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Planning and Executing a Reduction in Force
by Gerard Panaro, BOL Guru
 The economy being what it is, this may be a good time to review procedures for carrying out a reduction in force. In particular, this article will discuss RIFs in the context of age discrimination claims and waivers of ADEA claims. The most important steps to follow in a RIF are deciding on what criteria will be used to select those for termination (e.g., geography, seniority, line of work, merit ranking, these (and other) factors in combination); making sure the criteria are followed and that the RIF conforms to company policy (if there is one); having at least one level of review of the decisions as to whom to terminate; doing a "disparate impact" review after those selected for termination are chosen, to make sure there is no discrimination, even unintentional; and documenting the whole process.
If the company wishes to obtain waivers of potential age discrimination claims, it must comply with all the terms of the Older Worker Benefit Protection Act (an amendment to the ADEA, 29 USC Sec. 626(f)), including providing information to those asked to sign a waiver as to who was eligible or ineligible for the RIF. A company may call for volunteers for a RIF, to lessen the impact of involuntary terminations. The case discussions in this article illustrate the right and wrong ways to implement a RIF.
Definition of a RIF. What is a reduction in force (RIF)? One court has defined it as follows: "[a] work force reduction situation occurs when business considerations cause an employer to eliminate one or more positions within the company. An employee is not eliminated as part of a work force reduction when he or she is replaced after his or her discharge. However, a person is not replaced when another employee is assigned to perform the plaintiff's duties in addition to other duties, or when the work is redistributed among other existing employees already performing related work. A person is replaced only when another employee is hired or reassigned to perform the plaintiff's duties.1" This definition was expanded to include the situation in which a terminated employee is replaced by another employee promoted from part-time to full-time work. 2
The Williams case addresses a question that can sometimes come up in a RIF situation: by its very nature - reduction in force - a RIF implies that when the company gets done, it will have fewer employees than when it began the process. If an employer simultaneously (or subsequently) adds positions while it is eliminating others, does this undercut the rationale of the RIF? Not necessarily, the Williams court said: at the time the plaintiff was terminated from her employment, Emco Maier had 29 employees. At the time the court was deciding the case, it had 36. No problem, the court said: "Finally, the fact that the company employs more people today than it did at the time of Ms. Williams' [the plaintiff] termination does not mean that the company did not, in fact, engage in a RIF two years ago. Surely, a company facing financial hardships may wish to eliminate certain positions in an effort to alleviate those difficulties, while still adding other positions in an effort to improve the company's operations. [Cits. om.] Significantly, Ms. Williams concedes that the positions that have been added to the company since her termination are unrelated to her former position."
RIF process. McGrath v. Lockheed Martin Corp., 2002 WL 31269646 (6th Cir.(Tenn.)), 29 Employee Benefits Cas. 1101 (Oct 09, 2002) (Not selected for publication in the Federal Reporter), presents a process for conducting a RIF. The district court found in favor of Lockheed Martin on the plaintiff's age discrimination claim, and the court of appeals affirmed. The management of one of Lockheed's subsidiaries decided that a RIF was required to meet budget constraints. It adopted a written "Process For Involuntary Reduction In Force" under which management was first required to determine the number of excess full-time-equivalent employees, and to apportion this excess across all departments. "Organizational Managers" were then to "determine positions subject to RIF, based on an assessment of the skills/personnel requirements necessary to accomplish organizational objectives in support of the mission." "Peer groups" of employees were then to be constructed, with an initial ranking of the employees within a given peer group. Rankings were to be based on: (1) possession of critical skills; (2) performance reviews over the past three years; (3) education/training relevant to the job; (4) transferability of job skills; (5) length of service with the company, and (6) time in position. "Layoff Comparison Forms" were then to be completed, comparing the employee selected for termination with his/her peers (listed in order of ranking, from low to high) selected to be retained. A "RIF Review Board" was then required to review and evaluate individual RIF decisions. Layoff Comparison Forms, layoff lists, and "Summary Forms" were to be submitted to the RIF Review Board in advance of Board meetings.
