Before an Economic Layoff

When economic reasons demand that you eliminate an employee's job, either temporarily or permanently, you automatically have a sound business reason for the discharge. Few courts will question your judgment in this regard. But if you decide to lay off some but not all of your workers, you must be sure that your selection process does not discriminate on the basis of age, sex, or race, or violate some other public policy.

In most small businesses, if it becomes necessary to lay off anyone, the decision will be based on the desire to keep the business going. Obviously, those whose jobs are most essential to the business will be kept, and those whose jobs are least essential (or whose tasks can be taken over by a remaining worker or the owner) will be let go. In some cases, workers who are family members or close friends of the owner will be kept, while "outsiders" will be let go. Neither of these two strategies is likely to cause you any legal problems provided that your business is small enough to escape coverage by the major civil rights laws.

Seniority or merit? Laying people off in order of seniority (that is, keeping the people with the greatest length of service) is most likely to be seen as fair by your employees. It's also the easiest to defend in court. Generally, if you use this method, you won't have to provide any other evidence as to why certain workers were chosen for layoff.

Given the choice, however, most employers would prefer to keep their best workers and lay off those who are less productive, regardless of seniority. If you have done regular performance reviews you can eliminate the positions of those employees whose performance has been documented as less-than-satisfactory. If there is no documentation, you cannot eliminate that person's position for purely merit reasons without facing possible liability.

Also, if you are choosing between two or more equally qualified candidates for layoff, you should be prepared to show that the "downsized" workers reflect the demographic mix (race, gender, and age) of your workforce as much as possible.