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© 2013 Morgan, Lewis & Bockius LLP

Planning a Global Workforce Reorganization:

A Human Resources Perspective

David A. McManus

Morgan, Lewis & Bockius LLP

Sponsored by


Context: What Are We Talking About?

• Large-scale elimination or consolidation of jobs

due to changes in a business organization:

• Change in corporate direction or leadership.

• Corporate mergers.

• Consolidation of divisions or organizations.

• Need to remove costs from business.

• Elimination or discontinuation of business area.

• Need to adjust to reduced market demand.

• Outsourcing or subcontracting.

• Relocation of business or function.


Not Just an HR Thing

• Reorganizations create litigation risks:

• $4.3m verdict for single age discrimination plaintiff (Kelley v. Airborne

Freight Corp., 140 F.3d 335 (1st Cir. 1998)).

• $57m settlement of age discrimination claims by class of 1,697

employees laid off over two-year period (Williams v. Sprint/United

Mgmt. Co., No. 03-02200 (D. Kan. 2007)).

• $45m settlement of race, age, and national origin discrimination claims

by 1,400 employees terminated in RIF (Frazier v. Detroit Edison, No.

97-71448 (E.D. Mich. 1999)).


The Role of HR

• Can’t eliminate risk, but you can mitigate it.

• HR has a major role to play.

• Think backwards – from the litigation that may follow.

• The rationale and decision-making process will be

tested.

• What is the company’s story for a judge, jury, or

arbitrator?


STRATEGIC

CONSIDERATIONS

Start With the Big Picture


Early Engagement by HR Is Critical

• Risk is created early and grows fast.

• External business conditions create urgency.

• Managers leap into action; e-mails fly; names are put on layoff lists.

• A lot of forethought is required.

• Are incremental or less disruptive alternatives available?

• Who has Decision-Making Responsibility?

• How will you handle Communications and Disclosures?

• Logistically, what is required in terms of Timing and Process?

• Privilege matters.

• Understand the applicability and scope of legal privileges.

• EEO Analysis should be performed by or under direction of counsel for

purpose of providing legal advice.


Strategic Considerations—

Define the Decision-Maker(s)

• Before anything is decided or communicated, make sure

you have clarity around the decision tree.

• How far up the corporate hierarchy will the decisions be made?

• Does the CEO want to be deposed?

• Differentiate decisions —some might require CEO/President

approval, while others can be delegated.

• Consider need for a “committee” to make decisions.

• Institutional Knowledge dictates who is in the loop.

• Balance for accurate information against the risk of rumors/leaks.



Communications

• Communications should never be an afterthought.

• Have a communications plan—before, during, and after.

• Communications are essential to:

• Maintain morale and preserve trust.

• Dispel/inhibit rumors.

• Demonstrate fairness and reasonableness.

• Transparency enhances trust during uncertain times.

• Be candid and forthcoming. Get out ahead of rumors.

• Seize the opportunity to tell your story (affects what you will tell

judge/jury).

• Control the messages; must be consistent.

• Funnel questions to a single, designated POC.



Communications vs. Disclosures

• How an employer characterizes the reorganization in

employee announcements and press releases can dictate:

• Scope of disclosures in Release Agreements.

• Employees in “the Decisional Unit.”

• “the class, unit, or group” covered by the termination program.

• Need for WARN Notices.

• Aggregate separate RIFs into a single WARN event?

• “Operating unit” affected?


Strategic Considerations—Process

• Process, process, process. . .

• Do not assume your line managers (including HR managers)

know how to implement the organizational change.

• Develop and follow a defined and defensible process.

• Ensure that clear goals and directives have been articulated and

understood.

• Is training appropriate?

• Deviations from processes and procedures may give rise

to an inference of discrimination.


Strategic Considerations—Timing

• Adjust expectations on timing until you’ve done your

internal due diligence:

• Do we need to revise handbooks, layoff policies, or procedures?

• Do we need to revise severance or other benefits?

• How will layoff affect bonus or commission obligations?

• How much time is needed to provide unions with notice and

opportunity for bargaining?

• How much time is needed to satisfy “Information & Consultation”

obligations in European locations?

• Will we trigger the WARN Act (60 days’ notice pre-RIF)?

• How much time will we need for EEO statistical analysis from

outside counsel?


COMMON CHALLENGES

Workforce Reductions/Layoffs


Common Challenges:

Who Stays and Who Goes?

• The principal objective is usually to retain the individuals who are

best suited to discharge the functions that the business needs

performed to achieve future success.

• Two Steps: • First, identify the functions/positions to be performed going forward.

• Job eliminations result.

• Second, choose the individuals to fill the new/remaining positions.

• Different approaches to selection:

• Force employees to apply for new positions.

• Forced Ranking: remove those with lowest ratings.

• Peer Review.

• Layoff by Performance: recent evaluation scores.

• Other factors: education, training, service, experience, special skills.


Age Discrimination Issues

• Statistical analysis should evaluate:

• Race, gender, and age.