Long v. Owens Corning, 214 F.Supp.2d 1124 (D.Kan., 2002) offers another example. In 2000, the company filed for bankruptcy protection and undertook an organizational effort to cut administrative costs. The company set up a "Natural Leadership Team" (NLT) and assigned it the task of deciding how to reduce costs and expenses at Owens Corning's Kansas City plant (where the plaintiff was the second oldest salaried worker). The NLT, which generally met once a week, included the maintenance leader, the human resource leader, plant leader, and five other individuals whose positions or titles were not specified in the opinion. A subgroup of the NLT consisting of three persons assessed all administrative tasks performed by salaried administrative personnel (the plaintiff was an administrator). Their purpose was to identify overlapping duties and evaluate whether the Kansas City plant could eliminate some administrative tasks or assign them to corporate headquarters or hourly bargaining unit employees. The subgroup asked six to eight employees--including plaintiff -- to report their tasks. As part of the NLT task study, the plaintiff was asked to identify the amount of time she spent on various tasks and was told that she should not look at it as an exercise in who could be cut.
The NLT subgroup recommended that two salaried positions be eliminated: the plaintiff's and another employee's (who happened to be the oldest salaried employee at the Kansas City plant). The full Team concurred and recommended that the two positions be eliminated. The Team also considered whether to eliminate the jobs of two other employees, but it decided not to do so. Owens Corning said that in deciding which jobs to eliminate, the NLT did not discuss or consider age.
The human resource leader (a member of the NLT) transmitted materials to Owens Corning's in-house attorney, and the human resource representative, at Owens Corning headquarters in Toledo, Ohio. The information identified potential employees for job elimination and gave their corresponding birth dates. Owens Corning ultimately made the decision to eliminate the two positions.
Owens Corning did not terminate the plaintiff's employment for performance reasons. In fact, it said that it eliminated the positions to save money. Although Owens Corning did not have a rule against salaried part time employees, it did not consider offering part time employment to the plaintiff or the other employee. The plaintiff said she would have continued working if Owens Corning had offered her full or part time work. As it was, she did not ask for reassignment and, after she lost her job, she did not apply for any other jobs at the Kansas City plant. The plant job board posted available jobs, but the plaintiff did not communicate with anyone at Owens Corning about any job posting.
Owens Corning did not replace the plaintiff. It transferred some of her work to union employees and her other tasks to three other employees, who were in their late 40s to mid-50s. It also eliminated some of the reports the plaintiff had been writing. The court held that the plaintiff failed to prove age discrimination.
In Williams v. Emco Maier Corp., 212 F.Supp.2d 780 (S.D.Ohio, 2002), the company began to go through RIFs in an attempt to alleviate financial difficulties that it had been experiencing (the parent company, an Austrian company, had gone through bankruptcy). During these earlier RIFs, the plaintiff had been retained. In 2000, however, the parent corporation ordered Emco Maier to take additional measures to salvage its finances. In January 2000, Emco Maier terminated its own President. The parent company also notified the Vice President of Finance that additional staffing cuts were necessary. Pursuant to that directive, Emco Maier developed a two-prong reduction plan. The first prong of the plan involved attrition, whereby the company would not replace certain employees who voluntarily left their employment. The second prong involved the elimination of certain positions, whereby the company would terminate the incumbent employees who held those positions.
In accord with the attrition prong of the plan, several Emco Maier employees voluntarily left their jobs, and those employees were not replaced. Although this helped the company's financial situation somewhat, Emco Maier still needed to terminate other positions. Thus, pursuant to the second prong of the plan, in March 2000, Emco Maier identified three positions to eliminate, one of which was the plaintiff's. The plaintiff sued under the Americans With Disabilities Act, claiming she was terminated due to her disability. The court ruled in favor of the employer.
Legal elements of an age discrimination claim in a RIF situation. To allege a claim of age discrimination based on a RIF, the plaintiff must show four things: 1) S/he was 40 years old or older at the time of the RIF, 2) s/he was qualified to perform the job, 3) s/he was discharged, and 4) there was additional circumstantial evidence to indicate that s/he was singled out for discharge for impermissible reasons.3 In RIF cases, the Williams court explained, the fourth element of the prima facie ADEA case--proof that the plaintiff employee was replaced by a younger person--is modified to require the plaintiff to offer direct, circumstantial, or statistical evidence tending to indicate that the employer singled out the plaintiff for impermissible reasons. One way of doing this is to show that a comparable non-protected employee was treated better. The court went on to explain that modification of the fourth element in a RIF situation is required because when an employer is forced to reduce its staff for economic reasons, the most common legitimate reason for the discharge is the RIF itself. The decision to discharge a qualified, older employee is not inherently suspicious because in a RIF, qualified employees are going to be discharged. Once the employee makes these showings, the employer may rebut them by offering a legitimate reason for his or her selection for RIF. The plaintiff has the final opportunity to prove that the employer's stated reason was a pretext.
