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Top 10 Layoff Tips

Posted by Maribeth L. MinellaOn March 6, 2009In: Seminars, Past, Severance Agreements, Terminations & Layoffs, WARN Act

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Layoffs and reductions in force were the topics of a seminar we presented yesterday, during which we reviewed how to plan and implement workforce reductions, requirements for severance agreements and releases, and alternatives to layoffs.shutterstock_21093820

In following up to yesterday's discussion, here is a list of the "Top 10 Layoff Tips": 

1. Plan your business first.

Your business plan should always be at the forefront of any decision. Don’t let a reduction in force later hamper your ability to compete. Even if they don’t result in costly litigation, short-sighted layoffs can be expensive because when your business picks back up you will eventually need to replace your laid-off employees.

2. Plan your reduction in force second.

Any reduction in force, whether a traditional lay off or an alternative, should complement your business plan. The short-term goal is to cut costs, but a reduction in force should not cut corners.

3. Consider alternatives.

There are many alternatives to traditional layoffs, and their beauty is that you can tailor them to fit your company’s needs. Alternatives include job sharing, reducing employee hours, voluntary sabbatical programs, and cutting benefits. The list is long and varied, so be creative.

4. Document, document, document.

HR professionals who are worth their salt know that good documentation is the first line of defense to an employee’s discrimination claim. Likewise, impeccable documentation of your reduction in force planning and implementation is your first line of defense to discrimination claims that may arise from a reduction in force.

5. Control the process.

Translation: Don’t wait until the last minute. If you think your business is on shaky ground, start thinking about how to reduce your labor costs. Ultimately, you want a reduction that cuts costs, keeps your best employees, and can get your business through the economic downturn. If you wait and make labor cuts your last resort, you will likely sacrifice one of those goals.

6. Involve stakeholders.

Who? The people who can be trusted with the company’s actual financial condition, who have a good reputation with employees, who can think creatively, and who represent affected employees. These are the people who have demonstrated a commitment to your company’s success. Don’t just involve the same managers who make all of the decisions. Think creatively about who to involve in the process.

7. Seek the advice of legal counsel early.

This accomplishes two important things. First, layoffs can lead to angry employees, who are more likely to sue you. Involving legal counsel early can help you reduce your exposure to lawsuits by making sure your reduction in force does not run afoul of any employment or labor laws.  Second, your communications with counsel are likely protected by the attorney-client privilege, which is important in litigation. This does not mean that the process should be kept secret, because it shouldn’t. The purpose of the privilege is to give clients the opportunity to speak freely and without the concern that what they say to their attorney will be used against them later. That, in turn, means you can float your creative ideas by your attorney and not have your brainstorming held against you.

8. Thoughtful risk analysis.

Whether you involve legal counsel or not, any reduction in force has to be planned and implemented with an eye on potential legal missteps. If you control the process, you also have an opportunity to think about the potential hazards in a meaningful way. Consider the risks your reduction in force poses and if they are too great, change the plan.

9. Identify WARN notice issues.

We’ve posted about the Worker Adjustment and Retraining Notification (WARN) Act before. Basically, it’s a federal law that requires certain employers to give employees 60 days advance notice of a layoff. If you employ at least 100 full-time employees or 100 full-time and part-time employees who, in the aggregate, work at least 4,000 hours per week, any reduction in force discussion should include consideration for the WARN Act.

10. Special considerations for older workers.

There are laws that pertain only to employees who are forty or older, and those laws have particular requirements for things like releases and severance packages. This is one more reason to involve your legal counsel early so that you can readily address any issues presented by workers who are covered by the Older Workers Benefit Protection Act (OWBPA) and the Age Discrimination in Employment Act (ADEA).

Delaware Bankruptcy Court Holds that Employee’s WARN Act Claim Does Not Have Administrative Priority

Posted by Maribeth L. MinellaOn October 14, 2008In: WARN Act

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As layoffs continue to occur, the WARN Act will become increasingly meaningful to employers, particularly those who are considering bankruptcy protection.

