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Employee-exit strategies can be challenging even in the most ideal circumstances. COVID-19 introduced additional complexities that legal, financial, and data protection experts adapted to – from how a layoff might impact PPP loan forgiveness, to internal and external data threats, to legal and practical considerations when managing remote employees.

On October 6, 2020, Pathway Forensics’ Noel Kersh, Managing Principal, and Mike Trpkosh, Director of Cybersecurity, joined Briggs & Veselka colleague Kevin Stewart, Advisory Principal and Client Accounting Services Practice Lead and RMWBH Law experts for an in-depth webinar on employee-exit best practices.

Note: The information contained in this video and transcription is not legal advice, but rather general information for educational purposes, and will not establish an attorney-client relationship. Please consult with an attorney of your choosing before entering into any contract.

Key Takeaways:

  • Seniority is by far the best metric to use when doing layoffs or reductions in workforce because it’s really cut and dry and generally avoids discrimination claims – e.g., race, religion, sex, national origin, disability, age, etc. Using the seniority metric means you tend to keep older employees, so the more recent employees end up getting laid off first.
  • When using performance as a layoff metric, remember that a lot of people like to be very complimentary and non-confrontational during annual performance reviews. Consider if these evaluations are accurate or should you use a special kind of rating system or special criteria, like can this employee do multiple kinds of jobs, do they have skills that translate to roles that would have to be filled post-layoff.
  • The intent of the Payroll Protection Plan (PPP) Loan was to keep people employed during the COVID-19 pandemic. To ensure businesses are using the money the way it’s intended, there are strings attached to the loan: if you don’t spend correctly, if you don’t maintain employment at certain levels, and if you don’t maintain pay at certain levels, then the SBA and the government will reduce the amount of that loan that could potentially be forgiven.
  • There are exceptions and safe harbors, but all of it comes down to math and timing. If you document that an employee left the company of their own accord or if an employee was let go due to justifiable cause, you can include those in your calculations. And be sure to consider the timing of your loan forgiveness application in case you’re able to rehire your furloughed employees before the application is submitted.
  • Digital forensics is a discipline that’s dedicated to the collection of digital evidence for judicial purposes, and there are rules of evidence that are required by courts to be followed in order for evidence to be admitted into court. It can help with matters such as computer use violations, harassment/discrimination, internal data breaches, and preservation of evidence.
  • IT departments are really good at what they do, but they’re not digital forensic examiners. An IT person is not necessarily a computer forensics expert. That’s like assuming an X-ray technician could perform brain surgery. Yes, they’re in the same field, but they have very different training and experience. So, just make sure that you’re using a digital forensics expert to do digital forensics jobs and not using an IT person to do those jobs.
  • Employee-exit strategies begin the first day of employment and end after the exit interview. Not all employees are disgruntled and want to cause harm, but you should have standard policies and procedures to ensure your company is protected in all situations.
  • Identity and access management (IAM) is an overarching program solution that is a hierarchical view of all the access that an employee has and generally provides you with a one-stop disconnect so you can shut off all of their active access at one spot and then go back slowly and remove access and ensure that there’s no continued access to large or small systems. That’s especially prevalent with single sign-on.
  • An employee handbook can address confidentiality breach issues before they even arise, so you can try to prevent anything from a very angry client or customer to an outright lawsuit.
  • Disclosing NDAs can be a tricky situation and must be done carefully in order to try to avoid litigation. If an NDA is in place for an exiting employee – or if you are the exiting employee – seek counsel to ensure you disclose your NDA according to best practices seen by the courts.

Read the transcription here

[Hope Everett] Good afternoon and welcome to our Employee-Exit Best Practices: The Legal and Technical Sides of Employee Exits During the COVID-19 Pandemic. Today’s presentation is being co-presented by RMWBH Law, Briggs & Veselka Co., and Pathway Forensics. More information about each company will be provided to you in the slide packet, which will be emailed after today’s webinar.

My name is Hope Everett and I am Senior Counsel at RMWBH Law and I work in the Litigation Section. I’ll be serving as your moderator today. A couple of housekeeping items before we begin. If you have a question during today’s presentation, please submit your question in the Q&A box. We’ll try to get to as many questions as possible after each speaker, well, at the end of after all the speakers. Today’s presentation will count as one hour of CPE credit that is for CPAs. To ensure you receive your credit, a few poll questions will appear randomly during today’s presentation. Please submit a response to each of those poll questions.

Joining me today are Justin Markel from RMWBH Law, Kevin Stewart from Briggs & Veselka, Noel Kersh from Pathway Forensics, Mike Trpkosh from Pathway Forensics, and Greg Godkin from RMWBH Law. I will further introduce our speakers before their section of today’s webinar.

