In today's economic climate, reductions in force (sometimes referred to as RIFs) are a reality for many employers. In attempting to reduce overhead and increase efficiencies, many employers consider alternatives to RIFs, including voluntary separations or leaves of absence, required unpaid leaves, shortened work days or work weeks, pay freezes, or adjusting retirement contributions. However, when an employer decides to carry out a reduction in force, several key issues must be considered to reduce legal risk and bolster what might be a strained workforce. This article addresses a few key issues in workforce reductions.
Selection criteria for a RIF. Employers generally have significant latitude in selecting which employees will be terminated in a RIF. However, collective bargaining agreements, policies and handbook provisions, and employment contracts may restrict the criteria for employee selection.
If an employer is not so restricted, decision makers may generally develop selection criteria that will meet legitimate business needs. Such criteria might include employee skill sets, on-the-job performance, and advancement or growth potential. While employee seniority may also be considered or even used as the sole criteria in determining who will be retained, there is no general legal requirement to weigh seniority into the RIF selection process.
The criteria used to select who will be retained and who will be let go should be thoughtfully developed to meet the organization's goals, thoroughly discussed with those making the selection decisions, and consistently applied within operational units or job categories. The more subjective the criteria, the more vulnerable to legal challenges they will be.
Discrimination claims. Great care must be taken in selecting employees for a workforce reduction, because terminations due to reductions in force, like any other termination, can raise discrimination or retaliation claims. In other words, employees who lose their jobs can file claims alleging that they were selected for elimination due to discrimination on the basis of a protected class (i.e., age, race, gender, disability) or due to retaliation.
Thus, it is critical that employers can demonstrate that the selection criteria for a RIF and application of those criteria are legitimate, related to business necessity, and do not target employees in legally protected classes. Decision makers should be able to clearly articulate (and support with documentation) why employees were or were not chosen for the RIF.
Even where legitimate criteria are used to select employees, employees may still bring legal challenges alleging that the workforce reduction disproportionately affected employees in protected classes such as age. These are known as "disparate impact" claims. In 2008, the U.S. Supreme Court ruled that an employer defending against a disparate impact claim under the Age Discrimination in Employment Act bears the burden of persuasion that its decisions were based on "reasonable factors other than age."
In that case, the employer needed to reduce its workforce, and after approximately 100 employees accepted a buyout to voluntarily leave the company, 31 more jobs had to be cut. Managers were asked to score employees on "performance," "flexibility" and "critical skills". Those scores, along with points for years of service, determined who would be let go.
Of the 31 employees selected for reduction, 30 of them (or approximately 97%) were in the protected age class, 40 or over. Only 73% of the employees at risk for involuntary layoff were 40 or over. Several terminated employees sued, claiming that the employer designed and implemented the reduction in force in order to eliminate older employees (disparate impact) and, regardless of intent, the RIF disproportionately impacted older employees.
The ADEA states that it is not unlawful discrimination for employers to take adverse action against older employees where differentiation in treatment is based on reasonable factors other than age. The question in case before the Supreme Court was whether the employer or the employees have the ultimate burden of persuasion that the employer did or did not rely on reasonable factors other than age. The Court ruled that although employees bringing disparate impact claims must be able to identify the specific criteria, practices or policies they claim disproportionately impacted the protected class of employees, employers bear the ultimate burden of persuasion that their criteria were legitimate and unrelated to age.
The case sends a clear message that reductions in force may be scrutinized for discriminatory motive and impact.
Practical considerations in carrying out a RIF.
Jennifer Mirus is a partner whose practice focuses on all areas of employment law. If you have any questions about this article or other issues, Jennifer may be contacted at (608) 283-1799 or jmirus@boardmanlawfirm.com.
This article is provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult with your attorneys in connection with any situation in your work place.
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