The grinding halt of the U.S. economy due to the COVID-19 pandemic as well as the Russia-Saudi Arabia oil price war has forced companies across industries, including in energy, to implement workforce reorganizations and reductions.

In making plans for adjustments to company staffing levels, employers must tread cautiously. There are numerous federal and state employment law issues that employers should consider before implementing a reduction in force or terminating individual employees. Failure to comply with the applicable statutes, which may require as much as two to three months' advance notice of any covered layoffs, can negate some of the anticipated savings and lead to litigation. Advance planning can help minimize a company's legal exposure for reductions in force. Such planning should include the following steps.

Select a Restructuring Team

Before implementing a reduction in force, establish a restructuring team to determine whether layoffs are needed or whether other cost-cutting measures will suffice. The team should include a senior member of the human resources department, other high-level managers, operational representatives and counsel.

Consider the Alternatives 

While a reduction in force can help a company quickly trim expenses, it can result in the loss of talent needed for when demand resumes. Companies should consider alternatives to forced layoffs, including early retirements, voluntary reductions in force, schedule or wage reductions, furloughs, in-sourcing of functions and related measures to reduce the company's cost structure without putting its talent pool at risk or otherwise having to face the difficulties associated with employee job loss.

Be Clear on the Business Objectives

Ideally, the next step in a reduction in force should involve identifying and documenting the employer's business objectives for the action. Once it determines that layoffs are necessary, the employer should document the link between the proposed layoffs and the stated business objectives.

Thereafter, the employer must determine which employees to lay off—whether the reduction in force will focus on certain job titles or functions, entire locations, facilities or departments. The answers should be consistent with the stated goals of the RIF and can help focus and shape the layoff plan. 

Develop Selection Criteria

Next, the employer should develop the criteria it will use to select employees for the layoff. Objective reasons are often easier to defend than subjective ones if they are later called into question in litigation. Most layoff selections, however, will involve a subjective component, such as employee performance or the assessment of future capabilities. Nevertheless, the employer should consider ways to maximize the objective components of the decision. For example, rather than relying solely on a supervisor's evaluation, the employer might give some weight to employee seniority.

In situations where the employer will use employees' performance as a selection criterion, the employer may need to rely on prior performance evaluations, a ranking system developed specifically for the layoff or some combination of the two. If rankings prepared as part of the layoff process are inconsistent with prior evaluations, the employer must be prepared to explain the discrepancy.

Select the Decision-Makers

After identifying selection criterion, employers should focus on selecting the appropriate decision-makers. Senior management and human resources personnel are typically in the best position to make the general overarching decisions, such as those concerning the scope of the layoff, the locations or facilities to close and/or the services to outsource.

Decisions concerning which employees to retain are best left to persons with personal knowledge of the employees' performance, unless the selections are based on purely objective criteria. Leaving all decision-making to a single individual carries potential risks: that individual may be a poor witness, may later be terminated or laid off, or may harbor personal animus toward certain employees.

Analyze Potential Discriminatory Treatment or Effect

Reduction in force selection criteria can sometimes lead to unexpected or unintended effects on individuals in statutorily protected classifications. To fully understand the proposed impact, employers should conduct a review to identify possible issues of disparate treatment or impact potentially caused by the plan. "Disparate treatment" occurs when an employer intentionally selects certain employees for layoff based on a protected characteristic, such as race, color, national origin, sex and pregnancy, age, disability or religion. "Disparate impact" occurs when the selection criteria unintentionally cause the layoff to fall most heavily on a protected group. Where disparate impact exists and cannot be eliminated, the company should ensure it has a defensible business justification for its selection criteria.

Consider Other Potential Legal Issues

Employers should also consider the status of each employee included in the reduction in force to minimize the risk of individual claims. For example, terminating employees on protected leave, such as disability or workers' compensation leave, may create the appearance of retaliation. Similarly, terminating an employee who is a "whistleblower" or who participated in internal investigation could subject an employer to retaliation claims.

Identify When Notice Should Be Given

Failure to provide adequate notice to employees of a reduction in force is a significant potential pitfall. Employers should carefully review applicable federal, state and local law pertaining to this issue, including whether any exception to the notice requirements applies due to the COVID-19 pandemic and/or Russia-Saudi Arabia oil price war.

The federal Worker Adjustment and Retraining Notification (WARN) Act and various state equivalents known as "mini-WARN" acts require that covered employers give up to 60 to 90 days' advance notice before implementing a "plant closing" or "mass layoff." The most notable exception to the WARN Act is the unforeseeable business circumstances exception which relieves employers from the 60 days' notice requirement, if the reduction in force is caused by a "sudden, dramatic, and unexpected action or condition outside of the employer's control" such as a "dramatic major economic downturn" or "[a] government ordered closing of an employment site that occurs without prior notice." This exception likely applies to many reductions in force necessitated by the COVID-19 crisis. However, employers relying on this exception should proceed with caution and consult with outside counsel to determine if it applies.

Brian Patterson and Scott Friedman are partner and associate, respectively, in Akin Gump Strauss Hauer & Feld LLP's labor and employment practice, where they focus on representing employers in a wide range of employment-related matters.