Employment Law Commentary, October 2008

WEATHERING THE STORM: EMPLOYMENT ISSUES IN AN ECONOMIC

DOWNTURN

By Heather Burror

Recent headlines paint a bleak picture of the economy in the

United States and around the world: US Bails Out Fannie Mae and

Freddie Mac! US Unemployment Rate at 5-Year Low! WaMu Becomes

Biggest Bank to Fail in US History! Dow Plunges to 5-Year Low!

Dutch Government Injects $13.5 Billion into ING Bank!

The recent economic downturn and market instability is prompting

many employers to make tough decisions to weather the storm.

Struggling employers have a number of options from which to choose:

workforce reductions, voluntary exit incentive programs, temporary

shutdowns, hiring freezes, and reduction or elimination of overtime

work. But whatever the chosen alternative, employers must proceed

with caution to avoid legal pitfalls.

Employers should also beware that a downturn in the economy is

often accompanied by an uptick in employment litigation. Employers

can prepare for potential litigation by updating employment forms,

reviewing policies and practices to ensure that their intellectual

property is protected, and reviewing wage and hour practices to

ensure compliance with federal and state law.

Workforce Reductions

Employers considering a potential workforce reduction should be

aware of several key federal statutes, including the Worker

Adjustment and Retraining Notification ("WARN") Act, the

Employee Retirement Income Security Act of 1974

("ERISA"), the Consolidated Omnibus Budget Reconciliation

Act of 1985 ("COBRA"), and the Older Workers Benefit

Protection Act ("OWBPA"). In addition, many states have

their own counterparts of these federal statutes, such as

California's WARN Act.

Employers conducting a workforce reduction must take care during

the selection process. The existence of a workforce reduction does

not automatically protect an employer from legal claims by the

affected employees. Although it may be tempting to use a workforce

reduction to eliminate poorly performing employees on a selective

basis, this practice may make it easier for an employee to claim

that his or her position was selected for elimination for

discriminatory or retaliatory reasons. The safer approach is to

select positions for elimination based on uniform, objective

criteria, rather than subjective criteria such as job

performance.

Another safeguard is to assign a group of managers to review

each position selected for elimination to ensure company-wide

consistency. A statistical analysis of the workforce both before

and after the proposed workforce reduction is also an invaluable

tool to assess the possibility of an adverse impact on any

protected group of employees. These precautions can help ensure a

fair and objective selection process, which will reduce potential

exposure to claims of discrimination or retaliation.

Employers should also be aware that in most cases the WARN Act

requires employers with 100 or more employees to provide employees,

bargaining representatives, and local government officials with 60

days' advance written notice of a mass layoff or plant closing.

For purposes of the WARN Act, a "mass layoff" is any

workforce reduction that results in an employment loss of at least

33% of active full-time employees (a minimum of 50 employees) at a

single site of employment during any 30-day period. A "plant

closing" includes the temporary or permanent shutdown of a

single site of employment, or a facility or operating unit within a

single site of employment, if that shutdown results in an

employment loss of at least 50 full-time employees within any

30-day period.

If an employer fails to provide proper notice, employees can

recover their salary and benefits for the period for which notice

was not given, up to a maximum of 60 days. Although the WARN Act

does not specifically allow employers to provide pay in lieu of

notice, if an employer chooses to do so, no other damages would

appear to be recoverable as long as the employees also receive any

other employment benefits they would have received during the

notice period. As a result, many employers decide not to have

affected employees work during the 60-day notice period due to

concerns about workplace morale or the potential for misconduct by

disgruntled employees, either choosing to provide pay in lieu of

notice or placing affected employees on a fully paid leave of

absence during the notice period.

Employers also need to take care when offering severance to

employees who are laid off. In order to receive a valid release of

claims by an employee, an employer must offer the...