NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
May 19, 2009

CONDUCTING LAYOFFS? SOME THINGS TO KEEP IN MIND

If your credit union is considering layoffs or eliminating positions (aka, a reduction in force, or “RIF”), this is a brief, general look at of some of the legal issues to bear in mind. As the potential litigation costs for these and other violations can be great – potentially neutralizing any cost savings generated by a RIF – we encourage your credit union to be proactive about learning to avoid the pitfalls.

Discrimination Claims – Often times, discrimination and/or wrongful termination claims are raised by plaintiffs challenging either the stated business reasons for conducting a RIF, or the means by which that employee was selected for termination under the RIF. Conducting and documenting a Business Necessity Analysis, establishing permissible eligibility criteria, and documenting the legitimate business reasons for terminating an employee or eliminating a position are just some ways your credit union can help minimize the risk of litigation, especially where a layoff may disproportionately affect any protected class of employees. Before finalizing a decision, the credit union should also closely examine the potential RIF list to contemplate issues arising from employees out on or recently returned from protected leave, or employees who recently raised complaints of harassment or discrimination.

Worker Adjustment and Retraining Notification (“WARN”) Act – In broad terms, credit unions with more than 100 full-time employees may be required under the federal WARN Act to provide 60 days’ written notice before implementing a mass layoff. There are specific laws and regulations regarding which events may trigger these notice obligations, and requirements for the notification period, form, and contents, among other things. If your credit union employs over 75 employees, you may be subject to California’s stricter, “Baby WARN” Act. Very generally, under the Baby WARN, credit unions could be required to provide 60 days notice prior to conducting a “mass layoff,” a “relocation,” or “termination,” as defined by California law.

Releases & the Age Discrimination in Employment Act (“ADEA”) – If you plan on seeking release agreements from employees involved in a RIF, you should be aware that the ADEA imposes several requirements on the timing and content of such a release. For example, employers cannot ask employees to waive the right to challenge the release itself, the right to file an agency charge, or any future ADEA rights. Additionally, the release must specifically state that employees are waiving ADEA claims, provide a description of the so-called “decisional unit” and eligibility factors (including a diagram of job titles and ages of all employees considered for the RIF), and instruct the employee to consult with an attorney about the release. Generally, employees must be given either 21 or 45 days to consider signing the release (depending on whether the release is for an individual age claim), and after signing, they must also be provided up to 7 days to consider revoking the agreement.

Consolidated Omnibus Budget Reconciliation Act (“COBRA”) – Remember those recent changes to COBRA we wrote about in our Client Pool earlier this year? By and large, these recent amendments affect employers that sponsor a group health plan for employees and have terminated or laid off employees on or after September 1, 2008. Very briefly, under the changes, qualifying employees who lose group health plan coverage because they were involuntarily terminated may be eligible for a 65% federal subsidy payment by the credit union toward the cost of their COBRA premiums. Among other things, the amendments to COBRA also impose new notice requirements and impact the administration of payroll tax returns.

Severance Pay, Health Plans, and Welfare Plans – Although far more complex than we can cover in this article, your credit union should also consider how a RIF might impact 401(k) plans and health benefits, and if your credit union offers severance pay policies or provides for severance in an employment agreement, whether IRS Section 409A and Employee Retirement Income Security Act (“ERISA”) requirements may also apply.

Of course, this “high level” review has listed only some of the issues which may apply to your credit union’s particular situation, and we have not addressed many other considerations, like final pay issues, how to announce layoffs, and ways to protect your credit union’s sensitive business information when employees are terminated. But as you can already see, RIFs can involve the intersection of multiple broad-ranging federal and state laws. As such, we encourage you to consult with us to help you navigate this “minefield.”

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