In Long v. Owens Corning, 214 F.Supp.2d 1124 (D.Kan., 2002), the court said that to meet the fourth requirement of the prima facie case, the plaintiff need not produce evidence that age was a determining factor in the company's decision. She can satisfy the fourth element with evidence that her employer fired qualified older employees but retained younger ones in similar positions.
Evidence of pretext. A plaintiff's basis for claiming that the employer's reason for terminating him or her is a pretext will depend, of course, on the reason given. The McGrath v. Lockheed Martin case shows how easy it is to find flaws and discrepancies in a RIF procedure with which to allege pretext. In McGrath, the plaintiff listed fourteen reasons why he believed the reasons given for his termination were pretexts:
(1) defendants relied on budget cuts in environmental restoration and waste management projects to justify the RIF even though plaintiff never worked on such projects; (2) defendants have not produced CES's [Central Engineering Services, the division in which the plaintiff worked] projected workload or CES's mission objectives in justification of the RIF; (3) defendants have not produced evidence explaining CES Director Thompson's decision to eliminate five positions in MME [Mechanical and Manufacturing Engineering, an "organization" within CES]; (4) plaintiff was told by Singletary [the head of Mechanical Equipment Design, one of the departments within MME] in early 1996 that there was plenty of FEA [finite element analysis, the kind of work the plaintiff specialized in] work to do; (5) plaintiff's professional training and experience demonstrates plaintiff had transferable engineering design skills, contrary to his peer group evaluation; (6) plaintiff was told at his December 3, 1996 meeting with Singletary and MME Director Smith that he was chosen for layoff due to plaintiff's small billable workload and low percentage of funded work even though funding for a superconducting magnet FEA analysis became available in August 1996; (7) all of the employees in plaintiff's peer group did not perform FEA; (8) three employees within plaintiff's organization (MED)--Steve Chae, John Platt, and Dave Richards--performed FEA work but were not included in plaintiff's peer group; (9) 18 engineers younger than plaintiff that performed FEA work were not included in plaintiff's peer group; (10) plaintiff's peer group contained employees outside of plaintiff's department (MED); (11) plaintiff's peer group contained only Grade 11 engineers even though the written RIF process permitted plaintiff to be compared with non-at-risk Grade 9 engineers; (12) Grade 9 engineer J.E. Brewer, over age 50, was approved for layoff on November 7, 1996 for not having specialized skills, and his peer group contained Grade 9 and Grade 11 engineers; (13) one month after plaintiff was terminated, Engineer Len Phillips was asked to perform 700 hours of FEA work within MME, and; (14) the one-page memorandum supporting the RIF decision was prepared after the RIF Review Board approved plaintiff's layoff on November 7, 1996.
Fortunately for Lockheed, the court explained and ultimately rejected all of these reasons, but they do illustrate the numerous ways in which a terminated employee can challenge his or her selection for a RIF.
In the Long v. Owens Corning case, the plaintiff offered the following evidence to prove pretext: On two occasions, one of the members of the NLT asked the plaintiff when she would retire and how much longer she planned to work. On a separate occasion, another member of the NLT asked the plaintiff whether she was eligible to retire. When she said yes, he asked her why she did not do so. None of the other NLT members, however, talked to the plaintiff about her age or retirement plans. She also claimed that Owens Corning gave more favorable treatment to employee who was not terminated and who was eight years younger than the plaintiff, because it transferred him, whereas Ownes Corning did not offer her continued employment (full or part time) when it eliminated her position. She also cited the fact that she and other employee terminated in the RIF were the two oldest employees at the plant. Finally, she cited an e-mail from her boss characterizing her departure as a retirement rather than a termination.
None of this evidence proved pretext, the court concluded. In particular, the facts that two members of the NLT inquired about her retirement plans and that her boss sent an e-mail saying she was retiring "does not demonstrate animus towards age or suggest that age was a factor in defendant's decision," the court said. "Finally, the fact that defendant selected its two oldest employees for termination is not alone sufficient to demonstrate age discrimination." The court therefore awarded summary judgment for Owens Corning.
