Managing Reductions in Staff or Hours Keeping it Legal: Managing Reductions in Staff or Hours Jeffrey E. Myers, Esquire One Logan Square 130 North 18th Street Philadelphia, PA 19103-6998 215-569-5592

Creating a Plan For Your Reduction in Force Identify the Goals/Needs Design New Structure to Meet Goals Identify Areas to be Affected Consider Different Downsizing Methods Adopt Objective Selection Criteria Identify Employees to be Affected Perform Disparate Impact Analysis A good plan for a (RIF) requires that you: (1) identify the goals that need to be accomplished, (2) identify the new structure for the business that will accomplish these goals, (3) identify the areas that will be affected and the positions that will be eliminated; (4) consider different downsizing methods; (5) adopt objective selection criteria and (6) identify specific employees to be affected. Current employees’ skills can then be aligned with the company’s business needs and difficult, but well-considered, decisions made. Different Downsizing Methods: Freezing/reducing hires; reducing hours per shift; implementing a temporary layoff; providing exit incentives; permanent layoff Objective Selection Criteria ** look at Meacham v. Knolls Atomic Power Laboratory The employer needed to cut its workforce and, in doing so, rated its employees on “flexibility” and “criticality” skills. Thirty of the thirty-one employees it identified for termination were older than 40. In an opinion supporting employers, the Second Circuit Court of Appeals held that decisions based on these criteria will usually be reasonable despite having a disproportionate impact on older employees. The U.S. Supreme Court is expected to decide whether the terminated employees or the employer bears the burden of showing that the decision was based on reasonable factors other than age. Although technical in nature, the case should provide additional guidance as employers plan and conduct layoffs.

RIF Alternatives Attrition Reshaping Early Retirement Incentives Voluntary Layoff Contracting In Furloughs ATB Pay Reduction

Legitimate Incentives Flat Dollar Service Based Incentives Based on a Percentage of Salary Increases in Pension Benefits

Alternatives To Reductions In Force: Wage & Hour Considerations Potential Impact On Exempt Status of Salaried Workforce Recent U.S. Department of Labor Opinion Letters Permanent changes to salary and workweek permitted Short-term changes may violate salary basis requirement Mandatory Time Off okay if: Week or longer and employee performs NO work Employee receives PTO for shorter periods Voluntary Time Off okay if: Full day or longer Truly voluntary

Volunteers FLSA defines employment broadly (i.e., “to suffer or permit to work”) Individuals who volunteer or donate their services for the following are generally not considered employees: Public service Religious or humanitarian objectives Volunteers typically are part-time Volunteers generally act without contemplation of pay Employees may not volunteer services to for-profit private sector employers

EEO Concerns Disparate Treatment Prima facie case Member of protected class Qualified Adverse action Others outside protected class treated differently Employer’s burden: adverse action taken for legitimate, non-discriminatory reasons In this area we are particularly concerned with claims under the ADEA. Pretext analysis – legitimate non-discriminatory reason of economic downturn etc can be evidence of pretext if employee shows that the RIF was a pretext for discrimination or that a legit RIF involved discriminatory selection criteria. Mixed motive analysis can come into play In general, the following reasons have been held as non-discriminatory reasons for a layoff: -basing selection on performance, skill, or ability if the rating system is job-related and selection criteria are applied consistently; -quantitative measures -elimination of an entire job function -mere offer of a retirement package -considering factors such as higher levels of salary and compensation to select employees for layoff

EEO Concerns Disparate Impact Prima facie case Neutral selection criteria, BUT Disproportionate number of employees from protected class affected Employer’s burden: selection criteria are job related and consistent with business necessity; no less burdensome option Available under Title VII, ADA, ADEA (Resolving a split among the U.S. Courts of Appeals, Azel Smith et al. v. City of Jackson, Mississippi, 544 U.S. 228 (2005). Generally, in a disparate impact case, employer are required to articulate a business necessity (asks whether there are other ways for the employer to achieve its goal). However, in Smith, the Court limited its holding, by permitting differentiation based on reasonable factors other than age. In Smith, SCT held that a city’s conduct in granting salary increases that were disproportionately greater for employees under age 40 than for older employees qualified as a RFOA (Reasonable Factor Other than Age) because the practice reasonably advanced the goal of retaining policy officers by making more junior officers’ salaries competitive with comparable positions in the market.

Questions To Ask Is there a clear and legitimate business reason for the RIF? Are there objective criteria for selecting employees? Were the criteria applied consistently? Are actions consistent with all applicable policies? Were terminated employees soon replaced?

Questions To Ask If performance is a factor, how objective are evaluations/forced rankings? Are early retirement incentives legitimate? Any statistical anomalies? Were all contract provisions complied with? How were employees on leave treated?

