Finance News & Insights

Layoffs: 4 ways to avoid costly retaliation


For employers forced to cut staff, a frightening trend is emerging: An alarming number of employees aren’t taking their dismissals lying down. 

Experts have noted an increased number of employee-based lawsuits. Unprepared firms are finding themselves on the hook.

The majority of suits have either alleged discrimination (with age as the top reason), or violations of the federal Worker Adjustment and Retraining Notification (WARN) Act, an act requiring 60 days’ advance notice for mass layoffs and closings. Other lawsuits from dismissed workers include FMLA disputes, the Fair Labor Standards Act, as well as overtime and wage issues.

If you determine that layoffs are unavoidable, following these guidelines can help keep you out of court — or from doling out significant settlement payments.

1) A complete and transparent blueprint. For those involved in executing layoffs, a detailed business plan is essential. Your blueprint (or business plan) should clearly explain why the layoffs are occurring, what facilities/businesses and positions will be affected, when (exactly) the layoffs will take place and how everything will happen, as well as any other relevant info. The key here is to provide as much info as possible to affected employees and create airtight documentation of your reasoning — should a dispute occur.
It’s important to ensure the reasoning makes sense to everyone — from the highest execs to A/P clerks. Many times, aspects of a downsizing decision that appear obvious to those making the decision aren’t so obvious to everyone else. Courts tend to side with laid-off employees when the downsizing decision hasn’t been sufficiently documented for justification.

2) Double-check any relevant regs. With WARN Act-related lawsuits on the rise, companies need to be extra careful their layoff decisions are in compliance with federal, state and local laws. Federal requirements are pretty straightforward; however, many state and local regs are more complex and severe. This is where double- (even triple-) checking with local entities can save a lot of headache in the long run.

3) A careful selection process. While it’s true your company can downsize in any way it sees fit so long as there’s no discrimination, it’s important to tread carefully here. If possible, avoid blanket percentage layoffs such as x-percent of Finance or x-percent of A/R. The last thing you want is for layoffs to follow a pattern ( i.e. mainly dismissing people of a certain gender, age, religion, ethnicity, sexual orientation, etc.). If 20 employees are laid off and 15 happen to be over the age of 50, the chances of staffers crying ageism goes up exponentially.
One option: Performing an impact analysis of how a downsizing decision will affect every protected class involved. If one group appears to be singled out, it may be worth it to come up with an alternative. Of course, if there’s no way around it: document, document, document. Logically illustrating your “business need” for cutting certain positions should keep your firm off the hook should any employees decide to claim discrimination.

4) The right choice of words. Delivering bad news is one of the most despised aspects of an employer’s responsibilities. To compensate, some managers use poorly framed word choices, appear apologetic or even attempt to shift the blame onto themselves. Despite noble intentions, the wrong choice of words could easily come back to haunt an employer in court. At all costs, avoid blame-shifting language, such as: “This isn’t your fault, it’s ours.”

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    Would love to hear from your experts. Thank you.