Laying Off Employees: Legal & Personal Concerns

For small business owners, the decision to lay off an employee is never an easy one. But when the time comes to implement layoffs, you need to consider both legal and personal issues in order to handle this sensitive matter in the best way.

Legal Issues

Laying off a worker who is in a protected class (typically defined based on age, sex, race, or nationality) can be grounds for a discrimination lawsuit later on. For instance, if you lay off five workers over age 50 but keep all your younger employees on staff, those older employees may suspect that they are being forced out to cut the cost of their higher wages or health insurance coverage. To protect your business from lawsuits, you must have a justifiable business reason for laying off workers based on their job duties, not on their characteristics as individuals.

Federal laws regarding protected classes of workers affect businesses with 15 or more employees. State laws vary and sometimes affect companies with fewer than 15 employees. The Department of Labor website has more information about protected classes.

If your business has 100 or more employees, you may also be covered by the federal Worker Adjustment and Retraining Notification Act, which requires you to give workers 60 days’ advance notice of business closings or mass layoffs.

Because of the legal issues surrounding layoffs, it’s wise to work with an attorney to ensure that your layoff process protects you against the risk of legal action and that you have all the necessary documentation in place.

Some of the elements you and your attorney should consider when developing a layoff policy include:

  • Severance packages (typically based on a person’s role in the company and length of employment)
  • Payment for unused vacation days
  • Continuing health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act
  • Any outplacement assistance you will offer to help laid-off employees find new jobs
  • What type of recommendations you will provide to future employers

Personal Issues

When laying off employees, it’s important to be sensitive to their feelings. Always deliver news of a layoff in person, and speak with employees individually rather than announcing layoffs to an entire group. Be sympathetic, but also be careful not to make any statements that could be used against you later. Stick to the facts at hand.

Be prepared for questions the person may have, and be sure to have all documentation ready to ease the process. You may wish to have a second person, such as your human resources manager or attorney, present during layoffs if you feel that employees may become unduly upset.

Communicating with your remaining employees is an important step in layoffs. Rumors will spread fast in the wake of layoffs, so be sure you give the rest of your staffers the facts about the layoffs as soon as you can. Be available to answer questions and ease concerns in the weeks after the layoffs.