September 1, 2012

Layoffs Roulette: Will Liability Attach?


Fall 2012

Oregon's municipalities are experiencing declining revenues because of the long-running economic downturn and slow recovery. Many of these municipalities' shrinking budgets result in shrinking workforces. Sometimes the workforce shrinks through normal attrition, but in the present economy more and more municipalities are looking at reductions in force ("RIF"), more commonly known as layoffs. When layoffs occur in this present economic environment, there is an increased potential for human resources-related claims against a municipality. Before implementing layoffs or eliminating positions, Oregon cities wishing to avoid costly employment litigation or administrative complaints should carefully consider the following factors.

  1. The municipality should decide why layoffs or RIFs are necessary. Has increased worker efficiency reduced the need for additional people or positions? Must staff be reduced to balance the budget? Whatever the reason, the municipality should document the specific reasons for the layoffs.
  2. Once the municipality has made the decision to lay off, it should then decide on the selection policy it will use to implement the RIFs. Careful consideration should be given to the selection criteria to ensure that it can be objectively applied and defended, if necessary.
  3. If the municipality decides to eliminate entire jobs or positions, it should document the objective reasons why the job functions are obsolete or better consolidated with other positions. Be careful here, especially where positions are covered by a collective bargaining agreement ("CBA"). Be sure to follow any procedures for elimination of positions or persons that are in the CBA.
  4. Recognize that employees are often well informed about the financial condition of the municipality. Therefore, it is important that no false assurances be given to employees about job security. False assurances may lead employees to turn down other job opportunities, only to find themselves out of work a few weeks or months later.
  5. After selecting the employees to be laid off and before announcing the decisions, review the list to discover any patterns or red flags. Are only employees over the age of 40 being laid off? Are the only employees being laid off "problem" employees? Have any of the employees selected exercised work-related rights, i.e., FMLA/OFLA leave, or workers' compensation claims? Have they expressed to management concerns regarding any aspect of the working relationship (wages, overtime, etc.)? If you discover such patterns, you should discuss your selection process with a competent employment-law attorney before making and implementing any final decision. Even if the decision is defensible it might have the appearance of a discriminatory or retaliatory employment action.
  6. When the layoff decision has been announced, be sure to provide the affected employees with complete and factual information regarding the continuation of benefits; rights to recall, if any; and any other necessary notices required to be given.
  7. When the actual layoff occurs, be sure that all compensation, including vacation, overtime and compensatory time, is compensated in accordance with Oregon wage and hour laws. Better to err on the side of paying too much than too little. Remember, wage claims can include not only recovery of the wages not paid but also a penalty wage equivalent up to 30 days' wages times the hourly rate, plus attorney fees. This can be a very costly mistake for a municipality.
  8. To reduce the potential for employment-based litigation, municipalities may consider providing severance to terminated employees in exchange for their signing a complete release of all claims. But note that the consideration for such a release must be something more than what the employee is already entitled to receive. A well-prepared release of all claims in return for a severance payment can greatly minimize a municipality's employment-related litigation. Be sure to consult a competent employment attorney to assist in the drafting of the terms of the release, including an Age Discrimination in Employment Act release where applicable.

The municipality that carefully approaches and documents its entire RIF process will reduce its potential liability. If the municipality has documented each stage and can provide supporting rationale for its decisions, then the process can be defended, should the process or selection be challenged in an administrative or judicial setting. As always, competent employment counsel can be a municipality's best ally in working through the process when layoffs are inevitable.

For more information on this topic, please contact or call (888) 598-7070.

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