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Layoffs Mean Lawsuits

An article in The New York Times on Saturday, January 31, reports on a trend that should come as no surprise — Layoffs Herald a Heyday for Employee Lawsuits. While the article is concerned chiefly with WARN notification requirements, other statutes pose much greater liability risks for employers who have to let employees go because of difficult economic circumstances. We’ll discuss WARN briefly, and then turn to the other statutes.


WARN is the Worker Adjustment and Retraining Notification Act, a federal statute that requires most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. Failure to comply with WARN makes the employer liable for the pay and benefits during the period of the violation up to 60 days. The court in an enforcement action may also award a prevailing plaintiff his or her attorney’s fees. The United States Department of Labor has detailed information about WARN at this web page. California has its own WARN statute that applies to employers with 75 or more employees and defines the circumstances requiring notice somewhat differently. The California Employment Development Department compares the two statutes on this web page.

Wage and Hour Liability

A discharged employee can make easy extra money if his or her employer is not in compliance with the federal and state wage and hour laws. Misclassification of employees, failure to follow the overtime rules, not providing meal and rest periods, and other violations can easily lead to awards in the several thousands of dollars from the California Labor Commissioner. Read our 10 Tips for Avoiding Wage and Hour Violations to make sure that you are in compliance before you discharge any employees.

Discrimination Liability

That anti-discrimination statutes prohibit discrimination based on race, religion, color, national origin , ancestry, physical disability, mental disability, medical condition, marital status, sex, sexual identity, age, and sexual orientation. That means that every discharged employee has at least four characteristics that could form the basis for a discrimination claim.

Further, the prima facie case approach that applies to discrimination lawsuits makes it relatively easy for the plaintiff in a lawsuit to burden on the employer to justify the discharge. All the employee need show is showing (i) that she has a protected characteristic, (ii) that she was performing her job competently; (iii) that, despite her job performance she was discharged; and (iv) that the position remained open to qualified applicants after her discharge. If the employee makes that showing, the employer must prove that it had a legitimate reason for the discharge.

Retaliation Liability

Discharged employees may also file retaliation claims. We have explored the risks of such claims in two previous posts — August 17, 2008 and November 16, 2008.

To establish a prima facie case of retaliation, the employee need only establish that he or she engaged in protected activity and was discharged, and that there was a causal link between the two. To establish the link, it is enough to show that the adverse action followed closely on the heels of the protected activity. Such a showing then places the burden on the employer to establish that it had a legitimate reason for the adverse employment action.

What Employers Should Do

The key to limiting the risk of liability is to put yourself in a position to be able to prove the legitimate reason for the discharge or layoff. That means if layoffs are necessary for financial reasons, you must be ready to show the financial difficulties and the reasons why those laid off were chosen.

If performance is the reason, follow this advice:

  1. Make sure that each employee’s personnel file includes a job description acknowledged by the employee. This will avoid disagreement over job duties if an issue arises about an employee’s ability to continue working.
  2. Develop a set of written performance expectations for each employee. This will avoid an employee’s argument after being subjected to adverse employment action that he or she never understood what was expected.
  3. Insist on honest annual performance evaluations. This will avoid an employee’s argument that nobody ever told him or her that there were performance issues.
  4. Document every communication with an employee about performance or misconduct, no matter how minor. This will avoid a possible argument that it never happened.
Contact Information
  • Pasadena Office
    3020 East Colorado Boulevard
    Pasadena, California 91107
    Phone: 626-449-2300
    Fax: 626-449-2330
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