When economic downturns lead to layoffs, companies can expect former employees to be bitter—and maybe even angry enough to look for reasons to sue. People who would never have thought about filing a discrimination lawsuit suddenly find themselves with an incentive. They may suddenly remember any number of slights they have suffered in their last years at the company.
Don’t let one of these lawsuits catch you by surprise. Before you announce layoffs, document the internal business evaluations that led to the terminations—and make sure they measure up in dollars and cents. That way, you will be ready if a lawsuit seemingly comes out of nowhere.
Recent case: Kathryn Jordan worked for Bates Advertising as a senior vice president and commanded a $125,000 salary—one of the highest for someone at her level. When the agency merged with another and one of Jordan’s clients threatened to go elsewhere, the new organization considered whom to layoff. It analyzed its finances and cut people at Jordan’s level and even above.
After she was fired, Jordan remembered that during her initial interview, one of the executives (who would later become her supervisor) had asked her about the cane she uses. Although Jordan has multiple sclerosis, she said she had recently had a ski accident. She never told anyone at the company she had a disability and never complained when the executive vice president called her a “cripple.”
At trial, the company explained its financial problems and said it discharged Jordan because she was highly paid and was losing a client. Even so, the jury awarded her more than $2 million in damages.
The company appealed the jury’s decision, claiming Jordan never contradicted its legitimate discharge reason. Now the appellate division of the Supreme Court of New York has reversed the jury’s award. It found that Jordan failed to rebut the company’s legitimate reason. (Jordan v. Bates Advertising, et al., No. 2132, Supreme Court of New York, Appellate Division, 2007)
Prepare layoff rationale before handing out the pink slips
Sometimes, an employer needs to downsize its workforce. Maybe economic conditions dictate cutting payroll and asking fewer employees to do more with fewer resources. Or perhaps reorganizing the workforce will result in savings.
Whatever the reason, document why you need to cut staff before you announce the layoffs. You don’t necessarily owe every affected employee an explanation—in advance—of why his or her job is being eliminated. But you will need a clear, coherent and rational explanation later if one of the employees sues.
Recent case: Debra Sarpy and Linda Robinson, who are both black, worked for the town of Homer. Sarpy was the town treasurer and Robinson was the mayor’s administrative assistant. Then a white male was elected mayor of Homer. Shortly after the new mayor took office, an independent accountant said the previous administration had mismanaged funds and Homer was in financial trouble.
The mayor recommended several cost-cutting measures, including a reduction in the town’s workforce. The town’s governing board approved the layoffs. Of Homer’s 30 employees (five white and 25 black), eight lost their jobs, including Sarpy and Robinson. Only one white employee was laid off.
Sarpy and Robinson sued, alleging they were targeted for termination due to their race and sex.
But the 5th Circuit Court of Appeals said they had no case, even though it was clear that the town had laid off more black employees than white employees.
The court said that neither Sarpy nor Robinson had come up with any proof to counter the town’s assertion that money, not race or sex, was the motivating factor for the layoffs. (Sarpy & Robinson v. Town of Homer, et al., No. 07-30904, 5th Cir., 2008)
Final note: Be sure the documents that spell out your layoff rationale bear a date stamp.
