Thursday, January 26, 2017

Hard Times: Employment Law and Cost-Cutting

When employers face the need to cut costs, they may have to make a series of difficult decisions affecting all aspects of their operation.  Among the most difficult cost-cutting measures are those that directly impact employees, like wage reductions, benefit changes, and layoffs. Before choosing those actions, employers need to review and understand the legal requirements that accompany them. 
Wage reductions.  An employer’s financial constraints do not alter its responsibility to abide by federal and state wage and hour laws.  Minimum wage requirements, laws relating to overtime pay, and regulations that control classification of employees as exempt or non-exempt must all be factored in when an employer considers cutting wages – whether for a small group of employees or across the board.  Reclassifying workers as “independent contractors” in an effort to reduce employment-related benefits and tax obligations is particularly risky, given that independent contractor status is defined by law and not something that employers can simply designate.  If employees’ compensation is reduced by 30% or more, they may become eligible for unemployment compensation, and affected workers who feel that they have been selected for wage reduction based on protected class status may be able to claim constructive discharge.
Benefit changes.  Although employers may choose whether or not to offer some employee benefits, there is risk associated with the abrupt discontinuation or reduction of benefits.  Employers need to analyze whether or not they are contractually obligated to continue benefits for a period of time, or to give notice that previously-offered benefits will be eliminated.  There may also be statutory restrictions on the elimination of health benefits or the elimination of leave.  If an employer’s policies state that an employee earns paid leave at a certain rate, leave already earned pursuant to those policies cannot be retroactively eliminated.  In addition, certain types of leave, such as those mandated by the FMLA and its state counterparts or those required by state parenting leave laws, are not optional for covered employers, regardless of their cost.
Layoffs.  When economic necessity requires a reduction in force, employers should plan layoffs only after a review of applicable legal constraints.  Larger employers planning for mass layoffs must conform to the notice requirements of the federal WARN Act (and any state counterparts).  Group terminations should be reviewed to make certain that they do not have an adverse impact on protected class employees. If the employer offers severance in exchange for a release of claims, the requirements of the Older Workers Benefit Protection Act may come into play, and the releases offered must comply with a variety of federal and state requirements in order to be valid.  State unemployment insurance requirements, and the cost of unemployment benefits, should be reviewed.
The last thing that an economically challenged employer needs is for legal liability to result from its cost-cutting measures.  The risk of legal liability can be substantially reduced through careful planning and a clear understanding of the laws that relate to and restrict employment-related cost-cutting actions.
Posted by Judy Langevin