Reduction in Force Best Practices for Employers
 M&A Checklist
Best practices dictate a number of due diligence tasks to help keep you on track in preparing for a Merger or Acquisition that may involve workforce separations.
Workforce Structure and Constraints
- Obtain and begin to integrate corporate organizational charts
- Obtain a copy of the collective bargaining agreement(s) and assess all implications
- Analyze benefit plans, summary plan descriptions and scheduled cost increases
- Obtain and review the most recent IRS Letter of Determination and Form 5500 filing
- Review 401K investments, matching provisions and three-year history
Compensation and HR-Related Tasks
- Review executive contracts - change of control and cash-out provisions
- Investigate compensation guarantees, plans, accrued commissions and bonus payouts
- Compare projected severance payouts under each company's plans
- Analyze HR department operating budget, metrics and staffing ratios
- Obtain copies of all formal HR policies and procedures
Infrastructure, Training and Compliance
- Assess the skills and performance of current HR staff
- Gather a detailed description of priority talent management processes
- Understand the history of employee and management training courses
- Gather employee survey results and termination reason patterns from the past 2-3 years
- Review past EEO filings and copies of OFCCP audits and/or consent decrees
Shareholder value is significantly damaged in more than 60% of attempted mega-mergers.
 Reorg Checklist
There are a number of laws governing corporate responsibilities around reductions in force. These include:
COBRA: Requires certain employers to continue healthcare group coverage for employees who would have lost coverage after being laid off.
Family and Medical Leave Act: Employees under this act can be protected from losing their jobs only if the employer can show that they would have lost their job regardless of the leave.
Uniformed Services Employment and Reemployment Rights Act: Requires employers to reinstate employees returning from serving in the military.
Discrimination Laws: Protect workers from disparate treatment in a Reduction in Force.
Worker Adjustment and Retraining Notification Act: Requires employers to give at least 60-day notice of mass layoffs (i.e. more than 100 employees being laid off).
 Approaches to evaluating employees
Organizations can use a number of different approaches when evaluating employees for potential separation. However, they have differing levels of validity.
Historical Performance: Employers often look first at historical performance, however it may not be a valid measure if the nature of the role will change significantly in the go forward organization.
Assessments: Assessments provide an unbiased way to gauge employee fit for the future organization positions. They can be tailored to evaluate just the skills or capabilities that the candidates will need in new role.
Last in, First Out: Tenure or seniority based evaluations are common, but ill advised. Not only could they easily lead to wrongful termination legal action, but would likely result in the organization losing some of their best employees. With no acknowledgement of skill or fit for the role, this approach has marginal success.
Data Driven: With data driven decisions, evaluators use multiple data points as decision criteria and weight the criteria appropriately for the role. Assessors rate the employee on each dimension, or existing data is brought in, and a calculation is used to rank employees based on the decisional criteria. This approach is consistent and largely removes the subjective element of decisions.