Layoffs and their handling by business owners, executives, and directors and officers are front and center in headlines today, prompting employers to take a much-needed closer look at reduction planning and communications.
Inevitably, some layoffs are a result of unavoidable economic conditions such as inflation, war, and supply chain crises; others unfortunately are the result of underperformance of a business or the inability to fundraise. But regardless of the cause, it is how leaders communicate and treat both departing and remaining employees key to maintaining business continuity and avoiding missteps that can lead to lawsuits.
It is critical to remember that any employer can be sued, regardless of guilt or liability, in a layoff situation—and that responding to any lawsuit is costly from both a financial and reputational standpoint.
From an insurance liability standpoint, employee termination can most commonly result in claims brought against a business’s Employment Practices Liability insurance (EPLI), though sometimes D&O and Fiduciary coverage can also respond if a CEO or other officer were in breach of their duty to act in the best interest of the shareholders or other stakeholders.
Example #1: Twitter - Gender and Disability Discrimination Claims, Class Action Suits
Last week, Twitter Inc faced rulings on two separate lawsuits on the heels of layoffs in November: one alleging the company had unfairly targeted women in role reductions, and the other accusing Twitter of discriminatory practices against employees with disabilities (in requiring longer hours and required in-office presence for remaining staff after the layoffs).
A California judge ruled in Twitter’s favor but indicated that the plaintiffs would be allowed to make amendments to the lawsuits, and refile. In the gender discrimination case, plaintiffs allege “Twitter laid off 57% of its female workers compared to 47% of men after Musk took over. The disparity was more stark for engineering roles, where 63% of women lost their jobs compared to 48% of men, according to the lawsuit.”
In the disability case, “a former engineering manager and cancer survivor… claims that Twitter fired him when he refused to stop working remotely. [CEO Elon] Musk said in a memo to staff in November that employees should be prepared to work ‘long hours at high intensity’ or quit.”
The judge may have ruled in Twitter’s favor this week, but the lawyer for the plaintiffs in both cases is refiling which will add time and legal fees to the prolonged battle between Twitter and 2,000 employees who are contesting the basis for their terminations across class action and other suits.
Example #2: FGMC - Failure to Provide Notice
In Delaware in January, a federal bankruptcy judge granted relief to 425 employees who were laid off from First Guaranty Mortgage Bank without warning. The company informed more than 471 people in June of 2022 that they had lost their jobs over the span of a 10-minute phone call. According to the WARN Act, “businesses that employ at least 50 people to provide affected employees ‘60 days’ notice in writing’ of a mass layoff or plant closing — if they represent at least 33% of the total workforce — or to pay the employees if they fail to give notice. The 471 employees laid off represented nearly 80% of FGMC's workforce at the time.”
Example #3: Northrop Grumman - Failure to Provide Severance
While the judge ruled last week in the employer’s favor in this appeal, in the case of Carlson v. Northrop Grumman, the legal battle has been waged over 11 years—an example of how steep legal fees can add up over time in just one case. An employee who was part of a layoff in 2012 “claimed a right to severance under Northrop Grumman’s severance plan. But the plan said an employee was not eligible unless they received a memo from a Vice President of Human Resources notifying them of their severance eligibility. The employees at issue did not receive an eligibility memo.”
Whether to offer severance packages and to whom is a decision to be made by the employer, but this case clearly illustrates how communication around severance—especially if it is only being offered to a portion of a laid off population—is key.
To help your organization be mindful of the dynamics at play in layoffs and in other offboarding situations, you can review Anzen’s “Offboarding Do’s and Don’ts,” and reach out to Team@Anzen.com for a demo of our MgmtOps suite of risk management tools to help streamline, benchmark, and compliance-check your employee documentation.
With awareness of the legal, compliance, and insurance landscape and a focus on communication planning, even layoffs can be handled with dignity, humanity, and mutual respect.
