Handling Painful Layoffs: Dealing with Workforce Reductions Effectively

The 2007-2009 ("Great Recession") created layoff situations for many employers across all industries in the Untied States.  While there was no real solution to the credit crunch, we would like to review some of the measures PIA members took to get through that difficult time.  

In March 2009, Printing Industries of America surveyed its members on what cost cutting measures firms were taking.  View the Layoffs and Alternatives Final Report here.

Partial Layoff Alternative

A majority of states offer through their unemployment insurance program a benefit to affected employees whose hours are reduced by the employer. Theses programs are often called “Workshare.” For more information see http://www.printing.org/page/3703.

Pre-Layoff Questions to Consider

Before deciding to proceed with layoff actions, employers may should be sure to thoroughly examine all alternative measures that may be less drastic and potentially harmful to the company.  The following questions should be asked before settling on a decision to impose layoffs.

  • “What is the purpose of the layoff? There may be several reasons, such as cost, reorganization, realignment of functions, improved productivity, etc.
  • Have the desired outcomes been clearly defined?
  • Have possible repercussions of the layoff (e.g. vendors, clients and the public) been considered and appropriate plans been developed?
  • Has the employer talked with their Human Resources advisors to be sure the company leadership has considered all the aspects/best approaches to the layoff, for example:
    • Minimizing risk and potential liability
    • Rationale
    • Timing (All at once or in stages; timing in relation to customer needs/productivity)
    • Maintaining safety and security during the layoff
    • Determining if external communication will be needed to maintain relationships and company reputation after the layoff (e.g. company’s clients, vendors, local community, etc.)
    • Communicating with those to be impacted
    • Retaining the “survivors” (e.g. Upon completion of this layoff, will the employer be in a position to reassure survivors regarding their own future job security? If not, has the company leadership discussed this with their HR team?)
    • Maintaining productivity
    • Management practices after the layoff
    • Maintaining morale and culture in the aftermath
  • Are there any opportunities for immediate job promotions, merging of functions or realignment that would further the company’s long term needs or objectives? If so, could these plans be combined to reduce the negativity of the layoff?”

Effective Planning

Beyond the legal responsibilities and due diligence expected of an employer, there are other steps that can be taken to ease the impact of a layoff on employees. If properly handled, they may have future benefits for the employer as well.

Central to this idea is the importance of a coherent and consistent message communicated by management to employees that explains the necessity of job reductions to the survival of the business.  Once it is decided that layoffs are a necessary action, each department head or manager should be required to evaluate their staffs and produce a written list of candidates along with justifications for either laying them off or retaining them. Having a procedure in place for all managers that requires them to submit documentation which will then be used in a neutral and impartial process reduces exposure to claims of discriminatory termination and litigation.

Managers should  include the following criteria in their evaluations of  what employees are candidates for layoffs and why:

  • Skill level
  • Quality of work
  • Ability to work in/with other areas or equipment
  • Attendance
  • Seniority

Next, a structured framework for meetings with employees should be developed.  They can designed for all staff, separate departments, or employees grouped by future employment status.  The meeting should be used to inform employees in person that the company’s financial situation is troubled and that staffing changes are going to be made.  However the meetings are structured and regardless of their frequency, the first time a meeting is held the following elements should be prepared for inclusion:

  • a script for the layoff meeting
    • an effort to collect correct permanent addresses and telephone numbers for post-employment communication
    • an explanation of final pay procedures, including vacation pay (if applicable)
    • an explanation of benefits termination (e.g. COBRA/health insurance, pension) including any possible portability (e.g. HSA, 401(k)).
    • termination of access to company credit card, if applicable, security cards, tools, equipment, cell phones, etc.
    • an employee assistance program  (EAP) (if applicable)
    • a referral to a job placement service or printing industry-related job board (note, you should contact these firms about resources and opportunities before making any announcement. Having recruiters available at some point will be beneficial to all concerned.)
  • a script for managers to use in speaking to surviving employees

It is ideal to develop a script for managers to learn that anticipates possible questions and provides clear and effective answers to them. This aids in reducing the spread of rumors and misinformation among worried staff.

