It’s no secret that the U.S. economy has seen better days. Just last May, more than 171,000 American employees lost their jobs through reductions in force. This is the largest reduction in the work force since the early 1990’s, and there is no indication that it will improve anytime soon.

So, employers are understandably concerned about how to conduct a reduction in force without incurring liability or irreparably damaging the morale of those who stay. Here are five simple rules to keep in mind:

Rule Number One: Avoid having a RIF if you can help it. No matter how well you do it, a RIF is going to have a negative effect on employee morale, including the “survivors.” So, if you are in a position to question, do give every proposed RIF a hard look and consider how necessary it is and whether there aren’t other ways to save money. If you’re not in such a position, or if there really is no alternative, then go to Rule Number Two.

Rule Number Two: Communicate properly. If your company is having difficulties, you should share that information with your employees as well as the possibility that cutbacks may be necessary. If the employees are mentally prepared, the announcement of a RIF will be less traumatic for them when it comes. 

Even if there are no true financial difficulties but for whatever reason the company believes it is prudent to restructure, or move jobs offshore, it is best to be up front about these possibilities, and the sooner, the better.

Rule Number Three: Have a selection process that is fair. The selection process used by the employer is more important than the selections themselves. If the process is flawed, it will be difficult for the employer to defend its decisions. Employers should decide beforehand what the criteria will be and how they employees will be measured against that criteria. Once the process is established, the employer should stick to it. If any exceptions have to be made, the exceptions and their rationale should be justified and thoroughly documented.  

In cases where clear-cut criteria (for example, reverse seniority or the shutdown of a business unit) are not going to be used, a ‘fairness review’ of the RIF selections by Human Resources and counsel is strongly recommended.

Another good idea for ensuring fairness is to keep “before and after” statistics on the races, sexes, national origins and ages of the individuals in the “decisional unit,” especially if the selection criteria involve some subjectivity. If you do gather such information, it is important to protect that through attorney-client privilege or work product so that you don’t have to disclose it in the event of a lawsuit.

Rule Number Four: Be honest. One of the biggest mistakes that employers make during RIFs is to lump “problem” employees into the group that is RIF’d even though they may not fit the criteria and even though their problems have not been sufficiently documented to support a termination for cause. If such an employee decides to file a charge or sue, then he may have a strong case because – according to the employer’s criteria – he shouldn’t have lost his job. On the other hand, it hardly seems fair to terminate good employees in a RIF situation and keep the bad ones. The solution? Be honest. Put the “problem” employee into the pool, but explain to him and to any governmental agencies that become involved that he was included because of problems that had not yet reached “termination” level, and that it just was not fair to terminate good employees in his stead.

Rule Number Five: Be sure you have your act together on severance. A detailed discussion of severance is beyond the scope of this article, but here are a few quick tips. First, if you are giving only a small amount of severance, don’t ask for a release. On the other hand, if you are giving a relatively generous amount, always ask for a release. For employees 40 and older, make sure that your release complies with the Older Workers’ Benefit Protection Act. Courts are closely scrutinizing disclosures now to make sure that they comply with the requirements of the Act. Finally, your severance agreement overall should be written in a manner that is calculated to be understood by the average employee in the group being terminated. Too much “legalese” in the agreement can result in a finding that your agreement is void as to any age discrimination claims.

A reduction in force is never good news. But employers who follow these five steps will minimize their liability and maximize employee morale in a bad situation. 

By W. R. Loftis, Jr.

Constangy, Brooks & Smith, LLP

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