Legal Implications Of A Reduction in Force

1. Legal Implications Of A Reduction in Force Tommy Simmons Legal Counsel to Chairman Tom Pauken Texas Workforce Commission tommy.simmons@twc.state.tx.us www.twc.state.tx.us/news/efte/tocmain.html

2. What to Reduce? • Hours – 20% or more reduction = good cause to quit and file an unemployment claim • Pay – same 20% rule applies • Both – 20% rule applied to the bottom-line pay outcome • Cuts in benefits with monetary value can be combined with other cuts to see whether the total decrease in compensation is 20% or more EFTE, p. 249-250

3. Alternative to Layoffs • Shared Work Plan through TWC • Available for those whose hours are reduced by a standard amount between 10% to 40% • Participating employees may receive the same percentage of their weekly benefit amounts as the percentage by which their hours were cut • Details: www.twc.state.tx.us/ui/bnfts/sharedwork.html

4. Avoiding Potential EEOC Liability • Be able to explain how the company is not making the termination decisions on the basis of minority classifications, but rather on the basis of legitimate, work-related reasons that have nothing to do with protected minority characteristics • Use a decision matrix of some kind (decision criteria weighted according to neutral business factors) • Document the criteria • Be able to explain the factors and the weighting • Show how application of the criteria resulted in the separation decisions • Presumably, those selected for layoff will be in diverse categories

5. Avoiding Potential EEOC Liability • If your company is covered by a leave-related law, it can lay an employee off who is on ADA or FMLA leave if the layoff would occur in any event due to legitimate business reasons that have nothing to do with a protected absence • The law does not require a last-hired, first-fired procedure for layoffs, but the employer must be able to show that the layoff occurred for neutral, non-minority-related reasons - control of costs is one such criterion

6. Giving Notice to Employees • No advance notice of termination or resignation is required in most situations (exceptions include express employment agreements, union situations, and WARN) • In general, an employer does not have to explain why it is letting an employee go - an employer can say as little or as much as it deems appropriate • Texas law does not require written notice of termination or layoff, but a clear written notice of work separation can help prevent employees from later claiming that they are owed additional pay beyond the work separation date, since they did not know they had been laid off or discharged, and they allegedly continued to "work from home", call on customers, or engage in e-mail correspondence with various parties as part of their supposed duties EFTE, p. 199-201

7. When Notice Is Required • WARN Act (federal law) - this law covers employers with 100 or more employees if the company has a: • shutdown of an employment site that affects 50 or more full-time employees • mass layoff of 50-499 full-time employees if that constitutes at least 33% of the workforce • mass layoff involving 500 or more full-time employees for at least 30 days • 50% or more reduction in hours for 50 or more full-time employees for each month of a six-month or longer period • under WARN, employer must give at least 60 days' advance notice of layoff, or else must make a payment of wages in lieu of notice corresponding to the notice not given • TWC is the state reporting agency for mass layoffs and plant closings in Texas: http://www.twc.state.tx.us/svcs/jtpa/dislocat.html EFTE, p. 201

8. COBRA (Federal) • 20 or more employees (be careful not to promise COBRA rights that do not exist, since the company could be forced to extend such continuation coverage anyway if the conditions for equitable estoppel are met) • Does not apply if the employee was terminated for "gross misconduct" • COBRA rights accrue once a "qualifying event" occurs - basically, a qualifying event is any change in the employment relationship that results in loss of health plan benefits • In the case of an employee with a spouse (see your state's definition of "spouse"), both must receive notice • DOL guide: www.dol.gov/ebsa/pdf/cobraemployer.pdf • 65% premium subsidy is only for those who were laid off or fired for simple cause up through May 31, 2010 • The official DOL help line for COBRA questions is 1-866-444-3272 EFTE, p. 201

9. COBRA (State) • Small Employer Health Insurance Availability Act requires health benefit continuation rights for employees (and their beneficiaries) of company health plans if the company has two to 50 employees • The state law is very similar to the federal law, but with a shorter benefit continuation period (up to six months following the qualifying event) • If the employee had federal COBRA coverage as well, the six months under Texas law begins after the federal COBRA period expires • More information is available from the Texas Department of Insurance at www.tdi.state.tx.us/pubs/consumer/cb040.html EFTE, p. 201

