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Your Legal Corner - Client Alert Blog

Avoiding Liability When Downsizing Your Business

Written By: Melissa C. Marsh, Esq., California Attorney, February 2009 Add to Favorites
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.

Tags: lay offs, termination, warn act
Posted In: Business Law Bulletin  Employment Law News 

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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.