Laying off on the "Laying off"

Neil Lebovits

Today’s economy has really taken a toll on the workforce. Companies are conducting layoffs and reducing their headcounts, while others are using this economic situation to clean house of unwanted or mediocre performers.

Many, in fact, after performing layoffs, get right back to the hiring game. However, this time, they are hiring more talented people at a lower salary! Many other firms are afraid of the risk of hiring so soon after layoffs (both legal and morale wise) that they hold back on their layoffs and only let go the number of people necessary to meet their expense savings goals. Needless to say, many employees caught in a layoff bring up a valid question: "Can an employer hire a new employee after laying off an individual without giving the layoff-ee the option of taking the new position?"

The answer in most cases is yes. Each country has their own unique laws, of course. In fact, some are a real hoot. I traveled the globe managing various staffing businesses and found some laws to be downright shocking. So, that said, I will only speak as an expert on U.S. law.

The reality is that in the United States, we have what is called "At Will" employment. In legal terms it defines an employment relationship whereby either party can break the relationship with zero liability. Of course, this is provided that there was no express contract for a specific term governing the employment relationship and that the employer does not belong to a CBA (i.e. a Union Collective Bargaining Agreement). So, in the good old US of A, any hiring without this is presumed to be "At Will."

This means that an employer can fire someone for any reason at any time for almost any reason. They can have due cause, good cause, bad cause, silly cause or no cause! Similarly, an employee can quit for any reason and has no requirement to give notice. They can quit, strike, just stop showing up, etc. So, why is it "almost any reason"? Well, like any law in the United States, things can get complicated. Here are a few exceptions:
  • Collective bargaining agreements, as noted, will determine if this is acceptable
  • Any other formal contract that you entered into with the employee that guaranteed them certain rights
  • You cannot violate your own company policies that are outlined in your employee handbook (without risking a wrongful termination claim)
  • Federal Anti-Discrimination statutes prohibit such terminations due to race, religion, color, sex, age, national origin, handicap status, etc. (Title VII of the Civil Rights Act of 1964)
  • You can’t violate any other obvious federal statutes (Americans with Disability Act, etc.)
  • You cannot violate the Family or Medical Leave acts
  • You cannot fire an employee because he or she refused to commit an illegal act
  • You cannot retaliate against sexual harassment claims or any other protected actions (i.e. if they testified as a witness in a wrongful termination case, etc.)
So, "At Will" is a pretty great concept if you believe in free markets! The trouble with "At Will" is that many employees will simply claim that they were indeed "laid off" due to more diabolical reasons (i.e. sexism, retaliation from harassment, religion, etc). So, there is actually an informal onus on the employer to do everything that they can to make sure that there can be no claims that the reason was anything other than legal. Legally speaking, the onus is on the employee, but as you can see, you’ll want to take ownership of the issues before you conduct layoffs. So, surprisingly, you can fire someone for being too fat or too ugly or too hairy. You can fire someone because his voice got too irritating, because his jokes were bad or because you just don't like him. Of course, the risk for these types of firings is that it will raise the "ire" of the now ex-employee and they will claim that he was fired for "illegal" reasons.

So, layoffs, especially when business is down, are a great way for a company to fire people that they want to get rid of and lump them all under a "reduction in force" program. This is great because it really mitigates any claims that an employee could make. The company could show that there was no discrimination because they laid off a large percent of workers at the same time. They don't have to prove that all were the least performing of the lot, but that helps. So, long story short, they can layoff whom they wish and hire whom they wish when and how they want to, as long as they are not violating any civil rights and aren't violating any of the "protected" areas.

Now for the fine print! Do your homework first, as every state has their own exceptions and laws. These include:
  • "Implied-in-law" contracts (Good faith and fair dealing exceptions)—If you live in a state that has these, then do some extra homework. This is the largest legal departure from "At Will." If interpreted broadly, it has a "covenant of good faith and fair dealing" in every employment relationship. Some courts have interpreted this to mean that the employer decisions are subject to "Just cause" standards. Similarly, they prohibit "bad faith" terminations. There is likely case precedent for your particular situation. The states include: Alabama, Alaska, Arizona, California, Delaware, Idaho, Massachusetts, Montana, Nevada, Utah and Wyoming.
  • "Implied In fact Contracts" or ""Implied Contract Exceptions"—This occurs when an implied contract is formed between an employee and employer even if there is no express, written document that proves this. Proving this is hard still to do, and it does rest on the employee. This is really mostly an issue when the employee handbook, for example, indicates that a person will only be fired for cause. Almost 30 states have such a clause. Again, just be careful in anything that you have warranted to the employee. It has been very very hard for employees to win this.
  • "Public Policy Exceptions"—Cannot fire an employee if it violates the state’s public policy or State or Federal statute (more than 40 states have such a policy).