Thursday, June 12, 2008

Defining the proper "decisional unit" is key in legitimacy of RIFs

Today, we'll finish up our series on releases and waivers of age discrimination claims by looking at how courts examine the scope of the decisional unit for purposes of making the requisite disclosures under the Older Workers Benefits Protection Act ("OWBPA") for a group reduction. For the previous two posts, see Offering of severance package found to be evidence of a constructive discharge, and Refresher on age discrimination waivers.

According to the 6th Circuit in Raczak v. Ameritech Corp., the purpose of OWBPA is to ensure that "workers who signed a waiver had a clear idea of what they were giving up, particularly that they had the ability to assess the value of the right to sue for a possibly valid discrimination claim." Thus, a valid waiver under the OWBPA in a group reduction must include information - ages and job titles - of everyone in the decisional unit, whatever that decisional unit may be, and the status of each individual with respect to whether the employee was selected for termination or retention. The law requires employers engaging in a group layoff to give employees need data to conduct a meaningful analyses to determine whether an employer engaged in age discrimination before agreeing to sign a severance agreement. They key in determining whether employees are truly comparing apples to apples is the scope of the "decisional unit" the employer uses to compile is list of affected and unaffected employees.

The OWBPA's regulations (29 C.F.R. § 1625.22) define the term "decisional unit" as follows:
[D]ecisional unit is that portion of the employer's organizational structure from which the employer chose the persons who would be offered consideration for the signing of a waiver and those who would not be offered consideration for the signing of a waiver. The term "decisional unit" has been developed to reflect the process by which an employer chose certain employees for a program and ruled out others from that program.
The regulations offer several examples to assist companies in selecting the proper decisional unit:
  • If an employer is attempting to reduce its workforce at a particular facility and undertakes a decision-making process by which some of the employees at the facility are selected for a program and others are not, then the facility will be the decisional unit.
  • If the employer seeks to reduce the number of employees at a facility by exclusively considering a particular portion or sub-group of its operations at a facility, then the decisional unit would be that sub-group or portion of the workforce at the facility.
  • The decisional unit may be larger than one facility if an employer is attempting to combine operations from several facilities and considers employees in several facilities for termination.
Thus, they key factors for deciding the proper scope of the decisional unit include the identity of the decision maker and the employees actually considered for the RIF. Several cases provide additional examples of these principles in action:

Burlison v. McDonald's Corp.

McDonald's engaged in a nationwide corporate reorganization. It charged each regional manager with the task of determining which employees to keep for each new region. McDonald's offered each RIFed employee a severance package in exchange for a release of all claims. In its effort to comply with the OWBPA, McDonald's provided with each severance agreement a region-specific information sheet. Each of the 5 plaintiffs (all of whom were over 40) signed the releases and accepted the severance packages. Two years later, however, they sued for age discrimination, claiming that the releases were void because McDonald's had engaged in a nationwide RIF, for which the OWBPA required that it provide them nationwide information, and not just information limited to their region. The 11th Circuit found that because the decisions as to who to terminate were made on the regional level, the region was the proper decisional unit. Because the local managers made the decision, the nationwide unit had no relevance to the plaintiffs.

Kruchowski v. Weyerhaeuser Co.

While the employees in Burlison were rebuked for arguing for an overly broad decisional unit, the employer in Kruchowski v. Weyerhaeuser Co. was punished for selecting a unit that was too wide for the actual scope of the RIF. The plaintiffs were 16 of the 31 employees selected for a RIF at the defendant's mill. The OWBPA notice advised the RIFed employees that the "decisional unit" was all salaried employees at the mill. The court of appeals found that the waivers were invalid because the Notice misidentified the decisional unit as all salaried employees. The actual unit was all salaried employees who directly reported to the mill manager. 15 salaried employees did not report to the mill manager, yet were included in the Notice. According to the court: "Defendant itself ignored its structure and decision-making hierarchy when the notified plaintiffs of the 'decisional unit.'" Because the decisional unit of which the plaintiffs were notified and the actual decisional unit were two separate groups, the waiver was void.


RIFs are not do-it-yourself projects for businesses. They raise myriad employment law issues, not the least of which is the scope of the proper decisional unit for purposes of making disclosures under the OWBPA. It is crucial to get these waivers absolutely right, or companies risk paying severance and still getting sued for age discrimination. Don't put yourself in that position - seek professional help before carrying out a RIF.