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Downsizing: Key Mistakes to Avoid in Implementing Workforce Reductions

Labor & Employment Update Otto W. Immel

Given the current economic climate, it is no surprise that labor and employment lawyers in all of the Quarles & Brady offices have been busy over the past few months, working closely with clients who are considering reducing the size of their workforces. These actions have ranged from eliminating a few positions to laying off several hundred employees in multiple waves. This trend is continuing, and growing, as employers face increasingly challenging business conditions and difficult choices.

Our broad experience with downsizing programs over the years has led us to identify some common mistakes that employers make in implementing a reduction in force (RIF), leading to a greatly increased risk of litigation and other negative consequences. While no two layoffs are identical, here are some typical dangers to avoid:

  • Failing to consider or document the consideration of alternatives - such as a pay freeze/cut, a reduction in hours, expense reductions, a voluntary RIF, and so forth - that both demonstrate a need for the RIF and create a more favorable impression of the company with the public (and potential jurors) if a RIF is implemented.

  • Failing to clearly identify and document the precise reasons for the RIF and the expected results.
  • Failing to design, explain and ensure uniform application of appropriate RIF selection criteria.
  • Using selection criteria that are unnecessarily subjective.
  • Using selection criteria that yield results inconsistent with prior performance reviews.
  • Failing to obtain effective management oversight and an attorney-client-privileged legal review of the selection criteria, application and, most importantly, the result in order to identify any overt or statistical bias and to analyze potential risks.
  • Selecting people on job-protected leave (e.g., FMLA, ADA, military, workers' compensation), either individually or by selecting their possibly vacant position for "elimination" without establishing the necessary exceptions to applicable job restoration requirements.
  • Using the RIF as an opportunity to terminate "troublemakers" or "difficult" employees with "bad attitudes" whose prior conduct may give rise to potential retaliation claims, unless the legitimate reasons for their selection can clearly be established.
  • Waiting until the end of the selection process (or later!) to consider the WARN (Worker Adjustment and Retraining Notification) Act and similar state and local plant-closing or mass-layoff laws, thereby incurring delay or legal liability when earlier planning (including possible exceptions, shorter notice options, etc.) would reduce or eliminate that risk.
  • Paying severance without obtaining a valid, enforceable release. (The technical requirements for effective waivers of age discrimination claims are particularly complex.)
  • Failing to plan the actual "rollout" of the RIF, including the timing and content of affected employee notification, internal and external communications with the entire workforce, any affected union, news media, customers, business partners, lenders, etc. For example, a hurried response to a reporter, that the RIF was needed to "rejuvenate" - by implication, "make young again" - the business/plant/etc., could provide potentially "direct" evidence of discrimination.

Reductions in force that are not well planned and executed may end up costing much more in litigation than they save in payroll expenses. With the currently weak outlook for hiring, any layoff poses the risk of a lawsuit from a laid-off employee facing an uncertain future or, worse yet, a class of former employees. Failing to effectively plan and take preventive action to eliminate or at least reduce the risk level can be a costly mistake.

Employers who have questions about reductions in force, or who would like to discuss these issues in more detail, should contact Otto Immel at 239-659-5041 / [email protected], any of our labor and employment lawyers or your Quarles & Brady attorney.

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