Lions (Furloughs) and Tigers (RIF) and Bears (WARN). Oh My.

  • Apr 27, 2020
  • COVID-19
  • Sara Gullickson McGrane

As Minnesota slowly begins to reopen from the Governor’s shelter-in-place directive, many employers are wondering whether the continuing impact of the pandemic will require longer term workforce adjustments.  In short, will the temporary layoffs (furloughs) have to be transformed into permanent reductions in force (RIF)?

A RIF occurs when you let employees go due to an insufficient amount of work in the foreseeable future. The RIF is permanent—the employee will not return at some point in the future. To effectively manage a RIF, you must account for three critical considerations:

Plan ahead

Even if you are not certain that you will need to implement a RIF, mapping out in advance what a RIF might look in your organization will give you much-needed time if it becomes necessary at a later time. Your planning must account for:

a. The Decisional Unit – where will the reductions come from? When you decide that a RIF will be needed, the first thing you need to consider is what is the group being impacted. For example, if the CEO orders that 10% of all personnel costs be reduced, or if a small entity examines their entire organization just to see what cuts are possible, the decisional unit is likely your entire organization. On the other hand, if the CEO declares that Department 10 must be reduced by 10 people, Department 10 is the decisional unit.

The decisional unit is important because it may help inform the decision as to the criteria you will use to select the employees to be let go. It also is critical to crafting an effective and legally enforceable release (see below).

b. A Defensible Ranking System – once you identify which areas or positions are going to be reduced, you must determine how you will select the actual people to be let go.

These decisions are ripe for legal challenge on the basis of discrimination (e.g. age, gender, race), retaliation (e.g. whistleblower, workers comp) or some other legally protected factor. Therefore, it is best to remove subjectivity from the selection process and instead utilize neutral, objective criteria that cannot be contested as merely the employer’s opinion or preference. In short, opinions can differ on who is the “better employee”; proof based on objective, verifiable criteria is largely unassailable.

There are numerous ways to devise objective selection criteria but the ones we see most frequently are: 1) job criticality – which employees have the jobs that are most important to the employer’s continued operations? 2) training and work skills – with a smaller workforce, who has the necessary training and/or experience to take on new or additional duties? 3) job performance – in a job that has multiple incumbents, which of them performs the job better as evidenced by performance reviews, the lack of disciplinary actions, etc.? 4) special skills – does someone know how to perform one particular and important task that nobody else can do, or do they have a required license that nobody else has?

If you decide to use more than one of these (or other similarly objective) factors, determine how you will use them to score or rank your employees. All of the factors do not need to be scored identically. For example, you can assign up to 20 points for training/work skills and only 10 for job performance.

In addition, you do not need to utilize multiple criteria, nor must the criteria be the same for each department or decisional unit. It is very possible that in one area of the organization, work skills and flexibility will be critical while in another, job performance may be more important.

Before deciding on any of these factors, be sure to check with the department manager or other official who has the best vantage point for determining what the most critical factors for success are. Those with day-to-day operational responsibility typically are the ones who have the best understanding of this.

c. Disparate Impact Testing – if you are reducing any decisional unit by more than 5 people, you will want to implement disparate impact testing. This means a statistical analysis of how many employees of the various protected classes might be expected to be reduced versus how many were actually selected. The analysis should focus on the critical discrimination factors such as age (over 40, under 40, and then also 40-49, 50-59 and over 60), race, and gender.

If you end up showing a disparate impact upon a protected group (more in that group being let go than what might be expected on a statistical basis), you want enough time to go back to the manager to see if they want to make any adjustments based on the results. Adjustments are not always necessary – sometimes the objective criteria just work out that way. However, if a disparate impact is shown, the employer may have to prove in court that the criteria used were a business necessity and that there were no other equally effective criteria that could have been used without discriminatory effect.

Valid Releases

If you are going to offer employees over the age of 40 severance as part of the RIF, you will want to get a release of claims in return. Releases in the RIF setting have some very particular considerations:

a. Is it a Group Termination? For purposes of the federal Older Workers Benefits Protection Act (OWBPA), a group is anything more than 1 person so 2 is definitely a group. In fact, a reduction of just one person can be considered a group if it is made as part of a phased reduction. For example, if you laid off five sales employees in May, and then let one order processor go in June because you have fewer sales being made, that one additional person laid off may very well be considered part of the group termination.

Why are we so focused on whether there is a group termination? It’s because that determination has a major impact on…

b. Exhibit A – a group termination requires that you attach a Job Titles and Ages chart (we refer to this as “Exhibit A”) to the release. That means you give to the individuals impacted by the reduction a list of the job titles and ages of those in the decisional unit who were selected for reduction, and the job titles and ages of those not selected for reduction. Under OWBPA, a release for those individuals over 40 is not valid unless you include the Exhibit A in a group termination.

If you are doing a phased reduction as explained above, you will need to update Exhibit A for the subsequently terminated employees. For example, assume you need to reduce your workforce and you first focus on letting retail workers go because your stores have closed. After that reduction is accomplished in May, you then turn to online sales workers and let them go in June. When you do the June reduction, you will give them an Exhibit A that includes the workers let go in May because this was essentially one combined RIF that was carried out over the course of a month or so. However, you need not go back and update the Exhibit A given to the people let go in May

c. 45 Days to Consider – If you intend to implement a group termination, the OWBPA requires that you give each employee 45 days to consider whether they wish to sign the release, not just 21 days as you do for an individual termination. They will still get the same 15 days to rescind the agreement after signing it, as required under Minnesota law, but the longer consideration period for a group reduction is critical to the enforceability of a release in a group termination setting.

The WARN Act

If you are going to have a mass layoff, or a closure of a business, you must consider possible implications under the Workers Adjustment, Retraining and Notification Act (WARN). For the full explanation of what this entails, please read our blog piece entitled The Warn Act and COVID-19.

Bottom Line

It seems almost certain that even when the pandemic passes, Minnesota workplaces will look very different.  If your return to the “new normal” will entail a RIF, be sure to plan – and execute – it very carefully.