I say 'layoff'… you say 'lawsuit'

by Paul Edwards

If there is a common truth to having employees, it is that terminations are never fun. Not only do emotions generally run high and cover the gamut from anger to guilt to relief to fear, but they are also fraught with risk.

During the last 20 years, wrongful termination lawsuits have risen 260%, and the median employer payout to settle an employee lawsuit in 2009 was $326,640. There are not many employers, small or large, that I know who can lightly afford this.

From the desire to avoid the sting of terminations comes the frequent HR question: "Can't I just call it a layoff?"

The intention of calling a termination a "layoff" is usually to avoid having to confront the employee with the actual reasons for the termination, most often related to poor performance or attitude. Others think that calling it a layoff can help avoid liability for a risky termination where the employee is in a protected class (e.g., pregnant, disabled, minority, etc.), or if they have failed to document the performance problems as they were occurring.

However, it is a BAD IDEA to hide behind the words "layoff" when you are actually terminating an employee for poor performance or unprofessional conduct.

A layoff means that you have decided for a business reason to reorganize, usually due to lack of work or because of unforeseen financial circumstances, and that an employee or a number of employees must be cut from the workforce either temporarily or permanently. In most businesses, this means that several people will be cut at one time, or a few at a time during the course of a few months.

Where layoffs differ from regular terminations lies in this: as you let employees go, you are not hiring anyone to replace them. Why? Because when you laid them off, you essentially eliminated their position.

Don't set a trap for yourself by calling a disciplinary termination a "layoff," especially if you plan to turn around and hire someone else within three to six months. If you do, the former employee could make the case against you that the layoff was in fact just a pretext, and the real reason he or she was fired was because of age, pregnancy, race, views on religion, sex, etc.

And guess what? Because you did not document the real reason as performance-related, arguing those things now makes you look like the liar, even though your reasons were legitimate.

By calling a termination a "layoff" when it's not, you essentially lose the advantage of being able to show, in writing, the legitimate reasons for your decision and invoke them in your defense. Instead of being able to refute false and meritless accusations of discrimination or retaliation with a history of progressive corrective discipline, you are left with your word against theirs, and your credibility is lacking because you already fudged about it being a work-reduction scenario.

Guess which way the judge will lean?

The good news about having to do a layoff is that, unless you have 100 or more employees, there is no law that says private employers must base layoff decisions on seniority. It is up to the discretion of the business to decide who to lay off and the reasons why. This means you may consider past performance and production in determining who to let go.

However, if you do use a layoff, be sure to properly document the disciplinary reasons, as well as any other business reasons that come into play. (Call our office at 866-414-6056 for guidance on what kind of documentation you need.)

Laying someone off does not prevent a discrimination claim, so you still need to be conscientious about making your decisions fair, nondiscriminatory, and wholly business related. If the layoff has a disparate impact on employees within a certain protected group (workers over age 40, those on leave, etc.), you may need to reexamine your selections.

Remember: honesty is always the best policy. Don't call a termination a layoff.

References available upon request from author.

Paul Edwards is the CEO of CEDR Solutions and author of the blog, HR Basecamp. Since 2006, CEDR has been the nation's leading provider of customized employee handbooks and HR solutions, helping dentists successfully handle employee issues and safely navigate the complex employment law landscape. Call (866) 414-6056 or send an email to [email protected].