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RIF alternatives: Reducing labor costs without employee terminations

July 11, 2022

As employers prepare to implement possible Reductions-in-Force (RIF) in anticipation of a looming recession, there are many less drastic alternatives that may be worth considering. While a RIF can immediately achieve necessary cost-savings, it remains a relatively blunt instrument that can be difficult to reverse. In contrast, various RIF alternatives allow for more surgical and targeted cost-savings that benefit employers by retaining employees who will be needed again on the upside of the business cycle. Avoiding a group termination can also eliminate the risk of litigation, which often arises after a RIF, and minimize the negative impact to employee morale. Employers should consider the following options when considering alternatives to a RIF:

  • Spread the burden – Employers have the ability to implement a variety of temporary wage and benefit related policies, which can often achieve similar cost savings to a RIF by spreading financial burden across a broader group of employees. These short-term belt-tightening measures  often take the form of a hiring freeze or pay freeze or reduction in bonuses/wages. However, there are some legal limitations to pursuing such measures, depending on the circumstances. For example, an employee’s employment contract may guarantee a certain level of pay for a defined period of time or an applicable state law might require a notice period before compensation changes can be implemented.
  • Get creative with scheduling – Consider temporary reduced work schedules or job sharing.  Both measures can benefit the employee and employer by accommodating a slowdown in business while continuing to keep more employees employed. If considering this alternative, the arrangement should be memorialized so both parties understand the expectations.
  • Hit the pause button – A temporary pause in employment, short of termination, for either some or all employees, may be a preferable option to conducting a more permanent RIF. Under certain circumstances, a temporary shutdown/furlough may achieve the necessary cost savings without forcing an employer to completely start over by rehiring all terminated positions from scratch when business picks up again. While many employers are unable to halt production or services without creating significant workflow issues, those that can may find a temporary shutdown/furlough to be an attractive middle-ground solution. Employers who pursue a temporary shutdown/furlough must bear in mind that if the temporary shutdown turns into a permanent lay-off, the shutdown could trigger notice obligations under federal or state Worker Adjustment and Retraining Notification (WARN) Act laws.
  • Consider a voluntary early retirement incentive program – voluntary Early Retirement Incentive Programs (ERIP) are often used by employers who have the financial ability to offer enhanced retirement benefits as part of an exit incentive program. From an employee morale perspective, an ERIP is often preferable to a RIF because it places the decision of who to terminate in the hands of eligible employees. The downside to this approach is that there may not be enough willing volunteers, which could then result in the employer needing to conduct a RIF anyway. Moreover, an ERIP typically ends up being heavily weighted toward those employees with the most experience.  Therefore, employers who elect to pursue an ERIP should proceed with caution and carefully target the incentives to achieve the optimal cost-savings. Furthermore, consistent with the process of conducting a RIF, employers that pursue an ERIP must comply with notification and disclosure obligations under federal and state WARN Act laws, the Age Discrimination in Employment Act (ADEA), and the Older Workers Benefit Protection Act (OWBPA) and will want to condition receipt of the retirement incentives on signing a separation agreement that includes a comprehensive release of claims.
  • Remember to check any collective bargaining agreements – The terms of the collective bargaining agreement may impact your ability to choose certain alternatives and/or cause implementation to be modified.         

There are many considerations and legal implications in play when considering a RIF or alternatives to a RIF and we are happy to discuss them with you to determine if one or more of the options may fit your organization’s needs. 

For more information on this topic, or to learn how Godfrey & Kahn can help, contact a member of our Labor, Employment & Immigration Law Practice Group.

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