Category: Termination

At-Will Employment Myth

Is At-Will Employment a Myth?

Forty-nine of 50 U.S. states (all but Montana) still formally recognize the at-will employment doctrine. This principle means that either the employer or employee may end an employment relationship at any time, with or without notice, for any reason or no reason at all.  However, there are now many separate limitations on employers’ rights to terminate an employee’s employment. So many that employers should almost never rely on the at-will employment doctrine alone to justify letting an employee go.

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Should We Throw Out At-Will Employment?

No. At-will employment is still a fundamental premise for the employment relationship.

If nothing else, it places the burden on the employee to prove that their employer violated their individual rights. This helps prevent meritless litigation.

But there is more. It also establishes that any employment is of an indefinite nature by default. That’s the primary reason why its important for employers to reference at-will employment in offer letters, employment contracts, and employee handbooks. Although not always necessary, reciting the at-will employment rule helps eliminate any doubt whether the employment was intended for a specific term.

How Then Is At-Will Employment a Myth?

Fair question. Why do lawyers both emphasize at-will employment and downplay it at the same time?

Basically, while it doesn’t provide much, at-will employment is still the most flexible starting point for employers.

Despite “at-will employment,” an array of employment discrimination laws now place many restrictions on reasons why employers CAN’T fire someone. But there are still a nearly infinite number of reasons why you CAN separate an employee.

Employers can further yield their discretion to end the employment relationship. This is done through contracts–typically, either employment agreements with individual employees or collective bargaining agreements with unions representing groups of employees.

One prevalent contractual limitation on employers’ power to end employment is the “just cause” or “for cause” requirement. Most employers only offer “just cause” protection when they have diminished leverage or increased motivation to satisfy the employees.

These protections are virtually automatic (though not mandatory) components of union contracts. There they are often undefined, with “cause” left to an arbitrator’s discretion.

Some employment agreements also replace “at-will” employment with “for cause” protection. These contracts (especially for higher level employees) often include a definition of what constitutes cause. However, even those definitions are sometimes relatively vague. For example, “cause” may include “poor performance” or “gross misconduct,” terms that are subject to interpretation.

Note: Many public (i.e., governmental) employees obtain constitutional, and often statutory, protections against arbitrary employment terminations. However, some categories of public employees will still default to at-will employment.

Don’t Play the At-Will Employment Card!

Even assuming an employee does technically have at-will employment, it’s risky to wave that around as the basis for discharge. You should always have a better reason than no reason!

In reality, every employer (a) has a reason and (b) knows the reason before they get rid of an employee. Pretending otherwise isn’t believable. So, if you tell the employee, “You’re employed at will, so we don’t have to tell you why you’re being fired,” they will hear, “We don’t want you to know why you’re being fired.” Some will then interpret this to mean, “We can’t tell you why you’re being fired, because it’s an illegal reason.”

So (unless, I suppose, you’re firing an employee for an illegal reason) you probably want to at least clue them into what the real reason is. Sure, there could be a situation where the specifics of a valid termination decision are confidential state secrets. But those are rare, and there’s still a way to deliver a better message than “Because . . . AT-WILL EMPLOYMENT.”

For more about ending the employment relationship, check out these webinars: Don’t Fire Me on Friday and Conducting Your Next Reduction in Force.

Workforce Downsizing Selection Procedures

Workforce Downsizing Selection Procedures

Even if it will only affect a small part of the business, many companies face workforce downsizing at some point. The “why” is usually obvious. But it’s often more difficult to decide how to make these cuts. Here, I’ll suggest a general approach to selecting who will stay and who will go in consideration of possible legal constraints.

For more on this topic, check out my free webinar: Conducting Your Next Reduction in Force.

What’s the Motivation?

Money makes the world go ’round, and it’s usually what prompts companies to downsize their workforces. But finances aren’t the only reason organizations reduce their headcount.

Here are a few other reasons why a business may downsize:

  • Transition to New Operating Method
  • Automation of Functions
  • Elimination of Redundancies
  • Reallocation of Talent

Whatever the reason, make sure everyone involved in organizing the reduction in force understands it before they choose individual positions and employees. The company should document the rationale up-front. Then move on to evaluating how best to achieve the desired business outcome.