10. Early Retirement and Leave Incentives • Voluntary program - employees not targeted for layoff or otherwise threatened, such as a threat to abolish or rescind vested benefits • Offer not specifically aimed at older workers - not conditioned upon age, but rather tenure or other theoretically neutral criteria • RIF should be based upon skill level, prior evaluations, willingness to accept new assignments or training, and other neutral, non-age-related criteria (i.e., try not to use seniority as a criterion that would give an older worker a higher chance of being laid off) • Employees accepting such an incentive should sign releases explaining their rights under federal law • Give at least 21 days for employees to have a chance to seek legal advice (45 days in the case of group RIFs) • Give employees 7 days to rescind their acceptance of an early retirement incentive • Avoid appearance of trying to push someone toward retirement - try not to bring the subject up, but be ready to respond in a purely informational manner if an employee asks about it EFTE, p. 201-202

11. Pre-Decision Work Separation Checklist • Layoff/RIF: is the company using neutral criteria, unrelated to minority characteristics, to select those who will be laid off? • If for cause: • Was there a specific incident close in time to the discharge? • Can the employer show that the employee violated a known policy or law? • Are witnesses available? • Does the employer have documentation to support its reasons for termination? • Did the employee progress all the way through the disciplinary system? • Was the employee confronted with the problem and given a chance to explain? • Disparate treatment for minorities? • Was the employee involved in a protected activity (for example, involvement in a claim over wages, workers' compensation, or discrimination; jury or military duty; voting; refusal to commit an illegal act; "whistleblowing")? EFTE, p. 199

12. Post-Decision Work Separation Checklist • Notice to employees • COBRA rights notice • Notice to state (WARN  TWC; support orders  AG’s Office) • Exit interviews / exit paperwork • Return of company property • Disclosure of user IDs/passwords if not already in company’s possession • Final pay EFTE, p. 199-200

13. Notice to AG’s Office • Pertains to those under support orders (child, spouse, health maintenance) • Notify AG’s Office within seven calendar days of the work separation • Remember that support orders apply not only to final pay, but also to lump-sum payments such as severance pay, accrued vacation, and leave incentives

14. Exit Interviews / Exit Paperwork • Optional, but can help document mutual satisfaction of respective obligations • Last clear chance to obtain things like non-disclosure agreements; written authorization for pay deductions and job references; disclosure of user IDs/passwords; and agreements concerning return of company property

15. Return of Company Property • Deductions for non-return of company property must be authorized by the employee in writing • Minimum wage will usually be an issue • Special wage agreement is needed for pay rate reductions for the final pay period • Better to utilize a property return security deposit procedure EFTE, p. 139-140, 288

16. Disclosure of User IDs/Passwords • Vital in case the employee had access to or control over computer files • Can be a condition for receiving leave incentives or other post-separation benefits • Can be a condition for receiving final pay without adjustments, but this requires a carefully-drafted wage agreement • Best practice: have IT staff configure network to make automatic backups of certain data and to record all user IDs and passwords EFTE, p. 139-140

17. Final Pay • Texas Payday Law governs final pay matters • Voluntary work separation: next regularly-scheduled payday • Involuntary (layoff, RIF, termination, mutual agreement, resignation in lieu of discharge): six calendar days following date of work separation EFTE, p. 200

18. What Goes Into Final Pay? • Regular compensation as determined by the wage agreement that was in effect when the work was performed • Special payments such as bonuses, commissions, and severance pay may be paid according to the schedule in the policy or agreement upon which the payment is based • Recommendation: use written wage agreements signed by each employee, and bonus/commission agreements should always be in writing EFTE, p. 200

19. Deductions from Final Pay • Three types of legal wage deductions: • Ordered by a court (support orders, bankruptcy garnishment) • Required or specifically authorized by a law • Made for a lawful purpose and authorized by the employee in writing • Use a standard written wage deduction authorization agreement

