Week 5: Organizational Exit Introduction Welcome to Week 5: Organizational Exit. This week, you will read the following topic: Topic 7: Organizational Exit This week’s readings will delve into the procedure that might be used for managing an employee’s departure from an organization, the responsibilities of HR during a layoff, and the provisions of the Worker Adjustment and Retraining Notification Act. 7.1Learning Objectives This video can be viewed online. Organizational Exit (00:35) This download can be found online. LEARNING OBJECTIVES Organizational exit is the process of terminating an employee’s relationship with the organization. This process is sometimes referred to as offboarding. An employee’s exit from an organization may be voluntary (the employee initiates the departure) or involuntary (the organization terminates the employment). In either case, the organization should have an established procedure for managing the employee’s departure. This procedure may include the following. Design a plan to capture the employee’s knowledge and expertise before the employee leaves. Describe the procedure that might be used for managing an employee’s departure from an organization. 1 List HR’s primary responsibilities during a layoff. 2 Describe the provisions of the Worker Adjustment and Retraining Notification Act. 3 Finalize pay and any benefits due, such as cashed-out vacation or sick leave. Disable the employee’s access to computer systems, and change passwords on shared accounts. Collect any company-owned digital devices and delete company information from personal devices. Arrange for the employee to retrieve any personal items from the employee’s workspace. Collect any uniforms, company equipment, ID badges, security cards, keys, and company credit cards. Forward the employee’s email to another employee, or delete the account. Conduct an exit interview. Provide any appropriate counseling (regarding outplacement services, continuing benefits, or retirement) Review with the employee any non-compete agreements. Update employee directories and re-route phone calls. Many of these items can be automated using workflow software within the organization’s HRIS. 7.2Involuntary Terminations Involuntary terminations typically occur as a result of employment problems— such as poor performance, excessive absenteeism, insubordination, or theft. Employers must ensure that all involuntary terminations occur for job-related reasons and that termination decisions do not violate any contractual commitments with employees. The causes of involuntary terminations should always be carefully documented. While some involuntary terminations occur as a result of a single incident, such as violence or theft, many are due to less serious but persistent behavior or performance issues, and the termination decision is the result of a process. A written record should be kept, documenting that expectations have been clearly communicated to the employee and that the employee has subsequently received notice that the expectations have not been met. Efforts to mentor and coach the employee should also be documented, and the record should show that the employee was given adequate opportunity to improve. Finally, the record should show that the decision to terminate the employee was made because the employee failed to improve his or her behavior and/or performance and meet established expectations and that this failure has negatively impacted the organization. Before an employee is terminated, employers should have an established procedure whereby a designated person reviews the proposed termination to ensure that all issues have been considered. This review should include the following steps. Determine whether there are valid, job-related reasons for terminating the employee. Termination decisions are more easily defended when they are based on just cause. If the termination is due to a specific incident, determine whether it has been properly investigated and documented. Determine whether the employee was aware that his or her performance was unacceptable. Determine whether the termination action is consistent with prior treatment of other employees. Review the employee’s overall work record and ensure that the employee has received all rights to which he or she is entitled under the company’s policies. Explore alternatives to termination, such as transfer, demotion, or counseling. Ensure that the employee is not the victim of retaliation for exercising his or her civil rights, such as making a claim of sexual harassment. An alternative method of terminating employees is to make the work environment sufficiently unpleasant that the employees will quit. Supervisors who want to get rid of unwanted employees sometimes try to make their lives at work so uncomfortable that they choose to leave. If they leave voluntarily, the supervisor is spared the unpleasant chore of discharging them. Forcing people to quit is not a forthright approach to discipline. Supervisors use this method as an unethical way of getting rid of employees they do not like but have no legitimate basis for terminating through the established discipline system. This method may also be illegal. If it is motivated by factors related to age, race, religion, sex, national origin, or disability the employees can claim that they were the victims of illegal discrimination. After they quit they can bring a charge of constructive discharge against the company claiming that they were actually forced to quit. Occasionally, however, inducing people to quit is a supervisor’s only recourse for handling an unproductive employee. In education, for example, incompetent teachers may be protected by tenure policies and therefore cannot be terminated easily. Sometimes department heads have told incompetent teachers that if they do not improve and if they refuse to leave, their lives will become very unpleasant: they will be assigned to teach more classes; they will have to teach the classes with the largest enrollments; they will be given smaller offices; and they will not receive any more pay increases. 7.3Termination Interviews Terminating an employee is a difficult challenge and something supervisors and human resource managers do not enjoy doing. The experience is even more painful for the person being terminated. This person will often react with disbelief, anger, and even violence—even when many previous warnings have been given and the person knows the reasons for the termination. Employers should do all they can to reduce the trauma of terminations. Being fired from a job is one of the most traumatic and stressful experiences of life. The following are some guidelines for terminations. 