Don’t Identify People First

To best prevent and defend against claims by affected employees, companies should leave the identification of specific employees to the end of the selection process. The earlier specific employees are identified, the more likely they are to perceive the decision as being personal. Thus, the more likely they may believe the decision was discriminatory or in violation of their personal rights.

Sure, if the whole purpose is to outsource all engineering functions, and your company has two engineers, it will be obvious early on who will lose their jobs. But at least make sure there is a valid, documented reason for eliminating the internal engineering function. (Think about the scenario where your two engineers are in their 60s and are longtime employees. Be prepared to prove that their age isn’t the reason for the company’s decision!)

Especially where the goal is to reduce overall labor costs, most companies should start from the premise that all facets of the workforce are in play. Some will quickly narrow in on particular departments or job functions. But again, the rationale for those decisions should be documented as you move down the path toward the selection of individual employees.

Determine the Workforce Goal

Through the reduction analysis, the company should ultimately determine what it wants its workforce to look like after the downsizing is complete. This still doesn’t mean who the specific employees are. Instead, the focus is on functions, tasks, skills, etc.

For example, a company that initially has 125 employees may decide that it would operate best with about 100 employees. It then determines that all “front office” functions are still necessary–say, 25 employees. Of the other 75 post-reduction positions, 50 may be in production and 25 in sales/customer service. If there are currently 65 production employees and 35 sales/customer service employees, then the company must eliminate 15 production positions and 10 sales/customer service roles.

Next, the company must decide how to choose the 15 production and 10 sales/customer service employees to let go.

The company has options to get to the desired workforce size. It could gradually downsize by attrition when people leave. Or it could offer an incentive for employees to voluntarily resign. But here we’ll assume the company wants to reduce the workforce all at once through involuntary terminations–what many would call a layoff.

Picking the People

This component of workforce downsizing often becomes the most personal. It also creates the greatest risks of claims by affected employees. So, it’s important for the company to make these decisions without considering protected individual characteristics.

As discussed, ideally managers shouldn’t sit around the room and just throw out names of whom they want to see leave. Instead, the company should determine a structured selection process and apply it consistently.

Selection procedures may end up being objective or relatively subjective.

One straightforward objective selection criteria is length of service. If the company in the above example wanted to, it could just retain the 50 production and 25 sales/customer service employees who have been with the company the longest. The biggest downside to seniority-based workforce downsizing is that it doesn’t account for employees’ relative job performance and skillsets.

Subjective selection criteria, such as most performance evaluations, increase the risk of manager bias, if unintentional. Supervisors may naturally recognize people like them (based on age, race, sex, etc.) as being higher performers. Thus, it may be better to have multiple managers evaluate each individual and arrive at some quantifiable measure. Then the company would rank all the employees and keep the top ones.

No selection method is perfect. But it is important to establish the selection procedure before applying it to particular employees. Applying one method and then starting over after it doesn’t result in the “right” people being chosen adds risks to the equation. A company should specifically document why it changed course, assuming it has a legitimate non-discriminatory business reason to do so.

Additional Factors and Hurdles to Workforce Downsizing

The above analysis assumes employers have full discretion to determine which employees to let go in a workforce downsizing program. However, that might not always be the case.

If there is a union involved, the collective bargaining agreement may dictate how a reduction in force will occur. For example, unions often bargain for layoff based on inverse seniority. The union contract might also provide for severance pay that could affect the size of the reduction that the company pursues. Or it could even result in the company avoiding reductions in the unionized workforce altogether.

Some companies also have contracts with individual employees. These might either guarantee employment for a certain amount of time or, again, require severance pay.

Finally, even a carefully prepared employee selection process could produce arguably discriminatory results. If a disproportionate number of the employees losing their job share the same protected characteristic (e.g, race, sex), then the employees might have a claim for disparate impact employment discrimination. That type of claim can be viable even if the company had no intent to discriminate. When workforce downsizing involves a large enough pool of employees, employers can conduct statistical analyses to evaluate latent bias in their selection process. Skewed results may be one good reason to rework the selection procedure and start again.

For more on workforce downsizing, check out my free webinar on Conducting Your Next Reduction in Force.