In Williams v. Emco Maier Corp., the plaintiff cited the fact that the company actually had more employees two years after she was terminated in a RIF than it did at the time she was terminated. The court rejected this argument, however, noting, as was quoted above, that "the fact that the company employs more people today than it did at the time of Ms. Williams' termination does not mean that the company did not, in fact, engage in a RIF two years ago."
Disparate treatment and failure to follow policy can be evidence of pretext. In Tyler v. Union Oil Co. of California, 304 F.3d 379 (5th Cir., 2002), the court said: "An employer's conscious, unexplained departure from its usual polices and procedures when conducting a RIF may in appropriate circumstances support an inference of age discrimination if the plaintiff establishes some nexus between employment actions and the plaintiff's age." Here, a jury found that the plaintiffs (who sued for age discrimination) did (although the court did set aside the verdict in favor of one plaintiff).
In support of their appeal, the plaintiffs produced Unocal's Human Resources Policies and Procedures manual, which advised employees conducting a reorganization to ensure that plans "minimize the risk that personnel decisions can be viewed as being illegal employment discrimination" and that stressed the need to document non-discriminatory reasons for personnel decisions. The manual included a statement that "planning [for a RIF] should include ... Documentation of non- discriminatory reasons for adverse personnel decisions." In connection with the RIF, a Senior Resources Consultant at Unocal prepared an adverse impact study of the proposed RIF which showed that there was a possibility the RIF would have an adverse impact correlated with age. The analysis was submitted to the Vice President of Human Resources.
The evidence showed, however, that four executives - all of whom were in their 30s - had a meeting at which decisions affecting the plaintiffs were made. Although the chairman of the group testified that he did not really know any of the plaintiffs except one, he asserted generally that employment decisions about who would fill the positions in the reorganized business unit were based on employee performance. But this same witness admitted that he did not retain any documentation reflecting reasons for employment decisions resulting from the meeting and, with one exception, did not state any specific performance-based reasons why any of the individual plaintiffs were not assigned positions in the reorganized unit. Further, the witness admitted that one of the plaintiffs was ranked ahead of another employee who was retained and that he had never reviewed the terminated employee's performance appraisals in detail or spoken with his supervisors about him.
The witness also testified that he was aware that Unocal policy called for keeping documentation and admitted that, the policy notwithstanding, he failed to keep documentation of non-discriminatory reasons for adverse decisions. He shredded whatever documentation he had. He further conceded that the human resources department would have no way of knowing the reasons for the adverse personnel decisions.
This evidence is enough to prove the claim, the court concluded: the chairman of the committee which decided whom to select for termination testified that he based his decisions on performance, yet he testified that he was not familiar with three employees and their job performance. These three introduced evidence that they had received positive performance appraisals in recent years. The executive knew that he was supposed to keep documentation of the reasons for adverse employment decisions, yet he did not do so. The plaintiffs' evidence of satisfactory performance, the executive's failure to keep documentation and his admission that he was not familiar with three of the employees and their job performance, "were sufficient to permit an inference that the performance rationale was a pretext for intentional discrimination in the conduct of the RIF."
Chisholm v. Cancer Treatment Centers of America, 2002 WL 31085090 (N.D.Ill., 2002), illustrates the disparate treatment dimension of a RIF. The plaintiff was a 62 year old Executive Assistant to the Chief Executive Officer who was terminated pursuant to a RIF and sued for age discrimination. The court denied CTCA's motion for summary judgment.
Chisholm also makes the point that the plaintiff doesn't have to contest the legitimacy of the RIF itself to establish that it was a pretext for disparate treatment. The plaintiff did not dispute that the RIF was an economic necessity (CTCA had lost $1.3 million). Rather, she argued that CTCA's selecting her for the RIF on the basis that she had no one to work for was pretext.
The plaintiff in Chisholm cited pre-RIF evidence of disparate treatment to make her case. Even before the RIF, she alleged, her boss preferred another, 35-year old executive assistant to work for him, gave her privileges that he didn't give the plaintiff, and put the plaintiff on a list for elimination. CTCA also made multiple attempts to make the plaintiff transfer or quit, even before the RIF, she alleged.