This strategy applies to both laid off and surviving employees.  While much of the attention is naturally given to those being terminated, staff members who retain their positions may also need the support of management or an EAP in dealing with abrupt staff reductions.  They may experience feelings of guilt for surviving a round of job cuts while their friends and coworkers find themselves out of a job.  If left unresolved, such feelings can seriously diminish morale among remaining employees. 

Taking these steps should allow management to deal with the aftermath of any layoff action.  If the layoff is large enough, press inquiries are very likely if not inevitable.  A short, prepared statement should be created in advance for easy distribution in multiple formats to address these concerns.  Management should also act proactively to communicate with clients to explain any layoff actions.  Some clients may have reservations about making purchases if the company develops a negative public image due to a poorly handled layoff.  Making efforts in advance to address any reservations they may have in this regard allows the employer to have greater control over its image while lowering the possibility of lost business revenue.  In addition, taking these steps removes a potential burden from sales people to have to publicly account for the decisions of management during their sales calls.

Sample RIF Structuring and Implementation Checklist

Legal Requirements for Communication

The next step management should take once a business plan is established that determines what and how many employees need to be removed from payroll, is to give proper legal notice to affected employees. Federal law requires advance notification of plant closings and mass layoffs. The Worker Adjustment and Retraining Notification (WARN) Act, establishes basic definitions and rules for the circumstances when an employer will be required to give notice of a plant closing or layoff. Also covered are the questions of when notice must be given, who must receive the notice, what the notice must contain, how the notice must be delivered.

The law requires employers of 100 or more full-time employees to give at least 60 days notice prior to a plant closing or mass layoff.  Employees entitled to advance notice under the WARN Act include managers, supervisors, hourly-wage, and salaried workers.  Not counted are those who have worked fewer than six (6) months in the last twelve- (12) month work period and those who work an average of less than twenty (20) hours a week.  Other employees unprotected by the WARN Act include:

  • Strikers, or workers who have been locked out in a labor dispute;
  • Workers employed on temporary projects or the work facilities of the business who clearly understand the temporary nature of the work when hired;
  • Business partners, consultants, and contract employees assigned to the closing business, but who have a separate employment relationship with another, second employer and who are paid by that other, second employer, and those business partners, consultants, and contract employees who are self-employed.
  • Regular federal, state, and local government employees.

Who Receives Notice If Your Layoff Is Covered By The WARN Act

In union-organized companies, notice should be given to the chief elected officer of the union or bargaining agent for affected employees. Non-union employees should be given notice personally. Notice must be given to employees who will likely lose their jobs because of seniority or other factors. Notice must also be served on the state dislocated worker unit and the chief elected official of the locality within which a closing or layoff is to occur, typically the mayor, county executive or superintendent.

Notice to an employee who is not represented by a union must be written in understandable language and contain the following:

  • A statement of whether the action is expected to be permanent or temporary and, when applicable, a statement that the entire plant is to be closed.
  • The expected date when the plant closing or mass layoff will start and the expected date when the individual employee will be separated.
  • An indication whether or not seniority or “bumping” rights exist.
  • The name and telephone number of a company official to contact for further information.
  • Notice to representatives of employees and government officials should essentially contain the following:
  • Name and address of the employment site where the plant closing or mass layoff will occur, and the name and telephone number of a company official to contact for further information.
  • A statement of whether the planned action is expected to be permanent or temporary and whether the entire plant is to be closed.
  • The expected date of the first separation and the anticipated schedule for making separations.
  • The job titles of positions to be affected and the names of workers currently holding those jobs.
  • Any method of delivery designed to ensure receipt of the notice at least 60 days before separation is acceptable. This includes first class mail, personal delivery with optional signed receipt, or a notice inserted into pay envelopes.

Exceptions to the WARN Act

The WARN Act is not activated when a covered employer:

  • Closes a temporary facility or completes a temporary project, and the employees working in the facility or temporary project were hired with the clear understanding that their employment would end with the closing of the work facility or the completion of the project
  • Closes a facility or operating unit because of a strike or a worker lock-out, and the closing is not intended to evade the purposes of the WARN Act
  • The WARN Act also is not activated when the following coverage thresholds are unmet:
  • If a plant closing or a mass layoff results in fewer than 50 workers losing their jobs at a single employment site;
  • If 50-499 workers lose their jobs and that number is less than 33 per cent of the employer’s total, active workforce at a single employment site;
  • If a layoff is for 6 months or less; or
  • If work hours are not reduced 50 per cent in each month of any 6-month period.

