How to Downsize Legally

Abstract

To be an effective manager, knowledge of employment laws and how they pertain to terminations, especially mass terminations, is an important attribute. Those selected for termination in a workforce reduction often experience anger, fear, resentment and anxiety. A reduction in force which is carried out in a fair manner and treats the affected individuals with compassion and dignity will go a long way in preventing litigation. The manager must be familiar with how to plan for a reduction in force, the legal aspects involved, and how to go about the actual implementation of the downsizing effort. We have witnessed the workforce downsizing of many organizations within the past few years. The major contributors to this epidemic are plentiful. Economic pressures during the most recent recession and increased global competition have forced organizations to flatten out their organizational structures to enable them to quickly respond to changes in the marketplace. The recent tide of deregulation resulted in mergers and acquisitions creating duplicative positions within the organization. Additionally, the rapid pace of technology has led to databases which displace intermediate level employees whose responsibilities include compiling and analyzing. Unfortunately, corporate reductions may lead to employee lawsuits in the form of “wrongful discharge” cases. Wrongful discharge is a catch‐all phrase for a host of claims made by a former employee against his or her previous employer. The most popular wrongful discharge claims include breach of contract, bad faith, and discrimination of protected groups based on factors such as sex, age, race and many others. Certain employees are covered under the Workers Adjustment and Retraining Notification Act which requires employers to give 60 days advanced notice in the case of mass terminations. While few of these cases ever make it to court, attorney fees, settlement fees and jury awards can be costly. In California, the average damage award exceeded $600,000. Therefore, a comprehensive evaluation of a reduction in force (“RIF”) plan must be performed and the myriad of legal issues must be considered. During this process, it is important to keep in mind that employees selected for downsizing will experience among other things, fear, anxiety and anger. How the actual implementation of the RIF is carried out will have an immense impact on whether an employee will bring forth a wrongful termination lawsuit.

Citation

Gee, G. and Kleiner, B.H. (1996), "How to Downsize Legally", Managerial Law, Vol. 38 No. 4, pp. 22-31. https://doi.org/10.1108/eb022469