-time employees or 100 or more employees, including part-time employees, who work at least 4,000 hours per week, exclusive of overtime. A "plant closing" is a permanent or temporary shutdown of a single site of employment that results in employment loss during any 30-day period for 50 or more full-time employees. A "mass layoff" is a reduction in work force, not the result of a plant closing, that results in employment loss during any 30-day period for either: (1) 33 percent of the full-time employees; with at least 50 full-time employees being laid off; or (2) at least 500 employees. If you think your work-force reduction will be just slightly under these "trigger" provisions, send out the notices anyway. The penalties can be painful, but the class action lawsuit that could result for failure to give notice can be excruciating. The WARN Act also can be triggered in a sale of all or part of a business that results in employees not being rehired by the new owner. Exceptions to the WARN Act notice requirements can be invoked in limited situations, including if a plant closing or mass layoff is the result of the completion of a particular project or undertaking and the workers were hired with the understanding that their employment was limited to the duration of the facility, project or undertaking. Notice may also not be necessary if the business is attempting to secure a capital infusion to stay afloat and notices would cause the potential lender or investor to balk. Or, if unforeseeable circumstances lead to an immediate business shutdown, such as one caused by a natural disaster, notices are not required. In addition to the federal WARN Act, each state may have statutes that supplement the requirements. If a layoff occurs in several states, a company should ensure that its reduction plan complies with each state’s provisions. More information about WARN Act requirements in Colorado can be found at the Colorado Department of Labor and Employment’s website. When selecting employees to include in a reduction plan, employers must ensure layoffs do not violate any existing employment agreements that govern separation terms for particular employees. Companies also should choose a selection method that uses legitimate, nondiscriminatory criteria to reduce adverse impacts on women, minorities or older workers. *The Older Workers Benefit Protection Act* Depending on how workers are chosen for a work-force reduction, chances are highly likely that some will be 40 years old or older. If so, then they fall within the protections of the Age Discrimination in Employment Act ("ADEA"). If your company intends to provide severance payments to separating employees in exchange for releases of all employment-related claims, including age discrimination claims, the releases for employees age 40 and older must meet specific requirements outlined by federal law to be valid and enforceable. The requirements are outlined in the Older Workers Benefits Protection Act ("OWBPA"). To release a potential claim for age discrimination, the release must: * Be entered into knowingly and willingly; * Be written in simple, easily understandable terms; * Specifically refer to a waiver of statutory rights under the ADEA; * Not require the employee to release future claims; * Be supported by consideration to which the employee was not already entitled; * Advise the employee to consult an attorney; * Allow the employee up to 21 days to review the release, or up to 45 days if the release relates to a separation program that affects a class of employees; and * Allow the employee seven days after signing to revoke the release. Where the 45-day period is required, the employer also must inform each employee eligible for the program in writing of the class of employees eligible for the program, the specific eligibility factors for participating in the program, any time limits on the program, the job titles and ages of all employees eligible or selected for the program and the ages of all employees in the same job classification or organizational unit who are not eligible or selected. Failure to follow the OWBPA guidelines to the letter can result in a potential double recovery for the employee. The employee can keep the severance check and still turn around and sue the company for age discrimination, if a claim has merit. *The Colorado Wage Claim Act* The Colorado Wage Claim Act governs how employers in Colorado must pay their employees, including when they terminate an employment relationship. When an employee is terminated by the employer, whether through a reduction in force or a single termination, the employer must follow these requirements: * The employee’s wages must be delivered to the work site, the employer’s local office, or the employee’s last known address; * If the employer’s accounting or payroll department is operational, the employee’s wages must be paid immediately; * If the employer’s accounting or payroll department is not open, then wages are due within six hours after the start of the department’s next regular workday; * If the accounting or payroll department is located off-site, then wages are due no later than 24 hours after the department’s next regular workday. If payments are not timely made, and the employee makes a demand for payment that is not paid 14 days thereafter, the employer can be penalized in the amount of 125 percent of the wages due if it is less than $7,500, or 150 percent of the wages due if it is more than $7,500. If nonpayment is deemed willful, the penalties are ratcheted up even more. And, of course, the penalties are in addition to the headaches that result in having to deal with the proceedings before the Department of Labor and Employment. *Layoff assistance* As difficult as it is for an employer to go through a work-force reduction, it is obviously far more painful for those employees losing their jobs. The Colorado Department of Labor and Employment provides some layoff transition services that may be helpful to both employers and employees during a layoff. Some of the services provided include job placement assistance, layoff transition workshops, information that can be provided to employees to help minimize the emotional effects of a layoff, and information about unemployment benefits. Employers should take advantage of these services as a practical way to help salve the stress and anxiety that are inevitable when employees are let go. They also may reduce the hurt feelings that can lead a disgruntled ex-employee to file a lawsuit. Although no one wants to go through a work-force reduction, a company in financial distress may have no alternative. Both short-term and long-term survival requires attention to these and other labor and employment laws. _The information in this publication is intended for general guidance and is not meant to be a substitute for professional legal advice. ColoradoBiz and the attorney authors accept no responsibility for loss occasioned to any person acting or refraining from action as a result of using any material in this publication._
Holli Hartman practices at Baker & Hostetler LLP, a national law firm, specializing in both employment law and business litigation for companies of all sizes. Although she is a trained trial attorney, her favorite role is counseling clients on how to avoid litigation altogether and minimize the risk of employment disputes. For more information, contact her at
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