With the end of the 2022 second quarter and inflation at a record high in more than four decades, some employers may be forced to take measures to reduce overall operational expenses. Reducing payroll costs is one of the cost-savings measures available to employers in these circumstances. Unfortunately, however, this often results in the loss of employment for employees by way of a reduction in force, or a “RIF.” If a company must move forward with such a process, it must be carefully planned and executed in order to minimize the risk of employment law claims. Below is an overview of factors business owners and human resources professionals should consider when implementing reductions in staff, schedules or compensation.
Consider Cost-Saving Alternatives to Employee Terminations
Before deciding on a layoff or reduction in force, consider alternatives that may help manage the economic pressures facing the company yet keep employees earning wages. These alternatives include: hiring freezes; bonus reductions; postponement of wage increases; job sharing; voluntary early retirement; discontinuance of temporary or part-time employees; reduction in wages; reduction in benefits; or reduction in total hours. When implementing any of these changes, it is important to review for compliance under the applicable state and federal wage and hour laws, particularly those laws governing notice to employees of changes to pay and exempt employee minimum salary requirements. Employers should also confirm that these changes are permissible under the applicable benefit plans and any employment agreements.
Another option to a termination is a furlough, which is a temporary unpaid leave of absence. Companies can issue a furlough on an involuntary basis to selected employees, or may solicit volunteers to take a temporary leave. Furloughs may be of any length – days, weeks or months – and are typically unpaid. In general, when an employee is “furloughed,” the employee’s seniority status is unaffected and benefits can be continued subject to any plan restrictions. If salaried employees are furloughed, employers in New Hampshire should consider timing the start of the furlough to coincide with the end of a pay period, and the furlough should cover at least the full pay period and any future pay period, so as not to trigger an obligation to pay the salaried employee’s full salary for an entire pay period pursuant to RSA 275:43-b.
Reductions in Force or Layoff
A RIF is a decision to terminate part of the workforce. A RIF may be caused due to economic reasons, or a strategic decision to reorganize departments or jobs. Upon termination, there is no expectation that the employee will return to the employer’s workplace. A “layoff,” on the other hand, is a union workforce term, typically referencing a termination of employment with an expectation that the employer will recall the “laid off” employee once available work returns and subject to seniority rights.
Identify the Basis for the RIF or Layoff
Before implementing either a RIF or a layoff, companies should carefully identify and document the nondiscriminatory, business reason for the reduction. Any documentation that exists supporting the reason for the RIF or layoff should be kept in a separate file. This documentation will be important in the event the justification for the termination decision is ever challenged.
Determine the Scope of the Reduction
Once the business justification for the reduction has been identified, the next step is to assess exactly how many positions must be eliminated or restructured in order to achieve the identified business goals.
Establish Objective Selection Criteria
With RIFs and layoffs, there are usually two key goals in addition to the overall cost-savings intent: retain the best employees and avoid liability for discriminatory selection. Keep in mind that “to discriminate” simply means to differentiate or separate based on a legally protected characteristic, such as race, gender, disability, or age. In the context of making employment decisions as to who to retain and who to separate, employers must implement this decision-making process in a manner protected from discrimination claims. To do so, employers should develop an overall “selection criteria plan” for the decision-making prior to announcing the end-result to employees. Establish selection factors with the company’s legitimate business needs in mind, trying to keep the selection process focused on objective, legal criteria as much as possible (e.g., seniority; elimination of unnecessary categories such as part-time and temporary; elimination or consolidation of unnecessary positions; etc.). Before communicating any decisions, review the selection decisions and determine if there will be any disproportionate effect on any protected categories, or any employee who recently requested or is currently on a leave of absence protected by, among other laws, the Family and Medical Leave Act, the Americans with Disabilities Act, maternity leave, military leave or workers’ compensation.
Communications with Employees and Severance Packages
Once a careful review has been undertaken, consider how best to communicate with those employees being let go, and those who are being retained. Employers, in conjunction with legal counsel, may want to further reduce their exposure to litigation by obtaining release agreements from terminated employees. Such agreements need to comply with various legal requirements in order to ensure enforceability, especially when employees are 40 years of age or older.
Determine if the RIF or Layoff Triggers Worker Adjustment and Retraining Act (“WARN”) obligations
The federal and New Hampshire state mini-WARN acts overlap in many respects, and in general apply to employers with 100 or more employees who are separating employees for 6 or more months. There are various related terms and conditions, and these laws include the potential for substantial penalties if employers do not accurately comply with their terms. Employers should consult with counsel prior to any reductions in force to assess the application of these laws to the reduction.
Unemployment Compensation for Partial or Full Unemployment
Employees who experience a reduction in hours worked, or total loss of work, may be entitled to partial or full benefits from the New Hampshire Employment Security or the Massachusetts Department of Unemployment Assistance, depending on where the employee works. For partial reduction in work hours, employers should consider the option of the worksharing program established by the New Hampshire Department of Employment Security following the recession of 2008. Massachusetts has adopted a similar workshare program. If a salaried exempt employee’s hours are reduced, be mindful of the minimum weekly salary requirements for exempt employees ($684.00), and, if in New Hampshire, the general requirement to pay the full salary for any pay period in which the employee performs any work.
Most companies will be required to conduct a reduction in force or similar cost-saving reorganization at some point in their tenure. With all of the various employment laws in play, doing so in a haphazard manner could create liability for an employer. With appropriate safeguards and advance planning, an employer can reduce liability, survive, and even succeed, during any economic challenge.