Conducting Layoffs

Unfortunately the need to downsize faces almost every company at some point.

With any workforce reduction, several variables come into play. There are protected classes of employees that need to be dealt with carefully. These protected classes include individuals who are members of a certain race, color, ethnicity, national origin, religion, gender, age (over 40), disability, or veteran status. Naturally, that doesn't mean that you can't include them in a necessary round of layoffs but if does mean the criteria for the layoffs must be carefully considered and downsizing conducted in compliance with the law.

Here are some possible criteria for workforce reduction:

Seniority

Under seniority-based layoffs, the most recently hired employees are the first to be laid off. Layoffs based on seniority are less likely to raise questions about age discrimination, however, still must be tested for adverse impact against protected classes of employees. (See the end of this article for an example of "testing for adverse impact").

Job skills and knowledge

Many organizations determine layoffs based on the skills, knowledge, and abilities that are needed by the employer following the reorganization. Employers need to ensure they have sufficient documentation of employees' job skills, knowledge, and abilities before using these factors as selection criteria. A layoff policy can stipulate that when employees have substantially equal skills, knowledge, and abilities, layoffs are determined in the reverse order of seniority.

Job classification

Some employers select employees in a particular job classification for layoffs. For example, part-time or temporary employees might be laid off before full-time, permanent employees.

Merit/performance ratings

For many employers, basing layoffs on employees' performance ratings might seem like an ideal way to select individuals for workforce reduction. However, using such ratings might leave an employer vulnerable to discrimination claims, since few employers have consistently well documented, up-to-date, and objective employee performance appraisals for all employees. Make sure all bases are covered before implementing this criterion.

Testing for Adverse Impact

Not only must selection criteria be nondiscriminatory, but applying the criteria also must not have an adverse impact on protected classes of employees. Again, protected classes include certain race, color, ethnicity, national origin, religion, gender, age (over 40), disability, or veteran status.

So how do you test for adverse impact? Here's an example.

Let's say you're using seniority as a selection criterion for layoffs. Theoretically, such criterion does not discriminate against any protected class of employees. But if your company happens to have very few long-tenured female employees, implementing seniority-based layoffs would have an adverse impact on those employees.

Because almost any selection criteria might have an adverse impact on a protected class of employees, you should perform a “what if” analysis of how a layoff would affect different protected employee groups. If such an analysis shows an adverse impact on a protected employee group, then you should either change the selection criterion, or substantiate its use by showing that using this criterion is a business necessity for your company. You can do so by establishing a relationship between the selection criterion and the job performance of the employee. This relationship would be your defense in the unlikely event of a discrimination lawsuit.

As you can see, conducting layoffs requires quite a bit of forethought, and may require the assistance and guidance of outside legal counsel. But with a set of firmly defined criteria–which has been tested for adverse impact on protected classes of employees–layoffs can also be done in complete legal compliance.