A Layoff Done Properly

Why this matters

Three completely different situations arrive wearing the same word. Work genuinely dried up. A performance problem is being handled as a layoff to spare somebody's feelings. Or the phone will be quiet for six weeks and then it will not. Shops execute all three the same way, which is how a defensible decision turns into a claim, and the most expensive of the three is the middle one, where a shop invents a reason it will be unable to keep.

The fork below is on the driver, not on the headcount. Work out which one you are in before you write a single name down, because the correct execution differs at every step after that. This is orientation, not legal advice on your own matter, and the release-of-claims point near the end is a hard stop.

First, name what is actually driving it

One question sorts it: would you fill that seat within six months if the work came back?

If the answer is yes for the seat but no for the person, you are not in a layoff. You are in a termination you would rather not have. If the answer is no for the seat, it is a reduction in force. If the answer is "yes, and soon, and with the same person," it is a slowdown and the tools are furlough or reduced hours, not separation.

Owners resist this question because all three feel like the same conversation to have. They are not the same event afterwards, and the difference shows up in the one place it costs money: the explanation you have already given.

Branch A: a genuine reduction in force

Write the selection criteria before you look at names. This is the whole branch. Criteria written after the names are visible will, without anybody intending it, describe the people already chosen, and they read that way to anyone who later asks how the list was made. Plausible criteria for a service shop: license or certification level against what the remaining work needs, cross-trade capability, the most recent documented performance rating, callback rate, and tenure as a tiebreak. Pick three or four, define what each means, and write down the order they apply in.

Score everyone in the affected group, not just the candidates. A scoring sheet covering all nine techs is a document. A note explaining why two were picked is an argument.

Then run the list against the four-fifths screen before you act on it. Compare the retention rate of a protected group against the rate of the group with the highest rate; where the lower rate is less than four fifths of the higher one, the enforcement agencies generally treat that as evidence of adverse impact (Uniform Guidelines on Employee Selection Procedures, 29 CFR 1607.4(D)). At a shop this size that ratio is unstable by construction, because one person moves it a long way, so treat a failed screen as a prompt to re-read your criteria rather than as a statistical finding about your shop.

Age is the characteristic that catches trade shops, because the criteria that feel most neutral correlate with it. "Highest hourly cost" tracks tenure. "Most flexible on hours" tracks family stage. The Age Discrimination in Employment Act reaches employers with 20 or more employees at the federal layer (29 U.S.C. 630(b)), and state age statutes commonly reach smaller shops, so a twelve-person shop is not outside this question.

Do not backfill. A replacement hired into the eliminated seat six weeks later is the single most damaging document in the file, and it is a document, because it is a job posting with a date on it.

Branch B: a performance problem handled as a layoff

This is the common one and it is a trap, so state the mechanism rather than the warning.

Calling it a layoff is a statement that the job was eliminated. That statement goes to the employee, into your file, onto the separation paperwork, and to the state unemployment agency. It is now the shop's position, and it is the position you will be held to. Then one of three things happens. The work comes back and you post the job, which contradicts you. The person files a charge and the shop, now wanting to explain that the real reason was performance, has to change its story, and a changed reason is the textbook evidence of pretext. Or you contest the unemployment claim on misconduct grounds after telling the agency the job was eliminated, which is the same problem with a shorter fuse.

The kindness also destroys the defense you had. A documented performance termination is the cheapest separation there is. A layoff of the same person, offered to spare their feelings, throws away the write-ups as an explanation and puts an elimination in their place that the facts will not support.

The criteria for this branch: if the record exists, terminate for performance and say so. If the record does not exist, you have two honest options, and neither is a fake layoff. Spend four more weeks building the record, which is usually the right answer and is what the performance-documentation card in the References is for. Or pay severance in exchange for a release and end it cleanly, which is a real option and is a lawyer document rather than a template.

Branch C: a temporary slowdown

Here the tools are furlough, reduced hours, or a layoff with a stated recall, and three mechanics decide which.

Exempt staff cannot be furloughed by the day. Under the salary basis rule at 29 CFR 541.602, an exempt employee must receive the full salary for any week in which they perform any work. So a furlough of your office manager or your exempt lead has to run in full workweek increments, phone off, or you have put the exemption at risk for that person and possibly for the classification. Hourly staff have no such constraint; cut the hours.

Benefits do not follow your intent, they follow the plan document. Group health eligibility usually turns on an hours threshold written into the plan, and dropping below it is what ends coverage, regardless of what you called the event. A reduction in hours that causes loss of coverage is itself a qualifying event for continuation coverage. Federal COBRA reaches employers that had 20 or more employees on more than half of the typical business days in the prior calendar year, and many states run a continuation statute that reaches smaller employers, so a twelve-person shop is frequently covered by the state one and not the federal. Read the plan's hours threshold before you set the reduced schedule, not after.

