According to a new analysis of federal employment data released last week by the Associated General Contractors of America, construction employment declined in 179 out of 337 metropolitan areas between April 2010 and April 2011.  AGC officials noted that despite recent increases in private-sector construction activity, the layoffs are occurring as public investments in infrastructure decline.

Reductions in the size of a workforce have always been a fact of the construction industry.  The use of a trendy name (downsizing, rightsizing, RIF) does nothing to alleviate the painfulness and complexity of this process.  The human side of workforce reduction often comes to mind first.  With careful planning, and a dignified approach to the process, most construction companies are able to minimize the emotional toll on those employees who are terminated.

However, the legal aspects of a workforce reduction can be more problematic because it can expose your company to unnecessary liability by terminated employees and investigations (and sometimes sanctions) by government agencies.  Here are some steps that should be taken before you make the final decision on how or if to reduce the size of your workforce:

  • Normal 0 false false false MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:”Table Normal”; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:””; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:”Times New Roman”; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} Analyze and document the reasons for a workforce reduction. Discuss measures designed to avoid the workforce reduction and document why those measures failed or were considered undesirable. Measures you might consider include voluntary reductions in the workforce, hiring freezes and salary freezes.
  • Review any and all employee handbooks. Assure that nothing in the anticipated reduction in force violates any handbook provision.
  • Check employment agreements. Determine which employees, if any, have employment agreements, non-compete/non-solicit agreements, confidentiality agreements, stock option agreements or any other type of written agreement pertaining to their employment.
  • Talk to all insurance carriers and/or brokers.  Discuss the implications of the proposed workforce reduction. Be sure to discuss the proposed effective date. This applies to all insurance policies including medical, dental, life, disability, directors and officers coverage, etc.
  • Consider the impact on 401(k) and other retirement plans. This is for both the terminated employees and for the persons who will remain at the company. This may require consultation with your attorney and/or accountant.
  • Evaluate other accounts.  If you have flexible spending accounts, health savings accounts or cafeteria plans, discuss the implications of the proposed reduction in force with your accountant and/or attorney.
  • Consider other benefits.  Determine company policy and/or applicable state law regarding payment of accrued vacation or PTO time to terminated employees.
  • Evaluate severance.  Are you going to offer severance payments to any of the employees to be terminated?
  • Plan for payment of wages.  Consult legal counsel regarding specific state law on payment of final wages to a terminated employee.

The good news is that the legal aspects of a reduction in force are not difficult to identify and address.  The challenges are to make sure you go through this process and to do it properly.

Image: Keturah Stickann