Planning a Global Workforce Reorganization - An HR Perspective

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Planning a Global Workforce Reorganization:
A Human Resources Perspective

David A. McManus
Morgan, Lewis & Bockius LLP

Sponsored by

© 2013 Morgan, Lewis & Bockius LLP

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?


Start With the Big Picture

STRATEGIC
CONSIDERATIONS

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?

Workforce Reductions/Layoffs

COMMON CHALLENGES


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.

Voluntary Exit Incentive Programs (cont’d)

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.


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
dmcmanus@morganlewis.com
Morgan, Lewis & Bockius LLP


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