Managing a Reduction-In-Force Potential Issues, 0919 SCBJ, SC Lawyer, September 2019, #26
| Author | By Phillip A. Kilgore and James R. Silvers |
| Position | Vol. 31 Issue 2 Pg. 26 |
By Phillip A. Kilgore and James R. Silvers
For years, your client, ACME, LLC, has been bullish on its business plan and the future. Strong sales. Double digit annual revenue growth. Strong market demand for services and products. Recognition by a regional business journal as a “Best Place to Work in South Carolina.” But then, you get the call from your client.
Whether due to a breakdown in negotiations between the United States and a trade partner, political unrest in a nation that has been an important market, a catastrophic event that disrupts the global economy, or some other event or trend beyond ACME’s control, its business takes a downturn. ACME must reduce its workforce by 35%. Immediately. How do you advise your panicked client?
Introduction
This example may seem extreme, but it is not unrealistic. De-spite a national economy with record low unemployment rates and interest rates, a downturn or recession could happen at any time. And an employer can find itself in need of a reduction-in-force (RIF), even in a good economy. Unfortunately, a RIF or layoff might be the only way to return to profitability, or even survive.
In addition, a RIF can occur in the aftermath of a merger or acquisition, to eliminate unnecessary or duplicative positions or functions. A RIF also may occur where a company has grown too fast and must right-size.
Whatever the reason, RIFs involve significant costs and can give rise to potential bad publicity. A poorly executed RIF will add to these costs, and it can spur lawsuits and cause a loss in productivity.
This article provides tools for implementing a systematic RIF process and an overview of legal issues surrounding involuntary RIFs.
RIF Procedures: Preparation and Execution
A. Planning and Preparing for the RIF
Navigating through a RIF can be a challenge, and employers should have a clear path mapped out in advance. Thus, planning and preparation prior to execution are critical. An employer will want legal counsel involved throughout the RIF process and especially until the list of to-be-RIFed employees (“RIF list”) is finalized. All documents generated in the RIF process should be designated “Attorney-Client Privileged” and/or “Attorney Work Product.” Once the RIF list is finalized, the notations should be reviewed, and any prior drafts held by anyone other than inside or outside counsel should be shredded, deleted or otherwise properly destroyed.
Below is a suggested model employers may use to reduce potential litigation.
1. Advance written RIF plan A well-written plan documents the clear business justification for the RIF and provides decision makers with consistent and meaningful guidance. Upper management should take the time to develop the explanation of the reasons for the layoff, under the supervision of counsel, in anticipation of litigation, with appropriate “Attorney-Client Privileged” and/or “Attorney Work Product” designations.
2. The decision maker Next, the employer should identify and designate the “RIF decision maker.” The RIF decision maker typically has functional leadership over affected units and should be an individual in a very good position to review the selections. The decision maker also should be someone able to explain the employer’s RIF decisions in court if necessary.
Employers may choose to rely upon more than a single RIF decision maker. While a single decision maker can foster consistent messages and articulate the grounds for selection, the employer may wish to insulate this manager against accusations of personal bias or animosity. Additional RIF decision makers increase the diversity of perspective and balance to the process. Multiple RIF decision makers, however, can create inconsistent explanations for selections, which would make a defense of the RIF more difficult.
If the employer is reducing a specific unit, it is best for the RIF decision maker to consult with the Human Resources representative for that unit. The RIF decision maker should have a firm understanding of the legal issues that may arise from the selections.
3. Layoff criteria
After choosing the RIF decision maker, it is time to identify the relevant layoff criteria. Objective criteria are easier to defend. For example, seniority-based, or “last in – first out” policies are easy to understand and leave little leeway for a jury to find unfair treatment. This method is also known as “forced ranking.” Subjective criteria or the “skills and abilities” ranking model, however, often is preferable to objective criteria. A subjective approach does increase legal exposure.
Many employers rely on annual performance reviews to rank employees for RIF selection. Although relying on performance ratings may seem to be an objective way to make layoff decisions, they often reflect individual subjective assessments. In fact, performance evaluation tools frequently measure mostly subjective criteria. Moreover, supervisors reporting to the RIF decision maker have varying views on how to score certain subjective criteria, such as “Meets Job Expectations.”
Relying on past evaluations has additional shortcomings. Supervisors sometimes issue annual reviews in positive terms, with a view to motivate, an objective that is irrelevant to the process of selecting employees for a RIF. Moreover, prior annual reviews evaluate past work and may not to address potential value for present and future needs.
If an employer intends to use subjective review criteria in the selection process, it might consider identifying those relevant to the skills and abilities needed for the future. Employers may wish to re-evaluate employees with customized criteria and re-rank all employees accordingly. If an employer chooses to utilize a new “skills and abilities” review, it is important to analyze prior annual reviews to identify and be able to explain inconsistencies with prior annual reviews.
Whether an employer intends to utilize a skills and abilities rating or a forced ranking approach, the employer should provide supervisors detailed and explicit...
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