Recall is only real if it is written. A stated recall date, the order of recall, and how you will make contact, given to the employee in writing. Without it you have a layoff that people are describing as temporary, and the employee is job-hunting on that understanding anyway.

Partial unemployment is available in most states for reduced hours, and those benefits charge against your experience rating; whether to contest anything arising from it is a separate question covered by the unemployment card in the References.

Worked example: a nine-tech shop cutting two

A twelve-person shop, nine of them field techs, loses a commercial maintenance contract worth about a fifth of its scheduled hours. Two tech seats go.

Criteria, written first: journeyman license required for the remaining service mix; documented performance rating from the most recent review; callback rate over the trailing year; tenure as tiebreak. All nine are scored on one sheet.

The first list: the two lowest scores are both age 40 or over. Of the nine techs, four are 40 or over and five are under 40. Retention rate for the 40-and-over group is 2 of 4, or 50 percent. Retention for the under-40 group is 5 of 5, or 100 percent. The ratio is 50 divided by 100, or 50 percent, well under the four-fifths threshold. That is a flag, not a verdict.

Re-reading the criteria: one of the two scored lowest on performance and callbacks, both documented, and that selection survives scrutiny. The second was pulled down almost entirely by "cross-trade capability," which the owner now remembers adding to the sheet after the first draft, once names were visible. It is dropped, and on the remaining criteria a different tech, under 40, scores lowest.

The second list: 40-and-over retention is 3 of 4, or 75 percent. Under-40 retention is 4 of 5, or 80 percent. The ratio is 75 divided by 80, or 93.75 percent, above the four-fifths threshold. Note what actually changed: not the screen's verdict but the criteria, and the screen's only job was to send the owner back to them. At nine people the screen is coarse by construction, and this example shows how coarse: moving one person moved the four-person group's retention rate by 25 points, from 50 to 75, and moved the ratio by nearly 44, from 50 to 93.75. A number that swings that far on one decision is a prompt, not a finding.

Severance and the release. The shop offers two weeks of pay for a signed release. Both people originally selected were 40 or over, and one still is, so the Older Workers Benefit Protection Act applies to that release: 29 U.S.C. 626(f) requires plain language, an express advisory to consult an attorney, a 7-day revocation period after signing, and a consideration period of 21 days, extended to 45 days where the release is part of a program offered to a group, along with a written disclosure of the job titles and ages of those selected and not selected within the decisional unit. Two people can be a group. That disclosure requirement is why a downloaded severance template fails here: it will not contain the schedule, and a release that does not comply does not waive the age claim it was bought to waive.

What the file holds afterwards: the contract-loss notice, the criteria sheet dated before the scoring sheet, the scoring sheet covering all nine, a note of the criteria change and why, the screen calculation, and the releases. Nine months later the shop hires again, into a different mix of work, and can show the difference.

Where all three branches converge

Whichever branch you are in, four things hold. Preserve the records, including the drafts of the criteria. Do not state a reason you cannot support, because the first explanation is the one you are stuck with. Tell the affected people what the reason is and stop there, without relitigating it. And check the list against anyone who recently complained, filed, requested an accommodation or took leave: that person is not un-layoffable, but their inclusion makes the timing evidence, and the dated criteria sheet is the only thing that answers it. See the retaliation card.

On the notice statutes, so you can stop worrying about the wrong thing: federal WARN (29 U.S.C. 2101 et seq., 20 CFR Part 639) reaches employers with 100 or more employees, and the state mini-WARN acts reach lower, with New York's covering employers of 50 or more and requiring 90 days. A shop of twelve is outside both.

The lawyer stop is the release. Any document exchanging money for a waiver of claims, and any separation involving someone 40 or over, goes to an employment lawyer before it is offered. Walk in with the criteria sheet, the scoring sheet, the ages and job titles in the decisional unit, and the dates.

References

• Uniform Guidelines on Employee Selection Procedures, 29 CFR 1607.4(D), the four-fifths rule of thumb for adverse impact
• Older Workers Benefit Protection Act, 29 U.S.C. 626(f), requirements for a valid waiver of ADEA claims
• 29 CFR 541.602, salary basis rule for exempt employees; Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et seq. and 20 CFR Part 639
• See related: Documenting Performance So a Termination Holds Up; Contest an Unemployment Claim or Let It Go; the retaliation and charge-process cards in this category