Employment Laws and Downsizing

Mary Gormandy White
man reading news about layoffs

There is a specific law in the United States that applies in situations of mass layoffs or business closures. Additionally, downsizing decisions must not violate any anti-discrimination laws and special requirements apply when employers ask people over the age of 40 to consider resigning as part of a downsizing process.

Mass Layoff of Workers: WARN ACT

In a situation where more than 50 workers are being laid off at one time, the Federal Worker Adjustment and Retraining Notification (WARN) Act is the piece of legislation that may come into play. If the company regularly employs more than 100 workers on a full-time basis, then its workers will likely be covered under the provisions of WARN.

Under the WARN Act, when a company is planning a closure or a mass layoff, it is required to give employees a minimum of 60 days' notice in writing. If the company does not give the employees at least 60 days' notice, then it must provide each employee with 60 days' pay in lieu of notice.

For compliance purposes, a mass layoff refers to downsizing that will affect 500 or more total employees, or between 50 and 499 employees if they represent 33% or more of the company's workforce.

Exceptions Under WARN

There are three exceptions to the requirement to either give 60 days' notice or to provide pay in lieu of notice:

  • Natural disaster: If the closing of the plant or business takes place in the aftermath of a natural disaster, this may be an exception to WARN.
  • Unforeseen circumstances: In a situation where an event occurs that the employer could not reasonably have foreseen, then it will not be required to give the 60 days' notice.
  • Faltering company: This provision of the WARN refers to a situation where a company is actively seeking new contracts or investors in order to avoid having to lay off workers or shut down entirely. The company must be able to show that providing employees with notice under WARN would jeopardize negotiations for the contract in question or arrangements for additional capital for the business.

In all of these situations, the employer must demonstrate that the situation fits the criteria set out in the legislation, and the employer is still required to give as much notice to employees as possible in the circumstances.

Non-Discrimination: EEOC/DOL

Downsizing decisions must be made in compliance with all federal laws that prohibit discrimination in the workplace, most of which are laws that fall under the scope of the Equal Employment Opportunity Commission (EEOC), though one falls under the Department of Labor (DOL).

Every federal employment law that prohibits discrimination (thus ensuring equal opportunity to employment) applies to all terms and conditions of employment, including terminations. These laws include:

Downsizing decisions must be made without regard to protected characteristics, as specified in the above-listed laws and any other applicable federal or state laws. When deciding which positions to eliminate, employers need to be prepared to demonstrate that their decisions were made in a non-discriminatory manner.

Employees Aged 40+: OWBPA

Special requirements apply when workers over the age of 40 are asked to voluntarily leave their positions as part of a downsizing effort. In this situation, employees may be asked to sign a waiver of their right to sue for age-based discrimination in exchange of something of value - typically a severance payment. The waiver must comply with the terms set out in the Older Workers' Benefit Protection Act (OWBPA), which is an amendment to the ADEA.

If the waiver does not have the correct language, then it is not valid. Not only can the former employee keep the severance pay, but he or she can also sue the employer.

Such release forms must include:

  • The OWBPA must be mentioned in the body of the waiver and the document must specify that the worker is signing away his or her rights to protection under the ADEA.
  • The employee can take up to 21 days to review the release and decide whether to sign.
  • After the release has been signed, the employee has an additional seven days during which he or she can revoke his or her signature on the document.

Additionally, if a group of older (40+) employees is affected by the reduction in workforce, the must be provided with detailed information that specifies the ages and job titles of workers in the affected unit, detailed by those who are being retained and those who are being let go. The rules related to this are very complex.

General Information About Severance Pay

Employers in the U.S. are not required to provide severance pay to employees who are downsized, unless the workers are being asked to voluntarily sign away their rights to protection under the ADEA as specified by OWBPA.

With the exception of this specific situation, each company has its own policies about whether to offer severance pay of any kind to downsized workers. Some companies do not pay any severance. Some will offer one or two weeks' pay for each year of service when downsizing employees. For those people employed in an executive capacity, the amount of money paid out in a severance package will likely be calculated in a different manner.

Seek Legal Counsel

An employer who wants to provide a severance package to downsized workers should consult with an employment law attorney to discuss how to downsize with affected employees, how to structure the payout and what should be included in any waiver that employees accepting severance will be asked to sign. Adding outplacement services into the mix will help the former employees to get on track to find another job quickly.

Employment Laws and Downsizing