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Layoffs without lawsuits

Facing an increasingly litigious environment, companies are taking extra steps to protect themselves from legal action resulting from layoffs and disputes.

They are crafting more severance packages with provisions prohibiting litigation, consulting with attorneys before conducting layoffs, providing outplacement and, in general, doing what they can to reduce the risk of being sued at a time when litigation has been soaring (see sidebar).

“It used to be long ago we wouldn’t hear from an employer until they were sued. Then they’d come to us and we’d handle the lawsuit,” said Jim O’Brien, a partner at Nixon Peabody, in Jericho. “Employers are coming to us more and more in advance of litigation.”

A robust human resources department can help a company stay current on employment rules, such as those related to overtime. But that matters even more amid layoffs, when any improper procedure can end up on an attorney’s desk.

“There’s no substitute for good human resources areas,” said Marc Wenger, a partner in the Melville office of Jackson Lewis. “You should invest the time to examine your policies and make sure they’re effective and appropriate and that you’re doing what you can to minimize your risk.”

But Wenger said the problem in a down economy is that some firms cut human resources staff at the very time when they’re needed most to advise on layoffs and other issues that may surface.

“It’s a hard fact that an ounce of prevention is worth a pound of cure,” Wenger said. “Human resources departments are really being strained these days. They’re being asked to do more.”

Attorneys advise that policies for discipline and termination can aid an overtaxed HR department.

Jonathan Farrell, a partner at Meltzer, Lippe, Goldstein & Breitstone, in Mineola, said companies need to “document and discipline” and provide opportunities for workers to make improvements, especially if they fire due to performance as they cut staff.

“People tend to react differently when they feel they’ve been given a fair shake,” Farrell said. “I believe people react differently when they’ve been counseled.”

Firms also can reduce their exposure to litigation by providing benefits as workers exit. John Bennett, chief financial officer of Shirley-based medical equipment maker Biodex Medical Systems, for instance, said the desire to reduce the risk of litigation did “come into play” in decisions regarding benefits for workers laid off in April.

“We see companies being sued all the time,” Bennett said.

Biodex Medical Systems, which didn’t face litigation over layoffs, provided pensions, paid health insurance for a month and offered outplacement services.

Farrell said more firms are providing severance packages in return for promises to “hold the company harmless” and not litigate.

“I’ve written a lot of severance agreements,” said Farrell, adding he’s been preparing several weekly. “Employers like to do severance. It eliminates the possibility of litigation. The quid pro quo for the severance is the release of any or all claims.”

But Farrell said improperly worded severance agreements won’t protect companies. Firms with 20 or more employees that lay off two or more employees simultaneously must give workers age 40 or older 45 days to consider severance agreements. “If you don’t do that, the release is invalid,” Farrell said.

Companies must take special care with layoffs of older employees, more likely to be targeted in work-force cuts, since they often have higher salaries.

And companies need to make sure that workers are classified properly with regard to overtime, where regulations changed in recent years.

“If there’s a layoff, count on some [employees] consulting with attorneys who are likely to ask about compensation practices,” Wenger said. “If you haven’t taken a look at your classifications for overtime pay, you’re running a risk.”

Firms also run risks of facing defamation suits if they say something negative when asked to recommend former employees. In response, more companies are refusing to provide verbal recommendations.

“It’s definitely a trend,” O’Brien said. “They want to avoid any possibility of getting hauled into court for a defamation claim.”

In the end, though, the way a firm treats exiting employees also can be a major factor in whether they’re likely to litigate.

“It’s important when somebody is let go to treat them with dignity,” O’Brien said. “This is sometimes overlooked with companies. To have personal meetings with employees who are leaving.”

He said some companies, worried about security, hastily escort employees out the door only to find they soon end up on an attorney’s doorstep.

“In most complaints I receive, there is some description of how they were treated on the last day of their work,” O’Brien said. “People who are told to clear out and are escorted out by security without being able to pack their things and say goodbye are more likely to sue.”

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