Example: If your organization must reduce its staff of warehouse employees and the layoff
disproportionately affects men over the age of 40, women or Asian Americans for example, the company might be required to prove that the selection process was neutral for those groups.

To help you make legally supportable decisions when selecting employees for layoff, use the employee discipline documentation tools discussed in Discipline & Termination. Using these tools, you can develop a set of objective criteria to select the employees to lay off. Make sure that you can clearly articulate the criteria you used and the reasons you selected the criteria.

Even a single individual can allege that they were laid off for a discriminatory reason or in retaliation for some protected activity, such as:

• Union advocacy
• Making safety complaints
• Whistleblowing to a government agency
• Complaining about unfair wages
• Protesting unlawful discrimination
• Filing a workers’ compensation claim
• Testifying in a sexual harassment investigation

For more information on discrimination and termination, see When You Cannot Terminate.

Rather than assuming that a layoff is necessary, first consider alternatives, such as reduced hours, job sharing, improved internal processes or salary and benefits cost reductions.

Creative approaches can save a lot of expense by:

• Retaining a productive workforce
• Avoiding recruiting costs when business picks up
• Showing concern for staff members
• Allowing employees to participate in matters that affect their lives
• Reducing unemployment insurance (UI) costs

Alternative to Layoff: Work Sharing Program

The California Employment Development Department (EDD) has a Work Sharing program to help you avoid mass layoffs by sharing the available work among employees. The work sharing program allows for the payment of Unemployment Insurance (UI) benefits to employees whose hours and wages have been reduced. This program was established to help employers avoid some of the burdens that accompany a layoff situation, and is considered an alternative to layoffs.

The work sharing program offers you four basic advantages, because you can:

• Continue providing some work to all employees, rather than laying off significant groups.
• Maintain a relationship with a trained workforce until the time business returns to normal.
• Reduce overall cost. The employees involved in the work sharing plan receive lower amounts in unemployment benefits, although your costs are the same as any employer with a similar unemployment tax rating.
• Avoid the expense of recruiting, hiring and training new employees.

To participate in work share, at least 10 percent of the employer’s regular workforce (or a unit of the workforce) and a minimum of two employees, must be affected by a reduction in hours and wages. The employees’ reduction in hours and wages must be at least 10 percent, and must not exceed 60 percent. Other requirements must also be met.

Employers can apply to participate by completing a Work Sharing UI Plan Application from the EDD’s website. The EDD’s director must approve plans. For more information about the work sharing program, visit EDD’s work sharing webpage.

Selecting Employees to Lay Off

Companies often select employees with the least seniority to lay off first, though there is no legal requirement to do so. However, there are important legal considerations to take into account when deciding which employees lose their jobs:

• Define a legitimate business reason for the layoff.
• Define objective criteria to determine which positions in your company are most appropriate for layoff.
• Clearly document the criteria.
• Do not use a layoff as pretext for terminating someone in a protected class or because they are on a protected leave of absence.

Example: The marketing department’s budget is cut significantly for the upcoming year. To continue advertising to generate revenue, you must eliminate two positions. The department hired three employees within the last six months and did not anticipate the budget cut. However, the most recently hired employee has years of experience with companies who have experienced economic downturns and has demonstrated her ability to “make lemonade out of lemons.” The other two new employees have similar work experience to one another.

In this example, it may not be in the company’s best interest to terminate the most recent hire because the company needs her skills. But the other two employees have not been with the company for very long and do not have skills that the company requires while trying to improve business. The decision to select the other two employees for layoff is then based on a combination of seniority and business needs. Company policy should specify that management will determine reasons for layoff objectively based on legitimate business needs at the time and that seniority can be one of a number of factors. Company policy should specify that management retains the ultimate discretion.

Example: Your sales department is not generating enough revenue to support the number of sales people currently working in the department. Your company determines that if three sales people are laid off, the remaining sales people may have to work harder but the sales numbers should improve. One of the sales team members is on Family and Medical Leave Act (FMLA) leave. It is unclear if he will return from the leave so the company decides that he should be first to go.

In this example, the company has not defined objective criteria to determine which employees to lay off. Instead, it has made the decision based on the belief that the employee will probably not return to work, forgetting that an employee on FMLA leave has job protection for the 12 weeks of FMLA leave. State and federal laws also require employers to provide reasonable accommodation to disabled employees, which may include a leave of absence. If the company lays off this employee, the company will be vulnerable to a retaliation or discrimination claim for terminating an employee using FMLA.

Contrast this example with a situation in which an entire department or division within a department is laid off and one of the employees is on FMLA leave. An employee on FMLA leave or on another leave of absence that requires job protection does not have any greater right to their job than other employees.

Example: If an employer revises the group of employees targeted for layoffs after learning of a worker’s disability, a jury could find that the disability unlawfully influenced the termination decision.1 In one case, an employer put an employee on a budget-related layoff list. Before layoffs were completed, the employee became disabled. Later, the employer finalized the layoff process and terminated the employee. The employer argued that it didn’t discriminate based on the disability because it already planned to layoff the employee prior to the disability. The court, however, held that because the employer didn’t finalize the layoff decision until after the employee became disabled, a jury could find that the disability contributed to the decision to keep the employee on the layoff list. Employers must use caution when terminating a disabled employee, even when the termination process began before the disability arose.

To avoid discrimination claims in layoff or recall decisions, base layoff decisions upon objective factors. Ensure that the layoffs do not affect protected class employees more significantly than employees who are not protected. For more information on discrimination, see Discrimination.

• Document the legitimate business reasons for the layoff. Make all layoff decisions in relation to those reasons. Further, if your employees are covered by a collective bargaining agreement, the agreement’s terms control the layoff process.

Rehiring Laid Off Employees

The law does not provide guidance about whether you must give a laid off employee special preference when business improves or new jobs become available. Your layoff policy should specify what your rehire policy is. Any such policy should state that ultimate discretion to rehire an employee rests with you and that there is no guaranteed rehire.

Example: Your business always tapers off during the summer, but increases during the fall and winter months. You need employees who can hit the ground running and require minimal training when your busy season begins. In this case, your organization may want to institute a policy that gives laid off employees priority for re-employment during the busy season.

Example: You rarely lay off employees and you are unsure when business will improve or if your company will restructure in the meantime. In this situation, you are unable to make a commitment to employees who are laid off. You may not need a policy that specifies that laid off employees receive priority when hiring picks up.

1. Lin v. Kaiser Foundation Hospitals, 88 Cal.App.5th 712 (2023)