Skip to content

The Big Uneasy: How Do I Plan for a Potential Reduction in Force?

We have heard you. While the economy seems to be humming along, there is an uneasiness in the stock markets and in energy prices. For those of you planning ahead should the economy take a downward turn, we start a series today on how to plan for a reduction in force (“RIF”).

Key to any successful RIF is understanding from the outset that this is a business decision. When making a significant decision concerning the management of the business, there should be a written business plan to support it. RIFs are no different. The most successful RIFs that I have witnessed have always started with a good business plan.

A good business plan is a document which does the following:

  1. Describes the current situation of the company;
  2. Describes the problem that needs to be addressed;
  3. Describes the options that have been considered;
  4. States why a particular option has been chosen; and
  5. Describes how the chosen option will be, in a general sense, implemented.

There are two good reasons why a proper business plan is necessary for the success of an RIF. First, it focuses the decision-makers on the business necessity of the RIF. Second, if a terminated employee ever challenges the legal basis for the RIF — for example, by claiming that it was intended to discriminate against a protected group — the business plan helps demonstrate to the EEOC, a judge, and maybe even a jury, the business necessity of the RIF.

Being able to establish the business necessity of an RIF is the first step in being able to defend its outcome. Without that written business plan, the company is left to descriptions by various witnesses (officers, executives, and board members) on the reasons for the RIF. Sometimes those witnesses will have different recollections, which might lead to the EEOC, a judge, or a jury to begin doubting the reasons for the RIF provided by those witnesses. It is best for the company’s management to get on the same page from the start, and preparing a written business plan is the best way to do that.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.