Explaining to an employee that he's being laid off for business reasons is difficult enough; however, when you lay off an employee based on poor performance, you're treading territory that can eventually land your company in hot water. To protect your company from potential lawsuits and claims for wrongful termination, develop a formula for reviewing employee performance before identifying employees for performance-based dismissal.
Conduct an extensive review the performance records for your entire workforce. This should include all materials related to employee performance, not just the annual performance appraisals. Attendance records, work logs, disciplinary and corrective action forms, notes on informal feedback and formal appraisal documents. Construct a checklist for assessing work performance if your work environment is production-oriented or otherwise conducive to a truly objective assessment of work performance.
List the employees whose performance falls below the company’s expectations. Use the same performance standards for all employees to ensure fair application of the standards. Analyze the list of employees with poor performance for disparate impact related to identifying them for layoffs. For example, if workers over 40 years old make up the majority of your list, reconsider your layoff based on performance. There may be a possibility that older workers don’t have skill sets similar to those of younger employees.
Schedule individual meetings with employees identified for layoffs. Explain the basis on which your layoff decisions were made. Review their file materials page by page and point out specific instances where they were given the opportunity to improve performance but didn’t.
Provide a severance package for employees who are being laid off indefinitely. Follow guidelines for protection from laws such as Age Discrimination in Employment Act and the Older Workers Benefit Protection Act. The U.S. Equal Employment Opportunity Commission provides guidance to employers constructing severance agreements, and specifically for workers over 40 years old. The guidelines include providing laid-off workers with sufficient time to contemplate signing the agreement and waiver of claims related to wrongful termination.
- Consider laying off employees based on a combination of factors instead of solely job performance. For instance, look at seniority-based criteria to ensure that you retain employees who have deep knowledge of company processes. Alternatively, consider implementing an early retirement package to solicit volunteers who may want to leave the workforce.
- Always consult legal counsel for guidance on performance-based layoffs. While they seem relatively harmless and beneficial in that the company retains what it believes are high-performing employees, performance-based layoffs can expose your company to unnecessary liability for wrongful termination.
- Thompson Hine; Managing Reductions in Force Can Benefit the Employer and the Employee; January 2003
- State of Washington Department of Personnel; Considering Performance in Layoff; October 2008
- U.S. Equal Employment Opportunity Commission; Understanding Waivers of Discrimination Claims in Employee Severance Agreements; July 2009