It’s been a difficult economy for months. Dealers are resilient, and they have generally attempted to protect their employees’ jobs. Unfortunately, as market difficulties stretch on and even deepen, dealers may find that they have to cut deeper into expenses and may have to terminate some employees.
If the reduction in force results in lawsuits against the dealership, legal expenses may more than offset the savings from job cuts. A recent decision by the United States Supreme Court places the burden on the employer to justify its decisions when reducing its employment force. How does a dealer create its best litigation position when job reductions can no longer be avoided? More importantly, how does a dealer protect itself from even becoming a target of such legal actions?
Dealers faced with a downsizing can minimize the risks of litigation by creating and following a plan.
Be Candid About the Dealership’s Situation
Dealers are optimists who want to protect employee morale, even in the toughest times. This may lead dealers to regularly announce to employees that the dealership is well-financed, that it can make it through even the toughest times, and that it will protect all employees. Unfortunately, downsized dealer employees who hear this regularly may believe that they have been targeted for job termination for improper reasons.
Be straightforward with employees about the dealership’s situation, especially before job terminations take place. Let employees know that the dealership will do everything possible to avoid layoffs, but don’t give the impression that downsizing will never take place.
Determine the Scope of the Job Reductions
Job cuts in dealerships generally are not across the board. When sales go down, service often picks up. That means that jobs may be reduced in sales, F&I, and the general office, but the service and parts departments are spared.
Select the Employees Who Will be Terminated
The dealership must establish criteria for employee terminations. Those criteria must be as objective as possible.
- The worst path is to simply announce to managers that they must cut a specific percentage of the workforce they supervise without criteria. That is sure to lead employees to believe that the dealer has been unfair.
- The most common goal is to keep the best workers. If dealers are going to ask fewer employees to maintain the same level of business, they understandably want to keep the most competent workers. This is appropriate if there is an objective standard for judging employee performance. There is generally a tremendous amount of discretion involved, however, that can lead to claims of unfairness. This is especially the case where the selections are contrary to job evaluations or there have been no evaluations.
- A safer path is to keep employees based on time on the job. While this is the most objective standard, it unfortunately may leave the dealership with a less effective work force.
Assess your Liability
Because of the dilemma dealers face in planning for downsizing, it is important to look carefully at the employees whose jobs will be eliminated.
- The Company must consider the possibility of litigation from patterns that may appear from the downsizing. Review the employees who will lose their jobs to see if it appears that the company used prohibited considerations in the selection process, such as age, race, national origin, sex, disability and leave status.
- Consider the job history of those selected. Employees who may have potential job claims are reluctant to make them while working, especially in a bad economy where getting a new job may be difficult. However, if they will not be working, they may find that it is opportune to make a claim, especially if they think that they were targeted because of their unhappiness.
Before finalizing the tentative selections for termination, review them with managers who know the employees involved, and discuss them with legal counsel to see if there are any issues or traps.
Consider a Reduction in Hours
If the patterns of those who will lose their jobs don’t look good, or if those selected for downsizing appear to be potential claimants, consider whether job cuts are the only answer. Can the dealership achieve similar savings through an across-the-board reduction in hours?
Notify Employees
When the time has come to announce the dealership’s decision, provide notice to all employees regarding the job reductions and the business reasons. Give specific notice to the affected employees regarding the details of their separation. No employee welcomes his or her employment termination. An employee who understands the need for job reductions and believes that the selection process was fair is more likely to accept the necessity.
Consider Assistance
Since dealership employees are generally at will, the law does not require a dealership to provide severance packages to laid off employees. And a dealership going through difficult financial times is reluctant to spend money for those who will not be working. Nevertheless, financial assistance packages may help a dealership avoid later litigation costs. Consider the following elements:
- A severance payment, usually based on years of service;
- Payment of the employee’s medical insurance (COBRA) premiums for a period of time;
- Job placement services or job retraining assistance;
If the dealership will provide assistance to terminated employees, it should seek releases. Discretionary payments will be considered appropriate consideration to support the releases signed by employees. Any release by employees forty years of age or older must contain special terms under the federal Age Discrimination in Employment Act.
Be Aware of the WARN Act.
If you are a large dealer making a mass reduction in force, you should be aware of the Worker Adjustment and Retraining Notification Act (“WARN”).
Under the WARN Act, an employer with 100 or more employees who reduces employees by 50 or more making up at least 33% of the dealership’s active workforce, must give a WARN notice of the impending job reductions. The required notice must be given sixty days in advance of the mass layoffs to the affected workers, the state dislocated worker unit, and the appropriate unit of local government.
A dealership that closes resulting in an employment loss for 50 or more employees must also give a WARN notice.
For all purposes under the WARN Act the term “employees” does not include those who have worked less than six months in the last year or employees who work an average of less than 20 hours per week.
No one can guarantee that a dealer will avoid employment litigation in a staff reduction. However, taking the time to consider, adopt, and follow a sensible plan will help minimize the risk of litigation and will put the dealership in the best position to defend itself in any post-downsizing employment litigation.