How to structure layoffs without triggering lawsuits

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Facing an increasingly litigious environment, companies are taking extra steps to protect themselves from legal action resulting from layoffs and disputes.

They are crafting more severance packages with provisions prohibiting litigation, consulting with attorneys before conducting layoffs, providing outplacement and, in general, doing what they can to reduce the risk of being sued at a time when litigation has been soaring.

Attorneys advise that policies for discipline and termination can aid overtaxed human resource departments.

Paul Hurkomb, an employment attorney with Sparks Willson Borges Brandt & Johnson P.C. in Colorado Springs, said that having policies in place can save both the hassle and the financial damage of lawsuits.

“Many companies have policies that are already written, already in place, regarding notification,” he said. “Following those policies is critical when you terminate someone. Check to see if there’s an employment agreement, and follow the terms of that agreement.”

Terminations that stem from misbehavior or wrongdoing on the part of an employee are different, said Kim Koy, director of the southern regional office of the Mountain States Employers Council.

“Then you need to document the progressive discipline — and make sure the disciplinary steps are written down,” she said. “Many employers have policies that say someone can be fired immediately for serious breaches — but make sure there are progressive discipline procedures.”

For layoffs related to economic reasons, Koy said companies frequently skip the necessary first step.

“First, they need to establish the criteria for the layoff, then they need to layoff whoever fits that criteria,” she said. “Usually, it’s the other way around — they decide who to fire, then try to make the criteria fit. If it goes to court, you need to be able to explain the criteria around the layoffs, and explain it well.”

Not setting specific criteria for firing people can lead to lawsuits, she said, particularly if the layoffs inadvertently result in older people, women or minorities making up the majority of people being laid off.

“I tell employers there is nothing they can do to prevent a lawsuit,” she said. “But there are some things they need to do to develop a good positive defense — develop an adverse impact analysis based on age, based on gender.”

Companies also can reduce their exposure to litigation by providing benefits as workers exit. Severance agreements can help reduce the number of lawsuits, Hurkomb said, but they aren’t always financially feasible for a company.

“If you are laying people off for economic reasons, it might not make sense to have a big severance package,” he said. “It just depends on the company, and the reason for the firings. But large companies — who often have their own in-house attorneys advising them — often do have severance packages. One reason: to avoid lawsuits. It certainly helps if they can get terminated employees to agree not to sue based on the severance package.”

Companies must take special care with layoffs of older employees, who are more likely to be targeted in work force cuts because they often have higher salaries.

And companies need to make sure that workers are classified properly with regard to overtime, because regulations have changed during recent years.

Firms also run risks of facing defamation suits if they say something negative when asked to recommend former employees. In response, more companies are refusing to provide verbal recommendations.

Both Hurkomb and Koy say that consulting an attorney before layoffs or terminations could help avoid many common problems that result in lawsuits.

“Have someone check severance agreements,” Koy said. “Have them check to make sure you have the right written policies in place.”

While most of Colorado’s work force is “at will,” which means the relationship can be terminated by either person for any reason, Hurkomb said it pays to be cautious.

“You can get into trouble, so make sure you have the right paperwork, you’re following your policies,” he said. “Have a policy in place — written — for employees. Even small businesses should have a set of written guidelines.”

Maintaining appropriate records and human resource policies are particularly important for small businesses.

“If one person sues after they’ve been fired, a small business could go out of business,” Koy said. “They have to make sure they are taking the right steps.”

Claude Solnik of Dolan Media News Service contributed to this story.