In a merger, acquisition, or takeover, reductions may be required immediately after the announcement of the transaction, or they may be required after work is transitioned from a department. In either case, you should prepare for the following necessary actions:
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Review Department Functions and Determine Staffing Requirements
This requires an evaluation of major tasks performed within a department and the labor hours required to accomplish those tasks. The due diligence review of all departments should have provided historical data from the organization to facilitate the staffing decisions, whether those are based on transaction numbers, dollar volumes, number of accounts, number of employees, or other quantitative factors. In this process, it is important to consider the tasks, not the individuals assigned to the tasks. The end result should produce the staffing projections for the combined organization.
When calculating staffing projections, it may be helpful to use required work standards and management ratios.
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Identify Individuals Who Will Be Reduced
In some cases, an entire department will be closed and there is little selecting or deselecting to do. Perhaps one or two members of the management team or the most experienced and knowledgeable team members would be asked to join the acquiring company.
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If, because of geographic location, it is possible to transfer a large number of the sending employees to the receiving department, it may be necessary to go through a selection process. We recommend selecting individuals based first on position function, second on performance, and third on tenure (assuming a non-union environment). When reviewing performance, you should consider the most recent and prior performance evaluations as well as any documented performance problems that have occurred over the prior year. If there is no previous documentation of performance, each employee should be rated on current performance factors.
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Review for Adverse Impact
When individuals have been identified for separation, human resources should review the selected candidates along with the retained employees for adverse impact. This is to prevent the occurrence of a discriminatory trend against any group based on age, sex, race, color, national origin, or religion.
The EEOC provides a guideline of four-fifths, or 80%, to determine adverse impact; that is, a selection rate for any race, sex, or ethic group that is less than four-fifths of the group with the highest rate of selection may be considered evidence of adverse impact. This is not necessarily binding in courts, and the size of the workforce and the size of the protected classes can greatly challenge the statistical calculation, but this is offered as a rule of thumb. We recommend you engage legal counsel when finalizing any lists for separation actions.
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Determine If the WARN Act Applies
The WARN Act requires employers with 100 or more workers to provide at least 60 days notice of a plant closing or mass layoff to affected workers or their representatives, state-dislocated worker units, and the appropriate local government. A reduction in force is considered a mass layoff when a company terminates 50 employees who represent 33% of the workforce at a specific location. The layoffs considered in this calculation roll back to include reductions conducted within the previous 90 days at that location. Therefore, you must be aware of any layoffs that have already occurred within the sending as well as the receiving company.
Note: In situations where the WARN requirements are in play and an employee chooses to leave during the 60-day notice period, no severance would be paid.
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Determine Level of Severance Pay and Outplacement, If Any
Severance pay and outplacement may not legally be required, but there may be a written company policy that dictates such practices during reductions in force. Certainly, being consistent with prior actions is important, but there are two other reasons to consider such benefits to employees affected by a reduction. One is to soften the financial and emotional blow for separated employees. The other is to soften the emotional blow to retained employees. Although they do have jobs, their coworkers and good friends may be affected, so the company’s treatment of those individuals does impact the morale of retained workers.
The questions to pose are “What has been the past practice?” and “What can we afford?” balanced with “What impact are we having on the community?” and “What opportunities exist for expedient reemployment for the separated workers?” In other words, the local labor market and the skill level of the workers may play a role in the decision. If unemployment is low and skill levels are high, the pressure to provide severance and outplacement is certainly relieved, compared to a situation with high unemployment and low skill levels.
There can also be enhancements built into a basic plan to encourage certain outcomes—for example, release agreements and executive noncompete considerations.
For outplacement options, you may want to consider those companies that provide services ranging from resume preparation to full executive outplacement packages including career counseling, job search, talent assessment, office facilities, and clerical assistance. Also, check with the local unemployment office to see what services are offered to help employees prepare for a job search. These types of activities help dislocated workers focus on the future and work through the process of dealing with job loss.
One additional consideration regarding the severance package is whether any customary employment benefits will be extended. For example, will medical coverage be continued through the period of severance? Some employers choose to stop all benefits as of the last day of active employment, with COBRA options in effect immediately. In other situations, some benefits may remain in place during the severance period. If COBRA options are in effect, the employers may elect to continue to pay the company contribution portion during severance. Several factors may be considered here. You should contact the insurance providers to determine what limitations your carriers may have; plus you may want to contact your state unemployment office as this can impact unemployment eligibility dates that vary by state.
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