Layoffs are terrible! A lot of employees are caught unaware that a company is not doing well while others cannot understand why they rather than someone else were let go.
Why are we talking about layoffs and reductions in force when unemployment is 3.7%?
Let me give you a couple of reasons.
- Store closures may top 12,000 in 2019 as 7,062 store closures have already been announced this year compared to an all-time high of 8,139 in 2017. The retail apocalypse may be accelerating.
- The ongoing trade war which many believe will result in a recession within a year or so.
- Profitability of oil and gas (at least in Texas). There is some speculation that the shale oil boom may be over.
What to Consider When Layoffs Approach
There are a couple of things that all employers must remember when conducting layoffs. Employers must consider the legal elements of a layoff, and to conduct the layoffs in a way that allows the business to stay open and does not make the other employees angry. Of course, the best option, if possible, is to follow in the footsteps of Nintendo when the Wii U failed. In that case, the CEO took a 50% pay cut, and members of the board took a 20-30% pay cut.
If we reduce the number of employees for better short-term financial results, employee morale will decrease. I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world. Keeping employees can often be better than letting employees go if a company believes that the employees will be needed later.
Legal Aspects of Layoffs
Employers that layoff employees may have obligations to alert their employees.
As the Department of Labor explains:
The Worker Adjustment and Retraining Notification (WARN) generally covers employers with 100 or more employees, not counting those who have worked less than six months in the last 12 months and those who work less than 20 hours per week, or those employers with 100 or more employees, including part-time workers, who in the aggregate work at least 4,000 hours per week, exclusive of overtime.
WARN protects workers, their families, and communities by requiring employers to provide notification 60 calendar days in advance of plant closings and mass layoffs. Advance notice gives workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain other jobs and, if necessary, to enter skill training or retraining that will allow these workers to compete successfully in the job market. WARN also provides for notice to state dislocated worker units so that they can promptly offer dislocated worker assistance.
A covered plant closing occurs when the permanent or temporary closure of a single site of employment or of one or more facilities or operating units within a single site of employment results in an employment loss as defined by WARN regulations. A covered mass layoff occurs when 50 to 499 employees are affected during any 30-day period at a single employment site (or for certain multiple related layoffs, during a 90-day period), if these employees represent at least 33 percent of the employer’s workforce where the layoff will occur, and the layoff results in an employment loss for more than six months. If the layoff affects 500 or more workers, the 33 percent rule does not apply.
Many states have their own mini-WARN Acts, so you need to review your state law as well to comply with the law. Texas does not have its own WARN Act.
There are 3 important exceptions to providing 60 days notice as required by the WARN Act:
- Faltering Company Exception (applies to closing but not mass layoffs) which requires that the employer 1) sought capital or business at the time that the 60 days’ notice would have been required, 2) there was a realistic opportunity to obtain finance or business, 3) it would have been sufficient to avoid the shutdown (the employer must objectively show this), and 4) the employer must have reasonably and in good faith believed that the required notice would have precluded the employer from obtaining the business or capital.
- Unforeseeable Business Circumstances Exception, which applies when business circumstances were not reasonably foreseeable at the time that 60 days’ notice would have been required. The circumstance must be a dramatic change outside of the employer’s control like losing a major contract or a dramatic economic downturn.
- The Natural Disaster Exception only applies if a plant closed or mass layoffs ensued because of a natural disaster.
As noted above, another exception (or at least a situation where the law does not apply) is when a mass layoff will last less than six months. For example, suppose you send 400 out of your 500 workers home for 2 weeks while you conduct necessary maintenance at your plant. The WARN Act would not be triggered in that case because the layoff is temporary.
When conducting a layoff, it is also important to ensure that it is done in a way that does not discriminate against individuals because of their age, race or other protected characteristic. Essentially, layoffs should be conducted in a way that it does not have a disparate impact on any protected class.
Who Receives Notice of a Layoff or Plant Closing?
