By Melissa Lafsky

The economic storm of the past year has left many, if not most, of America’s businesses struggling to stay afloat. As budgets tighten and upper-tier management scrambles to cut costs, one of the first and largest measures companies are taking is layoffs, sometimes on a massive scale. Given that the economic bust follows on the head of such a long boom, many businesses have rarely, or never, dealt with widespread layoffs. As a result, plenty of executives are relatively inexperienced with the legal ramifications of terminating employees. The problem is compounded by a bleak job market that is leaving record numbers of ex-employees unemployed and potentially litigious. The results can spell years of expensive legal hassles for companies. As such, the need is greater than ever for legal experts and their clients to ensure that businesses perform layoffs in the fairest, most compliant way possible.

One of the most crucial tasks falling on human resource departments and managers is compliance with federal laws such as the Workers Adjustment and Retraining Notification Act (WARN), Family and Medical Leave Act (FMLA), the Older Worker's Benefit Protection Act (OWBPA), and the Consolidated Omnibus Budget Reconciliation Act (COBRA). Determining a legitimate and non-discriminatory business criteria for each termination is also a must; state and federal protections such as the Age Discrimination in Employment Act (ADEA) and Title VII offer ample means for ex-employees to sue.

As a result, the demand is increasing for employment attorneys with in-depth knowledge of both federal and state law, particularly in states like California where laws regarding employee termination can be lengthy and unique. “The biggest question most clients are asking is ‘How are we going to do layoffs?’” said Bonnie Burk, a staffing consultant for Lumen Legal and the director of the Platinum Partners program. “Companies are looking for cost-effective ways to deal with the fallout, and make sure all their ‘I’s are dotted and ‘T’s are crossed.”
 
In addition to compliance with the law, businesses must also treat laid off employees with dignity while reassuring remaining employees that their jobs are safe. Some companies, usually under the guidance of counsel, are wisely employing statisticians to conduct analyses to determine whether the planned layoffs will have an overly adverse effect on the remaining workforce, as well as a disproportionate effect on certain groups, such as minority employees.

Other tasks that may be necessary for outside counsel include reviewing existing employment contracts to determine compliance, making decisions regarding severance packages, and delegating contact people and outplacement services to provide assistance to laid-off workers. “Just because you’re going to lay off all these people, you don’t want to have a disparate impact on the people who leave, or those who stay,” said Burk. “Companies don’t want to leave people humiliated. They want to do it the right way, and they are looking for assistance in getting it over with.”

One of the best ways companies can ensure compliance and reduce the risk of lawsuits is to proactively solicit help from experts before the ax starts to swing. And some companies are starting to do just that, according to Burk: “Right now, I have several job orders from large, nationwide clients who are in the manufacturing sector. They’re looking for attorneys with employment law experience in specific states, who can come in and guide them through the layoff process as far as notice, COBRA, and anything else that would follow.”

Unfortunately, the bulk of employers have a tendency towards damage control, rather than pro-activity. “In my experience, employers aren’t typically proactive about seeking advice,” said Burk. “And so, many times they make rash decisions, and then look to lawyers to clean up the mess.”

The tidal wave of corporate bankruptcies has produced at least one side benefit for many in-house lawyers: The dissolution creates a window of opportunity for them to gain experience in aspects of bankruptcy and employment law that are now in high demand. “A good 99.9 percent of the candidates I interview for placement [as contract attorneys] come from an in-house background,” Burk says. “Many of them worked for companies that went bankrupt, so they gained plenty of experience in winding down a company—dealing with 401Ks and selling off assets, etc.” Of course, such experience comes at a price: “The only problem is, they worked themselves out of a job.”

Of course, law firms themselves are also taking a major hit in profits, and somewhat ironically can be saddled with their own legal difficulties in performing layoffs. “Law firms…make particularly attractive targets for lawsuits,” Philip M. Berkowitz, chairman of the international employment law practice team at Nixon Peabody, wrote in the New York Law Journal.  “This is not only for the obvious reasons—the potential back-pay and front-pay recovery for highly paid, dismissed attorneys is high; law firms are not interested in washing their laundry in public…[but also] because partners may forget the obvious, namely, that firms are big businesses, subject to the same anti-discrimination and other employment laws as other large, multimillion dollar companies.”

As such, law firms often neglect to retain outside counsel to guide and advise management through the layoffs process, increasing the likelihood that a lawsuit will result. Some firms, ranging from small local firms to prominent white shoe giants, are already feeling the brunt of their decisions, as laid-off associates turn around and sue. Perhaps some of them will now turn to outside counsel to help clean up the mess.