When Employees Need to be Laid Off

April 1, 2001 Advisory
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1. What legal issues are raised when an employer lays off employees?
Depending upon the size of the employer and the number of employees
being laid off, the Worker Adjustment and Retraining Notification Act
("WARN") may be implicated. As discussed more fully below, WARN applies
only to employers with 100 or more employees. Other issues, each
discussed below, that employers need to consider are whether there will
be a severance package, when to give employees their final paycheck,
unemployment compensation forms, proper notification of employees' COBRA
rights and responsibilities, and partial terminations of qualified
plans.
2. When does WARN apply and what does it require? As a general rule,
employers with 100 or more employees need to give 60 days' advance
notice of a layoff that will result in an employment loss during any
30-day period for at least 33 percent of the employees (excluding
part-time employees) and at least 50 employees (again, excluding
part-time employees), or at least 500 full-time employees. Notice must
be given to employees or their representative, state dislocated worker
units, and local governments. The 60-day notice period may be reduced if
the layoff is caused by business circumstances that were not reasonably
foreseeable as of the time that notice would have otherwise been
required.
While WARN generally requires employers to look at a 30-day period in
determining whether the relevant thresholds for complying have been met,
the Act also provides for a 90-day "look back" period during which other
terminations may be required to be included. WARN is a relatively
complicated law and a decision as to whether it is implicated in any
particular layoff situation must be examined in light of the specific
circumstances involved.
3. Are employers required to give laid off employees severance packages?
This turns on the particular practices and promises of each employer.
There is no law that requires a Connecticut employer to provide
severance packages to laid off employees. An organization's own policies
and practices, however, may require payment. In addition, employment
contracts, whether individual or collective, may impose similar
obligations.
4. If an employer provides a severance package, should it ask for a
release in exchange?
This is an individual choice each employer must
make under the circumstances of the layoff. If an employer is giving
employees more than they are otherwise entitled to receive, they may
choose to ask for a release of liability in exchange. Releases for
employees age 40 or over must comply with the specific requirements
imposed by the Age Discrimination in Employment Act (ADEA).
5. When must laid off employees be given their final paycheck?
Connecticut employers who lay off employees must pay all wages due by
the next regular payday. If a Connecticut employer is involuntarily
discharging an employee for reasons other than a lay off, however, wages
must be paid in full not later than the next business day.
6. Do layoffs affect the employer's qualified deferred compensation
plans?
Possibly. The general rule is if 20% or more of a qualified
plan's active participants are involuntarily terminated, then the plan
is deemed to have incurred a "partial termination". The consequence of a
partial termination is that the laid-off employees become immediately
100% vested in all employer contributions accrued under the affected
qualified plans (e.g., pension, profit-sharing, ESOP and matching
contributions). Be careful, the 20% reduction can be measured, at a
court's or the IRS's discretion, over a period of years. Therefore, do
not be fooled into believing that the company's pension plan is safe
from a partial termination if only 10% of the active participants are
laid-off at any one time. If there were prior layoffs, or if subsequent
layoffs are anticipated, those layoffs will most likely be aggregated
together for purposes of the 20% partial termination test.
7. What else do employers need to consider? Employers must provide
employees with completed unemployment compensation forms and should be
certain to comply with all relevant insurance continuation laws, most
typically the federal COBRA requirements. In addition, employers should
be certain to follow any internal policies and procedures that apply.