International Employment — Episode 2: Global Employers’ Guide to U.S. RIF Compliance

Transcript

Maya Atrakchi

Of Counsel, New York City

Hi, my name is Maya Atrakchi from Jackson Lewis, and I'm part of the International group, which serves our global clients on cross-border employment law issues. If you were with us for the last podcast, part one of this series covered international restructurings and reductions in force and really highlighted how U.S. companies navigate them outside the U.S., with a particular focus on Europe. We had our amazing colleague from L&E Global, Florence, from France, discuss with us some considerations regarding works councils, collective processes, and how these processes can differ significantly across Europe. 

Today, we're really going to flip that on its head and focus on the U.S. process, with this conversation geared towards companies based in Europe, Asia, and Latin America that are navigating U.S. RIFs and trying to understand more clearly how they differ from their local jurisdictions.

To help me with this process, I am happy to have Jeff Brody here. He leads our RIF group at Jackson Lewis. Jeff, if you have anything to share, otherwise feel free to jump right in.

 Jeffrey Brody

Principal, Boston

Thanks, Maya. Happy to jump right in. A single termination situation in the United States, reduction in force or a RIF, as we call it, might trigger certain notification requirements under a U.S. federal law called the Worker Adjustment and Retraining Notification Act, or the WARN Act, which is the acronym we use. While the law in this area is a bit complicated from a high-level perspective, it generally says, with some exceptions, that an employer who experiences a facility closure or a discrete segment of its business and engages in a mass layoff will have certain notification obligations. When we say a plant or facility is closing, we mean it's triggered by the closure of a facility or plant that impacts at least 50 full-time employees in any 90-day period at a single site of employment.

Then, by contrast, a mass layoff, unlike a plant closing, is triggered if the reduction in force does not constitute a plant closing, but impacts at least 50 employees at a single site of employment, and the number of employees impacted at that site of employment constitutes at least one-third of the workforce at that site of employment. Again, looking at a 90-day period.

In a nutshell, again, a plant closing would be 50 or more full-time employees at a single site of employment within a 90-day period, while a mass layoff would be 50 full-time employees at a single site of employment within a 90-day period that also constitutes one-third of the workforce at that site. If these numeric thresholds are met, an employer must give at least 60 days' advance written notice to affected employees and to certain state and local government officials.

The notice itself has certain requirements for what must be included. You want to make sure you consult with the U.S. Council on what must be in the notice. Whether the job action rises to the level and triggers WARN via these numeric thresholds I spoke about, and if so, what needs to go into the notice and to whom it needs to go.

Atrakchi

Excellent. Are separation agreements generally advisable? Are they best practices? Is there release language? If so, what sort of separation package is tied to the release language? Depending on which country you're in, the package offered to employees can vary significantly.

Brody

Separation agreements are really a common practice in the U.S. and something I definitely advise employers to do. Employers often offer employees a severance package in exchange for a release of claims, both because it's considered the right thing to do for employees who are being let go through no fault of their own, and because it certainly mitigates legal risk by having a signed waiver of claims.

What's really unique under federal law in the United States is that, in any RIF or reduction-in-force involving two or more people, there are special rules for obtaining a valid waiver of a claim of age discrimination for employees age 40 or older. This includes a bunch of different things, but of particular note is making sure you give employees at least a 45-day consideration period, meaning they have 45 days from receipt of the separation agreement and release of claims to review and consider it before being required to sign it. Once they sign it, they also have to be given a seven-day revocation period, meaning they can change their mind within that period and revoke their acceptance and undo the agreement. The employer must also advise them to consult an attorney before signing the agreement, which must be in writing.

Then, a funky nuance to it is that, to get a valid release of age discrimination claims, employers also have to give employees certain disclosures. Basically, a chart that includes the job titles and ages of those considered for the job action, those selected, and those not selected as part of that group and as part of the RIF, along with the selection factors used to determine who is selected. While you don't have to list the actual names of individuals who are considered and selected, or not, you unfortunately have to give the job titles, which is often enough to disclose who's really part of the RIF. That's just, again, a requirement here to ensure the release is valid for an age claim.