The plaintiff alleged that once she told her new boss how old she was, his behavior toward her changed. Her new boss did not allow her to attend seminars that she had usually attended in the past, but another, younger (35) Executive Assistant attended the seminars and also the internal monthly executive meetings. This other person was also paid more than the plaintiff even though she had less work and received more pay raises and a company-paid trip whereas the plaintiff did not receive similar treatment from CTCA.
When CTCA began experiencing financial difficulties, it decided to have a RIF. It terminated the plaintiff for the reason that because her boss had left, she had no one to work for. However, two Executive Assistants remained with CTCA: one, who was 29, and the other employee previously mentioned, who was 35. In the case of the 29-year old, even though her boss had also resigned, she was reassigned rather than discharged.
The plaintiff's disparate treatment evidence was based on her comparison with these two younger executive assistants and on the argument that the positions were "fungible." 4 In the case of the 35-year old, she kept her job and took on the plaintiff's duties despite the fact that she was paid more and worked less. "As such," the court said, "Chisholm [the plaintiff] sufficiently demonstrates disparate treatment to make a prima facie case." Likewise, the treatment of the second executive assistant, the 29-year old, evidenced disparate treatment because, whereas CTCA terminated the plaintiff, it found another position for this person. Said the court: "An employer implementing a RIF may not favor younger employees over older ones by finding new positions only for younger workers."
On top of all of this, at the time of the RIF, CTCA was already recruiting a replacement for the plaintiff's boss and when it hired him, it hired an executive assistant for whom who was only 44 years old.
"Together," the court concluded, "these pieces of evidence demonstrate that if facts are viewed in a light favorable to the plaintiff, a trier of fact could reasonably infer that CTCA would not have terminated Chisholm if she had been younger than 40 and everything else had been the same. For these reasons, the motion for summary judgment [of CTCA] must be denied."
RIFs and Waivers of ADEA Claims. Age discrimination, of course, is not the only allegation of unlawful discrimination that may be made in a RIF situation, but it is probably fair to say it is the most common. Employers can seek to avoid being sued for age discrimination by requesting terminated employees to sign a release of claims. To obtain a valid release of an age discrimination claim, the employer must comply with the Older Worker Benefit Protection Act mentioned above. In particular, when a RIF is involved, the employer must give employees selected for the RIF and asked to sign a release 45 days to consider the offer (as opposed to 21 days in the normal case) and must also provide them with information as to who was selected and not selected for the RIF. Primarily, this involves information about the "decisional unit" (facility, department, etc. affected by the RIF) and about the job titles and ages of those selected and not selected for termination. The employer does not have to explain its rationale for the RIF or provide job descriptions or other information. All of these ADEA requirements may be found in the regulations, 29 CFR Part 1625, and Sec. 1625.22 in particular (waivers of rights and claims under the ADEA), in particular, subsection (f).
1 Williams v. Emco Maier Corp., 212 F.Supp.2d 780, (S.D.Ohio, 2002), quoting Barnes v. GenCorp Inc., 896 F.2d 1457 (6th Cir., 1990).
2 Tinker v. Sears, Roebuck & Co., 127 F.3d 519, 522 (6th Cir. 1997).
3 The court in Long v. Owens Corning, 214 F.Supp.2d 1124 (D.Kan., 2002) stated the elements of a prima facie case as follows: the plaintiff must show that (1) she is within the protected age group; (2) she performed satisfactory work; (3) defendant discharged her despite adequate work performance; and (4) the record contains some evidence that in reaching its decision, defendant intended to discriminate.
4 This "fungibility" argument was based on Miller v. Borden, Inc., 168 F.3d 308 (7th Cir. 1999), which states that in RIF cases where the plaintiff's discharge is construed as a 'fungibility' situation, to establish a prima facie case of discrimination s/he need show only that s/he was treated less favorably than the substantially younger employees who absorbed his or her position and that these employees were similarly situated to the plaintiff.
First published HR Advisor, January/February/2003, v. 9, #1.
About the Author:
Gerard P. Panaro has more than 25 years' experience in employment law and is available to assist readers on an individual basis. You may reach him at 202-861-1314. Mr. Panaro is of counsel with Howe & Hutton, in the Washington, DC office.
First published on BankersOnline.com 1/12/04
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