How to Conduct a Layoff or Reduction in Force (RIF)

How to Conduct a Layoff or Reduction in Force (RIF)

Conducting a layoff is the most difficult decision facing businesses today. The basic compliance components to review during the layoff/RIF process are: 

1. Select employees for layoff.

2. Avoid adverse/disparate impact.

3. Review federal and state Worker Adjustment and Retraining Act of 1988 (WARN) regulations to stay compliant.

4. Review OWBPA regulations for compliance (age 40 and over). 

5. Determine severance package and additional services (if any).

6. Prepare for layoff session.

7. Inform remaining workforce of layoff.

Step 1: Selection of employees for layoff

After a company has designed its future organizational structure, a system for determining who will stay and who will go must be created. The selection criteria should be designed to identify the employee traits that will be instrumental in meeting the company’s goals. There are several factors that can be used in deciding the selection process, including seniority, performance, job classification or job knowledge and skills. By aligning the future goals of the organization with the best selection process, the company will be able to determine its success going forward. 

Step 2: Avoid adverse action/disparate impact

An organization should review the selected employees for layoff to determine if an adverse (disparate) impact exists for a protected class. Protected classes include individuals who are members of a certain race, color, ethnicity, national origin, religion, gender, genetic information, age (over 40), or those with a disability or those who have veteran status. Any protected class that may have a disproportionately larger percentage affected by the layoff will need to be evaluated and substantiated.  

Step 3: Review federal and state WARN regulations to stay compliant

Employers must determine if the WARN act will apply. The WARN act requires employers conducting a large-scale layoff to provide 60 days’ notice to affected employees (few exceptions apply). Remember to inform affected employees if they have recall rights, and communicate the details within the severance agreement and during the layoff session. Employers need to clearly outline the process for recall rights and/or applying for future positions with the company. In addition, a number of states have enacted “mini-WARN” legislation that extends notice requirements to smaller businesses conducting layoffs. Reviewing state laws will be important since mini-WARN acts often impose additional requirements that differ from federal law. As of April 2009, the following states have mini-WARN laws: California, Connecticut, Hawaii, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Tennessee and Wisconsin. For more information, review the DOL’s WARN Employer’s Guide.

Step 4: Review OWBPA regulations for compliance 

If releases are used in exchange for severance pay, they must comply with the Older Worker’s Benefits Protection Act (OWBPA) in order to effectively release claims under the Age Discrimination in Employment Act. The OWBPA addresses four different release scenarios, and each scenario contains five steps that must be followed in order to be compliant. Under OWBPA, employers will also need to provide older workers a consideration period of at least 21 days for one employee age 40 or over and 45 days for two or more employees age 40 or over for any releases to be signed. Additionally, employees must receive a revocation period of at least seven days. 

During a reduction in force or voluntary group incentive program, two additional requirements are needed to validate the releases. The employer must publicly identify the targeted employees, and secondly, the eligible employees must be informed in writing of the job titles and ages of all individuals selected for the group program, along with employees in the same job classification or unit that were not selected for the program.

Step 5: Severance packages and additional services 

Many employers offer severance packages to their displaced employees. A written severance package policy allows employees to realize the steps involved in the involuntary termination. Employers are not obligated to provide severance to laid off employees, but severance packages may lessen the chance of legal action filed on behalf of former employees. Severance packages may include salary continuation, vacation pay, continued (company paid) period of benefit coverage, company-paid COBRA election premiums, outplacement services, counseling and resume workshops, etc. SHRM has a sample Severance Agreement SHRM members may use as a model. 

Step 6: Layoff session

Sitting down with an employee who is about to be laid off will be difficult, but if handled diplomatically, it may reduce potential anger and resentment from the employee. Ensure that you are prepared for this meeting, and all information has been collected and available to the employee. Employers will want to be sympathetic and explain the reasons for the layoff, review health benefits and COBRA election procedures, 401(k) options, outplacement services and re-hire process, if available. Employers may also want to provide information on the unemployment process, along with any other job placement information available for displaced workers. It is also recommended to review the severance agreement with the employee and answer any questions the employee may have before leaving the company. Employers may also want to offer to answer any questions that employees may have over the next several weeks. 

Step 7: Inform workforce of layoff 

Notifying the remaining workforce of the layoffs that were conducted will help to squelch potential rumors. The employer may also want to communicate the company’s financial position and its commitment to meeting company goals and objectives going forward with the current workforce. Keep in mind that many of the employees you are addressing had built strong friendships with the laid off co-workers, and they will be anxious to know their future with the company as well. Be prepared to honestly communicate and answer questions to keep morale and productivity high going forward. Employers will need everyone on board and aware of the future challenges to be successful. 

See more layoff guidance in SHRM’s Managing Downsizing by Means of Layoffs Toolkit.

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