Human Resources in a Slowing Economy:
Smart Alternatives to Layoffs
Valerie J. Menager, Esq.
Carr, McClellan, Ingersoll, Thompson & Horn,
a Professional Law Corporation
Following presentation is for general information purposes only,
and is not to be relied upon for any specific case.
HR Tools to Control Labor Costs
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Temporary Shutdowns
Reducing Salary & Hours
Reducing Benefits
Temporary Leaves/ Outsourcing of
Employees
• Plan Ahead for Reduction in Force Events
• Your ideas
Advantages of Alternatives to RIF
• Avoid severance pay
• Minimize exposure from lawsuits from terminated
employees
• Minimize increases in your unemployment insurance
rate
• Reduce increase in disability leaves and workers
compensation claims
• Keep your Company agile to respond to increase
demands
• Control eventual recruitment and training costs
• Improve Employee morale!
Temporary Shutdowns
Important planning considerations:
Who will be impacted?
Dual analysis: exempt or non-exempt?
Are you going to require the use of
vacation pay during the temporary
shutdown?
Temporary shutdowns in excess of 2
weeks may be considered terminations!
Who will be Impacted?
• Will the shutdown be Company-wide or
will certain job functions not be eligible to
be included in the shutdown?
• Are there certain job functions where you’ll
need only a skeleton staff?
• Analyze these decisions like you would a
RIF selection process to avoid the
statistical appearance of illegal
discrimination.
Exempt vs. Non-Exempt
• Partial week shutdowns are OK for
employees classified as non-exempt but
not for exempt employees
• Make sure that shut-downs for exempt
employees are for an entire “work week”
• The definition of your company’s work
week is very important
Can Vacation Use Be Mandated
during a Temporary Shutdown?
• Vacation can not be forfeited under
California law
• DLSE requires 90 day notice of mandated
change in vacation usage
• Now is the time to incorporate into your
vacation policy that the Company reserves
the right to cash out accrued vacation
time.
Reducing Pay &
Reducing Work Hours
• Important considerations:
– Who?
– How much?
– Do not simultaneously reduce pay and hours
for exempt employees
– Minimum wage requirements
– Minimum hour requirements for benefits
– At will employees, employment contracts,
collective bargaining agreements
Reducing Pay
• Only reduce pay & hours prospectively, never
retrospectively
• Never reduce the salary of a non-exempt below
the minimum wage under local, state or federal
law
• In California, never reduce the salary of an
exempt employee below a weekly rate of twice
the minimum wage
• Reducing employees wages more than 50% can
trigger Cal-WARN or WARN for employers of
more than 75 employees
Reducing Hours
• Reducing work hours can impact eligibility
for benefits: health care insurance,
401(k), stock option plans, etc.
• Always review the minimum hour
requirements for benefits to determine
whether employees will lose benefits or
have a qualifying event under COBRA,
Cal-COBRA
Reducing Pay & Hours for NonExempt Employees
• Review non-exempt pay policies to determine
how a reduction in hours impacts show-up
premiums, split shift premiums and use of
vacation/pto for partial days off
• Non-exempt employees who have their wages
and hours reduced by 10% or more may be
eligible for partial supplemental pay through
EDD Work Sharing program
• Reducing pay is a good step if a RIF is inevitable
because it will have the impact of reducing the
pay out of accrued vacation at termination
Exempt Employees
• Exempt employees can have their salaries
reduced, but if you simultaneously reduce
their work hours you will be treating them
like they are non-exempt employees
entitling them to overtime premiums
• Keep exempt employees’ scheduled work
hours the same when reducing their salary
Temporary Leave of
Absence/Charitable Outsourcing
• Paid leave of absence at a percentage of
usual salary to retain uniquely talented
workforce
• Some companies are lending their
employees to non-profits making a cost
saving measure appear to be a benefit to
some employees!
Reducing Benefits
• Review your handbook and benefit plans
to make sure that they provide for
employer discretion in modifying, reducing
or discontinuing benefits
• Always change benefits prospectively and
give advance notice of intended changes
• Changes to vacation policies requires 90
day notice
Temporary Leave of Absence
Important Considerations:
-Impact on benefits:
stock option (ISO v. NSO) vesting?
COBRA or Cal-COBRA may be triggered?
vacation payout may be triggered?
Promises, Promises
• Be careful about promises to employees
about pay after salary reduction or
personal leave ends
• Claims for earned wages
• Possible tax implications for deferred
compensation
Advance Planning for RIF is
Crucial!
• Always plan workforce needs at least 1 quarter in
advance
• WARN and Cal-WARN 60 day notice requirements
• Public companies may be required to file notice with
SEC due to RIF being a material event
• Failure to pay all accrued wages will result in fines
• Severance pay program may be subject to ERISA
• Running out of revenues to pay earned wages, payroll
taxes and benefit contribution and administration can
lead to personal liability for officers, directors and
investors.
• Sufficient time to have proposed lay off reviewed for
appearance of statistical discrimination
Q&A
• Questions on presentations
• Your ideas on cost savings are welcome!