There are three (3) exceptions to the full 60-day notice requirement, however, the notice must be provided as soon as practicable, even when these exceptions apply, and the employer must provide a statement of the reason for shortening the notice requirement in addition to fulfilling other notice information requirements. These three exceptions are:

  • Faltering company: When, before a plant closing, a company is actively seeking capital or business and reasonably, in good faith, believes that advance notice would preclude its ability to obtain such capital or business, and this new capital or business would allow the employer to avoid or postpone the shutdown for a reasonable period;
  • Unforeseeable business circumstances: When the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that the 60-day notice would have been required (i.e. a business circumstance caused by some sudden, dramatic, and unexpected action(s) or condition(s) beyond the employer's control, such as a major order's unexpected cancellation); or
  • Natural disaster: When a plant closing or mass layoff is the direct result of a natural disaster such as a flood, an earthquake, a drought, a storm, a tidal wave, or the similar effects of nature. In such cases, notice may be given after the event.

Violating these requirements, i.e. in the event of hastily handling a reduction in force, can open the employer to extremely expensive litigation and regulatory oversight.  Therefore, it is in the employer’s best interest to plan for any layoff actions well in advance so that their execution can be done in a timely manner.  Before applying any of these exceptions, advice of legal counsel should be sought.

Below is a list of relevant state laws that also apply in situations where mass layoffs are being imposed. 

State level laws which expand upon the WARN Act’s compliance rules

California
Connecticut

Hawaii
Illinois
Maine
Maryland
Massachusetts (See Chapter 151A, Section 71)
Montana
New Hampshire (On 1/1/2012, the employer threshold jumps from 75 employees to 100 employees, enacted June 7, 2011)
New Jersey
New York
Oregon
Tennessee
 

 

Reduction In Force (RIF) Communication Guidelines

The Company's employees who are subject to the RIF may contact the employer later to discuss the RIF, as well as the reason for their lay-off. When such questions arise, please refer employees to the Company's Announcement, the Q&A Document (if available), and the letter to employees that discuss the basis for the RIF, as well as any benefits that may be offered. Employees should be informed that the RIF was a result of the economic recession the company is currently suffering, and was not initiated as a direct result of the employee's performance. The Company wishes to ensure that all employees subject to the RIF be provided with consistent information related to this action. If an employee raises additional questions not covered by these materials, please consult with the company’s local legal counsel before responding.

Sample Company Announcement of a RIF
Sample Contact Information Sheet for Employees Document
Sample Guidelines for Communicating the RIF Decision to Employee1
Sample Guidelines for Communicating the RIF Decision to Employees
Sample Letter to Employees Regarding a RIF
Sample Questions and Answers Sheet on the RIF

ADEA Waivers

In the case of workers over 40 years old, a company may want to take steps to insulate the firm against legal claims following a termination by offering the employee an Age Discrimination in Employment Act (ADEA) waiver.  In this situation the waiver must:

  • be in writing and be understandable;
  • specifically refer to ADEA rights or claims;
  • not waive rights or claims that may arise in the future;
  • be in exchange for valuable consideration;
  • advise the individual in writing to consult an attorney before signing the waiver; and
  • provide the individual at least 21 days (45 days if two or more older workers are terminated as a group) to consider the agreement and at least seven days to revoke the agreement after signing it.

The phrase valuable consideration is any compensation other than remaining income from payroll and vacation benefits.  This usually comes in the form of a severance package (e.g. more severance and/or pay a few months of COBRA).   ADEA waivers have been successfully used to cover other laws as well, such as Title VII of the 1964 Civil Rights Act, Americans with Disabilities Act, etc.  Employers in California need to seek the advice of legal counsel before using any ADEA waiver.

Aside from these legally required methods of and time lines for communicating a layoff, employers can go further to ease the emotional and financial blow of a layoff on employees. The most obvious manner of help is to provide assistance with finding new employment with other local printing companies. Due to the necessarily specialized and high level of skill required of printing employees, their services are often needed at other firms that have openings. Such efforts also benefit the employer because a successful transfer of employment may eliminate the need to pay out severance, would remove the employee from the company's health care benefits plan, reduce the likelihood of any lawsuit and reduce unemployment experience.  Employers can gather and provide access to other resources, such as state unemployment agencies and job banks. All of these efforts can make for a smoother transition for all parties while minimizing the pain and stress of already trying circumstances.

