December 8, 2009

How to legally protect your business during layoffs

I’ve asked attorney and law professor Melanie Calvert to give us some pointers about legal considerations to protect your business during layoffs. Hopefully your business is thriving and there’s no need for this!

Keep in mind these laws are specific to the state of California. Though some labor laws overlap in various states, it’s highly recommended that you consult a labor attorney in your state for specific laws applicable to your business.


In the coming year, companies may have to continue down-sizing to stay in business, to maintain sufficient operating capital, or to obtain necessary bank funding. There are few considerations you should keep in mind prior to and during layoffs:

The employees’ job function. Employees should update their job descriptions and the time allocated to functional tasks. This will permit assessment of essential duties, duties which may be combined with duties of others and those duties which are marginal to business operations. Employers may achieve cost savings by consolidating employees’ duties.

Talent pool and experience. Employers should value seniority, job performance and special skills and job knowledge which employees have acquired from the job. If the economy improves, and employers need to hire again, it is expensive to train new employees and bring them up to speed.

Selection criteria. Employers should select employees for layoff based on objective criteria such as job functions, responsibility, seniority, performance, skills and knowledge. There are good reasons not to include an employee in a layoff. Since these reasons are too varied to enumerate, you should consult an employment attorney. Generally, employers should not lay off employees who have filed recent discrimination complaints. On the other hand, employers may (in certain circumstances) layoff employees who are on pregnancy-disability leave. Generally, employers should not immediately hire new employees to replace the laid-off employees. This undermines the economic reason for the layoff. For the same reason, it is probably unwise to give pay increases to the remaining work force. Again, each situation is factually specific and requires the advice of employment counsel.

Heads-up. California WARN law applies to certain layoffs, business relocations and/or business cessations at companies that employ, or have employed within the preceding twelve months, 75 or more persons. Generally, this law requires sixty days notice to affected employees and to designated governmental entities and has a maximum penalty of sixty days pay (unless an exemption applies). While federal WARN law is different, it also requires notice or pay.

Health insurance. If your company provides health insurance, promptly notify your health insurance administrator to send out required notices including HIPPA and COBRA health insurance continuation.

Last pay check. Pay employees all wages which are due at the time of termination including, but not limited to, all accrued vacation, bonuses and commissions. Promptly reimburse employees for company expenses when submitted. Obtain employees’ acknowledgment of receipt for wages and expenses.

Unemployment insurance. Provide employees with Notice of Change in Relationship and a copy of the Employment Development Department bulletin. Unless the employee has committed intentional misconduct which harms the company’s business or has voluntarily left employment without good cause, do not fight unemployment benefits. Your experience rating will go up but you will obtain employees’ good-will and help company morale.

Company property and information. Have your employees acknowledge return of all company property and information. As a general company practice, change all computer pass codes and keys (if employees had keys to company offices).

Neutral job reference. Give dates of employment and last position (unless employee poses a documented threat to the safety of others).

Separation pay, outplacement assistance, and a release. To assist employees in transition, consider offering outplacement assistance, and additional separation pay, if employees sign a release and agreement not to sue.

Older workers (40 or over). If you pay older workers for a release (agreement not to sue), you must comply with each requirement in the Older Workers’ Benefit Protection Act.

Exit interview. Consider a feedback form for employees to comment on their work experiences.

Bio: Attorney, Melanie Calvert, has practiced labor and employment law since 1985. She was nominated as one of the best labor and employment attorneys in The Pasadena Magazine (November 2009). Melanie is also an adjunct faculty professor at the University of La Verne Law School, Ontario, California. More at:

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