• Age discrimination is the most frequent source of exposure in

reorganizations that include long-term employees.

• RIFs: Adverse Impact (aka Disparate Impact).

• Reasonable Factors Other Than Age (RFOA):

• EEOC Regulations.

• Did you consider other alternatives?

• Training.


Age Discrimination Issues:

Statistical Analysis

• The Peter Principle: A theory that employees reach a maximum

level of promotion consistent with their abilities:

• Employees hit their limit and stay there.

• The statistical theory that a continued presence of employees who have

reached their plateau warps conventional statistical analysis of age.

• Is age different?—Do some job-related traits correlate with age?

• Compensation levels.

• Relative abilities.

• Relative motivation.

• Relative mobility.

• Theory: statistical analysis that does not take these factors into

account may not tell the whole story.


Age Discrimination Issues:

Highly Compensated Employees

• Cost reduction is a legitimate factor in selecting

employees for an RIF, and selecting higher-paid

employees cuts costs more effectively…

• BUT: greater pay often correlates with greater age—risk that decisions

based solely on pay (despite being an RFOA) will cause disparate impact

or be viewed as intentionally disparate treatment.

• “Where salary acts as a proxy for age, consideration of salary may

be no different from direct consideration of age” (EEOC v. Newport

Mesa Unif. Sch. Dist., 893 F. Supp. 927, 932 (C.D. Cal. 1995)).

• To reduce risk, combine salary with other RFOAs.

• E.g., salary plus performance: EEOC guidance approves “[D]ecid[ing] to

reduce costs by terminating [the] highest paid and least productive

employees” as an adequate RFOA.


Reductions in Force:

Legal/HR Review Process

• Assess scope of RIF selections and affected employees to

minimize litigation risk and ensure real organizational change.

- Maintain strict RIF review process.

- Pay particular attention to “high-risk” employees, i.e., anyone who:

• Is on, or recently returned from, a leave of absence (FMLA, USERRA, or

otherwise, including intermittent absences).

• Has a disability or a record of a disability.

• Is within six months of vesting for a significant benefit event.

• Has complained of discrimination, harassment, or has pending or previous

employment-related litigation.

• Has raised ethical or financial concerns, e.g., fraud, waste, or abuse.

• Has or may have a litigation support role in any ongoing or threatened

litigation that might require future cooperation.


Reductions in Force:

Legal/HR Review Process (cont’d)

• Eliminate open positions that are not necessary from a

functional/operational/budget standpoint. - Ensure that business understands that eliminated positions

generally cannot be reconstituted and filled for a period after the

RIF.

• Ensure that each individual selection for RIF makes

business sense and is based upon legitimate and

defensible reasons. - Perform a statistical analysis of the employees to be “RIFed” to

determine if the RIF has an adverse impact on any protected class. - What to do when the statistical analysis is problematic?


Reductions in Force

Legal/HR Review Process (cont’d)

• RIF selections are only “proposed” until Legal/HR review.

• Following review by legal and human resources departments, finalize RIF selection decisions.

• Ensure that severance/separation packages are competitive with the market and are positioned to maximize the likelihood of acceptance.

• Consider outplacement service for exchange of release to help mitigate risk.

• Severance Agreements—Releases /Age Discrimination Claims.

• OWBPA Disclosures on “Decisional Unit.”

– “Rolling RIFs.”

• Preserve existing Confidentiality, Trade Secrets, IP obligations.

• Non-disparagement clauses.

• Non-competes.


Voluntary Exit Incentive Programs

Structure.

• Richer benefit offered to eligible group as a one-time opportunity.

• Employees volunteer by submitting an application during an

announced “window period.” Employer can reject applicants.

Benefits are not paid until severance and release agreement is

signed.

Advantages of a Voluntary Program. • Reduces risk of EEO discrimination claims.

- Especially important where targeted workforce consists of

disproportionate number of employees in a protected class.

• Likely less damaging to employee morale.

• Can be presented in a pro-employee positive light.

• Can be paired with subsequent involuntary RIF.


Disadvantages of a Voluntary Program.

• Potentially more difficult to target terminations with precision.

• Often must offer greater inducement.

• Cost uncertainty (but can put caps on amount).

• Potential for oversubscription (i.e., may lose personnel that

employer wants to retain). - May be alleviated to some extent through careful design and

implementation of eligibility rules of the program.

• Greater potential for ERISA fiduciary breach claims by employees

who voluntarily resign or retire prior to announcement of program. - Risk can be minimized with proper planning.

Voluntary Exit Incentive Programs (cont’d)


Recommitment Campaign

• RIF can have lingering effect on remaining workforce.

• Develop a post-RIF “recommitment campaign” designed to

proactively encourage remaining employees to recommit

themselves to the future success of the company.


CONCLUDING REMARKS

AND

QUESTIONS

David A. McManus

[email protected]

Morgan, Lewis & Bockius LLP

mailto:[email protected]

mailto:[email protected]


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