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Legal considerations
  • A company should consider worker laws that may affect its decision to downsize employees.

The following laws may affect downsizing or the aftermath.

The Worker Adjustment and Retraining Notification (WARN) Act, which requires, with certain exceptions, employers of 100 or more workers to give at least 60 days’ advance notice of a plant closing or mass layoff to:

  • Affected workers or worker representatives,
  • The state dislocated worker unit, and
  • The appropriate local government.

The WARN Act generally covers employers with 100 or more employees, not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week. Some states also have similar laws.

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) requires employers with 20 or more employees to provide an opportunity to terminated employees to continue employee health benefits within 30 days of termination. The employee is responsible for paying the premiums. However, COBRA does not require the continuation of life insurance or other types of benefit plans.

The Health Insurance Portability and Accountability Act (HIPAA) limits exclusions for preexisting conditions; prohibits discrimination against employees and dependents based on a person’s health status; and allows a special opportunity to enroll in a new plan to individuals in certain circumstances. The employee has 60 days from the date of notice to accept or decline the benefits, and has at least 45 days to make payments. It is the employer’s obligation to show that the proper notice has been sent. If coverage is declined, employer’s must show that the employee affirmatively declined that coverage.

Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of race, color, religion, gender, or national origin.

The Age Discrimination in Employment Act of 1967 (ADEA) protects workers who are at least 40 years old from age-related discrimination.

The Americans with Disabilities Act (ADA) outlaws discrimination against people who are disabled.

The Fair Labor Standards Act (FLSA) governs wages and compensation of employees. Wages, compensation, and nondiscretionary bonuses earned must be paid to terminated employees.