Companies facing economic uncertainty—whether due to a financial or public health crisis such as the COVID-19 pandemic or a change in the business landscape—or financial insecurity will consider payroll cost-saving mechanisms, from straight pay reductions to layoffs, as ways to help them stay afloat.
But every payroll cost-saving mechanism comes with potential legal and regulatory requirements (relating to, for example, meeting notice requirements or maintaining overtime exemptions) that companies don’t ordinarily face. And any missteps in carrying out those payroll cost-saving mechanisms could lead to lawsuits and government enforcement actions.
At Epstein Becker Green, we guide both unionized and non-unionized employers through the process of selecting payroll cost-saving mechanisms that meet their goals. We also assist them in complying with applicable federal, state, and local wage and hour laws and requirements, as well as workforce protection laws. Clients come to us to help them mitigate the risk of costly legal battles that could undermine the anticipated savings from their cost-cutting measures.
Choosing the Right Payroll Cost-Saving Mechanisms
While companies may think of layoffs as the chief method of reducing operating costs, there are many alternatives that can help them achieve their cost-saving goals while sparing jobs and maintaining investments in current employees. We advise clients on all the different types of payroll cost-saving mechanisms available to them. A few of those mechanisms include:
- pay reduction
- hiring freeze
- wage freeze
- reduction or elimination of annual bonuses or fringe benefits
- voluntary hours reduction (e.g., to 80 percent) accompanied by a corresponding reduction in salary
- sabbaticals (perhaps with partial pay/stipend)
- mandatory day of vacation each week
- mandatory hours reduction (e.g., 80 percent)
- furlough with a stipend
- furlough without a stipend
- voluntary reduction in force (e.g., a voluntary resignation incentive program)
- involuntary reduction in force
Clients turn to us to guide them through the process of deciding which mechanism(s) would best work for them based on their particular needs and financial and employee morale situation. We advise clients on the benefits, costs, and opportunities resulting from each mechanism, as well as the practical, legal, and regulatory considerations involved.
Complying with the WARN Act, ADEA, and OWBPA
Sometimes, a workforce restructuring, such as a long-term furlough or an involuntary reduction in force (e.g., a mass layoff), is the best cost-saving option for a client. In that case, if the Worker Adjustment and Retraining Notification (WARN) Act (and state “mini-WARN” laws) applies, we help the client comply with WARN notice and other requirements. We also assist the client with appropriately selecting employees for termination or furlough and documenting its decisions, conduct impact analyses for persons in protected groups, and advise the client on relevant employee benefits and insurance issues. For involuntary and voluntary reductions in force, we prepare severance and release agreements in compliance with the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA). Unionized employers look to us to represent them in union negotiations relating to the workforce restructuring.
Communicating Effectively to Mitigate Problems
Because impending reductions in force, furloughs, and other cost-cutting measures could prompt rumor mongering, speculation, fear, and resentment among employees, as well as hurt a business’s reputation, effective communication by an employer is critical. We work with employers on their internal and external messaging to ensure that they are sharing all appropriate information with employees and the public in a manner that’s clear, consistent, and accurate.
Defending Against Legal Actions
Implementing payroll cost-saving measures, particularly mass layoffs, voluntary resignation incentive programs, and long-term furloughs, can be controversial and, despite a client’s best efforts, can lead to legal challenges. Clients rely on our experienced litigation attorneys to vigorously defend them in government investigations and in litigation, including class and collective actions, alleging claims of discrimination, retaliation, or breach of contract, or any other claim resulting from the payroll cost-saving measures.
- Counseled many businesses, including two major hotel chains severely impacted by the COVID-19 pandemic, on preparing WARN Act notices in dozens of states and in reporting the employee furloughs and terminations to governmental entities. Due to our efforts, these furloughs and closures resulted in zero lawsuits filed and no WARN violations alleged.
- Represented a luxury retailer in successfully managing its nationwide restructuring as a result of the COVID-19 pandemic. We helped the client implement layoffs and furloughs by providing strategic advice to successfully avoid litigation and comply with an ever-changing legal landscape. We also provided advice on how to restructure the organization effectively to be able to compete in the current and post-pandemic environment.
- Assisted multiple large financial services clients with restructuring and reduction in force plans, including vetting termination selections to mitigate risk, assessing disparate impact analysis to flag potential discrimination concerns, and preparing separation agreements.
- Guided a hospitality industry client through a nationwide reduction in force necessitated by the COVID-19 pandemic. We completely avoided all litigation risk by drafting individual release agreements for thousands of affected employees and sending WARN Act notices to government agencies.
- Defended a multinational investment bank and financial services company in potential litigation actions arising from former employees who were terminated in a reduction in force, including allegations of discrimination and retaliation. We negotiated, mediated, and arbitrated employment-related disputes with each of the former employees. The client avoided significant potential damages and protracted litigation through successful settlements reached with each of the former employees.
- Counseled a global fashion company going through rolling furloughs and layoffs due to the effects of the COVID-19 pandemic on compliance with the federal WARN Act, and its state and local equivalents. As a result, the company has managed its workforce with minimal impact.