20. Post-Termination Payments • Severance pay – pre-existing obligation to pay – usually based on a set formula such as length of prior service • Does not affect unemployment benefits • Wages in lieu of notice – no prior obligation to pay – no prior notice of layoff or termination – not based on any particular formula • Delays unemployment benefits until the WILN period runs out • Report both types of payment to TWC as wages • Release incentives/liquidated damages – not wages, and no effect on UI benefits EFTE, p. 200-201

21. Post-Termination Claims and Lawsuits • UI claims are by far the most common type of post-termination legal action • Wage claims • EEOC / Civil Rights Division claims • Common law causes of action

22. Unemployment Insurance Basics • System is based on fault, not need • UI benefits are for those who are unemployed through no fault of their own • Financed entirely by employers • More UI claims than all other employment-related claims and lawsuits combined • All 50 states have similar systems under federal guidelines from DOL

23. Hurdles for Claimants • Monetary qualification • Out of work through no fault of their own • Continuing eligibility requirements • Any of these can prevent payment of UI benefits

24. Monetary Eligibility • Claimant must have earned at least 37 times the weekly benefit amount during the base period • “base period” is the first four of the last five completed calendar quarters prior to the date of the initial claim EFTE, p. 222-223

25. Base Period • weekly benefit amount is the high quarter wage amount divided by 25 • min. WBA = $59; max. WBA = $406 • will likely go up by $1/$14 per week effective 10-01-10 Benefit Amount

26. Eligibility Conditions • medically able to work • actively searching for full-time work • authorized to work in the U.S. (clmt has to be able to fulfill I-9 requirements) • file claim forms on time • engage in reemployment activities as directed EFTE, p. 222-226

27. Qualification • the claimant must be out of work through no fault of his or her own • the burden of proof is on the party who initiates the work separation • if the claimant quit, the claimant must prove good cause connected with the work for quitting • if the claimant was fired or laid off, the employer must prove that the work separation resulted from misconduct connected with the work on the claimant's part EFTE, p. 235-239

28. UI Benefits for Employees in RIFs • Voluntary leave incentive: disqualification is likely unless the employee was under duress or targeted for layoff or faced a reduction in vested benefits • Involuntary work separation - laid-off / RIF’d employees will qualify for benefits if otherwise eligible • Partial unemployment: • Shared work plan – 10% - 40% cuts in hours • Partial unemployment – cut in hours and pay below 125% of the weekly benefit amount – earnings are deducted from the 125% amount EFTE, p. 224, 247

29. Wage Claims • Texas Payday Law goes back up to 180 days before the claim was filed • Claim and appeal process is similar to that for UI benefits • TWC enforces the FLSA via this law • FLSA wage claims can go back two or three years EFTE, p. 258-259

30. EEOC/CRD Discrimination Claims • A response to an EEOC charge is serious and must be carefully prepared, since it can tie an employer’s hands if the case goes to court • Main defense in a discriminatory treatment or discharge case: the charging party was treated the same as anyone else would have been treated under the same circumstances • Main defense in a RIF case: the charging party was considered fairly on an equal basis with all other employees in the department being reduced, and the layoff choices were made without regard to protected characteristics – show appropriate diversity statistics in the response and invite interviews with current or former employees

31. RIF-Related Post-Termination Actions • Breach of contract – n/a in at-will employment cases • Constructive discharge – intolerable conditions forced the employee to resign • Estoppel – adverse reliance on an employer’s promise • Fraud – defendant made an untrue representation that was intended to be relied upon and which caused the employee some kind of harm • Wrongful discharge – not very successful by itself in Texas due to employment at will rule EFTE, p. 214-216

32. Other Post-Termination Actions 2 • Defamation – requires an untrue statement • Intentional infliction of emotional distress – requires proof of intentional or reckless conduct that was “extreme and outrageous” and which caused the employee severe emotional distress • Invasion of privacy – searches and drug tests • Malicious prosecution – wrongful charge filed against an innocent employee • Negligent investigation of employees – no cause of action for this kind of thing in Texas, but a “railroaded” investigation would be a different matter! • Tortious interference with employment – inducing an employer to fire or adversely treat an employee • All of these types of lawsuits require legal counsel EFTE, p. 214-216

33. Thanks for your attendance and Good Luck! Remember the toll-free number: 1-800-832-9394 tommy.simmons@twc.state.tx.us