THE AFTERMATH OF SEPTEMBER 11 AND THE NEW ECONOMY

Designing the New Organization

Reduction and Career Transition

Building and Leading Your Newly Realigned Team

Title / Section
General Guidelines for a Reduction in Force / 1
Overview of WARN Act Requirements / 2
Sample WARN Notices / 3
Legal Do’s and Don’ts -- Important Considerations When Making Decisions Regarding Employee Performance / 4
Sample Checklist for Managers / 5
Sample Script for Transitioning Employees / 6
ADEA Disclosure Form / 7

GENERAL GUIDELINES FOR A REDUCTION IN FORCE

The following are some general guidelines to consider in preparing for a reduction in force (“RIF”). Because there are many factors that an employer must consider when conducting a reduction in force, we recommend that employers consult employment and benefits counsel before implementing a reduction in force.

1.Consider Alternatives. The Company should determine whether there are alternatives to a RIF, such as a voluntary early retirement incentive program, salary freezes or reductions, hiring freezes, shortened workweeks or workdays, or voluntary unpaid leaves of absence.

2.Control Information Flow. The Company should take steps to ensure that information regarding the RIF does not leak out prematurely and that the information that is presented is accurate.

(a)Decide who will know and when they will know it. (Management, by level; major customers/clients; nonmanagement employees; directly affected employees; news media/public). Typically, it is best not to announce a RIF until the selections have been made and analyzed as discussed below -- otherwise, valued employees may immediately leave the Company and the effect on productivity and morale while the selection process occurs can be both negative and significant.

(b)Script all information releases through press releases, a memo or letter to employees who have been laid off and who have been retained, an exit interview checklist, and presentations to management and other employees.

3.Ensure Compliance with Collective Dismissal Legal Requirements.

(a)U.S. WARN Act requirements.

(i)Special notice is required for a “mass layoff” -- at least 33% of the workforce and at least 50 employees; or at least 500 employees; or a “plant closing” -- the permanent or temporary shutdown of a single site of employment, or one or more operating units in a site, if 50 or more employees are laid off during a 30-day (or 90-day) period.

(ii)Company must give notice to affected employees, the state unemployment division, and chief elected official of the unit of local government within which such closing or layoff is to occur.

(iii)Check whether the RIF is located in a state with a plant closing (“mini-WARN”) law.

(b)The laws on collective dismissals differ for every country. Do not assume that any particular region even has similar laws such as the European Union or Asia – they differ dramatically. Consult with local country employment law firms for any individuals based outside the U.S. whose position will be eliminated as part of the RIF.

4.Designing the New Organization: Select Employees for RIF and Retention.

(a)Determine which facilities/departments will be affected by the RIF based upon the reason for the RIF.

(b)Revisit prioritization of business resources including:

(i)Business areas reducing or eliminating positions

Reduction of temporary workers or contractors (independent consultants and vendors)

Reductions based on the termination of non-critical projects or programs

Elimination of unprofitable lines of business

Consolidation of work groups that reduce the total number of staff required

(ii)Business areas requiring resources

Opportunities for employees to perform work previously performed by temporary or contract workers

Critical positions vacated as a result of performance management initiatives or attrition

New openings that directly impact increased revenue and profitability

(c)Within each department, determine which jobs are essential and which can be eliminated or combined. Plan cuts that are deeper than the initial estimates to avoid having to do another RIF in a short period of time and because the numbers will slide anyway as inevitable exceptions are made.

(d)Prepare a uniform set of criteria for selecting which employees will be retained. These criteria should focus on the qualifications and skills needed to perform the jobs that will be retained. They can include the employee’s expertise, the breadth and flexibility of their skills, their past performance, conduct and productivity, and the feasibility of other employees absorbing the duties of the laid off employee.

(e)Train the Company managers in the selection process and the process of applying the criteria in selecting employees. It is critical that the Company follow a selection process that will allow the Company to later demonstrate that a uniform set of criteria was fairly applied. Instruct managers to choose one extra person from each unit who, if necessary, could be included in the RIF.

(f)Have the managers rank employees according to the criteria. See attached “Legal Do’s and Don’ts: Important Considerations When Making Decisions Regarding Employee Performance.”

5.Review The Decisions. Each decision should be reviewed by higher-level managers and HR to ensure that the decisions were made fairly and reasonably, and in compliance with the law. In addition to each individual decision, the Company also should:

(a)Conduct an adverse impact analysis. The Company should analyze the composition of its existing workforce as to race, sex, age, and other protected characteristics, such as employees on medical leave or workers’ compensation leave, or employees who have filed claims against the company. This composition should be broken down by division, department, working groups, job classifications, salary grades, etc. The Company should compile similar data on the “post-RIF” workforce and seek to determine whether there is any adverse impact. Please consult your employment counsel for assistance with the adverse impact analysis.