New York WARN Act

New York WARN Act

State and federal Worker Adjustment and Retraining Notification (WARN) Acts require companies to provide notice before taking certain actions to reduce the size of their workforce. For employers conducting reductions in force in New York, the state law will almost always be more restrictive. Thus, complying with New York’s WARN Act will usually also satisfy the federal requirements.

[Here’s a succinct infographic on the New York WARN Act.]

Covered Employers

The New York WARN Act requires employers with at least 50 total employees to give written notice before implementing covered workforce reductions affecting at least 25 employees.

“Part-time employees” and properly classified independent contractors do not count in determining whether a WARN event will occur. However, the definition of “part-time employee” is multifaceted and likely to differ from how the company normally classifies its workers.

Timing of Notice

The New York WARN Act requires written notice 90 days before a “plant closing,”  “mass layoff,” or “relocation”. Each of those terms has a nuanced definition under the law.

WARN Notice Events

A “plant closing” occurs where an employment site (or one or more facilities or operating units within an employment site) will be shut down, and the shutdown will result in an “employment loss” for 25 or more employees during any 30-day period.*

A “mass layoff” occurs where there is to be a group reduction in force that does not result from a plant closing, but will result in an employment loss at the employment site during any 30-day period* for: (a) 250 or more employees, or (b) 25-249 employees if they make up at least 33% of the employer’s active workforce.

*Sometimes the 30-day periods referenced above extend to 90-days in determining whether WARN notices are required.

New York’s WARN Act also refers to a “relocation” situation that is not part of the federal WARN Act. In New York, a “relocation” occurs where all or substantially all of the industrial or commercial operations of an employer will be removed to a different location 50 miles or more away from the original site of operation and 25 or more employees suffer an employment loss.

An “employment loss” occurs in any of these situations: (a) employment terminations other than a discharge for cause, voluntary departure, or retirement; (b) layoffs exceeding six months; and (c) a reduction in an employee’s hours of work of more than 50% in each month of any six-month period. Hence, companies may need to issue WARN notices even if the intention is not to permanently end the employees’ employment.

Exceptions

WARN notices may not be required every time the above conditions exist. The exceptions, however, are narrowly applied. Any company seeking to rely on one should discuss the matter with an attorney experienced in working with the WARN Acts.

For example, the WARN Acts recognize a “faltering company” exception. But the mere fact that the company must reduce its workforce isn’t enough to qualify for the exception. (Or else there would be no point to the laws in the first place!). This exception only applies to plant closings and is limited to situations where a company has sought new capital or business in the attempt to stay open and giving notice would ruin the opportunity to get the new capital or business.

Similarly, an “unforeseeable business circumstances” exception applies to closings and layoffs caused by business circumstances that were not reasonably foreseeable when notice would otherwise have been required. But, the employer still must give as much notice as possible.

Here are some other scenarios where WARN notices may not be required:

  • The company offers to transfer employees to a different work location within a reasonable commuting distance.
  • The reduction of force results from the completion of a project for which the employees were hired with the understanding that their employment was only for the limited duration of the project (e.g., seasonal employment).
  • A new company will continue employment in connection with the sale of a business.
  • A closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought, or storm.
  • The company permanently replaces economic strikers in accordance with the National Labor Relations Act.

WARN Notice Recipients

When notices are required, they must be sent to:

  • affected employees,
  • their unions (if applicable), and
  • certain local, state, and federal government officials.

When the New York State Department of Labor receives a WARN notice, it publishes the information on its website.

Penalties

If a company should have given notice under the New York WARN Act and does not, then it may be held liable for damages to each employee who should have received notice. The employer may have to pay up to 60 days’ pay and benefits, plus civil penalties and attorneys’ fees.

Plan Ahead to Comply with the New York WARN Act

This law forces employers to plan months ahead before reducing their workforces by large numbers. The exceptions generally do not protect employers just because they didn’t know about or want to comply with the notice requirements. As soon as a reduction in force becomes foreseeable, companies must contemplate WARN Act compliance. Sometimes, these requirements will end up forcing employers to delay their desired employment actions. Advance planning and consultation with an experienced labor attorney are usually the best means of avoiding or alleviating that outcome.

 

You may also be interested in my free webinar: Conducting Your Next Reduction in Force.