This is essentially a roadmap for plaintiff's lawyers advising their clients on whether to sign the separation agreement or, instead, pursue an age discrimination claim or another claim against the company. One thing to think about as an employer, if you don't follow these rules for getting a valid age release for people over the age of 40, you run the risk that the employee could actually sign the agreement, receive the severance pay, and then still sue the employer for age discrimination because the release wasn't valid as to age.

Atrakchi

Understood. In terms of the separation agreements and the process more broadly, does it vary from state to state? Are there specific nuances within the separation agreement and how the termination process works? I know, for example, that in Europe a common misconception among U.S. employers is that the process will be the same regardless of which country they're operating in, and they're quite shocked to find that it varies significantly. Is it similar on a multi-state level as well?

Brody

It's a really good question, Maya. One of the biggest challenges in managing a multi-state U.S. workforce is that employers must comply with both federal law and the laws of each state where employees are based. As a general rule, federal law typically acts as a floor, not a ceiling, so that each state can have requirements that go above and beyond what the federal law requires. 

Some common state law nuances to consider when dealing with a reduction in force include the timing of final pay. Again, this is governed by state law, and states often vary depending on whether someone is discharged involuntarily as part of an RIF or voluntarily resigns. In some states, employees who are involuntarily discharged again, such as part of an RIF, must be paid all final pay on or before their date of termination. If an employer pays final pay on the next regular payday, they may be in violation of state law and subject to significant penalties, depending on the state.

Hand in hand with that is the idea of paying out accrued vacation time when folks should be let go. In most states, employers are required to pay out accrued but unused vacation time upon termination. There are some states, however, where you only have to do that if your policy provides for it. It's important, when deciding what gets paid out for vacation time, to know which state you are in and what your policy specifically provides. Unrelated to final pay issues, we discussed the Federal Warrant Act and the challenges in dealing with it before. Unfortunately, a few states have their own, what we call mini-WARN acts, that go above and beyond the federal law requirements. These include states like California, New Jersey, Maryland, Illinois, and a couple of others. These are important rules to be aware of if you have employees in those states and meet certain thresholds that apply there. Again, those thresholds may be more employee-friendly than the Federal Warrant Act, so that is something to be aware of.

The last thing I would emphasize, from a state law nuance perspective, with respect to reductions in force, is the danger of using a one-size-fits-all separation agreement. Some states have unique language that must be included in a separation agreement to make the release compliant, or other language that must be included to make the agreement compliant with state law. For example, some states have special statutes that have to be listed. In Massachusetts, where I'm based, if the Massachusetts Wage Act isn't listed in the release, any wage claims aren't released here. Other states have specific rules on what can be included to protect the confidentiality of the agreement, or rules that address whether an employer, if they want to, can include non-disparagement language in which an employee agrees not to disparage the employer. There are sometimes special provisions that need to be included, if at all, to make them valid and enforceable. You really want to make sure you're consulting with your U.S.-based counsel on those kinds of issues.

Atrakchi

You touched on the selection criteria earlier. Are there specific requirements that are considered obligatory when assessing your broader workforce? Are there only recommended practices? How often does this come up and in what context?

Brody

That's another good question. Of course, you can't select people based on any unlawful reason like race, gender, age, religion, national origin, disability, or any other protected characteristics. You obviously can't select people on those bases, but otherwise, an employer can generally use any legitimate business reason in selecting individuals for an RIF as long as they're applying these rules fairly and consistently.

It's important for them to strategically decide which criteria they'll use to select individuals being let go in an RIF, and to document those criteria in writing. Inevitably, when you have a large job accident, some employees will think they were unfairly or inappropriately selected. They're going to go to a lawyer. In responding to any demand that a lawyer may make to the employer or, in the worst case, a claim they bring to court, the employer wants to be able to be in a position to convincingly articulate to that opposing counsel or to the court or agency why action was taken and why that particular person was selected. Having a strategic plan in place is very important for doing that.

Now, sometimes an employer is selecting an entire segment of its business to shut down, and everyone who works in that segment is being selected. That's not that frequent, but when it occurs, it's obviously a more defensible position for an employer to articulate, because everyone in that group is being selected and there's no cherry-picking. Now, sometimes a company is restructuring its operations, combining or eliminating certain roles in a new business structure. If there's a single incumbent in a particular role that's no longer needed, that can be more defensible from an employment law perspective, as long as the employer can articulate in a credible way why that role is not needed anymore.