We’ll begin today with Justin Markel discussing considerations for employees. Justin is an equity shareholder in the Houston office of RMWBH Law and the Corporate Section of the practice. He’s board certified by the Texas Board of Legal Specialization and Labor and Employment Law. Justin advises and counsels employers regarding various employment law issues. Among other things, Justin assists employers in crafting employment policies and contracts and also counsels employers regarding issues related to the hiring pay discipline and termination of employees.

[Justin Markel] Thanks, Hope. My name is Justin Markel and thanks for joining us today. I’m going to be going over basic legal considerations when laying off employees or deciding to do a layoff or reduction in force.

So, first we’ll consider some pre-layoff considerations. We’ll talk about some considerations to avoid discrimination and retaliation claims, and then we’ll talk about some kind of miscellaneous issues.

So, first, before instituting a layoff, what should employers consider? Well, first is do you even need to do a layoff in the first place? Would a hiring freeze or promotion or transfer freeze help reduce costs? Would a furlough help reduce costs without having to go through a layoff or would temporarily reducing hours or pay do that as well?

If you’re considering reducing employees pay commensurate with the hours that an employee is going to work, just be careful about messing with that when it comes to exempt employees. For employees under a white-collar exemption, you need to be able to pay on a salary basis, and generally what that means is that the employee’s pay can’t be tied to the amount of work the employee produces or the number of hours that the employee works. So, if you fluctuate it back and forth, the employee might lose their exemption.

Besides those pre-layoff considerations, it’s useful to consider certain things in order to avoid potential discrimination claims and retaliation claims. In avoiding discrimination claims, really, documentation is key. You should have documentation as to what kind of criteria you’re using in layoffs, how you’re making those decisions, whether they’re reviewed by anyone, and then even after going through that selection process, whether that selection process or the criteria you’re using might create a disparate impact, and if so, what you would do about that – whether you maybe alter the selection criteria or take other measures to avoid a potential disparate impact claim. I mean, for those that don’t know on the call, disparate impact claims are basically claims by employees that although a termination decision might be based on legitimate reasons or business reasons, a disparate impact claim asserts that regardless of those neutral reasons, the decision or layoff process selection criteria has adversely impacted a particular protected class – whether that’s based on race, religion, sex, national origin, disability, age, and those kinds of things.

So, what kind of criteria can you use or should you use? Seniority is by far the best because it’s really cut and dry and it generally avoids these kinds of discrimination claims, especially because you tend to keep older employees, so the more recent employees end up getting laid off first. But if you’re not going on a seniority basis, there are other neutral criteria that have been approved by the courts, and they’re listed here.

When considering performance, I would just note a lot of people when they do performance reviews every year, they just like to be very complimentary and non-confrontational. So, if you’re going to use performance as a metric and doing a layoff, then I’d consider are these evaluations really accurate in the first place or should you use a special kind of rating system or special criteria, like can this employee do multiple kinds of jobs, do they have skills that translate to jobs that would have to be filled or roles that would have to be filled post-layoff, and that kind of thing.

I’d also note that if you’re looking at compensation levels as a metric or consideration for a layoff, I would just be very careful. Those kinds of considerations can backfire on an employer. They might result in an age discrimination claim because in certain companies, older employees might be on the higher end of the compensation scale.

In addition to avoiding discrimination claims, it’s important to avoid retaliation claims as well. So, when going through layoff criteria and seeing who ends up on the selection list based on those criteria, it’s important to note has anybody on that list taken any protected activity recently. That could be opposing a discriminatory practice, complaining about harassment or discrimination. It could be requesting leave under the FMLA, it could be requesting an accommodation because of a disability or because of religion. It could be somebody who’s also taken military leave; that’s also considered protected.

In addition to avoiding discrimination and retaliation claims, it’s also important to look at some other things like does the employee have an employment contract. That contract – if it exists – executive employment contracts might hinder your ability to do a layoff or at least if that person is within the selection list for a layoff, it might result in a company obligation to pay severance.

Something else noted on this slide: an independent review committee might help to avoid discrimination and retaliation claims. This kind of committee would take people from different departments and they really just act as a backup to review decisions for legitimacy after the lower-level managers make preliminary layoff selections.

And then finally, consider severance packages. Severance packages – severance agreements – are very useful in layoffs, particularly because if they’re signed, they provide the company a release of claims. And so, you get finality, and you know that once the agreement is signed and returned back and severance pay is given that you don’t have to worry about a potential claim in the future.

Finally, I just note that for employers with over 100 employees, if you’re going to engage in a reduction in force or a layoff, you have to look at whether the WARN Act would apply. Now, that WARN Act is a statute that requires 60 days notice of