With the economy booming and unemployment low during the last few years, many companies struggled to keep and attract employees. Now with the dot-com bust and the economy on the verge of recession, companies are striving to cut costs and reduce employees.
Companies now risk lawsuits from laid-off employees unhappy with their treatment. Consequently, employers should carefully consider the legal risks they face before conducting layoffs. Below is a list of topics to keep in mind.
Are employees at-will or were they guaranteed job security or other special protections? A review of the employee handbook as well as any oral or written statements made to employees and applicants is essential. The key question is whether the company is contractually free to terminate an employee or whether the employee is protected by an implied or express employment contract.
Some companies, particularly startup, high tech companies, promised new employees generous severance to entice them away from other companies and to counteract the risks associated with new businesses. If such assurances were given, they may constitute contracts obligating the company to make expensive severance payments to departing employees.
Some companies offered lucrative stock options to attract talented employees. Not all companies followed through with formal stock-option plans Continued from Page 1 or written stock agreements. Consequently, promises of stock options may become fertile ground for litigation, especially if employees believe that the business prospects of the company or the value of stock options were overstated.
Before carrying out a layoff, every company should compare the composition of the individuals being laid off to the workforce as a whole to ensure that no discrimination on the basis of age, race, sex, etc. is occurring in the layoff.
Companies with 100 or more full-time employees must provide 60 days advance notice of a "plant closing" or a "mass layoff." A mass layoff occurs when one third or more of the work force is laid off, with a minimum of 50 employees. While there are some narrow "faltering businesses" exceptions, the WARN Act generally requires covered employers to provide advance notice. Alternatively, an employer may pay 60 calendar days of wages in lieu of notice.
At some companies employees have worked overtime "off the clock" or have been misclassified as "exempt" employees. While some employees may tolerate such treatment so long as they are employed, they may assert claims for unpaid overtime once they are laid off. An employee winning such a claim would be entitled to up to three years of unpaid overtime, which would be doubled, plus attorney's fees. Employers may wish to review their overtime practices in conjunction with any layoff.
Under Utah law a terminated employee is entitled to his or her final paycheck within 24 hours. Depending on a company's policies and practices, unused vacation or sick leave may be owed to terminated employees as wages and have to be paid out at the same time.
Release of Claims
Employers may wish to protect themselves from potential litigation by asking laid-off employees to sign releases of claims. For such releases to be valid, the employees must receive something of value over and above anything they are already entitled to receive. Thus, if employees are already eligible for severance, they may have to be given an additional payment in exchange for a release of claims. Finally, there are additional requirements that must be complied with for employers to obtain a valid release from potential age discrimination claims.