Layoffs – UGH!

I’m pretty tired of hearing about this economic down turn, how about you? Unfortunately, we have heard from many clients challenged with cutting back payroll expenses as their customers evaporate. So what should you consider when you have to make that tough decision to eliminate positions? There are very few laws in the private sector around how to determine and conduct a permanent layoff or reduction in force (RIF). There are no legal requirements around laying off employees based on seniority or bumping rights back to the last held job. However, it is important that you have defensible criteria for determining which positions and employees are affected by a layoff. Here are a few considerations:

  1. Focus on the business functions/position(s) to be RIFed first, then on the incumbents. Does the work group you’re considering have a common purpose, the same job title or skills? Can you clearly outline that the position to be eliminated is the least necessary based on business needs? Avoid “laying off” an employee as a pretext for addressing a poor performer.
  1. Do you have any written layoff criteria your company has committed to in your policy manual or employee handbook? Outside of a collective bargain agreement most employers will not have written layoff criteria such as seniority in job, seniority with the company, or performance. We recommend that you not outline these in a policy manual unless your company is prone to regular layoffs.
  1. Do you have performance history on all employees in the work group/job title or department? Ideally, the employer would lay off the poorest performer. Proving that may be a challenge if there are not written appraisals in the file. This performance record may also include awards, disciplinary actions, customer complaints or compliments. In the absence of historical performance data, the employer may prepare a performance appraisal on each employee in the work group, evaluating everyone of the same criteria.
  1. Once you’ve determined who is to be RIFed based on business needs and clearly objective criteria (performance history, training, seniority) then look at the profile of the employees who will be affected. Are they representative of your work force? In other words, if 75% of your work force is under age 40, then a similar percentage of your RIFed employees should be under age 40. There may be exceptions for this based on unique skill sets, but watch out for great imbalances in the make up of your RIFed staff. Sending everyone over age 50 out the door and leaving only the GenXers to run the shop may raise an initialdiscriminationcomplaint.
  1. When business picks up the employer is not legally required to recall/rehire the last employee laid off. However, filling the job within a short period of time with a new (younger, non-pregnant, or non-minority) employee may raise aneyebrow that the RIF was not for legitimate business reasons, but was to eliminate an employee for non-work related (read “discriminatory”) reasons. There are no rules around the rehire period, but we suggest it be at least 6 months, and 12 months is better.
  1. Employers who layoff 50 or more employees may have legal reporting and notice requirements under the California and federal WARN Acts. We hope you don’t get there, but call us if you do.

Other Payroll Reduction Options

Some employers prefer to share the pain andreduce salaries across the board rather than layoff one employee. This salary reductionapproach may be for top management, for all salaried employees, or throughout the company. Someemployers cut back the work schedule in exchange for the salary reduction; others still need full productivitywith 10% less payroll.

Corporate culture will drive some of this decision. Our experience has been that it’s easier on the organization to layoff one or two employees and let them get on with their lives rather than have 20 cranky employees working for less.

The CaliforniaEmploymentDevelopmentDepartment offers a program called Work Sharing Unemployment Insurance that allows employers to reduce schedules in lieu of layoff and supplement the affected employees’ salary with unemployment funds. Check it out at

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“Heads Up” – Tales from the Front

Here are a few unfortunate and costly employer land mines we’ve seen recently:

  • An employer who failed to renew the student work permits was fined $500 per student for those working beyond the annual authorization period. Ensure your students’ work permits are up to date each year.
  • Two years after implementing an Alternative Work Schedule or AWS (4-10 hour weeks) it was discovered the employer had not sent the election results to the appropriate state agency. The AWS was deemed null and void and the employer owed over $70,000 in overtime. The AWS procedures are very specific. Employers must follow these rules in order to offer any work schedule outside of overtime pay for > 8 hrs/day.

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Workers’ Compensation Claims Handling

Employers often hire Workers’ Compensation claims administrators or insurance

carriers without knowing the level of service or results of their claims department.

Yet, a poorly handled claim can increase the costs that impact an employer for

three years on the experience modification.

To be an informed consumer, ask these questions:

1. What is the level of experience of the claims team? What is the employee

turnover rate?

2. What is the average caseload? (Approximately150 claims per adjuster for

optimal results)

3. What are the results of Division of Worker’s Comp (DWC) audits

governing proper claim handling and complying with legal rules and regs?

4. What is their reserving philosophy? (Ultimate probable payout, not worse

case scenario)

5. How is fraud handled? What is their record of successful prosecution?

6. What notices will be sent to the employer? (Hearings, depositions, denials,

significant reserve changes?)

An employer’s involvement and monitoring of their claims is important for

successful resolution. Is the carrier providing to the employer a plan of action

to resolve the claim? Is the employer following up on the plan to ensure timely

compliance? An in-person claim review with the carrier may be required to

facilitate communications and ensure results. Some advantages of a claim

review include:

• Early identification of problem claims or personnel issues that may impact the

outcome

• Review of appropriate reserving

• Confirmation of work restrictions and treatment plans

• Exchange of information between employer and claim handler

• Education of employer on new case law and regulations

• Improved working relationship of claim handler and employer

An employer should feel confident that the claim handler is engaging in best

practices and keeping in mind the needs and concerns of both the employer and

employee. An employer should ask questions and expect informed, understandable

answers.

For more information please contact:

Sharon Poston, ARM

President, ESM Solutions