This article is published courtesy of the May 2009 State Bar Business Law Section newsletter. The State Bar offers its members the opportunity to network with other lawyers who share a common interest through its 26 sections. Section membership includes access to newsletters, email lists to facilitate information sharing, and other resources. 

June 3, 2009 – Recent layoff announcements at some of the largest employers in the state make news almost every day. Circuit City Stores recently closed after a failed attempt at Chapter 11 reorganization, displacing about 700 employees in Wisconsin. On Jan. 23, 2009, Harley Davidson announced it will lay off 1,100 workers and close its Capital Drive plant. Oshkosh Corp. announced it would cut 7 percent of its workforce. Bon-Ton Stores announced on Jan. 29, 2009, it would lay off 100 employees at Milwaukee’s Boston Store.

With the economic recession deepening, businesses are feeling intense pressure to cut costs. Temporary or permanent layoffs, also known as Reductions in Force or RIFs, are difficult alternatives some companies are forced to accept. Carrying out RIFs can be tricky. Missteps may give rise to discrimination claims and back-pay liability. State and federal plant closing laws also require advance notice of large scale layoffs. This article summarizes some of the many considerations that go into the decision to reduce the workforce.

The RIF analysis

Employers should perform a RIF analysis before to deciding which employees to include in a large-scale layoff. A rational and neutral process can be an important defense against claims of illegal discriminations. Factors such as performance, attendance, annual reviews, attitude, training, experience, seniority, and even cost to the company are criteria that can be legally used to measure employees against one another.

A simple RIF analysis would list between three and 10 of theses types of legitimate criteria to be measured. An HR professional would then develop a rating scale and each employee in the group targeted for a workforce reduction should be rated for each criteria. The scores would then be tabulated and compared to decide which employees must be laid off. It is important to evaluate the criteria used to make sure none are being used as a proxy for illegal considerations, such as age, race, gender, or disabilities. Plaintiffs in age discrimination cases, for example, often cite the consideration of seniority as proxy for age and, thus, age discrimination. While the RIF analysis may consider seniority as a factor, it cannot be the only factor nor can it be given more weight in the analysis than other factors.

The RIF analysis assists employers in showing their reasoned and objective selection process. Some employers use only annual employee reviews, but reviews do not accurately rate employees against one another. Further, other considerations such as special training or cross training or other similar factors may be important for a “leaner” post-layoff business model but not reflected in past performance evaluations.

State plant closing laws

Once the scope of the RIF has been determined, employers need to determine whether state or federal law requires advance notice of the RIF. The relevant state laws for Wisconsin employers or job sites in the state are Chapter 109.07 of the statutes and Chapter 279 of the administrative code. State law applies to employers with 50 or more employees and generally requires 60 days’ advance notice of a qualifying layoff that affects more than 25 employees or 25 percent of the workforce, whichever is greater.¹

In counting the number of employees in the workforce, new and low-hour employees are included in the calculation to determine the trigger point for notice at the 25-employee or 25 percent level. A new employee is defined as one “who has been employed by an employer for fewer than 6 of the 12 months preceding the date on which the notice is required.” A low-hour employee is one “who averages fewer than 20 hours of work per week.”²

To determine whether a layoff is a “qualifying layoff,” the Wisconsin Administrative Code defines the length of the layoff for an “affected employee” as “a layoff exceeding 6 months” or 50 percent reduction in hours over 6 months.³

To determine whether an employer is covered, simply count the number of employees at an employment site. Note that the notice requirement applies to a covered “site” even if the employer is incorporated or has its corporate headquarters in another state.

Federal WARN Act

Employers covered by Wisconsin’s plant closing law also need to comply with the federal WARN Act, if it applies. The federal act covers employers with 100 or more employees.⁴ If covered, the federal act requires 60 days’ advance notice of any permanent or temporary shutdown that results in lost employment during any 30-day period for at least 33 percent of full-time employees (with a minimum threshold of 50), or 500 or more employees, without regard to the percentage.

Notice requirements when layoffs are gradual

Employers may choose to respond to the current recession by laying off employees over time. The number of employees affected may, therefore, fluctuate as economic conditions worsen. Plant closing notice requirements may apply if gradual layoffs exceed the threshold levels under state or federal law.

A gradual layoff of employees will trigger Wisconsin’s plant closing notice requirements if the number of affected employees exceeds 25 or 25 percent of the workforce, whichever is greater, during a 180-day period. Wisconsin employs a “90 day snapshot test” in determining whether notice is required. A series of layoffs that are not the result of separate and distinct causes can be aggregated over a 90-day period to determine whether notice is required. The 90-day period looks both forward and backward in time.⁵ If an unforeseen event makes subsequent layoffs necessary, and the employer can show that it had a “reasonable basis” for believing that workforce reductions would not follow from earlier layoffs, the state may excuse the notice requirement.