1. Plan the termination interview carefully and be prepared for it. The meeting should be scheduled on a day early in the week and preferably not on a Friday or the day before a holiday vacation. Have employee agreements, releases, and announcements prepared in advance. Ask the employee to come to an interview, preferably in a neutral location and within the next hour. Do not notify the employee of the termination by phone or allow the dismissal to be communicated through the grapevine. A second person should also be present. 2. When the employee reports for the interview, be direct and avoid talking about trivial matters. As soon as the employee enters the room and is seated comfortably, the termination decision should be announced. 3. Describe the decision and the situation leading to it; but do not attack the person’s character or discuss personality flaws. Explain why the person’s performance was inadequate or why the job is being eliminated. Performance problems should only be briefly described, however, since previous evaluations should have explained the need for improvement. 4. Answer the employee’s questions and help the person understand the reasons for termination. Listen attentively and continue the interview until the person appears to be talking freely and reasonably calmly about the dismissal. 5. Explain the severance package, including severance pay, benefits continuation, access to office support people, how future recommendations will be handled, and the availability of counseling or out-placement assistance. 6. Have the person sign any necessary releases and explain what to do next, such as retrieving personal belongings, contacting a counselor, using outplacement services, and obtaining the final paycheck. It is normally suggested that termination interviews only last 15 minutes and that they should be formal, but kind and respectful of the dignity of the person. 7.4Layoffs and Reductions-in-Force This video can be viewed online. Layoffs and Reductions-in-Force (00:56) This download can be found online. Layoffs (called “redundancies” in Europe) typically occur when employers need to eliminate positions in order to maintain profitability in the face of declining revenues or intense competition. Layoff decisions are typically based on seniority, performance, or skill needs. Most union contracts call for the least senior employees to be laid off first unless management can demonstrate that these individuals have special skills that are essential to the company. When making layoffs employers are generally free to base their decisions on the performance and skills of employees, unless these decisions would violate (a) the layoff provisions in a valid union contract, (b) the termination provisions in their employee handbook, or (c) any implied promises and verbal commitments 1 that have been made to individual employees. When basing layoff decisions on performance, the factors that determine who should be laid off should be as objective and job-related as possible. Factors considered as acceptable criteria include performance or productivity as recorded in the personnel files attendance and tardiness records cooperation with co-workers and supervisors demonstrated ability to perform crucial operations education and experience elimination of the position or the availability of funding for the position Employees should not be terminated because they are overqualified for the jobs that remain or because they are highly compensated. These criteria have been held to be age-related and violate the Age Discrimination in Employment Act. However, some decisions that have been strictly based on economic demands, and not age, have been defended in laying off highly paid employees. To prevent charges of age discrimination during a layoff, companies should examine the consequences of the planned reduction in force (RIF) to determine whether it creates an adverse impact. The U.S. Supreme Court has ruled that the disparate impact theory can be used in a claim of age discrimination. Adverse impact occurs when the percentages of older people (age 40 and older) in the affected group are statistically different than the percentages of older people in the employees who remain. This analysis should usually be performed for each major employee classification, such as blue-collar employees, white-collar employees, and managers. Therefore, employers should perform a statistical analysis of a planned RIF before layoffs are announced and be prepared to demonstrate that all layoff decisions are based on factors other than age. 2 Employers should document the reason for the layoffs, such as a business downturn or lost contracts. They should also articulate, usually in a spreadsheet, the legitimate business reasons why Employee A was retained over Employee B, such as Employee A has more experience dealing with the products the company will sell after the layoff. If some employees are allowed to transfer to avoid layoffs, the employer should articulate a legitimate business justification for each transfer that is unrelated to age. Employees who are laid off have certain rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), as well as some state medical continuation laws. COBRA requires most employers to offer terminated or voluntarily separated employees the option of remaining members of the company’s group health plans at their own expense for up to 18 months. The biggest challenge when making layoffs is telling employees they have lost their jobs and helping them handle this disappointment. Although managers often want HR to make these announcements, people should be laid off by their managers rather than strangers, preferably in a one-on-one conversation. The primary responsibilities of HR during layoffs include the following. Prepare instructions for managers. These instructions should include the logistics and timing of the discussions and possibly a brief script of what to say. If severance and outplacement are provided, details of the severance policy and contacts for outplacement should be included. Prepare individual separation letters. To minimize the perception that the layoff is a personal attack, the letter should begin with a brief explanation for the layoff or merger and the reasons for the reductions in the affected departments. It should identify the effective date of the separation of employment and other information relevant to each employee, such as the number of weeks of severance and