RIF Alternatives

Many businesses are considering and implementing cost cutting measures as alternatives to lay-offs, including pay cuts; reduced workweeks; shorter days; elimination of overtime; reduced paid time off; travel and expense restrictions; and, reductions or elimination of benefits.  These efforts can be effective in maintaining and attracting talent and sustaining and even improving employee and public relations.  However, there are implications employers should consider.

Any adverse action towards an employee - including the above measures - can be the basis for a harassment, discrimination or retaliation claim, even if that action falls short of termination of employment.  Therefore, if an employee feels that s/he was affected because of his or her membership in a protected class (race, religion, gender, age, disability, etc.) or because s/he exercised a protected right, then the employee may have a claim for unlawful discrimination, harassment or retaliation, even though employment continues.  Employers need to make sure that they have an objective, documented business reason for implementing any cost cutting approach that could negatively affect an employee, and ensure that the measures do not have a disparate impact on any protected group.

In the event of a lay-off, employers often offer a severance package which includes a release of all claims by an employee.  Such releases can not be prospective, meaning that employees can't release future claims. Therefore, generally they are not useful where employment continues.

Employees who have a reduction in hours may be entitled to unemployment compensation. In addition, if the reduction in hours results in a loss of health benefits, an eligible employee will have a right to continue the benefits under COBRA or a state mini-COBRA, where applicable.  The applicability of the new COBRA subsidy to reductions in hours is unclear - for now reductions in hours are not covered.

In addition, when eliminating benefits for any group, employers need to make sure their practice is consistent with plan documents. An employee may assert a contractual right to coverage under plan documents, and employers can be liable for uncovered medical expenses.

There are also wage and hour considerations when pay is reduced. Employees must receive the minimum wage.  In addition, employers need to make sure the pay of salaried employees does not dip below the statutory minimum ($455 under federal law).

Before reducing pay, benefits or time off, employers should check that there are no contractual obligations to the employee, such as in an employment agreement.  Employee handbooks must contain a disclaimer stating that employees are at-will; that the handbook does not create a contract; and that the employer reserves its right to change any policies or benefits.  In some states, a handbook can create contractual obligations to maintain benefits in the absence of such a disclaimer.

If employers are implementing reduced workweeks or schedules, they should consider how they will handle moonlighting and other outside employment where those activities could interfere with the employee's job duties or pose a threat to the business.  Employers should implement policies on outside employment and conflicts of interest and restrictive covenants (such as non-compete and non-solicitation agreements) to protect their interests.

Finally, whether implementing lay-offs or other savings measures, employers should be mindful that employees may be looking for ways to protect their jobs and benefits. Unions can be an attractive alternative.  Keeping communication with employees open is critical to employee relations.

On a positive note, where implemented properly, many of these alternatives are the family-friendly options many employees are seeking.  Employers can benefit from the cost-savings, while employees may be able to benefit from added flexibilty and additional family time.

Most employees will appreciate any job preservation efforts, even if they result in a lesser economic package. However, employers need to keep the legal considerations in mind when weighing the costs and benefits of this approach.