(b)Review all employee handbook and policy statements regarding RIFs to ensure that the policies, procedures and actions taken in the RIF are consistent with such statements. Pay particular attention to any promises to find other assignments within the Company for laid off employees.

(c)Determine whether any employees represented by a collective bargaining agreement will be affected and secure legal advice regarding union notification and bargaining obligations.

6.Prepare the Necessary Forms and Paperwork.

(a)If additional layoffs are likely, create an ERISA severance benefit plan that provides for certain benefits and additional benefits in exchange for a release of claims.

(b)Create separation packages for each employee in the RIF which include:

(i)A memorandum or letter that explains the reason for the RIF and describes the employee’s benefits in detail.

(ii)A Personal Status Change Notice that notifies the employee of his or her layoff. (California Employers)

(iii)An exit interview checklist that guides the manager through the process. The employee should reconfirm their obligation to protect proprietary company information and should be provided with a copy of their proprietary information agreement.

(iv)The Severance Plan Summary Plan Document, which includes the proposed release of claims, (if applicable).

(v)Benefits Q & A, including employee assistance program information if offered.

(vi)COBRA & HIPAA notices.

(vii)California Health Insurance Premium Program (“HIPP”) Notice (California Employers)

(viii)Employment Development Division (“EDD”) booklet re: California’s programs for the unemployed -- “For Your Benefit.” (California Employers)

(ix)Final paychecks, which should include all accrued but unpaid wages and all accrued but unused vacation time.

7.Reduction and Career Transition: Meet with the Affected Employees and the Retained Employees. The affected employees may be met with as a group, or individually. Those employees retained should also be informed of the reduction, including the number of positions eliminated and the reason for that reduction. While the Company may wish to reassure the retained employees that no further RIF is planned, the Company should avoid any absolute “guarantee” that there will not be another RIF in the future.

8.Building and Leading Your Newly Realigned Team. The Company’s goal is 100% retention of the top performers. This will be tracked, and managers held accountable for this goal. The Company should suggest to managers some key messages to deliver to top performers. These messages should be delivered frequently and genuinely. The messages should come from the top performer’s direct manager and other senior and well-respected leaders in the business. Remember, the five most important criteria to employees are:

Belief in the strategy and leadership team

Ability to have impact

Personal relationship and respect for their manager and their team

Respect and recognition

Interesting and challenging work – new opportunities

9.Be Cognizant of Security Concerns. Review any potential security problems related to potential misappropriation of trade secrets (e.g., changing computer access codes, voicemail access, keys or building access codes) or physical security issues regarding volatile employees. A security guard service should be hired if necessary. Managers should circulate among employees to supervise the packing process. Particular attention should be paid to prevent unauthorized copying or erasure of computer-recorded information.

10.New Hires. Employees hired shortly before a RIF should be forewarned about the RIF only if it would significantly impact their career at the Company (e.g., a significant reduction in the unit the new hire will supervise).

OVERVIEW OF WARN ACT OBLIGATIONS

The federal Workers’ Adjustment and Retraining Notification Act of 1988 (WARN Act) was enacted to provide protection to employees, their families and the surrounding community by requiring employers who employ 100 or more employees to provide advance notification of plant closings and mass layoffs. The following is an overview of WARN Act obligations.

1.Sixty-Day Notice Required. If an employer’s layoff or shutdown triggers the WARN Act, the employer is obligated to provide written notice of the plant closing or mass layoff to the official representatives of a certified labor union representing the affected employees at least 60 calendar days in advance of the plant closing or mass layoff. For employees not represented by a union, such as supervisors and managers, the employer must provide written notice directly to the employee. Direct notice may be accomplished either by mailing it to the employee’s last known address, or including it within the employee’s paycheck.

2.Methods of Providing Notice. The following methods of giving notice are not acceptable: bulletin board announcements, verbal announcements, “ticketed notices,” i.e., preprinted notice regularly included in each employee’s pay envelope, and “rolling notices” (giving notice every 60 days). The notice must be in a language understandable to the employee. Further, the regulations specifically address companies that have bumping or transfer rights with regard to closings or layoffs.

Finally, the regulations provide the content of the notices must be specific and give either a specific date or a 14-day period in which the closing or layoff is expected to occur. Where a 14-day period is used, 60 days’ notice must be given from the first day of the period, and only in limited circumstances will the original notice be sufficient should the closing or layoff date go beyond the date specified in the notice.