how it will be paid, the accrued vacation payout information, and benefits coverage details. Prepare written questions and answers. Since people are usually too shocked to remember everything they are told, it is useful to have a written list of anticipated questions and answers to let them read later. Prepare contact lists and phone numbers. The names of people to contact and how to contact them should be provided in case they have questions regarding the layoff and the benefits available to them. Prepare an exit checklist. This checklist is intended to help the person conducting the layoff interview cover all essential information, such as collecting company property, keys, computers, credit cards, pagers, cell phones, and security access cards. They may also need to discuss outstanding expense reports, outstanding 401(k) loans, benefits coverage, and unreported overtime. HR should make certain that this event is handled fairly and competently with respect to severance payments, appropriate notices, and outplacement services.Employers often require employees being laid off to sign a release of claims agreement in return for a severance package. By signing this document, employees agree to waive any legal claims they may have against the employer. To minimize the theft of proprietary information, it is recommended that departing employees be shown copies of the confidentiality agreements they signed when they were employed. Companies that have done so report a 75 percent reduction in data theft. To help employees who have been laid off find a new job or adjust to retirement, employers often provide outplacement services. Outplacement services usually include career counseling, instructions on how to prepare a résumé, training on interviewing skills, and contacts with job-search professionals. Some employers even help find job openings in the community and assist in scheduling job interviews. 3 Although downsizing is sometimes essential for the survival of a company, employers should examine the costs associated with involuntary layoffs and consider alternative solutions. The direct and indirect costs of downsizing an employee are roughly equivalent to the employee’s annual salary. The direct costs may include severance pay, accrued vacation and sick pay, outplacement costs, pension and benefits payouts, administrative processing costs, the costs of increased voluntary terminations among those who remain and the cost of rehiring former employees. The indirect costs include productivity losses among survivors, potential lawsuits from terminated employees, loss of institutional memory, increases in unemployment tax rates, low morale, and risk-averse survivors who are less creative and innovative. Unless the firm is facing a permanent economic downturn, it should consider alternatives to downsizing, such as cutting temporary staff, eliminating overtime, offering voluntary retirement, freezing salaries, cutting salaries, delaying raises, freezing hiring, reducing work hours, using temporary furloughs, canceling costly business trips and perquisites, reducing matching contributions to company-sponsored savings plans, eliminating bonuses, allowing work sharing, instituting mandatory holiday shutdowns, redeploying workers, rescinding hiring offers, delaying facility expansions, moving to smaller facilities or home offices, offering unpaid sabbaticals, and bringing outsourced work back in-house. Managers are often surprised at how well these options are received by employees. In 2009, Honeywell offered its employees unpaid sabbaticals to avoid layoffs and was surprised at how many employees were excited to take advantage of them. When business resumed, Honeywell was able to recall them rather than hiring new workers. Studies that have tracked the performance of firms that downsize versus those that pursue alternative strategies found that the no-downsizers consistently outperformed the downsizers over time. 4 7.5Retirement Retirement is a voluntary separation initiated by an employee. Except for certain bona fide executives and top policymakers in corporations, the decision to retire must be a voluntary decision by the employee. To comply with the Age Discrimination in Employment Act, (ADEA), employees over age 40 cannot be forced into retirement unless there are job-related deficiencies in their performance. As a general rule, employers are expected to evaluate the performance of older workers; and as long as they can do the job, they cannot be forced to retire. Only a very few exceptions to this rule have been approved, such as with airplane pilots and copilots where the deterioration in ability due to age is so difficult to evaluate that an age limit has been granted. Employees who retire from companies that have a pension plan typically begin receiving a pension. Some employers also provide a continuation of the regular health and accident benefit plans for retirees. Early retirement programs often provide a convenient way for an employer to achieve a satisfactory reduction in force (RIF). The advantages of an early retirement program are that it reduces the need to involuntarily terminate employees, reduces the employer’s exposure to legal liability, and helps preserve employee morale. To comply with the ADEA, employees age 40 and older cannot be forced into retirement unless there are job-related deficiencies in their performance. Early retirement programs provide a convenient way for an employer to achieve a satisfactory reduction in force (RIF), but they must not violate the ADEA. These programs should follow these guidelines. ERISA coordination: Early retirement plans need to be coordinated with the Employee Retirement Income Security Act of 1974, which governs pension and employee welfare benefit plans. Employees need to receive a summary plan description for the benefits they will be offered. Eligibility requirements: The criteria for eligibility should be clear and rational, such as all managers with 20 or more years of service, all members of a particular department, or all employees over age 50 who are eligible for retirement benefits under the company’s pension plan. Incentive: The incentive to retire early should be fair and sufficient to attract enough employees. Some firms purchase annuities for employees to offset any early retirement penalties stipulated in their pension program. Others offer a special severance allowance, such as two weeks’ pay for each year of service. Employee acceptance: Participation in an early retirement program must be “knowing and voluntary” or it violates