Planning Layoffs: How to Structure a Reduction in Force in Today’s Economic Climate

1. Planning Layoffs: How to Structure a Reduction in Force in Today’s Economic Climate Labor & Employment Women Executives Networking Briefing February 10, 2009 Washington, DC Kara M. Maciel, Esq. kmaciel@ebglaw.com Ana A. Salper, Esq. asalper@ebglaw.com

2. REALITY BITES 2008 BLS Report • Unemployment rate hits 7.2% in December • In 2008, 2.3 million jobs lost • In November 2008, RIFs were up 275% 2009 Economic Outlook • Caterpillar announces cuts of 22,000 global jobs • Starbucks plans to cut 6,700 jobs “…the unemployment rate will continue to rise sharply well into 2009…" Gad Levanon, Senior Economist at The Conference Board, Nov. 10, 2008

3. DOWNSIZING LEGAL PITFALLS: LET US COUNT (SOME OF) THE WAYS • The Worker Adjustment Retraining and Notification Act (including state WARN acts) - 11/08: Class action against Value City Department Stores 2. Age Discrimination in Employment Act (ADEA) - 10/08: Gender, race class action against Dell arising from RIF • Older Workers Benefits Protection Act (OWBPA) - 2007 - Courts invalidating OWBPA releases • Contractual liability (collective bargaining agreements, employment contracts, employee handbooks, etc.) Lack of planning is the most prevalent reason companies face legal liability

4. IS A RIF UNAVOIDABLE? Do you have an alternative? • Worksharing agreements • Flexible schedules • Hiring freezes • Temporary shutdown • Reduction in the work week

5. RIF UNAVOIDABLE; NOW WHAT? If a RIF is unavoidable, consider: • How many employees and from which areas • Voluntary vs. involuntary • Impact on: - Affected population - Contractual obligations - Severance/benefit plans - Timing of layoff/announcement

6. Voluntary Programs • Voluntary resignation • Voluntary retirement • Employment contract buyout • Remember to avoid constructive discharge claims • Avoid implication that a refusal to accept voluntary termination will be terminated involuntarily later

7. Involuntary Reductions • After a voluntary RIF, or • If the company decides not to offer a voluntary program, • Next Step: Involuntary RIF First consideration: • Will the WARN Act apply • Consider numbers affected and timing

8. Worker Adjustment and Retraining Notification (“WARN”) Act • Covered Employers must give 60 days’ advanced written notice of “plant closing” or “mass layoff” • Plant closing = 50+ employees • Mass layoff = 500+ or 33% of workforce • Layoffs considered at a single site of employment • Covered Employers - 100 or more full-time employees aggregated over all employment locations • Notice requirements to government agencies

9. Worker Adjustment and Retraining Notification (“WARN”) Act • State WARN Acts • Check your state law • No state equivalent in DC, MD, or VA but… • New York’s WARN Act became effective February 2, 2009, which drastically expanded employee’s rights • FOREWARN Act of 2007 • Will amend WARN to model NY’s state law

10. Contract Considerations  Employment Agreements • For cause termination • Consideration issues • Salary commitment • Collective Bargaining Agreements (“CBAs”) • Rehire obligations • Severance and HI provisions • Successorship issues

11. Planning The Involuntary RIF • Document the business need for the RIF • Set time table (WARN, CBAs or other agreements, OWBPA) • Establish Oversight Committee • Review layoff and selection criteria • Set layoff criteria • Keep in mind skills/positions necessary to retain • Distribute selection criteria to all decision-makers

12. Planning The Involuntary RIF • Selection Process (utilizing layoff criteria) • Forced ranking • Seniority / Past performance / Peer review / Ability to perform in post-reduction environment • Laying off “problem” employees? • Train supervisors on applying criteria without bias • Adverse Impact Analysis • Statistical impact study to avoid disparate treatment and impact claims • Oversight Committee should review with legal counsel • Communication plan • To employees, to the public, to the media

13. Communicating the Decision • Meet with employees individually • Avoid water cooler gossip • Present OWBPA releases last • Have a witness in the room – perhaps the decisionmaker and the HR Representative • Generally, the less said, the better • Create a “script” and stick to it, to the extent possible

14. Post-Termination Considerations • Security • IT issues • Safety issues • Product tampering policies • Confidentiality obligations • Questions from employees: • Unemployment • Benefits continuation

15. Restraints on Departing Employees • Non-Solicitation Agreements • Customers • Employees • Non-Competition Agreements • Trade Secret protection

16. Communicating Externally • If the RIF will be newsworthy, consider drafting a press release: • Explaining reason for RIF • Providing numbers of affected employees • Perhaps PR Department/Crisis Management will draft, but HR/Legal should review (e.g., be careful of statements such as “this is expected to be ‘it’”)

17. Releases: Consideration • What should be offered to terminated employees? • Severance (consider a formula based on current salary/years of service – i.e., two weeks’ severance for each complete year of service) in exchange for signed release • Outplacement services • Payment for COBRA benefits • Payment for all earned wages and benefits upon termination (check state law)

18. ADEA/OWBPA Requirements • Use “Ordinary English” • Specific Reference to the ADEA • No Release of Future Claims • Consideration (required) • Consultation with Counsel • Consideration Period - 21 days for “single release” - 45 days for “RIF program”

19. ADEA/OWBPA Requirements (cont.) • Seven Day Revocation Period • Disclosure Requirements (Exhibit A) • Need to disclose description of decisional unit and eligibility factors • Courts have recently invalidated releases where employer did not provide selection criteria • Decisional units too broadly or too narrowly described can invalidate age discrimination claim

20. ECONOMIC REALITY BITES… QUESTIONS?

21. Planning Layoffs: How to Structure a Reduction in Force in Today’s Economic Climate Labor & Employment Women Executives Networking Briefing February 10, 2009 Washington, DC Kara M. Maciel, Esq. kmaciel@ebglaw.com Ana A. Salper, Esq. asalper@ebglaw.com