Measure Twice, Cut Once
Rightsizing in Tough Economic Times
Carpenters and tailors have long followed the adage that it is best to measure twice, cut once. This bit of wisdom is equally applicable to human resource professionals today as they attempt to "rightsize" their workforces in light of the challenging economic times we are facing.
Judging from the headlines in our newspapers and favorite Internet news sources, employers of all sizes and industries are beginning to look at ways to reduce costs to compensate for their declining sales, with labor and employment costs often the primary target. Experienced labor and employment lawyers will tell you that economic downturns typically lead to large-scale reductions in force and plant closings, which in turn result in a surge of costly new employment lawsuits filed by and on behalf of the employees whose positions are cut.
To keep the costs of this vicious cycle of reductions-and-lawsuits at a minimum, Ice Miller's Labor and Employment Practice Group recommends that you consider the following measures before making any workforce cuts.
Measure Once to Consider Alternatives to Cuts
Before going
through the pain of an involuntary reduction in force (
· Elimination of independent contractors, temps, and other "non-employees" who are performing work that could be performed by regular employees;
· "In-sourcing" of work presently performed by outside companies that could be performed by your regular employees with reasonable amounts of training;
· Reduction of work schedules and/or allowing employees to "job share" in lieu of eliminating one of their positions entirely; and
· Voluntary reductions through layoff, termination or retirement programs that provide severance benefits or other incentives to employees who sign up.
Employers with unionized workforces might also consider bargaining for short-term or long-term concessions designed to keep the business afloat, including concessions in overtime costs, benefit levels and even wages. As a note of caution, concession bargaining can be a traumatic event in the life of a union and, unless handled with great care, can cause significant damage to the management-labor relationship. Accordingly, employers should avoid "crying wolf" and should seek concessions only as a matter of last resort.
Measure Twice to Consider Effect of State and Federal Law Before Implementing Cuts
Unfortunately, many employers will conclude that these less painful alternatives are not enough and that involuntary terminations are necessary to get their costs under control. In that event, employers must consider the following legal issues, among others, in designing an involuntary reduction program that will meet their headcount reduction needs while minimizing their legal exposure.
1. WARN Notice: Will the reductions be large enough to constitute a mass layoff or plant closing as defined by the WARN Act? If so, you may be required to give 60 days notice before carrying out the reductions, unless the reductions are due to "unforeseen circumstances" or one of the other exceptions built into the WARN Act.
2. Discrimination: Have you carefully considered the impact of the RIF on individuals in various protected characteristics? If past form holds, RIF programs generate tremendous amounts of litigation by employees selected, including claims that individuals in certain groups were selected on account of their protected characteristics (typically age, gender, and race) or that the selection criteria used in making the decisions had a disparate impact on those groups.
3. Vacation/PTO Pay: Have you considered whether your written vacation or paid time off (PTO) policy makes employees terminated due to a RIF or other reason ineligible for accrued but unused vacation or PTO pay? If not, then the law in Indiana and most other states requires you to pay employees for at least a pro rata amount of unused vacation and/or PTO pay after their termination.
4. Timing
of Final Pay: Most employers know
that Indiana's wage payment statutes require them to pay terminated employees
for their last days worked on or before the next regular pay period after their
departure. However, fewer employers are
aware that this same requirement applies to accrued but unused vacation and
other paid time available under "PTO policies," in the absence of
written policies to the contrary. This
timing is particularly important in
These and other legal risks can lead to large-scale litigation that can eat up much of the anticipated cost savings through adverse judgments, settlement costs and legal fees. If you would like assistance in designing a program that will minimize your risk of exposure to such lawsuits, please contact the Labor and Employment Practice Group of Ice Miller LLP, where we understand that the most successful employment lawsuit from your perspective is the one that never gets filed.
Michael Tooley is chair of Ice Miller's Labor and Employment Practice Group. His primary area of practice is to act as general employment counselor and advocate for employers regarding their workforces inside and outside Indiana, including daily employee issues, collective bargaining, arbitration, administrative proceedings before the NLRB, EEOC and other federal and state agencies, and employment litigation in state and federal courts.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.