RIF alternatives: Reducing labor costs without employee terminations

Listen to this article

As employers prepare to carry out possible Reductions-in-Force in anticipation of a looming recession, there are many less drastic alternatives that may be worth considering.

Though a RIF can immediately achieve necessary cost-savings, it remains a relatively blunt instrument that can be difficult to reverse. In contrast, various RIF alternatives allow for more surgical and targeted cost-savings that benefit employers by retaining employees who will be needed again on the upside of the business cycle. Avoiding a group termination can also eliminate the risk of litigation, which often arises after a RIF, and minimize harm to employee morale. Employers should consider the following options when considering alternatives to a RIF:

• Spread the burden – Employers have the ability to carry out a variety of temporary wage- and benefit-related policies, which can often achieve similar cost savings to a RIF by spreading the financial burden across a broader group of employees. These short-term belt-tightening measures often take the form of a hiring freeze or pay freeze or reduction in bonuses and wages. However, there are some legal limitations to pursuing such measures, depending on the circumstances. For example, an employee’s employment contract might guarantee a certain level of pay for a defined period of time or an applicable state law might require a notice period before compensation changes can be implemented.
• Think differently about scheduling – Consider temporary reduced-work schedules or job sharing. Both measures can benefit employees and employers by accommodating a slowdown in business while continuing to keep more employees employed. If considering this alternative, you should make sure the arrangement is memorialized so both parties understand the expectations.
• Hit the pause button – A temporary pause in employment, short of termination, for either some or all employees, may be a preferable option to conducting a more permanent RIF. Under certain circumstances, a temporary shutdown or furlough might achieve the necessary cost savings without forcing an employer to completely start over by rehiring people for all terminated positions from scratch when business picks up again. Though many employers are unable to halt production or services without giving rise to significant workflow issues, those that can may find a temporary shutdown or furlough to be an attractive middle-ground solution. Employers who pursue a temporary shutdown or furlough must bear in mind that if a temporary shutdown turns into a permanent lay-off, the shutdown could trigger notice obligations under federal or state Worker Adjustment and Retraining Notification Act laws.

• Consider a voluntary early-retirement-incentive program – voluntary Early Retirement Incentive Programs, or ERIP, are often used by employers who have the financial ability to offer enhanced retirement benefits as part of an exit incentive program. From an employee-morale perspective, an ERIP is often preferable to a RIF because it places the decision of whom to terminate in the hands of eligible employees. The downside to this approach is that there may not be enough willing volunteers, a situation which could then result in employers needing to conduct a RIF anyway. Moreover, an ERIP typically ends up being heavily weighted toward those employees with the most experience. Therefore, employers who elect to pursue an ERIP should proceed with caution and take care to ensure incentives are achieving optimal cost-savings. Furthermore, to be consistent with the process of conducting a RIF, employers that pursue an ERIP must comply with notification and disclosure obligations under federal and state WARN Act laws, the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, and will want to condition receipt of the retirement incentives on signing a separation agreement that includes a comprehensive release of claims.
• Remember to check any collective-bargaining agreements – The terms of the collective-bargaining agreement may affect your ability to choose certain alternatives and cause implementation to be modified.

There are many considerations and legal implications in play when considering a RIF or alternatives to a RIF and we are happy to discuss them with you to learn if one or more of the options may fit your organization’s needs.