OWBPA

The Older Workers Benefit Protection Act (OWBPA), amended the ADEA by extending its application to employee benefit plans for workers over 40. It clarified that the term “compensation, terms, conditions, or privileges of employment” in the ADEA encompasses all employee benefits, including those provided through a bona fide employee benefit plan.  As a result, Separation Agreements or releases are a further safeguard in the case of RIF’s involving older workers. 

A release is a form of a contract in which the employee agrees to waive any legal rights and potential lawsuits in exchange for consideration from the employer. Consideration in this context means the employer has given the employee something of value that the company has no legal obligation to give to the worker. Consideration in most circumstances involves the payment of money. However, consideration is not limited to money; for example, it can include a letter of recommendation, payment of the employee's health insurance COBRA premiums, or waiving a loan.

The OWBPA is even more complicated in its requirements if the release is proposed to a group of older workers in connection with a plant closing or a RIF. In this situation, each worker in the group or class of employees must be given a period of at least 45 days (not just 21 days) within which to consider the release agreement. Additional notice and disclosure obligations are also mandated concerning the ages and job titles of all persons affected by the group layoff. These notifications are required by law to be furnished to every employee in the company (and not just those included in the RIF).

Because strict compliance with the OWBPA's requirements is necessary to safeguard an employer's interests, obtaining a release from a worker over the age of 40 can be a difficult process. The OWBPA eliminates any possibility of getting a signed release on an immediate basis. An employee over 40 may sign the release immediately, but the employer cannot force the employee to do so; the OWBPA gives the worker a right to have up to 45 days to consider the offer in the RIF context.

Of course, providing severance packages to all of the employees terminated as part of a RIF can be an expensive proposition. However, if the company is considering offering some type of severance package to its employees in any event, the company should obtain a release of all claims against the company in exchange for the severance.
Again, each separation agreement is a contract and should be designed by counsel and reflect the facts of each reduction in force; however, there are common elements in all agreements which include:

  • The agreement should be labeled "confidential."
  • The agreement should contain identifying information that clearly describes the purpose, the parties and the context. Consider a background paragraph describing the events that have led to the agreement.
  • In plain type, the agreement should state that the employee will terminate on a specific date.
  • A section of the agreement should describe its terms. Consider numbering each one.

Common terms include:

  • Statement that the agreement is not an admission of guilt.
  • Itemized statement of the benefits that the employee will receive if he or she does not sign the agreement.
  • Itemized statement of the additional benefits that the employee will receive if he or she does sign the agreement.
  • The timeframes for consideration and for revoking the agreement.
  • A paragraph that contains the release and waiver language. The form of these clauses may change from state to state.
  • A reference check process including what information will be released.
  • A statement that the employee will not disclose the terms and conditions of the agreement except to assist the company if challenged, to the employee's attorney, and to the employee's tax preparer.
  • Any clauses required by state statutes.
  • A statement that the agreement is binding on all parties and others that may have future claims.
  • A paragraph requiring return of all company property and information by a specific date and to a specific party. Include a statement that the employee has not retained any company property including copies, electronic files, ect.
  • A confidentially nondisclosure clause or refer to a separate agreement (if one exists).
  • A statement indicating what will occur if the employee fails to uphold any of the terms of the agreement.
  • A statement itemizing rights contained in the Older Workers Benefit Protection Act of 1990.
  • A clause that states that the agreement is complete and supersedes any other prior agreement. Describe how this agreement can be modified.
  • If appropriate, an arbitration clause.
  • A clause that encourages the employee to consult with an attorney of his or her choice. Reconfirm that the agreement is voluntary. Restate the timeframes of the agreement.
  • A statement that the agreement does not become effective until the timeframes have been exhausted.
  • In bold type a statement that the agreement should be read carefully, there are rights that are being forfeited by signing, and that any questions or concerns should be directed to an attorney.
  • A standard format for signatures including witnesses, dates, etc.

Click here for our sample ADEA/OWBPA waiver. 

