HR Scenario: Reduction in Force (Part 2)

HR Scenario: Reduction in Force (Part 2)

This article is part of our ongoing Weekly HR Scenario series by our National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR. In each of these articles, Kim will walk you through a real-life HR scenario and break down how this situation should be handled and all the ins and outs of the rules and regulations that impact the scenario.

Since this week’s scenario is an especially detailed and complex one, we are bringing it to you in two parts! In yesterday’s first part, Kim walked you through the scenario and the first few issues to start considering and in today’s section part, Kim will wrap things up with a few more issues and overall conclusions!

HR Scenario:

As a refresher, here is the scenario Kim laid out:

The owner of a small business has determined that they need to cut their staff by a certain number of full-time employees by the end of the quarter due to a decline in business and economic conditions. The business owner does not foresee a need for these positions in the near future. What should the owner consider in planning for this reduction in staff?

PLEASE NOTE: Employers should always consider both state and federal laws and regulations. The following scenario and response is not intended to cover all possible considerations to conduct a legally compliant Reduction in Force (RIF), but highlights many of the issues commonly faced by employers.

Issue #4) What should the company do to protect itself from potential liabilities?

The company should never use a reduction in force as a means to terminate staff for reasons other than the established selection criteria. Legal counsel should review all decision-making criteria and documentation to reduce liability.

Remember, it can be illegal retaliation to consider:

  • Prior harassment/discrimination complaints made by employees.
  • FMLA leave requests.
  • Workers’ compensation claims.
  • OSHA complaints.
  • Wage and hour complaints.
  • And/or union grievances.

Additionally, a statistical workforce analysis should be conducted under attorney-client privilege to determine if there is a disparate impact against age, race or other protected status covered by federal or state law. Any protected class that may have a disproportionately larger percentage affected by the RIF will need to be evaluated and substantiated.

There are two frequently used methods to determine adverse impact:

  1. Statistical significance tests (i.e. z-test of independent proportions or Fisher’s Exact Test).
  2. Practical significance tests (i.e. the “four-fifths rule”).

Issue #5) How should the company communicate the reduction in force?

The company should decide:

  • Who will be responsible for the communication.
  • Who will be included in the meetings (don’t forget employees on leave).
  • What the key message should be.
  • When it should be delivered.
  • How it will be conveyed.

It can be very helpful to roleplay the RIF meeting in groups of three with each person taking a turn being the communicator, the employee and the observer (who provides meaningful feedback to the participants in the role play). Thoughtful consideration of this communication plan will be helpful in achieving the outcome desired.

The company should plan a private meeting place for the RIF meeting. The person delivering the message should speak with genuine concern, be respectful and expect common questions such as:

  • “Why was my position chosen?”
  • “Why me and not someone else?”
  • “Who else is being let go?”
  • “Am I the only one in my department?”
  • “Who is going to do all my work when I am gone?”

Although difficult, managers should avoid consoling employees by saying “It’s not your fault,” “This has nothing to do with your performance,” or “I would have retained you but it was out of my hands,” because such statements can be dangerous.

The employer will want to provide information about:

  • Health benefits.
  • COBRA.
  • 401(k).
  • Outplacement services (if applicable) or EAP.
  • Unemployment.
  • Final paychecks.
  • Severance agreements.
  • Etc.

Emotional Impact

There can be significant emotional in situations like this, so it is good to be prepared for this aspect of the process. It’s handy to have tissues nearby. Management should also carefully consider the method of notification. Individual meetings with employees add integrity to the reduction in force process that a phone call, email or even a group meeting lacks. Carefully craft and have available any notifications, releases and written disclosures.

Consider how to best help affected employees transition out of the office. Ask yourself questions such as:

  • Do they need a ride called?
  • Will you ship their belongings or when will they be permitted to pack up?

Issue #6) What about the employees who are left after the reduction in force?

Notifying the remaining workforce the RIF was conducted will help squelch potential rumors.

Employees remaining after the RIF may be nervous and uncertain, discuss worst-case scenarios, pass along rumors and speculation, and even start to see co-workers as potential competition for jobs.

Consider communicating the company’s financial position and its commitment to meeting company goals and objectives going forward with the current workforce. Employers will need everyone on board and aware of the future challenges to be successful.

Communicate often and openly.

Conduct individual employee meetings to discuss employees’ value to management and the organization, answer questions, ask for feedback on how to improve and to reassure, reassure, reassure, but don’t mislead or over-promise.

Don’t forget to include a communication plan for your customers, suppliers and other external stakeholders.

Issue #7) It has now been several months since the reduction in force. The owner needs to hire a manager and this position is the same as one of the positions he eliminated. Should he move forward with this hire?

While there are no federal laws that dictate a specific time frame to wait after a RIF before filling a position, there are several reasons an employer should proceed cautiously when filling a position that was recently part of a RIF or job elimination.

Handled improperly, an employer may be accused of using the position elimination as a pretext for what would otherwise be an unlawful termination. For example: a former employee may attempt to sue an employer for wrongful discharge within state and federal statute of limitations time frames.

As with all negative employment actions, the reasons should be lawful and justifiable.

If there truly is no longer a need for a position, and the employer can show business need for the elimination, it would generally be permissible to terminate employment for position elimination. It would also be reasonable for an outsider to then believe this to be a permanent elimination, and not expect the employer to rehire for the position within a short time frame.

However, if the employer does try to rehire for this position (within 6 months or less, for example), and the former employee finds out the new hire or replacement is of a younger age, different race, etc. it can cast doubt on the business need for the elimination. (4)

Additional Resource:

https://www.shrm.org/resourcesandtools/tools-and-samples/how-to-guides/pages/conductlayofforrif.aspx

Sources:

4 Source: https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/amountoftimetbeforewecanhire.aspx 

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