ADEA. Employees must have a clear understanding of the early retirement offer, receive due consideration (incentives) for accepting it, and have ample time to consider it. Employees who accept the offer are typically required to sign a release saying they accept early retirement in exchange for the incentives offered. These releases must comply with the Older Workers Benefit Protection Act. This act requires that employees age 40 and older who are asked to sign releases be given certain information about the early retirement program and a fair opportunity to consider it. The release must be written in language that is understandable. The release must specify that it covers claims potentially arising under the ADEA. However, the release cannot require employees to waive their rights to file discrimination claims with the EEOC, such as harassment and retaliation. The release must exclude from coverage claims arising after the date it is signed. The consideration provided for signing the release must be in addition to anything else the employee might expect to receive. 1 The agreement must advise the person to consult with an attorney about its terms. The person must be given at least 21 days to consider whether to sign the release, or 45 days if the release is for a group termination, and they must be allowed to revoke the release up to seven days after signing it. If the release is for a group of employees, the person must be informed of the class affected by the program, eligibility factors for the program, and the job titles and ages of people selected for and excluded from the program. 7.6Worker Adjustment and Retraining Notification Act (1988) The Worker Adjustment and Retraining Notification Act (WARN) requires companies to give 60-day advance notice of plant closings or layoffs that affect large numbers of workers. This notice must be provided to affected workers or their union representatives and to state and local authorities. This law helps workers who are scheduled to lose their jobs know in advance about the pending layoff so they can begin making alternative plans. Employers with 100 or more employees are generally covered by WARN. Employees who have worked fewer than six months of the previous 12 and employees who average less than 20 hours per week are not included in this count, nor are they counted in determining the number involved in a layoff. Private employers, both for-profit and nonprofit, are covered, as are some commercial public entities. Federal, state, and local government are not covered. 1 Covered Employers The employer must give written notice to affected hourly and salaried workers, as well as managerial and supervisory employees who may reasonably be expected to experience an employment loss. This includes employees who may lose their employment due to “bumping,” or displacement by other workers, to the extent that the employer can identify those employees when notice is given. Employees who have worked fewer than six months of the previous 12 and employees who average less than 20 hours per week must also receive notice, even though they are not counted when determining whether an employer is covered by WARN. Plant Closing: A covered employer must give notice if an employment site (or one or more facilities within a site) will be shut down and the shutdown will result in an employment loss for 50 or more employees during any 30-day period. Mass Layoff: A covered employer must give notice if there is to be a mass layoff that does not result from a plant closing but that will result in an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50–499 employees if they make up at least 33 percent of the employer’s workforce. The term “employment loss” includes any of the following. an employment termination, other than a discharge for cause, voluntary Covered Employees Notice Triggers Employment Loss departure, or retirement a layoff exceeding six months a reduction in an employee’s hours of work of more than 50 percent in each month of any six-month period An employer does not need to give notice if a plant closing is of a temporary facility, or if the closing or mass layoff is the result of the completion of a particular project. This exemption applies only if the workers were hired with the understanding that their employment was limited to the duration of the facility or project. An employer cannot label an ongoing project “temporary” in order to evade its obligations under WARN. An employer does not need to provide notice to strikers or to workers involved in a lockout when the strike or lockout is equivalent to a plant closing or mass layoff. Non-striking employees who experience an employment loss as a direct or indirect result of a strike and workers who are not part of the bargaining unit which is involved in the labor negotiations that led to a lockout are still entitled to notice. An employer does not need to give notice when permanently replacing people who are “economic strikers” as defined under the National Labor Relations Act. With three exceptions, notice must be timed to reach the required parties at least 60 days before a closing or layoff. The exceptions to 60-day notice are 1. Faltering company: When an at-risk company has sought new capital or business in order to stay open and giving notice would ruin the opportunity to get the new capital or business, the company is not required Exemptions Notification Period to provide notice. This exception applies only to plant closings. 2. Unforeseeable business circumstances: This exception applies to closings and layoffs that are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required. 3. Natural disaster: This applies when a closing or layoff is the direct result of a natural disaster, such as a flood, earthquake, drought, or storm. Still, the employer must give as much notice as possible and should include with the notice a statement of the reason for reducing the notice period. An employer who violates the WARN provisions by failing to provide appropriate notice of a plant closing or mass layoff must pay each affected employee back pay and benefits for the period of the violation, up to 60 days. The employer’s liability may be reduced by wages paid during the period of the violation and other payments made to the employee. An employer who fails to provide notice as required to the local government is subject to a civil penalty not to exceed $500 for each day of violation. This penalty may be avoided if the employer satisfies the liability to each employee wi
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