Determining When a RIF Triggers Application of the WARN Act Employers: 100 or more employees Excluding those who worked less than 6 of the past 12 months OR less than 20 hours/week on average Employees: Hourly & salaried Managerial & Supervisory NOT business partners Worker Adjustment and Retraining Notification Act Became effective on February 4, 1989. Employers are covered if they have 100 or more employees, not counting employees who have worked less than 6 months in the last 12 months and not counting employees who work an average of less than 20 hours a week. Private, for-profit employers and private, nonprofit employers are covered, as are public and quasi-public entities which operate in a commercial context and are separately organized from the regular government. Regular Federal, State, and local government entities which provide public services are not covered. 50&1/3 or 500

WARN Act Qualifying Events Employment Loss Defined “PERMANENT” Plant Closure (Site or Facility) 50 or more employees affected in any 30 day period Mass Layoff 500 or 50 &1/3 Aggregated Layoffs Employment Loss Defined Termination Layoff for more than 6 months Reduction in Hours (6/50 rule) Plant Closing: A covered employer must give notice if an employment site (or one or more facilities or operating units within an employment site) will be shut down, and the shutdown will result in an employment loss (as defined later) for 50 or more employees during any 30-day period. Mass Layoff: A covered employer must give notice if there is to be a mass layoff which does not result from a plant closing, but which will result in an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer's active workforce. ALSO: An employer also must give notice if the number of employment losses which occur during a 30-day period fails to meet the threshold requirements of a plant closing or mass layoff, but the number of employment losses for 2 or more groups of workers, each of which is less than the minimum number needed to trigger notice, reaches the threshold level, during any 90-day period, of either a plant closing or mass layoff. Job losses within any 90-day period will count together toward WARN threshold levels, unless the employer demonstrates that the employment losses during the 90-day period are the result of separate and distinct actions and causes.

Consideration of State and Local Office Closing Laws More and more state and local governments are passing plant closing legislation that varies from federal WARN Act: New York, New Jersey Philadelphia Ordinance Apply to smaller employers Different notice periods Increased Severance Pay obligations in lieu of notice Different definitions of triggering events Different damage provisions and penalties

Examples of States With Their Own “WARN” California Hawaii Illinois Maryland Massachusetts New Hampshire New Jersey New York Tennessee Wisconsin “Employer” defined similar to WARN, but unclear whether 100 or more must be within NJ. Content of Notice differs from WARN: Reasons for terminations; Available jobs at other employer worksites; Any termination compensation or benefits; Amount of severance pay available under law if employer failed to give timely notice; and Employee’s right to receive information, referral and counseling from NJ response team, public programs, and benefits.

Designing a Separation Package The package must include: Earned Compensation Vacation Other Earned Benefits The package may also include a separation agreement including severance pay and a release of claims Outplacement/U.C. Assistance An employer who does not strictly comply with the OWBPA’s requirements risks paying severance only to find that a lawsuit for age discrimination is not barred by the signed agreement. SEE Pagliolo et al. v. Guidant Corp., a federal court in Minnesota held that the information Guidant provided in connection with a RIF failed to satisfy the OWBPA in several ways including providing dates of birth rather than the actual age of affected employees, treating the company’s six different subsidiaries as one decisional unit, and failing to disclose the criteria used to select employees to be laid off. Although not all courts read the OWBPA’s requirements as literally as this court did, the decision is one that employers contemplating RIFs, particularly in Minnesota, must consider.

Designing a Separation Package OWBPA Requirements Group terminations (more than one) 45 day consideration period/7 day revocation period Disclosure Statements with Separation Documents Identify the decisional unit Eligibility factors Time limits Job titles and ages of all employees in the unit Identification of who was selected/not selected for termination OWBPA requires employers to provide informational disclosures when a waiver is requested in connection with an “exit incentive or other group termination program offered to a group or class of employees.” See id. at § 626(f)(1)(H). Those disclosures must identify, “in a manner calculated to be understood by the average individual eligible to participate” in the group termination program: the relevant “decisional unit” – i.e., the “class, unit, or group of individuals” from which termination decisions were made; any “eligibility factors” for the program; any time limits applicable to the program; and the job titles and ages of all employees in the decisional unit and whether each employee was eligible for the program – i.e., selected for termination.

Other Release Pointers Plain language Knowing/voluntary Real consideration Right to counsel Care in integration State affirmative obligations of employees

Communications Strategy The Displaced (Notice) When By Whom Content Public Customers The Survivors

Safety Concerns Take necessary security and safety measures before something happens Warning Signs for potential workplace violence: Inflexible-difficulty coping with change Makes threats or intimidating comments Displays hopelessness or paranoia Takes criticism poorly

Steps Employers Should Take to Secure Intellectual Property Ensure that computer passwords are changed prior to termination or layoff Ensure internal security protocols actually are being pursued On the eve of a layoff, make sure large amounts of documents are not being copied or downloaded Actual security Review the legal rights in states in which the employer is taking personnel actions

F O C U S Finally, F air O bjective C onsistent U nified S ympathetic

Implementation Contract Review Review Collective Bargaining Agreements Layoff Clause Bumping Notice Pension