The WARN Act requires employers to give advance notice to employees who will be affected by a plant closing. Generally, 60 days’ written notice is required before closing a plant or implementing a mass layoff. Failure to comply with the Act can result in serious liability, including back pay and benefits for each affected employee for every day that the notice was not provided, for up to 60 days. This number can quickly add up to millions of dollars, which, for a company considering bankruptcy protection, can become an important factor in managing a bankruptcy estate.

On October 10, 2008, Delaware’s Bankruptcy Court issued a memorandum opinion which held, in a question of first impression for the Third Circuit, that an employee’s WARN Act claim is a general unsecured claim, rather than an administrative expense claim–a favorable opinion for debtor-employers.[1]

Powermate Holding Corp. and certain of its affiliates filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 17, 2008. Prior to the filing, Powermate operated in three states. On March 10, 2008, it sold all of its assets in Springfield, Minnesota and terminated the employment of all workers at that location. Next, on March 17, 2008, prior to their bankruptcy filings, Powermate discharged all of its remaining employees in all of its locations without prior notice. Approximately 260 employees lost their jobs.

Gregg Henderson, a former employee, sued Powermate on behalf of himself and other discharged employees, alleging that Powermate violated their rights under the WARN Act. Henderson further alleged that he and other similarly situated employees were entitled to recover their wages, ERISA, and other benefits for sixty days pursuant to the WARN Act, and that their claims were entitled to administrative priority. If Henderson were correct, the administrative liability would have been significant for Powermate’s bankruptcy estates.

The Bankruptcy Code structures claims against debtors in a particular order to achieve the goal of equitably distributing the estate among all creditors. For example, the Bankruptcy Code prioritizes secured claims (i.e., claims for which there is some associated collateral) above unsecured claims. Generally high priority claims are paid in full, whereas holders of lower priority claims (e.g., general unsecured claims) are infrequently paid in full. Administrative expenses, which are typically costs associated with preserving the bankruptcy estate or facilitating with the estate’s wind-down, are highly ranked and are usually paid in full. The import here is that, if an employee’s WARN Act claim were given administrative priority, it should be paid and full, which is a burden many employer-debtors could not bear.

Although the Bankruptcy Court has not yet determined whether Powermate has any liability under the WARN Act, it nonetheless considered Henderson’s claim ripe for adjudication because the issue was purely legal and required the interpretation of one of the 2005 amendments to the Bankruptcy Code. The Court also emphasized, “Without a determination of the priority status of the Plaintiff’s claims, [Powermate] will be frustrated in their efforts to proceed any further in their bankruptcy, to formulate a plan as well as to negotiate with creditors. Depending on the outcome of this issue, the claims of Plaintiff could be of sufficient magnitude and priority that there may be nothing left for distribution to other, lower priority creditors.”[2] Thus, the parties sought the Court’s determination that if there were WARN Act violations, would any damages be considered an administrative expense? The Court answered in the negative; in this case any damages would be considered unsecured claims (under Bankruptcy Code Section 507(a)(4)-(5)).

This finding is important for debtor-employers because, as the Court noted, without a determination of the priority status, Powermate’s bankruptcy proceedings would be stalled until any WARN Act liability was reduced to a liquidated amount, which would not occur until after a trial.


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[1] Henderson v. Powermate Holding Corp. (In re Powermate Holding Corp.), Adv Pro. No. 08-50559 (KG) (Del. Bankr. Oct. 10, 2008).

[2] Slip. Op. at 6.

What Is the WARN Act?

Posted by Molly DiBiancaOn September 30, 2008In: Reduction in Force (RIF), WARN Act

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Layoffs are happening. And layoffs have lots of implications-morale implications, business and financial implications, and legal implications.  Any time an employer is considering separating one or more employee for lack of work, a whole host of legal considerations are triggered. For employers with at least 100 full-time employees at a job site, one of the most significant is the Worker Adjustment and Retraining Notification (WARN) Act.  image

In short, the WARN Act requires employers to give advance notice to employees who will be affected by a plant closing.  Generally, 60 days' written notice is required before closing a plant or implementing a mass layoff.  Failure to comply with the Act can result in serious liability, including back pay and benefits for each affected employee for every day that the notice was not provided, for up to 60 days.  This number can quickly add up to millions of dollars.

