How to Lay Off Employees in Your Small Business pt 1
By VICKY BROWN
Downsize. It happens sooner or later to all businesses. Navigating internal and external factors can mean facing the fact the you may need to lighten the payroll load; or that you need different people, in different seats.
But how to go about doing a lay off?
Well, there are lots of factors to consider. How do you select what jobs which be eliminated What should you consider in making the decision. Are there any laws you need to keep in mind. Well, let’s walk through the process one step at a time.
First the selection. If it’s a situation where you simply need different skills, it’s easier to know which jobs have to go. The people in the jobs that are no longer a fit, would be reasonable candidates for job elimination. But if you’re looking simply at cutting the budget – well then things get a bit more complicated.
I know the first inclination would be to cut the jobs of the highest paid people, because you can save more that way. But it may not be that clear cut. No matter how you decide to make the selections, it’s always a good idea to do some analysis to see if there are any unintended consequences. Disparate impact. You may have heard the term from your employment attorney or your HR rep. It’s when an action or system looks neutral on the surface, but the result is that it has a disproportionate impact on a protected group.
So, let’s look at cutting the highest paid folks as an example. When you look at the details of that group, perhaps they have been with the company the longest – and that’s why their salaries are higher. Well then you have to look at where they all are age wise. Because if you cut 20 people, and 18 of them are over 40 – well then the fairly benign decision of cutting the highest paid people may actually have a disparate impact on an older group of workers.
Now I’m not saying you can’t do the layoff. But you have to be very careful in the selection process. Decide on a clear set of criteria; write it down; and stick to it. That would be one of the first ways you would respond to a possible discrimination complaint – to show that your selection process was not based on anything problematic.
And of course, during this whole process you are going to be joined at the hip with your employment attorney, so they can give you the guidance you’ll need.
OK, so you’ve decided how you are going to select people. So now you have a number, you know the number of people who are being let go. Now (and again, another reason you’ll have your attorney on speed dial) you have to make sure you are doing all the compliance things that are necessary.
For instance, there’s something called the WARN Act – it stands for Worker Adjustment and Retraining Notification Act. In English, it basically says that if you hit the eligibility levels, you can’t just go around cutting jobs. You either have to give people fair warning (defined as a notice period) or you have to pay out the equivalent of a notice period.
There is actually more than 1 WARN Act. There is the Federal WARN Act – and it applies to businesses with 100 or more employees, and is laying off 50 or more people at a single site. And, that’s just a very general overview, there are other eligibility criteria – but for the sake of argument, let’s go with this. Well, that business has to give workers at minimum of 60 calendar days notice period – or pay an equal amount to everyone.
“… you should be getting a separation agreement… it can’t be ‘sign it right now’… they have a week after they sign to decide they want to revoke their signature. Basically, take it back.”
And I mentioned there is more than one WARN Act. Well, the states got in on it too – so there are a number of states that have their own WARN Act requirements. They’re called mini WARN acts – and some of the states that have them are (you guessed it) California, Connecticut, Michigan, South Carolina, Illinois – that’s just a very small sample. Each one has it’s own thresholds, so just because you don’t’ qualify under the Federal WARN doesn’t mean you’re free and clear.
Alright , once you know you’ve taken care of what needs to happen on the legal compliance side – now you should turn your thoughts to the individual. Start thinking about how you want to deal with the employee.
Are you going to give everyone severance. Now, don’t automatically dismiss severance. It could be a very small amount – even 1 week, all the way up to the larger amounts we usually think of when we talk about severance packages.
Now the upside of paying out severance is in return you should be getting a separation agreement. That’s a release that the employee is required to sign, that releases you from some liability. Let me be clear, it won’t release you from all liability, but it can provide some good protection for the company. You can also include things like confidentiality clauses.
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Again, depending on which state you’re in, what can and can’t be included in a release will change – so again (let’s say it altogether) contact your attorney. But, no matter which state – there is a Federal guideline that will come into play. If you’re asking anyone to release you from a possible age discrimination claim because they are at least 40 – well now we’re into a Federal protection.
The Older Workers Benefit Protection Act or OWBPA governs how you have to deal with older workers to make sure the release is valid. There are certain specific things that will have to be in the separation agreement. You have to give them time to review the agreement with their own counsel – non of this ‘sign it now or the deal is off the table’ stuff. No – they get time to take it and review it.
If they’re 40 or older they get 21 or in some cases 45 days to review it (if they’re younger than 40, it can be less days – but again, it can’t be ‘sign it right now’. OWBPA also requires that they have a week after they sign to decide they want to revoke their signature. Basically, take it back.
There are lots of other provisions, but since this isn’t an episode all about separation agreements, we’ll move on.
Now, once you know you’ve covered the legal requirements; your done the prep work on if and how much severance you’re giving; and you’re done with the analysis to make sure you’ve covered all the bases. Well, now the next thing it to organize the communication piece. What will you say, when and how will you say it, is it possible to cushion the blow somehow.
I’ll cover all that in next week’s episode.