How To Avoid Litigation While Laying Off Employees

Posted on: 11 May 2020

When you hire employees, you are often hoping to expand your business indefinitely. The new staff that you hire are meant to meet the needs of your business as you expand operations. However, when times are tough, you may find your business contracting. If you are struggling to make payroll, you have the legal right to lay off your employees under some circumstances. However, there are other cases where layoffs are not the right decision or may even be illegal. 

At-Will Employment and Contracts

The relationship between the employer and employee is at-will. However, you can choose to change this arrangement by creating a contract. Under a contract, an employee may not be fired unless they violate a clause in the contract. For example, the employee may be allowed to continue working for a company as long as he or she agrees to a mandatory drug test periodically. 

Implied Contracts

Layoffs are typically easier than termination because courts might rule that you have an implied contract. For example, you might state that there is an evaluation process before termination, and failure to carry out this process might be considered wrongful termination. However, layoffs are more legally acceptable because they are done in response to financial hardship.

The Advanced Warning Mandate

If you will be laying off your employees, one difference is that you must provide them with advanced warning of the layoff. This allows the employee to take steps necessary to protect themselves. If you do not provide notice, the employee may be entitled to pay for up to 60 days.

The Layoff Plan

You must create a plan that includes the reason for the layoff. The plan should not list any specific employees, but should instead describe the type of positions that would likely be laid off. You may want to create specific rules for who might be laid off, such as those who have the least seniority. When the rules are objective, you will not seem as if you are arbitrarily laying off employees as an act of discrimination. 

Severance Package

You may need to offer a severance package. This is a payment that will be used in exchange for the employees waiving their rights to file lawsuits.

If you are not sure if you're laying your employees off properly, you will want to consider working closing with an employer attorney. An employer attorney will allow you to avoid violating any implied contracts and will help you create a plan for effectively laying your employees off.