Preparing for Layoffs - Gesmer Updegrove LLP

By Mike Brier

No business relishes the prospect of employee layoffs. But, especially with interest rates higher than they have been in many years, tech companies need to be prepared for that unpleasant eventuality. Some steps about planning for layoffs – like considering how to break the news in a humane way, how to bolster employee morale once the layoffs are complete, and how to keep investors appraised of the situation – are fairly evident to most tech executives. But in addition to the various business risks, employee layoffs also involve numerous legal pitfalls. Here are some tips for how to avoid them.

Consider All of the State Laws in Play

Many employers realize that the employment relationship is governed by overlapping state and federal laws, with individual states in some cases providing additional protections above and beyond what the federal government requires. What many employers do not appreciate is that it is the law of the state where an employee works – not the state where the employer has its principal place of business – that governs. So, if a fully remote tech company has employees in a dozen different states, there are potentially many different sets of requirements that it will have to comply with when implementing layoffs. Consequently, employers need to consider all the state laws in play.

Abide by State Wage Laws

State wage laws supply a case in point. Many employers figure that if they must lay off employees, they will pay them any wages due on the next regular payday. In many states that approach is just fine. But not in all. Massachusetts, for example, requires all wages due to be paid in full on the date of termination. Failure to do so results in mandatory treble damages to the employee. California similarly requires payment of wages in full on the date of termination.

The Federal and State WARN Acts

Another potential pitfall for tech companies relates to the federal WARN Act and the various state “mini-WARN” acts. The federal law requires employers with more than 100 full-time employees to provide at least 60 days written notice of layoffs affecting at least 50 employees (it also requires written notice in some situations, such as in the case of plant closings). An employer that fails to comply is liable to its former workers for back pay as well as possible attorneys’ fees.

Many states – including states with many tech workers, such as California and New York – impose additional requirements. For example, California’s mini-WARN act applies to employers laying off workers from a “covered establishment” with 75 or more employees. New York’s mini-warn act, by comparison, applies layoffs of 25 New York employees or more and requires 90 days’ notice, rather than 60. Thus, an employer implementing layoffs in California or New York can comply with the federal WARN Act while incurring hefty penalties under state law.

Special Requirements for Employee Severance Agreements Federal age discrimination laws contain a final trap for unwary businesses. Many employers like to offer severance to departing employees in return for a release. The federal Age Discrimination in Employment Act (ADEA) imposes special requirements on employers to make the release effective, such as a mandatory 21-day period to consider the release and 7 days to revoke it after execution. However, if an employee is part of a mass layoff, the mandatory consideration period is extended to 45 days. More significantly, the employer is required to provide a wealth of information about the ages and job positions of the terminated employees vis-à-vis their former colleagues. Failure to strictly comply with these requirements renders the release unenforceable.

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Michael D. Brier

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