Who Is Entitled to Notice?

WARN notice must be provided to either affected workers or their representatives (e.g., a labor union); to the State dislocated worker unit; and to the appropriate unit of local government.

Which Employers Are Covered?

Private-sector profit and non-profit employers who have 100 or more employees are covered.   In determining whether the minimum number of employees has been met, only those who have worked at least 6 months in the last 12 months and who work an average of at least 20 hours per week should be included. 

When Must Notice Be Given?

With three exceptions, notice must be timed to reach the required parties at least 60 days before a closing or layoff. When the individual employment separations for a closing or layoff occur on more than one day, the notices are due to the representative(s), State dislocated worker unit and local government at least 60 days before each separation. If the workers are not represented, each worker's notice is due at least 60 days before that worker's separation.

The exceptions to 60-day notice are:

(1) Faltering company. This exception, to be narrowly construed, covers situations where a company has sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business, and applies only to plant closings;

(2) unforeseeable business circumstances. This exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required; and

(3) Natural disaster. This applies where a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought or storm.

If an employer provides less than 60 days advance notice of a closing or layoff and relies on one of these three exceptions, the employer bears the burden of proof that the conditions for the exception have been met. The employer also must give as much notice as is practicable. When the notices are given, they must include a brief statement of the reason for reducing the notice period in addition to the items required in notices.

What Must the Notice Include?

Notice must be in writing but no particular form is required.  Notice must be specific. 

What Triggers Notice?

Plant Closing:  A covered employer must give notice if an employment site (or one or more facilities units within an employment site) will be shut down, which will result in an employment loss for 50 or more employees during any 30-day period. 

Mass Layoff: A covered employer must give notice if there is to be a mass layoff that does not result from a plant closing, but will result in an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer's active workforce.

Cumulative Layoff:  Even if the first two events do not occur, WARN Act provides still for a third circumstance where notice is required.  If, during a 30-day period, the number of employment losses for 2 or more groups of workers, each of which is less than the minimum number needed to trigger notice, would reach the minimum threshold if they were combined during any 90-day period.  Job losses within any 90-day period will count together cumulatively.

What Is An Employment Loss?

The term "employment loss" means:

(1) An employment termination, other than a discharge for cause, voluntary departure, or retirement;

(2) a layoff exceeding 6 months; or

(3) a reduction in an employee's hours of work of more than 50% in each month of any 6-month period.

Not included as an employment loss is an employee who refuses a transfer to a different employment site within reasonable commuting distance; an employee who accepts a transfer outside this distance within 30 days after it is offered or within 30 days after the plant closing or mass layoff, whichever is later.  In both cases, the transfer offer must be made before the closing or layoff, there must be no more than a 6-month break in employment, and the new job must not be deemed a constructive discharge.

Are There Any Exceptions?

An employer does not need to give notice if a plant closing is the closing of a temporary facility, or if the closing or mass layoff is the result of the completion of a particular project or undertaking. This exemption applies only if the workers were hired with the understanding that their employment was limited to the duration of the facility, project or undertaking. An employer cannot label an ongoing project "temporary" in order to evade its obligations under WARN.

An employer does not need to provide notice to strikers or to workers who are part of the bargaining unit(s) which are involved in the labor negotiations that led to a lockout when the strike or lockout is equivalent to a plant closing or mass layoff. Non-striking employees who experience an employment loss as a direct or indirect result of a strike and workers who are not part of the bargaining unit(s) which are involved in the labor negotiations that led to a lockout are still entitled to notice.

An employer does not need to give notice when permanently replacing a person who is an "economic striker" as defined under the NLRA.

How Long Is the Notice Period?

With three exceptions, notice must be timed to reach the required parties at least 60 days before a closing or layoff.

The exceptions to 60-day notice are:

(1) Faltering company. This exception, to be narrowly construed, covers situations where a company has sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business, and applies only to plant closings;

(2) unforeseeable business circumstances. This exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required; and

(3) Natural disaster. This applies where a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought or storm.