With the economy in a spiral, businesses both large and small are faced with the unpleasant task of implementing layoffs. For large businesses, they must comply with the Worker Adjustment and Retraining Notification Act (WARN Act). Most small businesses, while exempt from the WARN Act, are barely staying afloat in a sea of potentially endless liabilities where the mere threat of a wrongful termination claim inches the company ever closer to having to declare bankruptcy. All business facing the potential of layoffs should familiarize themselves with: (1) the WARN Act, and (2) the federal and state anti-discrimination laws, particularly age discrimination laws. The WARN Act. The WARN Act requires any company that employs a total of 100 or more full time employees (regardless of location) to provide 60 days advance written notice to its employees if a “plant closing” or “mass layoff” will affect 50 or more employees. Pursuant to the Warn Act, a “plant closing” is defined as a temporary or permanent shut down of any single facility, or employment site. Employers who fail to meet the advanced notice requirements can be held liable to aggrieved employees for up to 60 days of back pay and loss of benefits. State and Federal Anti-Discrimination Laws. If your business is facing the possibility of downsizing its workforce, you must be careful to do so in compliance with the Age Discrimination in Employment Act (ADEA), which prohibits age discrimination in employment and protects employees age 40 and older. When downsizing, employers typically seek to reduce their costs and expenses as much as possible and that generally means trying to lay off, or force the retirement of, the highest paid employees. Since workers age 40 and above are likely to earn higher wages, such a plan may run afoul of the ADEA. In Smith v. City of Jackson, 544 U.S. 228 (2005), the U.S. Supreme Court held that older workers may recover damages in an age discrimination claim under the ADEA if the older employees can prove that a non-discriminatory employment decision had an adverse disparate impact on older employees. Consider Providing a Severance Pay Agreement In Exchange For A Release of Claims.

When drafted properly, a severance pay agreement containing a release of claims can significantly reduce the risk of employment related lawsuits. Typically, a severance pay agreement will require the employee to release the employer from all non-waiveable state and federal claims, whether known or unknown, (including but not limited to claims of discrimination, harassment, wrongful termination, breach of contract, privacy violations, defamation, and intentional infliction of emotional distress). An employee’s waiver of a federal claim of age discrimination, however, is NOT valid, unless: 1) the release specifically mentions the ADEA, 2) the release is written in clear understandable language; 3) the employee is advised to see an attorney before signing the agreement, 4) the employee is given a full 21 days to consider the release (45 days if a group of employees are being laid off), and 5) the employee is given a 7 day “cooling off” period during which the employee can change his or her mind after signing the release.

An employee may also be required to waive “unknown” potential claims against the employer, which will be valid as long as the employer has properly inserted the language required under California Civil Code 1542 into the release.

In addition to providing the employer with a release of claims, a severance pay agreement can also require the employee to maintain the company’s confidential information, and can prohibit the employee from disclosing the terms of the severance pay package and disparaging the employer.