Reduce your liability by taking the following steps: The slowing economy is one of many factors that can lead company directors to initiate a reduction in force (RIF). While the need to reduce a work force is common, RIFs can be laden with legal pitfalls. The following should be considered by any company considering an RIF.

Any layoff decisions should be underscored by legitimate, non-discriminatory business reasons guided by job functions and operational necessities. Making decisions based on objective criteria to assess which positions to eliminate is less likely to result in claims of discrimination than decisions involving subjective criteria. Production statistics, seniority, or a failure to meet specific performance criteria are always preferable to more subjective factors, such as performance evaluations or an employee’s “attitude” or “contribution.”

Take into account the Age Discrimination in Employment Act (ADEA) that protects employees over 40. Employment costs are a big part of any RIF analysis and often lead to selection of a group of highly paid (and often older) employees for termination. While decisions based strictly on cost are not per se illegal, salary and benefit costs are often considered a proxy for age, and hence age discrimination claims. Moreover, severance or early retirement packages commonly offered to RIF employees involve legal complexities like releases of employment discrimination claims. Ensuring the legality of these packages is complex, so it is imperative to ensure compliance with ADEA requirements and other applicable laws.

Companies should consider establishing an RIF committee. If comprised of various members of legally protected employee classes (e.g., age, sex or race), an RIF committee can significantly minimize claim exposure. Committee decisions can often refute any claim that an illegal factor had any bearing on RIF determinations. A statistical analysis can be used to ensure that a particular protected class of the selected group is not disproportionately affected. If the statistics uncover a “disparate impact,“ the RIF can be reconfigured to avoid unnecessary exposure.

Companies should document the reasons underlying the RIF decision and individual discharge selections. It is also a good idea to conduct exit interviews and issue post-termination letters setting out other legal obligations. Good documentation can go a long way in proving that decision making was non-discriminatory and based upon good business judgment. Employers conducting an RIF should “script” all termination meetings and document any follow up exit interviews so that no ambiguity exists as to what was said, or by whom, as to the reasons for discharge.

Avoid filling the job functions of a laid off employee shortly after an RIF, particularly if only a few positions are affected and the replacement is the antithesis of the discharged employee (e.g., a younger employee replacing an age protected employee). Also consider instituting a hiring freeze for a period after an RIF. Decisions to replace jobs or job functions should be sufficiently separated in time to break allegedly discriminatory connections.

Companies conducting an RIF should consider all other potentially applicable laws, contracts and policies, and should consult with their labor counsel. For those interested in this or related topics, please contact Fred Mendelsohn at fmendelsohn@burkelaw.com or 312/840-7004.