Statistically employers report that they are facing an increasingly high level of reductions in force, layoffs, restructurings and one-off terminations, not necessarily related just to performance, but also on business needs and changing market conditions. For those employers who have not previously done a reduction in force or for whom terminations are a rare occurrence, it can be difficult to determine how to manage this process.
Various states may have specific notice requirements or other issues which are unique to state law. For example, in Iowa, a terminated employee must be paid by the next regular payday all sums due and owing to that employee. In California and Massachusetts, employees must be paid at the time of termination. Additionally, there are differences in how states treat accrued but unused time off and various benefits with certain states not requiring the payment of accrued PTO and other states treating it as a wage that must be paid. These variations mean that you should seek legal counsel to ensure you have met your legal obligations.
If you are engaging in a reduction in force, you also need to consider both state and federal law such as the WARN Act. Many states have what are known as mini-WARNs or state-based laws that apply to companies with fewer employees. If you are covered by a WARN law, you will generally need to give notice to the employees to be terminated by a specific time period as well as provide notice to your workforce development agency or the DOL.
Regardless of the size of your company or the circumstances that require a termination or reduction in force, many employers have the same questions.
What should I do first?
Make sure you are aware of whatever your state rules, regulations or statutes require, including such things as whether paid time off needs to be paid out, when people need to receive a final paycheck, if notice must be in writing, and similar matters. Note that employees who work hourly have to be paid for all hours worked. If someone is an exempt employee, you can limit their time in a terminal week to the time that they actually worked that week and do not have to pay them for a full week if you terminate them on a Tuesday.
Should I offer a severance agreement?
That depends very much on the structure of your business, whether you have policies that require a severance in circumstances where there is a layoff or reduction in force (RIF), and of course budgetary concerns and considerations.
If severances are guaranteed as part of your policies, and if you do a position loss or reduction in force as defined by policies, it is possible, depending on state law that those will be considered accrued wages. If your policies state that they receive 30 days severance pay on a RIF but do not specify they are required to sign a waiver to qualify for payment, it may be difficult to get the waiver. The time to check your policies is before a RIF, not after.
What should be in a severance agreement?
Again, this depends significantly on the type of business, your policies, and what you are attempting to achieve. In general, severance agreements set forth the amount to be paid, include a reiteration of data privacy and confidentiality agreements, require the return of any property belonging to the company as well as a waiver of potential claims. In some instances, if the severance payment is required either by contract or policy, a waiver may not be included.
How long do employees have to sign a severance agreement?
While this may vary by state or locality, generally under the federal laws, employees who are 40 or above have a minimum of 21 days to sign a severance agreement and then up to seven days to rescind their agreement. If you are terminating multiple people, that time increases to 45 days and seven days to rescind. There are a number of additional specific requirements if there are multiple terminations under the ADEA, OWBPA, and other regulations.
What do I say?
If this is as a result of business changes or business restructuring say that it is a result of business restructuring, you are ending their employment, give them the time and, if you are offering them severance, give them the severance documentation so they can take it home and review it. NEVER tell an employee they must sign the severance documentation right away even if they are not subject to the ADEA OWBPA. Forcing someone to sign a severance agreement and/or not giving them adequate time to review it can easily result in future claims and the agreement being voided.
Be clear, concise and brief. Lead with the most important point and do not focus on your own emotions or concerns. You are telling an employee that they are losing their job. The fact that it was hard for you to make this decision or you were up all night with concern does not help. Do not focus on your own emotions – this is not about you. Focus on delivering information as concisely as possible while still being polite. Once an employee has been told that they are being terminated, in general, they are not going to process a lot of extra information after that so make sure that anything they need to know you have provided to them. Give them the opportunity to call or email later if they have questions.
What not to say: Do not reference how you did not agree with this decision or anything similar. Do not reference ANY protected category or class. Do not be rude.
Should I give the employee a reference?
This may depend on why the employee is being terminated and the nature of the employment relationship. Some states require that you provide employees with information so that they can more readily file for unemployment compensation. If this is required by your state, a form related to this should be located on your state’s Workforce Development or unemployment compensation website.
An employee subject to a reduction in force, rather than some type of performance or bad act termination, will usually qualify for unemployment compensation under state rules. Employers sometimes give employees a letter indicating that they are subject to a reduction in force and that they are losing their position because of business considerations in order to ease their ability to file for unemployment. However, this is dependent upon the totality of the facts as a whole. Many employers limit references to positions and dates held to avoid defamation and negligent referencing claims. If “it’s complicated” seek counsel.
How do we get our property back?
Things like keys, fobs, and other small items that employees can be expected to have with them should be returned at the time of termination notification. Larger items such as a vehicle that is used as the employee’s primary transportation may require an alternate plan. There may also be employees who have a significant amount of personal items at the office and you will need to discuss whether or not those will simply be boxed and provided to them or that you will arrange for a time for those employees to come back in to pick up their items. If terminated employees are in the office then they need to be supervised at all times to avoid a variety of concerns including data privacy issues.
Do I need security?
If you think you may need security it may be the time to think about the process. You could consider a call or Zoom/Teams meeting if someone is possibly violent, disruptive or they have to drive a long way to get there. Generally, texting is not preferred as it feels disrespectful. But if the employee only responds by text – text them that you are sending a letter.
What happens if emotions run high?
Emotions can certainly get the better of any of us when we are facing difficult things such as termination from employment. However, it is not appropriate to respond with violence or inappropriate conduct, screaming, or name calling. You should evaluate the nature and type of employee where issues are occurring and determine whether or not security is needed prior to having any discussions. You may decide to do this by phone. Do not try to keep employees in a single room or refuse to allow them to leave. You can require that employees not go into certain areas or access equipment or documentation but if they want to leave the premises let them leave.
What about workers’ compensation?
Termination or a reduction in force or a layoff does not end an employee’s right to workers’ compensation, future payments, lost wages, medical expenses and similar items. These are handled pursuant to the requirements of your state as well as your workers’ compensation policy. It is very difficult to waive a work comp claim pre-emptively.
What about when they have other questions like benefits or things like that?
The company should have a designee to answer questions that may come up with terminated employees. Typically, this would be an HR or Benefits professional(s), but it could be an alternative person. If you are the employee’s former supervisor and these questions come to you, and you are not the designated person, you need to redirect them rather than attempting to answer questions.
What do I tell other employees?
Many employees will start to text or post before they get out the door. What you say depends on the reasoning behind the termination. Be ready to respond and let co-employees know sooner rather than later. “We have been looking to improve efficiency and have made some structural changes resulting in _________.”
Bottom Line
Navigating reductions in force, layoffs, or terminations is never easy, but careful planning and a clear understanding of your legal obligations can help ensure the process is handled professionally and respectfully. By staying informed about state-specific requirements, reviewing your company’s policies in advance, and preparing clear, concise communications, you can minimize confusion and potential legal risks.
Remember to treat all employees with dignity throughout the process, provide them with the necessary information and support, and ensure that any questions about benefits or next steps are directed to the appropriate personnel.
Ultimately, a thoughtful and well-organized approach not only protects your organization but also helps maintain trust and morale among your remaining team members during times of transition.