The employer must also provide written notice to the state worker dislocation unit (unemployment agency), and “the chief elected official of the unit of local government within which such closing or layoff is to occur” at least 60 calendar days in advance of the plant closing or mass layoff. If more than one unit of local government is involved, the employer is required to notify the unit of local government to which it paid the highest taxes for the preceding year.

3.Triggering Events. The WARN Act notice requirement is triggered by a mass layoff or a plant shutdown causing an “employment loss” of sufficient magnitude. The minimum threshold of employment loss sufficient to trigger WARN is 50 jobs lost in one single geographical site.

An “employment loss” is: (1)an employment termination, other than a discharge for cause, voluntary departure, or retirement; (2)a layoff of at least six months; or (3)at least a 50 percent reduction in work hours for each month in a six-month period. Therefore, if an employer terminates an individual’s employment, even though it plans on re-hiring the individual within a month or two, the termination constitutes an employment loss -- regardless of the duration. However, if an employer temporarily lays off an employee (e.g., the employee has a reasonable expectation of being recalled within a six-month period), an employment loss has not occurred.

a.Mass Layoff. An employer must provide 60 days’ written notice to conduct a sizable reduction-in-force other than a plant closing. To measure whether the layoff is large enough to require notice, WARN counts the number of employment losses during any 30-day period.[1] If 33 percent of the employees[2] are laid off and at least 50 employees are affected, then notice is required. In the case of a layoff, the employee must either be terminated or laid off for at least six months.

An employee is temporarily laid off (which does not count as an employment loss) if the employee has a reasonable expectation of being recalled within six months. This reasonable expectation arises where the employee understands, through notification or industry practice, that employment has been temporarily interrupted, and that the employee will be recalled to the same or a similar job. The following factors are also considered: past practice, the employer’s future plans, the circumstances of the layoff, expected length of the layoff, and industry practice. In fact, if a layoff is temporary rather than permanent, the individuals are still considered employees.

An employer can conduct a temporary layoff, assuming the employees have a reasonable expectation of re-employment within six months, without having to provide WARN Act notice. If an employer implements a temporary layoff for less than six months, and later decides to terminate the laid off employees or close the plant, the employer would be required to provide the affected employees with WARN Act notice of the employment termination or plant shutdown. However, notice of the temporary layoff is not required -- even if the employer was contemplating a shutdown at the time of the layoff.

b.Plant Closure. The WARN Act notice requirement can also be triggered if the Company temporarily or permanently closes an entire plant, or any separate operating unit. The shutdown must cause employment losses during any 30-day period adding up to 50 or more employees.[3] A temporary shutdown triggers the notice requirement if the Company terminates employment, conducts a layoff for at least six months, or implements a 50 percent or more reduction in hours worked during each month of a six-month period for 50 or more employees at one location. Therefore, if the Company closes one location resulting in termination of employment of at least 50 employees, WARN Act notice is required even if the shutdown is temporary.

c.Effect of Sale of the Business. If a company is purchased and the buyer rehires the seller’s employees immediately, then the employees will not suffer an “employment loss” under WARN. Although a technical termination of employees occurs as a result of the sale, the employees will become employees of the buyer immediately. This technical termination by itself does not trigger WARN liability. Therefore, WARN liability would be avoided because employees, in fact, experienced no “employment loss.”

If the buyer does not plan on hiring the seller’s employees immediately (at the moment the sale is effective), the seller will be responsible for providing notice of any plant closing or layoff up to and including the date of the sale. The buyer would be responsible for providing notice after the effective date of the sale.

The seller is not liable (unless he assumes this liability in the sale) for failing to give notice to the employees where the seller had knowledge or was aware the buyer planned a closing or layoff. However, the regulations suggest a coordination between the buyer and seller if a closing or layoff is anticipated.

d.Effect of Transfers to Other Locations. The WARN Act provides an exclusion from the definition of “employment loss” in certain circumstances where the plant closing or layoff is the result of a relocation or consolidation of part or all of a company’s business. Thus, the Company can remove employees from one location without having the “removed” employees count toward the 50 employee or 33 percent threshold that triggers WARN Act notice. To qualify for the exclusion, the Company must meet one of two criteria.

(1)Transfer Within Reasonable Commute. Prior to the closing or layoff, offers to transfer employees to a different location within a reasonable commuting distance of the employee’s former worksite qualify the Company for this exclusion, provided the transferring employees do not experience a six-month break in employment. Whether the proposed worksite is within a reasonable commuting distance from the employee’s former worksite will depend on local and industry conditions. The regulations state the following factors must be considered: geographic accessibility of the place of work, quality of the roads, customarily available transportation, and usual travel time.