Age Discrimination, Volunteering for RIFS, Quirky Question # 23

Quirky Question # 23:

I read with interest your Quirky Question # 22 regarding age discrimination and releases of age discrimination claims. We have a slightly difference issue. Our company has gone through periodic reductions in force, stemming both from increased automation of our manufacturing processes and economic downturns. Our RIF procedures have been carefully constructed, involving evaluations of 10 different criteria and independent evaluations of each employee on each criterion by two supervisors. We typically offer severance packages to the employees we lay off (1 week for each full year of service).It is not uncommon for our employees with greater seniority (often 20 years or more) to volunteer for layoffs. As they point out, this relieves their managers from the difficult ranking decisions and laying off younger employees who wish to continue their employment. Of course, they benefit because they receive the substantial severance compensation – compensation for which they would not be eligible if they simply retired.This seems like a win-win. Are we overlooking anything?

Dorsey’s Analysis:

Yep. I have at least seven concerns with the approach you have outlined. First, I question whether your approach makes economic sense. In your question, you stated that at least some of your RIFs have been motivated by “economic downturns.” Given that fact, how can you justify paying substantial severance compensation to individuals who “volunteer” to resign? I presume you have done the economic calculations, but you should examine carefully whether your company really is saving money if it allows individuals to receive substantial compensation “for which they would not be eligible if they simply retired.”

Second, as a corollary to the point above, keep in mind that if one or more of your employees challenged their terminations on the ground that they were discriminatory, you would need to demonstrate that in fact, the RIFs were justified by the financial savings and were not simply a “pretext” for getting rid of certain protected class employees. If your firm cannot demonstrate that there were true economic benefits flowing from the RIFs, you may have difficulty justifying the “economically-driven” layoffs.

Third, in your question, you stated that the employees who volunteered for the RIFs became eligible for benefits that they would not otherwise receive if they simply retired. I wonder whether your company’s approach will affect normal retirement patterns. If your employees know that your company is likely to engage in RIFs “periodically” and that they can “volunteer” to participate, with the potential for receiving substantial additional financial benefits, they may postpone retirements that otherwise would benefit your company.

Fourth, deferred retirements can have several negative effects. Employees who otherwise are psychologically ready for retirement may continue to work longer than they otherwise would have, perhaps coasting along until the next RIF announcement. Such an approach can result in diminished quantity and quality of the work performed. Further, opportunities for less senior employees to move up in your organization and assume the positions these individuals normally would be vacating may be diminished. These employees may wait until opportunities become available, or they may simply elect to pursue alternative opportunities elsewhere.

Fifth, allowing employees to “volunteer” for layoff may undermine your carefully constructed RIF selection process. As you point out, your company utilizes a 10-criteria system designed to ensure your firm retains its most talented and capable employees. By allowing certain employees to volunteer for layoffs (in exchange for substantial financial benefits), you may be saying “Goodbye” to employees you would most want to retain. Some of your senior, long-term, employees may be your most knowledgeable, most dependable workers. Do you really want to create an incentive for them to leave? Similarly, some of your most talented, severance-eligible, employees may feel that they can easily obtain suitable alternative employment with your competition. Do you want to create a financial incentive for those individuals to depart and work for your competitors?

Sixth, just as you are creating a financial incentive that may result in talented individuals volunteering for lay off, you also are creating a system that may result in the retention of less talented employees who would otherwise have been selected through your RIF evaluation process. Assume, for example, you were eliminating twenty percent of your workforce in the RIF. Assume further that the two top performers in a group of ten were individuals who were eligible for the severance package. In other circumstances, they may continue working for another five to ten years and the two employees who would laid off were be the employees who ranked ninth and tenth on your RIF criteria. Because the top two “volunteered” for layoff, however, the two poorest performers would retain their positions. Although this might spare the managers of this group some short-term discomfort, in the long run they likely will regret the fact that the two weakest performers are still employed, and continue to generate an average (or poor) work product. At some point, your company will have to address these performance deficiencies. Even worse, the fact that these two employees were not selected in the RIF process may be used as evidence by their counsel that they were performing satisfactorily in any discharge claims they later asserted.

Finally, unless you document very carefully who “volunteered” to be included in the RIF, you may be skewing significantly the statistics of those “selected” for layoff as well as the application of your RIF selection criteria. Particularly with respect to age discrimination claims, this can create standard deviations dramatically higher than would exist in the absence of the “voluntary” layoffs. You need to ensure that your company’s well-intentioned and generous approach does not create potential liability in connection with the claims of those who did not want to be included in the RIFs.