Ongoing layoffs in the high-tech sector have increased speculation that a recession is imminent. Despite a seemingly strong job market and continued low unemployment, the decelerating economy may lead to more downsizing. Organizations that need to lay off employees must make difficult decisions while ensuring a smooth transition. Becoming well-versed in the compliance requirements of the Worker Adjustment and Retraining Notification (WARN) Act can help employers mitigate potential litigation and EPLI issues during, and beyond, the layoff process.
The WARN Act mandates that employers provide a sixty-day notice period before closings or mass layoffs. Public announcements and subsequent news coverage are not enough. The law also requires notification to affected workers or their representatives, state officials, and local elected officials.
Organizations need to consider each layoff period’s timing to ensure the sixty-day requirement is met for every separation period. This minimizes potential legal issues arising from staggered layoffs. Additionally, employers should provide support for worker training and adjustment as part of the employee transition to new employment.
Insurance usually does not cover WARN ACT non-compliance claims, but some carriers offer sub-limits with higher retentions. Employers may want to request a carve-back for retaliation (a carve-back is language in an insurance policy that provides coverage for something that otherwise is excluded).
Communicating clearly when laying off employees helps reduce the possibility of future EPLI-related lawsuits. Employers need to explain why the layoff is necessary and how they chose which employees to let go. They also should spell out what options the affected employees have – such as severance pay, health care, and continuation of benefits. This ensures the process is fair and prevents misunderstandings and legal actions.
Additionally, giving employees the opportunity to ask questions and provide feedback enables employers to address concerns early on. By effectively communicating during layoffs, employers can minimize negative impacts and protect the organization’s reputation.
Prior to layoffs, an organization needs to review the selected employees for any adverse impact on a protected class, which includes race, gender, age, religion, nationality, or disability. If this analysis shows a protected class will be disproportionately affected, adjusting the selection criteria can help prevent discrimination claims.
Employees can claim EPLI-related discrimination if they are in a protected class. They also can claim unlawful termination due to a hostile work environment, harassment, or retaliation based on their protected class. They will need evidence such as discriminatory or retaliatory statements, actions, or inconsistencies in the employer’s layoff actions.
Diligent, documented efforts to promote a fair workplace can reduce the risk of grievances and lawsuits. Having a consistent, written procedure for layoffs helps combat wrongful termination or discrimination claims. These measures can help demonstrate that the employer's decisions were based on legitimate and nondiscriminatory factors.
If companies conduct layoffs inconsistently or in a disorganized manner, they can create an appearance of discrimination. Even if that was not their intent, their actions might lead to a costly litigation process.
Employers with clear layoff policies and procedures, who can demonstrate a fair, transparent, and nondiscriminatory process, reduce their litigation risk. Additionally, they can show through their documentation why they needed a layoff and their selection criteria. This will give them the evidence to show the layoff was not motivated by discriminatory or retaliatory intent.
To demonstrate goodwill, organizations should ensure their severance packages are substantial enough to help employees transition to their next chapter. However, even with generous severance packages, former employees may still retaliate with litigation. Getting proactive legal and insurance counsel can mitigate these potential EPLI risks.
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Read about cybersecurity implications of layoffs.
About the author
Donovan Nowell leads the Risk Strategies Management Liability Practice. He specializes in designing programs for executive liability, directors and officers liability, employment practices liability, professional liability, fiduciary liability, and crime insurance.