With hundreds of thousands of jobs being lost monthly, workforce reductions today create massive liability for businesses. Regardless of how it’s done, there is exposure to liability. However, how it is done can still reduce liability.
John Haase, Managing Partner, Labor & Employment Litigation Leader for the law firm of Godfrey & Kahn, Green Bay, Wisconsin, offers specific steps to follow to reduce the risk when making workforce reductions:
- Have a plan that goes beyond reducing workforce size to cut expenses. Businesses often do not think about where they want to be or specifically how much money they want to save by the workforce reduction. “Have a story that makes sense,” Haase explains. Be able to explain what you are trying to do and why.
- Make sure everyone knows the plan, that it is well-communicated to HR and other departments. In other words, make sure everyone is on the same page.
- Consider alternatives to permanent reductions. “Surveys show that employees would prefer to take a wage cut or a reduction in hours to a reduction in force,” says Haase.
- Establish clear and written criteria for any reduction. Seniority provides the lowest risk of liability, says Haase. “It is more objective than other criteria. If you use another criteria, however, such as performance, be sure to include the criteria of how you measure that performance. Have the factors prepared in advance. Also, be aware that there are factors that cannot be used, such as sex or age.” Additionally, explains Hams, if you already have had a reduction in force, “make sure you communicate the reasons and be consistent with the criteria for future reductions.”
- Review the potential outcome before acting. Look at the entire pool of potential layoffs and ask, “Did our selection result in a protected group being selected?” Haase cautions. For example, are you selecting more people from an older group, or more women than men, or primarily minorities? If so, you must be able to defend your choices based on your criteria.
- If possible, consider severance. In a climate like this, says Haase, most employees are more likely to take the money in exchange for releasing the company from liability. Severance can dramatically reduce the risk of being sued.
- Talk to your risk management insurance carrier and legal counsel for how to carry out the reduction with the least risk of creating a lawsuit.
Most of all, avoid selective terminations. It is not all that uncommon for a small business to use the concept of “selection in force, but it is actually attempting to get rid of a problem employee,” warns Hams. This creates high risk for wrongful termination lawsuit.
The bottom line: The risk of being sued is higher than at any other time in history. The best way to reduce those odds is to be aware of the risks and engage in sound, risk management practices. — JRI
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