Resources

As tariffs continue to impact various industries (and, clearly, the stock market), employers must prepare for the ripple effects these economic pressures can have on workforce management. We’ve been warning and guiding employers for the last few months to prepare for tariffs, and many developed action plans in the event the tariffs went into effect. Now it appears they are here to stay. Unfortunately, the economic impact can be felt not only from the market’s bear status, but also from the significant increase of imported raw materials and goods, dramatically impacting companies’ bottom lines. When this occurs, companies look to improve finances and save for the future, and many will choose to reduce employee count/wages. These decisions must be carefully planned and reviewed for compliance.

A market downturn can lead to difficult employment decisions, from workforce reductions to compliance concerns. Below, we outline key employment considerations for managers and supervisors navigating these uncertain times.

1. Workforce Reductions & WARN Act Compliance

If your organization is considering layoffs or plant closures due to economic strain, be mindful of the Worker Adjustment and Retraining Notification (WARN) Act (including any state specific requirements). This federal law requires many mid-size and large employers to provide at least 60 days' notice before conducting mass layoffs or closures, including when they impact 50 or more employees at a single site. 

2. Reduction in Hours & FLSA Considerations

For employers reducing work hours instead of implementing layoffs, compliance with the Fair Labor Standards Act (FLSA) is critical. Non-exempt employees must still be paid for all hours worked, including overtime. Properly classified exempt employees, on the other hand, must receive their full salary for any workweek in which they perform work, unless they fall under a specific allowable deduction category. Many states also have specific requirements for prior notice before a reduction occurs. If an employer is going to be reducing employee wages, it is crucial to be cognizant of these requirements. 

3. Contractual & Union Obligations

Employers should review employment contracts and collective bargaining agreements before making staffing changes (including wage reductions, especially when promised in an agreement or contract). In addition, unionized workforces may have specific layoff procedures, recall rights, or severance obligations that must be followed. Failing to adhere to these agreements can lead to legal disputes and grievances.

4. Severance & Separation Agreements

If offering severance, ensure that separation agreements comply with federal and state laws. The Older Workers Benefit Protection Act (OWBPA) mandates that employees over 40 be given at least 21 days to consider a waiver of claims and seven days to revoke their agreement, except in cases of multi-employee layoffs, when additional requirements need to be met. Consider whether a severance package could mitigate potential litigation risks, as well as help employees navigate a period of unemployment.

5. Discrimination & Retaliation Risks

Employment decisions must be based on legitimate, non-discriminatory reasons. Workforce reductions that disproportionately affect certain protected classes (age, race, gender, etc.) may invite claims under Title VII, the Age Discrimination in Employment Act (ADEA), or the Americans with Disabilities Act (ADA). Employers should conduct a disparate impact analysis before finalizing decisions, including wage reductions and layoffs.

6. Employee Morale & Retention Strategies

Downsizing can negatively impact remaining employees, leading to decreased morale and productivity. Employers should communicate changes transparently, provide support resources, and consider retention strategies such as flexible work arrangements or professional development opportunities to maintain engagement.

7. Remote Work & Cost-Saving Alternatives

Before resorting to layoffs, many employers will consider whether to shift to a hybrid or work-from-home office, which could provide a cost savings without workforce reductions, when properly implemented, as this can help reduce office space costs, among other reductions. Employers should ensure any policy changes are documented and applied consistently.

8. Immigration & Work Visa Compliance

If a company employs foreign workers on H-1B, L-1, or other work visas, layoffs or reductions in force (RIFs) can have serious immigration implications. Employers must notify the Department of Labor (DOL) and USCIS in certain cases, and affected employees may have limited time to find alternative employment before being required to leave the country, potentially at the cost of the employer.

9. State-Specific Employment Laws

Many states have employment laws that go beyond federal requirements, particularly concerning the timing of final paychecks and accrued PTO payouts. Employers should ensure compliance with any applicable state or local regulations when making final paycheck decisions.

10. Unemployment Benefits & Employer Liability

Layoffs and reductions in hours may result in increased unemployment claims. Employers should evaluate and understand how unemployment benefits will impact their experience rating and state unemployment tax (SUTA) obligations. Some states also have work-sharing programs that allow employees to receive partial unemployment benefits while working reduced hours, in the event of an hour reduction.

11. Business Continuity & Succession Planning

If key employees leave due to layoffs or voluntary departures during economic downturns, businesses may experience knowledge gaps. Employers should have succession plans in place and consider cross-training employees to ensure continuity of operations.

12. Increased Litigation & Claims Risk

Periods of economic uncertainty often lead to a rise in wrongful termination, wage and hour, and discrimination claims, an increase that we’ve actually witnessed over the last 1-2 years and which is now sure to increase. Employers should document all employment decisions carefully and conduct layoffs in a legally defensible manner to reduce litigation risks. We also recommend consulting with HR and employment attorneys to evaluate such decisions to help limit potential liability in the event of employment-based litigation.

Conclusion

The employment landscape is shifting due to economic uncertainty, and employers must take a strategic and legally compliant approach when addressing workforce challenges. Consulting with legal counsel before making employment decisions can help mitigate risks and ensure compliance with applicable laws.

For further guidance on how tariffs and the market downturn may impact your employment policies, please contact our team today. Bryan Meek is a Partner at Brennan, Manna & Diamond, LLC and is the Co-chair of its Labor & Employment Division. Bryan may be contacted at 330-253-5586 or via email at bmeek@bmdllc.com.