When business slows down, you may have to trim your workforce to stay afloat. That can be a wrenching action, especially for owners and managers of small and mid-sized businesses. It’s hard to tell a loyal employee that he or she will no longer be receiving a paycheck.
And there’s more at stake than the personal anguish of dropping one or more employees: You must also be aware of the legal risks. You want to avoid allegations that you’ve violated a federal or state law.
A laid-off employee may feel that he or she was unfairly dropped from your payroll. If so, the employee may look for a way to make a legal claim. It’s true that most workers are “employees at will,” meaning you’re free to end the relationship at any time for any reason, or for no reason at all. But why bring on unnecessary challenges?
Heading off trouble
It pays to know the kinds of situations that can lead to trouble. Here is some guidance offered by Mel Muscovitz, an employment law specialist.
Laid-off employees sometimes claim that they were the victims of discrimination. This can happen if your layoff seems disproportionately to affect a legally protected group, such as people of a certain race, women, disabled workers or those over age 40.
A worker can also challenge a layoff if it appears to be retaliatory: for example, if the employee recently took medical leave as permitted by the Family and Medical Leave Act or complained of on-the-job harassment.
The main rule in any layoff is to base your decision on who stays and who goes on factors related to the business. This might include how long the employee has worked for you, how well he or she has performed, what skills he or she possesses, and whether he or she has required disciplinary measures.
Using objective standards helps you if there’s a claim that you singled out people of a protected group.
Notice and severance pay
Unless your business employs 100 or more people, you don’t have to notify workers of anticipated layoffs. But if you do employ more than that number, federal law does require notice of large-scale layoffs.
It’s usually permissible to lay off a worker even though he or she is on a leave of absence. An employee may be on leave, for example, for a reason authorized by the Family and Medical Leave Act, or the Americans with Disabilities Act, or because he or she is serving in the military.
To avoid problems in laying off employees who are on one of these approved leaves, be prepared to show that you would have laid them off even if they hadn’t been on leave. When you lay off an employee, you’re not required to give severance pay. Still, you may want to. If you do, it’s fair and legal to require the employee to sign a release waiving any claim that his or her rights have been violated.
Putting together a valid release is not a do-it-yourself project. You need to observe a number of legal requirements if the release is to be effective. For example, if you ask an older worker to waive claims under the Age Discrimination in Employment Act, the release must specifically refer to the worker’s rights under that Act. It is prudent to have the release drafted by a lawyer familiar with employment law.
Employee benefits
When you lay off an employee, you may have to pay him or her for any accrued and unused vacation. This will be true if you’ve agreed to provide paid vacation time or if it’s part of your general business policy. A law in your state may also require this. Check with the Department of Labor in your state.
Does your business employ 20 or more people and provide a group healthcare plan? If so, you must offer laid-off employees and certain beneficiaries the opportunity to continue the coverage at their own expense for at least 18 months.
You don’t have to rehire a laid-off employee if work becomes available, but to avoid any misunderstanding, it may be better to speak of a “termination” rather than a layoff. Termination seems to imply something more permanent.
