The ever-present question for businesses this year is whether the U.S. economy is already in a recession or is slowly heading toward one? Traditional economic metrics show that the U.S. is not in a recession, for now. The Federal Reserve’s aggressive interest rate hikes over the last 12 months have increased the cost of borrowing and slowed consumer demand. But the U.S. economy has shown signs of resilience, expanding at a solid 2.9% annual rate during the fourth quarter of 2022. Unemployment in the U.S. fell to 3.4% in January 2023, its lowest level in more than 50 years. Yet some economists still believe that the country may slip into a mild recession during the first half of this year. 

Workforce Reductions are on the Rise

Businesses are not waiting for the U.S. economic outlook to become clearer. Many have begun to prepare for an economic downturn by restructuring their business, including downsizing their workforces. Employee cuts, which began with major corporations, such as Amazon, Disney and Google, are now being embraced by businesses of all sizes as a cost-cutting measure. Without careful planning, a reduction-in-force can have unintended and costly legal consequences. 

Avoiding Liability under the WARN Act

Before making workforce cuts, companies should be aware of and plan for the potential pitfalls under federal and state law. For one, the Worker Adjustment and Retraining Notification Act (“WARN Act”) is a highly technical federal labor law that requires most employers with 100 or more employees to provide employees with at least 60 calendar days of advance notice of a planned plant closing and mass layoff of employees. WARN Act non-compliance can be costly, resulting in the imposition of significant penalties, including payments to employees for all wages and benefits arising from an employer’s failure to meet the advance notice requirements.

Reductions-in-Force Risks Involving Older Workers

Businesses planning to offer severance to down-sized, age-protected (40 years of age or older) employees in exchange for a release of potential age discrimination claims must navigate the complex requirements of another federal law, the federal Older Workers Benefit Protection Act (“OWBPA”), in order to obtain a legally enforceable release of claims from those employees. The OWBPA requires businesses to: 1) provide affected employees with a number of specific written notifications, using clear language and avoiding legal jargon; 2) time to consider the severance package and release of claims – either 21 days or 45 days — depending on the number of employees involved in the downsizing; and 3) a 7-day revocation period during which the employee can change their mind.

Compliance with Employment Discrimination, Wage, and Benefits Laws

Reductions-in-force decisions should also be evaluated pre-implementation to ensure compliance with federal and state anti-discrimination requirements, employee wage issues under the Fair Labor Standards Act, and employee benefits issues under ERISA, COBRA and relevant tax laws.

Bean, Kinney & Korman Can Help Your Business

Bean, Kinney & Korman can help your business to develop cost-efficient and effective workforce strategies and compliance plans to deal with applicable federal, state, and local laws. Our employment law practice group is highly skilled at advising employers on how to navigate the complex and sometimes ambiguous legal risks attendant to a reduction-in-force. If the need should arise, Bean, Kinney & Korman has a deep bench of qualified and tenacious litigators with significant federal and state court trial experience in complex employment matters and business disputes. 

We can assist your business with:

• Planning for your reduction-in-force to minimize the risks attendant to Title VII, the WARN Act, and OWBPA, among other federal and state laws.
• Preparation of required employee notices and confidential severance and release of claims agreements that satisfy the federal and state legal requirements.
• Planning for executive-level reductions in force, including appropriate severance packages, restrictive covenants, and benefits.
• Skilled and cost-effective litigation defense of employee claims that can arise from a reduction-in-force.

If you have questions or need assistance in planning a reduction in your workforce, please contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com, or your current Bean, Kinney & Korman attorney.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.