In July 2009, the EEOC released a new guidance document in Question and Answer format on Employee Severance Agreements, and a checklist (from the perspective of the employee). 
http://www.eeoc.gov/policy/docs/qanda_severance-agreements.html

Plant Closing Checklist

The National Association of Manufacturers (NAM) offers the following advice for conducting an orderly plant closure.


1.  Develop a transition plan

Any planned closing should provide for the earliest possible reemployment of displaced workers. This requires the cooperation of:

  • management,
  • the work force,
  • the state employment service,
  • the local labor union if there is one, and
  • other government and community agencies.


Ideally, employees know well in advance when they will be laid off, obtain jobs that start the following workday and report to the new job without losing a step. But, that may not always be the case.

The state employment service can play an important role in easing the transition for employees. In addition to handling claims for unemployment insurance, it can act as a clearinghouse for job information —both in the local area and in other areas —and as a catalyst in retraining activities. The key to any program, however, is management involvement since management controls the calendar of the shutdown, the worksite where reemployment efforts must begin and some of the information necessary to reach those in need of services.

2.  Address morale through open communications

Direct and open communication with employees is a must. For those employees about to be let go, the period prior to official notification is usually a sober one. It is a time of uncertainty, anxiety and increased psychological insecurity as they contemplate being tested in the labor market.

3.  Cultivate community good will

At times, the community may question or challenge the reasons for closing the facility or the final decision to do so. Such challenges must be expected and responded to with careful consideration. Patience at this stage will yield returns, since the cooperation of local political leaders can be critical to the success of the closing procedures. Support for the displaced work force, access to public employment services, and disposal of the physical plant are all areas where these local officials can play an important role. The same is true of unofficial centers of influence such as:

  • media,
  • chambers of commerce,
  • religious organizations,
  • realtors,
  • bankers,
  • labor union councils,
  • state manufacturing and local industrial relations associations, and
  • private social agencies.

Each can contribute significantly to an orderly closing if management is sensitive to the various perspectives involved.

4.  Provide optimum advance notice

If a lengthy advance notice was always clearly in the company's best interest, it would be a universal practice. However, some firms are understandably fearful of losing suppliers, credit, customers or employees if the closing decision is known too far in advance. Any one of those factors could force a plant to shut down well before its projected closing date.

Timing of notice

Most complaints have been that notice is too short for employees to have sufficient time to prepare for a transition. But, there is no ideal or minimum amount of advance notice. In each situation, management must:

  • determine what reactions to expect and how to respond to each
  • budget time for any discussions with unions or municipalities and for meeting legal and production requirements.

If there is to be a closing, timely reactions can begin only with acceptance of the fact.

The use of advance notice is what counts in the end, even though the launching time for the devices noted here will vary. One yardstick, however, might be a plant-based reemployment center. Normally, such a center takes about six weeks to open. After that, it needs to operate for about eight weeks to show results for large numbers of workers.

Elements of notice

Regardless of the time involved, any advance notice should:

  1. permit an effective plan for reemployment to become operational and enhance the displaced workers' opportunities for reemployment;
  2. establish and/or maintain open communication with the work force and community leaders; and
  3. reduce or eliminate the disruptive effects of rumors regarding the closing or layoff.


The shutdown plan must also include provisions for ensuring the delivery of products to customers, meeting legal obligations and maximizing opportunities to best dispose of the property.

First announcements are necessarily vague, since many details still need to be worked out. It is better to be vague initially than to provide information that must be contradicted later. A factual review of the situation is the best way to deal with the problem of disbelief, but some individuals may be unable to accept the decision without counseling by a third party. If a union represents the employees, some issues may be the subject of bargaining. Other issues may not be resolved until the shutdown process has actually begun. In any case, essential information should be disseminated as soon as it becomes available.

5.  Consider employee relations alternatives

“Pay-to-stay.”

Severance pay, special early retirement offers and the like could be made to be contingent on the employee's continuing on the job until the layoff date. At the same time, employees should be encouraged to make full use of the notification period to launch their job searches. If management announces its willingness to consider requests for early departure to other jobs without loss of closing benefits, some very positive results may follow. A major disincentive to serious job searches will be removed and some employees may avoid the experience of unemployment entirely. For key employees whose skills are in demand, special bonuses may be justified to keep them for the duration. Keep in mind, though, that another firm might offer these people a bonus to compensate for their loss of regular closing benefits.

