Spotlight on Employment Law – Planning and Implementing Workplace Reductions

Part Four – Documentation that Affects Reductions in Workforce

It seems every day the headlines include another batch of layoffs.  Whether they are called layoffs, downsizing or reductions-in-force, they require planning.  Otherwise the employer may not accomplish its objectives and may create more headaches than it relieves.  This four part series of Employment Law articles is designed to help an employer think through the process clearly.

Will your noncompete agreements be enforceable?

Employers should give consideration to the enforcement of noncompete agreements with laid-off employees.  The employer who attempts to restrain an employee from finding another job after a layoff will definitely wear the “black hat.”  A presiding judge may find the employer overreaching, and look for a reason to find an otherwise enforceable agreement unenforceable.  Special consideration should be given to such employees.  The managers responsible for the reduction may want to offer additional consideration, such as severance, in an effort to ensure the enforceability of the restrictive covenants.

What about foreign nationals?

If you employ foreign nationals, a layoff that includes them will trigger a host of immigration issues.  For example, nonimmigrant employees in the various categories of temporary work visas (H-1B, L, E and TN) are legally authorized to remain in the U.S. only as long as they are employed with the specific employer named in their visa application.  An H-1B employee is considered to be “out-of-status” upon termination and normally is expected to depart the U.S. unless eligible to apply for a change to a different visa.  Moreover, if an employer terminates an H-1B employee before the end of the “validity period” on the approved H-1B petition must pay “the reasonable costs of return transportation” for the foreign national employee to return home.  Also, the employer must notify the U.S. Citizenship and Immigration Services of the H-1B foreign national’s termination.  A foreign national employee is not considered “terminated” under DOL regulations until that notification is filed.  And the employer must pay the wages listed in the H-1B petition until the termination is established.

Severance and release agreements

Routinely, employers will offer severance to employees selected in a layoff.  The employer may pay severance based on years of service or other criteria.  Sometimes employers will have ERISA plans in place, specifying the eligibility requirements and amounts of severance payable.  If the severance plan is ERISA-qualified, it will be subject to reporting, disclosure, and fiduciary requirements.  If no such ERISA-qualified severance plan exists, one may be created. 

In consideration for the severance, the employer normally requires a release of claims.  Only once in the author’s experience did an employer offer severance that was not conditioned on signing a release.  The Older Workers Benefit Protection Act (“OWBPA”) states specific requirements for obtaining valid releases from laid-off employees over 40.  In terminations outside of a reduction-in-force, the OWBPA requires that employees be offered up to 21 days to consider a severance agreement containing a release.  And the agreement must provide a right of revocation for at least seven days after the employee signs the release agreement.  In a reduction-in-force, the employer must offer the effected employees up to 45 days to consider the agreement, as well as providing the seven day revocation period.  In addition, the employer must provide the laid-off employees over 40 with information: (1) describing eligibility factors and time limits for participation, (2) job titles and ages of all employees eligible or selected, and (3) ages of all employees in the same job classification or employment unit not eligible or selected for the reduction.

Briefly stated, the release language should include a release of any claims arising from the employment relationship, a non-disclosure clause, preventing the disclosure of confidential information, or the terms of the severance, except to spouses and professional advisors, a non-disparagement clause, a denial of liability, and a provision for the forfeiture of any severance payments in the event of the employee’s breach.

Exit interviews and post-employment considerations

Terminations in a layoff context should be conducted as any termination.  Each employee should be provided an exit interview to confirm: (1) the details of any severance agreement and out-placement assistance, (2) the employee’s return of company property, and (3) any continuing obligations under restrictive covenants.  Post-employment considerations include: (1) COBRA notices, (2) ensuring that the employees receive any wages and vacation pay due at termination no later than the next regular pay date following termination, (3) employee access to facilities and systems is disabled, (4) responding to reference requests, and (5) addressing unemployment claims.

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