How To Lay People Off And Not Get Sued

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Photo: Mac Babs – B√°rbara Bessa. via Flickr

Economic conditions remained bleak last month, with the U.S. Bureau of labour Statistics reporting that “the unemployment rate [for July] was unchanged at 9.5 per cent.”And small businesses aren’t hiring, either.

In these difficult economic times, companies across the country have been forced to consider layoffs and other cost-saving measures. As many business leaders already know, layoffs can increase your exposure to employment discrimination lawsuits brought by disgruntled former employees. While there is no way to completely eliminate this risk, there are steps employers can take to reduce the likelihood that they will fall prey to disruptive litigation.

One obvious risk resulting from terminations is individual employment actions asserted by employees who claim they were victims of unlawful discrimination. Business conducting layoffs may be particularly vulnerable to age discrimination lawsuits. There has also been an increase in same-sex sexual harassment lawsuits, with statistics indicating that some of the largest jumps in the number of sexual harassment lawsuits filed by men occurred in states with the highest unemployment rates.

Companies conducting large-scale layoffs must also consider the risk of disparate impact claims. Under a disparate impact theory of discrimination, terminated employees may argue that a company policy or practice–which appears neutral on its face–disproportionately affects a particular group. For example, if the company terminates a disproportionate number of employees over the age of 40, those employees may allege that the company’s selection process had a disparate impact on older workers.

Though some courts use additional methods of statistical analysis, the general rule is that a disparate impact exists where members of a non-protected class (e.g., employees under 40) are selected for termination at a rate that is less than 80 per cent of the rate at which members of the protected class (e.g., employees over 40) are selected.

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