Use following slides only if required

Bargaining Issues Decisional Effects Required only if motivated by labor costs such as wages and benefits Effects Timing Payment of Severance Continuation of Health Coverage Allied Chemical – LMRA limits mandatory subjects of bargaining to those issues that settle an aspect of the relationship between the employer and employees. Ex. Modes of advertising, business financing, product design, generally only have indirect impact. However, decisions related to the order of succession in layoffs and recalls, work rules and production quotas bear directly on the employment relationship and must be bargained under 8(A). Some RIF decisions are hybrids, and may require bargaining. Plant closings are not mandatory subjects, but deciding to subcontract, must bargain over decision and effects. **** In a union context, the employer may have a duty to bargain over the decision and the effects of the closing or mass layoff. Basically, if the decision is motivated by labor costs (e.g., wages and benefits), the employer may have an obligation to bargain over the decision. This means giving the union an opportunity to propose alternatives (e.g., a wage or benefit cut). Bargaining over the effects means that the union and employer bargain over such matters as timing of the layoffs, the payment of severance, continuation of health insurance and other related issues.

WARN Act Who is Entitled to Notice? Union Individual Employees Chief Elected Local Government Official State Dislocated Worker Office Written notice to: the chief elected officer of the exclusive representative(s) or bargaining agency(s) of affected employees and to unrepresented individual workers who may reasonably be expected to experience an employment loss. This includes employees who may lose their employment due to "bumping," or displacement by other workers, to the extent that the employer can identify those employees when notice is given. If an employer cannot identify employees who may lose their jobs through bumping procedures, the employer must provide notice to the incumbents in the jobs which are being eliminated. State dislocated worker unit the chief elected official of the unit of local government in which the employment site is located. ** NOTE: Employees who have worked less than 6 months in the last 12 months and employees who work an average of less than 20 hours a week are due notice, even though they are not counted when determining the trigger levels.

WARN Act: How Much Notice? Basic -- 60 Days or As Much as Practicable (Not Zero) Natural Disaster Unforeseen Business Circumstance Faltering Company With three exceptions, notice must be timed to reach the required parties at least 60 days before a closing or layoff. When the individual employment separations for a closing or layoff occur on more than one day, the notices are due to the representative(s), State dislocated worker unit and local government at least 60 days before each separation. If the workers are not represented, each worker's notice is due at least 60 days before that worker's separation. The exceptions to 60-day notice are: (1) Faltering company. This exception, to be narrowly construed, covers situations where a company has sought new capital or business in order to stay open and where giving notice would ruin the opportunity to get the new capital or business, and applies only to plant closings; (2) Unforeseeable business circumstances. This exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required; and (3) Natural disaster. This applies where a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought or storm. If an employer provides less than 60 days advance notice of a closing or layoff and relies on one of these three exceptions, the employer bears the burden of proof that the conditions for the exception have been met. The employer also must give as much notice as is practicable. When the notices are given, they must include a brief statement of the reason for reducing the notice period in addition to the items required in notices.

WARN Act Form and Content of Notice Identify Site Contact Person Permanent/Temporary Dates of Terminations Affected Employees (Names, Classifications and Numbers) Bumping Rights Union Information In writing. Any reasonable method of delivery designed to ensure receipt 60 days before a closing or layoff Must be specific May be given conditionally upon the occurrence or non-occurrence of an event only when the event is definite and its occurrence or nonoccurrence will result in a covered employment action less than 60 days after the event. The content of the notices to the required parties is listed in section 639.7 of the WARN final regulations: The name and address of the employment site where the plant closing or mass layoff will occur; The name and telephone number of a company name official to contact for further information; A statement as to whether the planned action is expected to be permanent or temporary and, if the entire plant is to be closed, a statement to that effect; The expected date of the first separation, and the anticipated schedule for making separations; The job titles of positions to be affected, and the number of affected employees in each job classification; An indication as to whether or not bumping rights exist; The name of each union representing affected employees; and The name and address of the chief elected officer of each union. Additional notice is required when the date(s) or 14-day period(s) for a planned plant closing or mass layoff are extended beyond the date(s) or 14-day period(s) announced in the original notice.

WARN Act Penalties Sixty Days of Pay (Calendar v. Working) Sixty Days of Benefits (Includes Gratuities) Civil Penalty -- $500 Per Day An employer who violates the WARN provisions by ordering a plant closing or mass layoff without providing appropriate notice is liable to each aggrieved employee for an amount including back pay and benefits for the period of violation, up to 60 days. The employer's liability may be reduced by such items as wages paid by the employer to the employee during the period of the violation and voluntary and unconditional payments made by the employer to the employee. An employer who fails to provide notice as required to a unit of local government is subject to a civil penalty not to exceed $500 for each day of violation. This penalty may be avoided if the employer satisfies the liability to each aggrieved employee within 3 weeks after the closing or layoff is ordered by the employer. Enforcement of WARN requirements is through the United States district courts. Workers, representatives of employees and units of local government may bring individual or class action suits. In any suit, the court, in its discretion, may allow the prevailing party a reasonable attorney's fee as part of the costs.