Voluntary resignations, retirements and for-cause terminations

Should employers count employees who voluntarily resign, retire, or are terminated for cause as “affected employees”? Generally, no.⁶ Employees who leave voluntarily (or by their own unjustified conduct in the case of for cause terminations) are not affected employees under Wisconsin law. The law, therefore, recognizes that employees who leave of their own volition have separated employment for reasons that may not be attributed to the employer and thus do not “count” as affected employees under plant closing law.

Health insurance elimination notice requirements

Health insurance is often one of the most expensive employee benefits and, thus, makes up a large portion of overhead. Employers searching for cost-cutting alternatives may turn to the option of eliminating or reducing employee benefits such as group health insurance. In that case, employers should note that Wisconsin law imposes a 60-day notice requirement on the termination of group health insurance plans.⁷

Severance agreements

Some employers have severance benefit plans; other employers create ad hoc policies when the need for a RIF arises unexpectedly. Employers should typically require a waiver and release of claims in exchange for severance benefits. Note that a waiver will effectively foreclose age discrimination claims only if it meets the requirements of the Older Workers Benefit Protection Act.

The Older Workers Benefit Protection Act requires that an age discrimination waiver be in writing, advise the employee to seek the advice of a lawyer, provide the employee 45 days (in the case of a reduction in workforce involving more than one employee) to review the agreement, provide the employee seven days to revoke the agreement after signing, and disclose the other employees impacted and not impacted in the employee’s department, including their job classifications and ages. These notice requirements demonstrate again that RIFs take advanced planning and consultation with counsel.

Given the 60-day notice requirement of state and federal plant closing laws, severance agreements may be provided with closing notices so that the notice periods under both plant closing laws and the requirements for age discrimination waivers run simultaneously. If, on the other hand, age discrimination is not a concern, or if economic conditions require an immediate closing, severance agreements that contain a general waiver and release of all claims are sufficient to forfeit an employee’s right to bring a plant closing notice claim against an employer at a later time.⁸

Conclusion

RIFs have taken center stage as businesses struggle to reduce losses or, in some cases, simply stay in business. Discrimination claims or plant closing law liability may exacerbate the problems of running a business during these times. Advance planning with counsel who is knowledgeable on these issues will help reduce potential liability and allow managers to focus on recovery efforts, not defending claims that might have been avoided.

For more information on this article, or on reductions in workforce, contract John D. Finerty Jr. at Michael Best & Friedrich LLP at (414) 225-8269 or by e-mail at jdfinerty@michaelbest.com.

¹Wis. Stat. section 109.07(1)(f) governs whether a reduction in force falls within the notice requirements of the statute; it reads as follows:

“Mass layoff” means a reduction in an employer’s workforce that is not the result of a business closing and that affects the following numbers of employees at an employment site or within a single municipality not including new or low hour employees:

1. At least 25% of the employer’s workforce or 25 employees whichever is greater; or

2. At least 500 employees. 

²See Wis. Stat. § 109.07(1)(h).

³DWD Chapter 279.01, Wis. Admin. Code, provides: “The Code also specifies that a single location or group of locations within the same municipality or reasonable geographic proximity that share the same or related staff or operational purpose must be aggregated for purposes of the analysis. ‘Affected employee’ has the meaning specified in § 109.07(1)(a), Stats. An employee that suffers loss of employment is an affected employee if that loss is the result of an employment termination (other than discharge for cause, voluntary departure or retirement), a layoff exceeding 6 months or a reduction in hours of work of more than 50% during each month of any 6-month period. An affected employee does not include an employee discharged for cause or employees who terminate their employment as a result of retirement or voluntary departure...”

⁴Title 29 U.S.C. § 2101 provides: (1) The term “employer” means any business enterprise that employs —

(A) 100 or more employees, excluding part-time employees; or

(B) 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of overtime) …

⁵See DWD ch. 279.04(2), (5), Wis. Admin. Code.

⁶DWD chapter 279.01(a), Wis. Admin. Code, specifies: “An affected employee does not include an employee discharged for cause or employees who terminate their employment as a result of retirement or voluntary departure…”

⁷See Wis. Stat. § 109.075(2).

⁸See Joe v. First Bank Sys. Inc., 202 F.3d 1067, 1071-1072 (8th Cir. 2000) (no federal WARN Act violation where employee signed a separation agreement waiving any and all claims); see also Musgrave v. Conagra, Inc., 2000 U.S. Dist. LEXIS (Dist. Neb. 2000).