As detailed by the Department of Labor:
The employer must give written notice to the chief elected officer of the exclusive representative(s) or bargaining agency(s) of affected employees and to unrepresented individual workers who may reasonably be expected to experience an employment loss. This includes employees who may lose their employment due to “bumping,” or displacement by other workers, to the extent that the employer can identify those employees when notice is given. If an employer cannot identify employees who may lose their jobs through bumping procedures, the employer must provide notice to the incumbents in the jobs which are being eliminated. Employees who have worked less than 6 months in the last 12 months and employees who work an average of less than 20 hours a week are due notice, even though they are not counted when determining the trigger levels. The employer must also provide notice to the State dislocated worker unit and to the chief elected official of the unit of local government in which the employment site is located.
What the Notices Must Contain
There are different items that must be in the notice for any union that represents employees, the employees, and the State Dislocated Worker Unit and chief officials of the local government entities. You can view that information here or in the regulations.
If employees are represented by a union, then the notice must contain the following information:
- The name and address of the company that will have a plant closing or mass layoff and a person and telephone number from the company that can be contacted for more information.
- whether the closing is permanent or temporary and whether the whole facility will be closed.
- The expected date when the first employees will be laid off and the schedule for laying off the rest of the employees.
- The job titles of any positions that will have people laid off and the names of those workers that hold each affected job title.
As stated by the DOL, notices to individual employees (if they are not represented by a union) must contain the following information:
- whether the closing is permanent or temporary and whether the whole facility will be closed.
- the “expected date when the plant closing or mass layoff will begin and the date that the individual employee will be” laid off.
- whether any bumping rights exist (employees with more seniority will be able to take the positions of people with less seniority in the layoff, which means that the most senior people that qualify for any position in the company, even if it is not their current position, will be kept or at least will be the last people to be laid off).
- “The name and telephone number of a company official to contact for further information.”
Companies must also provide notice to the State Dislocated Worker Units and the chief elected official of the local governments. This notice must be provided separately and should contain:
- The name and address of the company that will have a plant closing or mass layoff and the name of a company official and telephone number that can be contacted for more information about the layoff or plant closing.
- whether the closing is permanent or temporary and whether the whole facility will be closed.
- The expected date when the first employees will be laid off and the schedule for laying off the rest of the employees.
- Job titles of the positions that will be laid off and the number of employees in each position.
- Whether any bumping rights exist
- The name of any union(s) that represent the employees and the “name and address of the chief elected officer of each union”
Notices must be carefully drafted especially if the layoff is intended to be temporary. Any mistakes in drafting the notice can result in penalties. Employers can be liable for backpay and benefits for each employee for every day of the violation. Penalties are capped at 60 days of backpay and benefits for each employee, civil penalties of up to $500 per day, and reasonable attorney’s fees.
Maintaining Morale in a Layoff
Don’t be like Michael Scott in the Office announcing that the branch is closing (especially when it turned out that the branch was not closing after all).
Employers need to prevent a panic when laying off employees. You need to meet with the employees that are remaining quickly (within 30 minutes or so) to let them know what is going on. You need to give employees a reason that the layoff occurred. Was it to eliminate a portion of the business that was not profitable? That is a different conversation than laying off journalists in the news industry. Journalists are one of the main components of the news business. Many of them may be wondering whether their job is next.
Companies must acknowledge the emotions of the employees that are staying. Some of them will have lost close friends and colleagues that they have worked with for years.
Employees need to understand that there is a plan to move forward. Companies need to communicate about the business’s future. How is the work going to be redistributed now that there are not as many people working for the company? Is there a way for employees to privately ask questions? What is the long-term plan?
Managers need special training to ensure that they can address the concerns of employees that are staying. They need to make everyone as productive as possible and support the employees that remain with the company. Managers essentially need to rebuild the culture of the company. A bad manager can make a layoff worse by driving people away, being unresponsive to questions, or not showing any understanding to what employees are experiencing.
Productivity will fall after the layoff occurs. However, after employees see that the company is moving forward, and their jobs are secure, these employees will settle back into their jobs and will again become more productive. Eventually, work will return to normal, but until it does, all supervisors and members of senior management need to help with this transition to ensure a productive, profitable and secure future for the business.
Conclusion
Layoffs are awful, but not following the correct protocol in the event of a layoff is detrimental to the company and its employees. Keeping in mind the specific legal elements of a layoff, along with the cultural implications within the company, will allow employers and their employees to make the best of a bad situation.
The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.
The information provided is my own and does not reflect the opinion of my firm or anyone else.