Now, it gets a little trickier when you have, let's say, multiple incumbents in the same role and you need to select some number of them to be let go. Let’s say, for example, you have 10 widget makers, and you're eliminating six widget makers to leave you with only four. In that case, I often see employers use job performance as the primary factor in deciding which four widget makers will be allowed to keep their jobs. That's certainly a lawful and not uncommon way to do it, but I would just caution employers that, if they're going to use job performance as a factor, they should confirm that existing performance documentation justifies the selections. For example, are you keeping the top performers based on the most recent annual performance evaluations that you used? If that's the case, that can be much more defensible. If, however, as is often the case, you don't have good performance documentation, or the documentation you do have rates everyone the same as a solid performer, then selecting individuals based on job performance can be more problematic and riskier.

Now, I also sometimes see employers select people based on a factor like tenure, a last-in-first-out kind of rule. From a legal perspective, I love that because that's the most objective factor you can have. From a business practicality perspective, you are not, I should say, necessarily maintaining your most valuable and best performers. While tenure is great from a legal perspective, it's oftentimes not the best approach from a business perspective. Whatever approach you use in selecting individuals, you want it to be carefully thought out and ensure that the actual decision makers can justify the selections in a way that is consistent with the selection criteria that you're using. What I would suggest is that the internal HR or legal team that's looking at these meet with the decision makers to talk about the folks that they're selecting to make sure those decision makers can articulate the criteria that they used and why the specific individual was selected in a way that's understandable and credible to HR and or legal. If HR and/or legal don't understand or find the explanation credible, they probably want to revisit that decision.

Atrakchi

This has been so helpful, Jeff, and you've really touched on best practices throughout the conversation. We really see for our clients very basic things like the messaging that goes out to employees, whether that be navigating that on a department or a jurisdictional level, preparing FAQs, the relationship and dynamic between HR, legal, and finance when coordinating these types of processes can really go a long way in simplifying and making the process smooth.

Is there anything else beyond some of the key touch points you've discussed throughout this discussion today that you consider best practices, any key considerations for companies to help their U.S. RIF go a bit more smoothly, timely, and productive, both for their company and the employees that are exiting and staying with the company, of course?

Brody

There are a couple of things I actually advise employees to think about. One thing I'd recommend is that companies really think long and hard about having privilege, and that an attorney-client privileged adverse impact analysis be conducted. This really involves a strategic statistical analysis of the workforce by race and age. You look at the workforce before the planned reduction force takes place. Then you compare it to what the workforce will look like once the planned reduction force is implemented. You do this analysis once you have preliminary selections for who will be separating as part of the job action. If this adverse impact analysis is done correctly by folks who know how to do them, it allows the employer to identify any high risks that might present from a statistically significant perspective. As well as, if necessary, take a closer look at the selection criteria and their application to ensure they're appropriate and defensible. The way to think about it is if you run one of these statistically based analyses and you have an impact on a group of people based on race, age, or gender, it doesn't mean you go back and change your selections. It means you go back and you decide one, do we use the right selection criteria? Are we comfortable with these as the right criteria to use? Two, if so, were they applied in a fair and appropriate manner? If that's the case, then it makes sense to proceed. If not, you want to revisit your selection. That's one thing I like to talk to my clients about doing as part of a reduction-in-force.

The next thing I always advise clients to do is to look at and identify any specific individuals whose personal circumstances might make them a higher risk for litigation. For example, I call them red flag people. Is there anyone who's on medical or family leave, or going to be going on leave because of having a baby? Has anyone complained about discrimination, harassment, or other allegedly unlawful conduct in the workplace? Is there anything else that makes this person a higher risk for litigation? When you identify those folks, again, it doesn't mean you're taking them off the list. It just means you want to go through and carefully review their selection to make sure that you're comfortable, that you could articulate if you need to, to a judge or an agency someday why this person was selected and why it made legitimate business sense to do so unrelated to any protected category they might fall into or any other activity you might have previously engaged in. If you do those things, you're much better positioned to defend yourself if there's a claim later on.

Atrakchi

Excellent. Jeff, thank you so much for your time today. For our audience, I hope you found this productive and informative, and that it included some key considerations as you navigate your next RIF. Of course, feel free to reach out to the Jackson Lewis team, whether that be the RIF team, the international team or both, and we'd be happy to support you in your next steps. Thanks so much.