Are Your Layoffs Legal?

During this current economic downturn, the news has included almost daily reports of mass layoffs across numerous sectors of the U.S. economy. Not surprisingly, public agencies have not been immune to the recent economic turmoil. Cities, counties and special districts throughout California have either laid off or are planning on laying off employees in an effort to combat shrinking budgets.

With layoffs becoming a necessary albeit unfortunate component of today's economic climate, employers often wonder what procedures they must follow when laying off employees. In the private sector, for union employees, layoff procedures are typically outlined in the employees' collective bargaining agreement. Thus, private sector employers generally need only follow these procedures for union employees and, if applicable, comply with the notice of layoff requirements delineated in the Worker Adjustment and Retraining Act (more commonly referred to as the WARN Act).

The layoff procedures for public sector employers, however, are oftentimes more complex. Whereas private employment is purely contractual, public civil service employees enjoy a vested property interest in continued employment that is constitutionally protected by the due process clause. Thus, under most circumstances, public employers need to provide employees with certain due process rights prior to terminating their employment. Historically, California public sector employers generally have not extended pre-termination due process rights to employees being laid off. This practice was recently called into question after the May 2008 Levine v. City of Alameda, 525 F.3d 903 (9th Cir. 2008) decision. In Levine, a single employee alleged that his layoff was a pretext, and that he was actually terminated because his supervisor disliked him. The 9th Circuit held that the employee was entitled to pre-termination due process rights, including the right to respond to the proposed layoff and perhaps a more comprehensive post-termination evidentiary hearing to challenge the layoff.

Public sector employment law practitioners have struggled to understand the Levine decision and its impact on the layoff process. The Levine opinion has been criticized as superficial and nebulous. It provides little insight on how the court reached its conclusion. Indeed, the court's reasoning is limited to a single paragraph where it states matter-of-factly that, as a civil servant with a property interest in continued employment, the employee was entitled to a pre-termination hearing. Thus, on its face, the Levine opinion does not clearly answer the fundamental question that has raised concerns among public sector employers since the decision was issued: Do civil servants have a constitutionally protected property interest against layoff, regardless of their employer's rules and regulations?

The answer may lie in the background facts of Levine, in the lone 9th Circuit case cited by the court on this issue, Clements v. Airport Authority of Washoe County, 69 F.3d 321 (9th Cir. 1995), and in what appears to be a seemingly conflicting prior 9th Circuit case, Allen v. City of Beverly Hills, 911 F.2d 367 (9th Cir. 1990). In Allen, the city of Beverly Hills eliminated a civil service position and the person who held that position was consequently laid off. The employee alleged that his layoff was motivated by a pretextual motive, namely because of his strong objections to purportedly illegal conduct on the part of the city. The 9th Circuit held that the employee did not have a constitutionally protected property interest in continued employment in the face of a layoff. The court looked at the city's civil service rules and regulations to determine whether there were any rules that supported the employee's claim of entitlement. The court reasoned that property interests are created by existing rules or understandings, such as those delineated in the city's civil service rules. The court found that the relevant city code allowed the city broad discretion to lay off a municipal employee and that this discretion was limited only by a reasonableness requirement, which it found did not impose the kind of significant substantive restriction that would give the employee a legitimate expectation of entitlement to continued employment. Thus, in Allen, the court appears to provide an answer to the fundamental question raised by the Levine decision - that the agency's rules and regulations determine whether a property interest has been created.

This premise is supported by the Clements case. In Clements, an appeal of a Nevada District Court decision, a state court had previously found that the laid-off employee was protected by her employer's civil service manual, which was established pursuant to Nevada law. The employee filed a grievance challenging the layoff on the ground that her employer failed to follow the manual's layoff procedure. The 9th Circuit held that the issue of whether the employee had a protected property interest in her employment was precluded by the state court judgment. Thus, as in Allen, the Clements court looked to the applicable rules and regulations of the employer to assess whether the employee has a constitutionally protected property interest against layoff.

An unpublished opinion by the U.S. District Court for the Northern District of California is also instructive. In Slade v. Stephens, 1996 WL 478964 (N.D. Cal. 1996), the court specifically addressed the fundamental question raised by Levine. The plaintiff in Slade asserted that, simply because he was a permanent civil service employee, he had a property interest against layoff. The court rejected this assertion, applied the holdings in both Allen and Clements, and held that the applicable employer rule or regulation must be assessed to determine whether an employee has a property interest against layoff.

Unlike in the above cases, the Levine court did not even mention, let alone assess, the city of Alameda's rules or regulations regarding layoffs. But a close reading of the background facts in the trial court's unpublished opinion, Levine v. City of Alameda, 2006 WL 83051 (N.D. Cal. 2006), may shed light on why the trial court and 9th Circuit may have overlooked the employer's rules or regulations on layoffs. According to the unpublished opinion, neither party disputed that the employee had a protected property interest in continued employment. The only disputed issue was whether the employee received the process he was due. Indeed, in the employer's briefing for the appeal, the employer did not dispute whether the employee had pre-layoff due process rights. Thus, it appears that the trial court and 9th Circuit may have overlooked the employer's layoff rules because the parties did not dispute this issue and the city had in essence conceded that the employee had some sort of procedural right to respond to the layoff.

Prior 9th Circuit decisions and the facts in Levine suggest that an employer's rules and regulations regarding layoffs provide the guideposts for pre-layoff employee due process rights. Nevertheless, because of the 9th Circuit's superficial analysis in Levine>/i>, questions and concerns still remain. It is arguable that Levine stands for the proposition that all civil service employees have a constitutionally protected property interest against layoff, regardless of their employer's rules and regulations. If so, public agencies could potentially face costly bureaucratic procedures with every layoff. Given this risk, public sector employers should actively take steps to minimize the risk that a layoff may be characterized as an improper pretext. These steps include having a clear written policy as part of the agency's personnel rules and/or labor agreements that addresses layoffs. Specifically, the layoff policy should explicitly reserve to the governing body of the agency the authority to abolish any position, and to lay off employees due to lack of work or funds. The policy should also provide a comprehensive layoff procedure that addresses notice, order of layoffs, bumping rights, re-employment rights, severance pay, timeliness, seniority and the administrative process for challenging layoffs. Finally, the policy should clearly state that there is no reasonable expectation of continued employment in the case of layoffs. Most importantly, public sector employers should follow the layoff procedures outlined in their layoff policy.

These are challenging times for both employers and employees. Although laying off employees is often the employer's choice of last resort, more and more employers have had to lay off employees in recent months in order to survive. For public sector employers, the Levine decision has created concern over mounting planned employee layoffs. It is critical now more than ever that employers establish and follow their layoff policy and procedures.

This article appears on Page 5

Reprinted and/or posted with the permission of Daily Journal Corp. (2009).