Reducing legal risks when reducing your workforce. (Legal).

One unhappy reality of the current economic climate is that many associations have had to cut costs in a variety of areas, including personnel. Reductions in force, or RIFs, as they are often called in impersonal and sterile terms, are extremely personal and emotionally charged events. For this reason, they often lead to legal claims, particularly when individuals feel that they have been treated unfairly or inequitably. In this article, Jennifer Hopeman explains the best way to downsize your workforce in the event that your association is forced to take such measures.

It is a common misconception that dismissing an employee as part of a reduction in force insulates the employer from wrongful discharge claims. Indeed, employers sometimes attempt to rid themselves of problem employees under the guise of a RIF, thinking to sidestep potential legal issues. Nothing could be more misguided. Employees selected for termination in a RIF may challenge the selection process as discriminatory; or they may claim that even if the selection process was neutral, the RIF nevertheless had a disparate impact on women, minorities, or older workers. They may also bring a variety of other claims, such as breach of contract claims based on promises contained in employee handbooks. If your association is forced to conduct a reduction in force, careful attention to actions that may give rise to legal risks is imperative. Here are some steps that can minimize liability.

Exercise comprehensive planning 

The first step toward minimizing legal risk in connection with a RIF is careful planning. To begin, think long and hard about the business rationale for the RIF. Specify the organizational changes that would be involved, articulate how and why those changes will affect particular jobs or departments, and calculate how the changes translate into a reduced headcount. Association leadership should consider possible alternatives to a RIF, such as a hiring freeze, voluntary exit incentive program, or reduction in salaries. At this stage, consult the association's employee handbook and other written policies for any restrictions on the organization's ability to terminate or lay off employees, and consider amending those policies if necessary.

During the initial planning phase, do not identify specific individuals for termination. The worst way to begin a RIF is with a list of names already selected. Early hit lists tend to be highly subjective and thus extremely difficult to defend, leaving the association vulnerable under anti-discrimination laws. Of course, if an entire function, job category, or department is being eliminated--and the responsibilities or tasks involved will not continue to be performed elsewhere in the organization--there is no selection issue. Any time the employer must pick and choose among affected employees, however, the selection process must be as uniform and objective as possible.

Establish a fair selection process

The next step, therefore, is to determine a fair method and defined criteria for selecting among employees in affected positions or departments. One possible selection method is to use a forced ranking system, under which employees in the affected areas are ranked by cumulative points based on weighted criteria such as unique skills, past performance, length of service, and versatility. Another method is to compare past performance evaluations. This method has the allure of simplicity, but may not be effective or fair if the existing documentation of past performance is sketchy or out of date.

Identify administrators of the process

Association leadership must decide who will apply the selection criteria to affected positions or departments and who will review the resulting selections. One good method is to have the managers of relevant areas apply the selection criteria and then submit their rankings or recommendations to a RIF selection committee for review. Ideally, a selection committee responsible for making the final decisions is a diverse group, representing both human resources and management expertise. If organizing such a committee is not practical, the human resources department is often the best alternative for conducting the review. In either case, all rankings or recommendations will be reviewed for thoroughness, consistency within the organization, and consistency with past performance evaluations and disciplinary records.

Before the actual selection process begins, provide detailed training to managers who will be involved in the process--including an overview of the reasons and business justification for the RIF--and careful instruction on the selection procedures and schedule. Explicitly caution managers not to let favoritism or personal animosity influence the selection process and thoroughly coach them in how to communicate information about the RIF to employees.

Prepare proper documentation

Another issue requiring special attention before selections begin is documentation. The paper trail created during a RIF can either be helpful or extremely harmful in the event of subsequent litigation. Draft an initial memorandum--either to senior management or to a file that includes all materials related to the RIF--to memorialize the business rationale for the RIF as well as the selection method and criteria to be used. Then determine what written record, if any, will be made to explain the reasons for each selection. Scrupulously avoid premature paperwork, casual hit lists, and informal e-mail correspondence about selection decisions. In addition, mark all selection documents "preliminary" until a final decision has been made.

The result of the selection process will be a list of employees identified for layoff or termination. It is advisable to analyze this list with the input of legal counsel to determine whether any patterns exist that could support a claim of discrimination. If it appears that the reduction in force will have a disproportionate impact on a protected class of workers (such as women, African Americans, or older workers), the association may want to make adjustments to the selection list.

Other considerations

Even the most carefully planned RIF may be challenged in court. Therefore, if your association will offer any severance benefits, consider requesting a release of claims in exchange for those benefits. If the association does decide to seek releases, obtain legal assistance in preparing them to ensure that they are enforceable. For example, if employees are already entitled to severance under existing policies, releases will not be enforceable without some additional consideration to the employees. No release of age discrimination claims by an employee aged 40 or older is enforceable unless it complies with the Older Workers Benefit Protection Act. Among other things, the OWBPA requires the employer to attach rather technical and burdensome information to the release concerning the job titles and ages of employees in relevant organizational units.

Outline a communication strategy

Every employee selected for termination will want to know "Why me?"--and the association must be prepared with a truthful, concise, and respectful answer. Be ready also to discuss the reduction in force with retained employees in a way that will address their fears yet avoid guarantees of future job security. Logistically, it can be quite difficult to arrange for the notification and smooth exit of groups of terminated employees. It helps if a detailed plan for distributing severance packages, final paychecks, and benefits information; disabling network access; and securing the return of company property is mapped out well in advance.

Legal problems related to reduction-in-force actions are best avoided by planning carefully, treating employees with consistency and respect, and involving legal counsel early in the process.

Jennifer Hopeman is an attorney specializing in employment law and Jerald A. Jacobs is a partner in the Nonprofit Organizations Practice at the law firm of Shaw Pittman, Washington, D.C. Jacobs edits this column and is general counsel to ASAE.