Labor and employment lawyers warn of a wave of wrongful-termination suits in the coming months as the jobless burn through their savings, run up debt and find few work prospects.
Labor lawyers advising firms in defensible downsizing say that employers should consider the law when identifying positions to be eliminated, including notification requirements, severance pay provisions and a "disparate impact analysis" to guard against terminating those in a protected class who might have grounds to sue.
The 20-year-old Worker Adjustment and Retraining Notification (WARN) Act requires employers to give at least 60 days' notice of plant closing that eliminate 50 or more jobs, and before mass layoffs affecting 500 employees or more than a third of the workforce.
Other instances where wrongful termination may apply would be if a company eliminated a number of employees over 40, who would have a cause of action for age discrimination. The same could apply to disproportionate dismissal of minorities or women, even if there wasn't deliberate intent to target those workers.
Companies that regularly evaluate employees and identify underperformers are best positioned to defend their decisions to lay off the laggards. Conversely, employers that haven't documented poor performance–or have given glowing reports or pay raises to workers they want to lay off–are likely to have a hard time defending those dismissals.
One indicator of the heightened concern about litigation has been the rise in policies that employers have taken out for employment practices liability insurance, said Jenny Jones, president of the independent Los Angeles insurance brokerage Elkins Jones. Her agency has seen a 32 percent increase in policies to cover defense costs in the event of wrongful-termination lawsuits.
Law firms, especially those with large real estate and mergers and acquisitions practices–areas hit especially hard by the recession– are among the businesses struggling to downsize without spurring litigation.
Analysis of the 8,000 employees Dell laid off over the last year shows that women and people over 40 were disproportionately affected, said Steve Wittels, a founding partner of the Sanford Wittels & Heisler law firm, which filed the class-action suit seeking $500 million in damages.
"What occurred at Dell was that women and older workers who had good ratings and favorable performance reviews in prior years suddenly found their reviews were being manipulated– readjusted and used as a basis for wrongfully firing them," Wittels said.
Dell executives deny the lawsuit's allegations.
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