Last week I had the pleasure of being a panelist at the Association for Corporate Growth (Boston) and the Turnaround Management Association (Northeast) joint conference on “Challenges and Opportunities in US Manufacturing.” A theme common to all of the speakers was the need to address workforce issues, whether with respect to training, engagement or transition. 

The challenges posed by human capital can often propel or derail improvement strategies, yet certain employment law issues are often overlooked or only addressed at the last minute. If in-house counsel are aware that an improvement plan that requires the exit of employees is being considered, the following issues in advance may help alleviate some last minute problems.

1. Be sure that all employees have up-to-date, enforceable post-employment restrictive covenants. After implementing a layoff or termination of employees, the last thing that a company needs is to be surprised by a former employee’s attempt to use the company’s confidential information or goodwill to give a competitor an advantage. Reviewing existing confidentiality, non-solicitation and non-competition agreements for enforceability under applicable state laws, and even considering the company’s plan (and costs) for enforcement of post-termination restrictive covenants, will go far to help avoid unpleasant surprises.
2. Be sure that the contemplated change does not inadvertently trigger employment agreement provisions. For example, if an improvement plan calls for the hiring of a Chief Financial Officer, it may trigger the severance provision of the existing Vice President of Finance whose employment agreement states that he will be directly reporting to the president of the Company.
3. Be sure that employees have properly assigned their rights in any inventions which the company hopes to exploit. With recent changes to transfer of intellectual property rights set forth in the America Invents Act, reviewing the company’s intellectual property portfolio and confirming that ownership rights have been properly assigned will help avoid messy ownership fights, especially over key intellectual property bein used by the company.
4. Be sure that any reduction in force plan has been carefully considered and is in compliance with applicable federal and state laws. Where a company may need to undergo a reduction in force, the company may want to consider alternatives to layoff, such as early retirement plans, voluntary separation plans, terminations based on performance, and retention plans (to ensure that some workers remain during the transition). The WARN Act requires that employers with 100 or more employees, where 50 or more employees which constitute at least one-third of the workforce will be affected by a mass layoff or plant closing, give the affected employees at least 60 days notice of such layoff or closing. Many companies misinterpret the 60-day notice period as permitting 60-days of pay in lieu of notice. Unfortunately, this is not the case and could expose the employer to a class action lawsuit even if the employer has paid the affected employees 60 days of pay. In the case of a mass layoff, the procedure for selecting who will and who will not be laid off and the logistics for retaining certain employees is also subject to scrutiny under discrimination laws, to ensure that those of a certain race, or gender or age group are not unfairly selected for termination.

These are just a few issues that are often not considered, and if incorporated into the preparation of an improvement plan, can help alleviate surprises, unbudgeted costs and retention of key assets needed to move forward.