Employers Laying Off Workers May Miss Red Flags for Bias Suits

An increasing number of companies have announced mass layoffs in recent weeks as a predicted recession looms, raising the threat of costly bias lawsuits where workers allege these employment decisions disproportionately hurt members of protected groups.

The cuts so far have been focused on tech companies including Google and Microsoft Corp., which recently announced layoffs of about 12,000 and 10,000 respectively. The layoff pain has also spread to finance and big banks like Bank of New York Mellon Corp. and is likely to also make its way into other industries in 2023, as economists peg the chances of a recession at as high as 70%.

In the year following the 2008 financial crisis, the number of charges of discrimination filed with the US Equal Employment Opportunity Commission increased by 15%, and later reached an all-time high in fiscal year 2011. History may repeat itself if employers rushing to cut costs don’t take measures to ensure reductions in force aren’t biased against protected groups.

Twitter Inc., for one, is already facing two separate lawsuits from women and disabled workers who say they were disproportionately impacted by the company’s mass layoff late last year.

Workers may bring discrimination claims if they’re part of a protected class that experienced a disparate impact due to layoffs or if they feel they were targeted for engaging in protected behavior, according to plaintiff attorney Douglas Wigdor of Wigdor Law.

“Savvy employers when they’re laying off hundreds or thousands of people oftentimes include someone they wanted to terminate but knew that if they did during prosperous times they would have a difficult time proving it was a legitimate termination,” Wigdor said.

‘Recessionary Discrimination’

Wigdor coined the term “recessionary discrimination” after the 2008 financial crisis and subsequent layoffs led plaintiffs to raise bias suits.

In 2010 he represented six former female employees who sued Citigroup Inc. in a high-profile proposed class action alleging the bank terminated thousands of women while retaining less qualified male colleagues in violation of Title VII of the Civil Rights Act and New York state law. That case was settled in 2013.

That was one of several lawsuits with multiple plaintiffs that stemmed from layoffs spurred by the Great Recession and alleged that a company’s practices had a disparate impact on employees based on race, gender, age, and other protected characteristics.

Wigdor, whose firm has also brought discrimination lawsuits around layoffs against companies like Equinox Holdings Inc. and Ernst & Young LLP, said it can be an uphill battle proving discrimination in a layoff context because the plaintiff has to prove they were terminated for a reason other than budget constraints.

“That’s another hurdle plaintiff lawyers need to get through,” Wigdor said.

One way plaintiff attorneys do this is by pointing to a statistically significant disparity among the class that believes they were discriminated against. In the complaint against Citigroup, the women pointed to the fact that they made up a smaller percentage of total employees at the firm but a nearly equal percentage of the people terminated compared to men.

Gender based discrimination claims crop up frequently when companies carry out reductions in force, but claims of ageism are also common.

Last month, a 49-year-old woman working at Esbenshade Farms sued the egg producer for allegedly targeting her during a round of lay offs caused by an Avian Flu outbreak. According to her complaint in federal court, the Pennsylvania-based company “used this as the pretextual basis” to get rid of non-Hispanic and older employees.

In any separation of employment, telling the employee exactly why they were let go can go a long way, according to Eric Meyer, a partner at FisherBroyles. Without that, it may be easier for a plaintiff to draw a connection between their termination and their being part of a protected class or taking part in a protected activity.

“The capstone of the termination of employment is telling employees why their employment is ending and being honest with them,” Meyer said. “When you start changing your rationale for terminating somebody’s employment that’s when things rise to jury trials.”

Objective Criteria

Employers concerned about employees citing discrimination in claims should establish an objective and neutral criterion for which roles they’re eliminating, like productivity or being part of a specific unit or location, according to Stefanie Camfield, a human resources consultant at Engage PEO.

“If you move forward without specific written criteria a court is more likely to consider arguments of discrimination as being the reason for the reduction in force,” Camfield said.

After deciding that criteria, management-side attorneys say companies should run the numbers and check if there are any disparate impacts. If, for example, an employer chose to eliminate senior roles, it’s possible older workers may be affected disproportionately, even if that was not the employer’s intention.

Not all bias lawsuits that arise from layoffs cite the cuts’ broader impact on protected groups in the workplace. Some plaintiffs who bring these suits claim they were included in a reduction in force in retaliation for workplace discrimination problems they already raised.

Raymond J. Berti, an attorney at Akerman LLP, said he asks clients to check and see if any employees who are being impacted by the layoffs are concerns for future litigation, such as somebody with an outstanding human resources complaint.

Alliance HealthCare Services Inc. faced a lawsuit in 2021 alleging that it terminated former account executive Kristen Paltz for complaining about pay equity among other issues under the guise of a Covid-driven round of layoffs. That case, which was also handled by Wigdor’s firm, was sent to arbitration in 2022.

“Of the employees who are being impacted by these layoffs, have any of them previously raised allegations of retaliation or discrimination? That might lead them to bring a claim—not unintentional disparate impact-type claim—but an actual intentional discrimination or retaliation claim premised on the theory that they are being selected for this mass layoff as pretext,” Berti said.

Aside from bias concerns, employers planning cuts may trigger the federal Worker Adjustment and Retraining Notification—which requires a 30-day notice for mass layoffs—or its state analogs, which may have heightened requirements. The company may also have contractual obligations with the affected employees, like paying them out for unused vacation days.

Employers may also run into trouble if they institute a “last in, first out” termination policy in which more recent hires are put on the chopping block. This type of policy could spur discrimination claims if there’s been a recent effort to recruit diverse talent, a move many companies have made in the last few years, according to Camfield.

“If you recently hired a lot of nontraditional or minority workers who haven’t worked for you for very long, they could be potentially disparately impacted by a last-in first-out termination policy,” she said.