United States: It Pays To Pay Attention To Impact When Considering Layoffs

Unfortunately, many employers from time to time face the need to restructure or downsize their workforce. While the business climate or customer needs are often the driving force in a restructuring or layoff, there are a number of other factors that employers must consider when planning for the actual implementation of such a change.

As one recent federal appeals case originating in Pennsylvania shows, employers should pay particular attention to the impact of their layoff decisions on certain groups and subgroups of employees. Further, the Pennsylvania case illustrates that while we think of the Age Discrimination in Employment Act (ADEA) as lumping all individuals who are over 40 years of age into one group, employers should not lose sight of the fact that the text of the law prohibits discrimination based on age generally. While this may not seem like an important distinction, the case shows that a singular focus on the 40 and over category can be problematic in some circumstances. Favoring employees in their forties or fifties to the detriment of those who are in their sixties or seventies can be an ADEA violation, even when all involved employees generally fit in the "over-40" protected category.

In the case, due to challenges in the automobile industry, an automotive glass manufacturer conducted a reduction in force of salaried employees throughout several locations in 2008 and 2009. Importantly, it did not conduct any disparate impact analysis of how layoffs may affect various employee groups. The company also did not give clear instructions to those carrying out the layoffs regarding which employees should be selected. Ultimately the plaintiffs in the case alleged that the layoffs disproportionately impacted employees over 50 years old, in favor of younger employees. The employer countered that many of the employees who were retained were over 40 years old, meaning that they themselves are protected under the ADEA.

One of the questions presented to the court was whether the group of employees who were over 50 years old had a viable claim against the company, since a number of individuals who were over 40 years old were retained. The court concluded that the over-50 year old employees did in fact have a viable claim, because "the ADEA prohibits disparate impacts based on age, not forty-and-older identity."

Not all courts agree on this topic. However, the case illustrates that when conducting a reduction in force, an employer is wise to consider carefully the impacts of the reduction on employees of various races, sexes, ages, and other protected categories. When conducting the analysis — a thoughtful and careful approach is wise, rather than hard-line approach to protected categories; consider subgroups and other possible issues.

Analysis and consideration of impact at the planning stages can reduce the risk of a disparate impact claim after the layoffs have taken place. Further, a wise employer will combine that analysis with clear communication and instructions to those implementing the reduction in force, in order to ensure that the plan is executed in accordance with the intent of the company. Without careful analysis and implementation, your reduction in force can impact certain groups more than others, and even adherence to a 40-year-old-and-older rule is not necessarily enough, depending on the jurisdiction in which your company operates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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