Avoiding Age-Related Lawsuits

Driven by mergers or the simple imperative to increase profitability by streamlining their operations, banks are laying off employees by the thousands. As this happens, middle managers ranging in age from 40 to 65 are suddenly finding them-selves unemployed. Angry and frustrated, they are turning to the courts for redress -- oftentimes asking for large settlements based upon being the victims of age discrimination.

The Age Discrimination in Employment Act (ADEA), which dates back to 1967, made clear that employers cannot discriminate against any individual over the age of 40 in terms of pay, benefits or continued employment. If banks down-size without giving sufficient thought to possible legal ramifications, they could not only be the target of individual age discrimination suits, but class action suits as well.

In the current environment of extensive merger activity, managers are focused solely on the bottom line. Few are looking at the possible costs of employment litigation, as the ever-increasing numbers of age discrimina-tion suits attest. Indeed, the numbers are nearing epidemic proportions. This trend can and should be reversed -- but only if bank managers follow a specific course of action. I have outlined exactly what every prudent banker should do to avoid being the target of age-discrimination suits.

Prior to any downsizing that will involve layoffs, senior management should determine how many employees will be affected. The number should be based on purely economic or other legitimate busi-ness considerations. You must be very clear about your motives and goals. Next, calculate a timetable for the phased -- in implementation of a downsizing program.

As I noted earlier, there must be exact reasons for terminating employment, so establish perfor-mance criteria and standards for choosing which personnel will be laid off. Since personnel records can become evidence in any future litiga-tion, it is imperative that work perfor-mance records have non-discriminatory language that justifies the evaluation. There also should be an obvious level of consistency in all perfor-mance evaluations. In other words, do not judge one person by one set of criteria and another person by a more stringent set of criteria.

Workers with the weakest per-formance records should be dismissed first. Obviously, if someone is not performing up to corporate standards of productivity, that is an issue to be considered as long as other employees are evaluated by the same standards. And if two employees have virtually equal skills and performance records, seniority should be the deciding factor in any layoffs.

To further implement a successful downsizing, you may want to encourage early retirements. If an early-retirement strategy is going to be successful, it must offer an attractive set of incentives. Possible features include early and complete vesting in pension benefits, the maintenance of health care benefits after retirement, generous severance plans, counseling and training programs, and out-placement services. You might also want to retain "special" employees as consultants, although it's important not to run afoul of Internal Revenue Service scrutiny over misclassified employees.

In addition to those incentives, some of my clients have offered their employees ages 55 or older, and with at least 10 years of seniority at the time of retirement, severance packages that include 50% salary for two years. Such packages permit senior workers to plan for the future, while permitting employers to bring in the next generation of quality workers.

To further minimize any chance of age discrimination suits, employers should carefully explain the retirement option and then obtain a signed statement of the employee's understanding. Thereafter, the employer should obtain a signed release from any employee who willingly chooses early retirement. True voluntariness, combined with a valid release, will prevent the retiree from bringing suit under ADEA.

While many age discrimination suits are frivolous, many others are the result of short-sighted behavior on the part of employers. Successful downsizing strategies require intelligently designed tactics to insure success. prepared strategy will go a long way toward avoiding costly and time-consuming litigation.

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