Relocation

Offering employees the option to relocate to another facility, when possible, is a good practice. The company can retain trained employees, severance costs may be mitigated, public relations are enhanced and company vacancies could be filled internally. Even though many employees may not relocate, the option is perceived to be an example of a good faith attempt by the employer to preserve employment.

Early retirement

Early retirement is an option widely appreciated, even when it's not accepted. Plant closings are normally accompanied by a fresh look at retirement terms, whether they are subject to bargaining or not. Whatever the revised plan is, it should be reviewed by legal counsel to avoid age-discrimination problems. Where employees are eligible for retirement benefits, the computation necessary to clarify each individual's benefit can be time-consuming. This should be prepared for each employee as soon as possible and individual conferences scheduled to answer questions and discuss options.

In liberalizing its retirement terms, a company has two kinds of concerns. One is basically humanitarian. Some affected employees may be at an age and service level that causes them to be regarded as poor prospects for successful relocation, retraining or reemployment. They are, in effect, prospective hardship cases and it is good employee relations for the company not to turn its back on them.

The costs to the company of early retirement, a company's second concern, need to be weighed against those associated with severance pay, unemployment insurance claims, supplementary benefits and extended insurance plans.

Severance pay and benefits

Plant closings and mass layoffs can offer an opportunity for all parties to rethink the question of severance pay. Originally intended to recognize the displaced employee's record of service and to provide subsistence during the transition to the next job, research has since suggested that beyond a certain point, large severance payments correlate positively with long periods of unemployment. Indeed, when cash settlements for unused vacation time are added in, the lump-sum payment often amounts to 10 to 12 weeks of full-time pay and, occasionally, to one year or more.

Since a mass layoff worsens the labor market, it may be advisable to shift funds from severance pay to services designed to increase the speed and quality of reemployment such as outplacement, job clubs, retraining and released-time arrangements.

Health coverage

Extended health insurance coverage beyond the layoff date ranks at the top of all closing benefits to employees. If at all possible, the company should continue group coverage to relieve employees' anxiety in this area.

6.  Provide job search assistance

Consider the following actions:

  • Displaced workers should be surveyed to see who is interested in receiving help in making job contacts and who would consider relocating to another town or state.
  • Form letters could be composed to employers within the industry, accompanied by a list of the skills your employees possess.
  • Resumes could also be forwarded at this point in batches, but employees may need some guidance on the preparation of the same.
  • A separate letter may be sent in quantity to firms in other industries with similar skill requirements.
  • Invitations could be extended to prospective employers to hold interviews in the plant.
  • If work schedules will permit, consider allowing employees time off to attend job interviews in or outside the plant.

 

For an in-depth step by step review of what measures to take when pursuing a RIF or plant closing, see the RIF Management Guide. (hyperlink)

Key Terms

Following are some definitions and highlights of the notice requirements that are clarified in the final regulations for employers planning a plant closing or mass layoff.

Employer Defined. An employer that must give notice is generally any business that employs 100 or more employees excluding part-time workers, or 100 or more employees including part-time workers who on the aggregate work at least 4,000 hours per week exclusive of overtime. Workers on temporary layoff or on leave with a reasonable expectation of recall are counted as employees.

Plant Closing. The shutdown of a single site of employment, or one or more facilities in a single site of employment, when the shutdown results in an employment loss during any 30-day period for 50 or more employees, excluding part-time workers.

Mass Layoff. A reduction in force which is not the result of a plant closing, that causes an employment loss for 30 days of at least 33% of active employees and at least 50 employees (excluding part-time workers). Where 500 or more employees (excluding part-timers) are affected, the 33% requirement does not apply.

Employment Loss. An employment loss that is applied to the definitions of plant closing or mass layoff occurs in one of three cases: (1) termination other than a discharge for cause, voluntary departure or retirement; (2) a layoff exceeding six months; or (3) a reduction in work hours of more than 50% during each month in any six-month period.

Relocation Transfers. There is no employment loss requiring a WARN notice if (1) the employer offers to transfer an employee to a different site of employment within a reasonable commuting distance with no more than a six month break in employment, or (2) the employee accepts an offer of transfer, regardless of distance and with no more than a six-month break in employment, within 30 days of offer or the closing or layoff, whichever is later.

 

Published on Friday, April 20, 2012 (updated 06/20/2016)