Employee Rights and Employment Policy Journal

The downsizing process that has cost millions of jobs during the past decade is conducted under the aegis of a "downsizing plan" that is a technical legal masterpiece integrating a variety of labor and employment laws. The downsizing process is examined from the perspectives of Title VII, the Age Discrimination in Employment Act, state contract law and ERISA. Since the "business judgment" to conduct a downsizing has been correct less than fifty percent of the time, a thorough judicial review of both the decision to downsize, and the process used to carry it out is in order. Modern downsizing relies on a waiver of rights in exchange for severance pay to limit employer liabilities to those discharged. Such a waiver, planned in advance, has the same effect as a prospective waiver in reducing employer incentives to comply with legal standards. To avoid this risk, employers should include practical protections against discrimination in downsizing plans. This risk provides one reason why the 1990 amendments to ADEA concerning "knowing and voluntary" waivers should be applied under Title VII. 

Subjective judgments lie at the heart of the decisions as to which employees to retain in a downsizing. The article examines how the "disparate impact" doctrine applies to downsizing under both Title VII and the ADEA. The article also examines how state contract laws apply to these decisions. 

ERISA applies to downsizing because severance pay is used as consideration for waivers. Recent Supreme Court decisions expanding the substance of ERISA obligations and restricting the doctrine of ERISA preemption have improved worker opportunities to hold employers and other actors to their promises in connection with ERISA covered plans. The article examines the application of these newly announced principles to downsizing. 

The article suggests that a principle that employees are entitled to advance notice of serious and adverse personnel decisions is emerging under this body of law. Such a principle may provide protection for workers who are without union representation. A fair application of these laws should lead employers to include efforts to reduce or eliminate discrimination in the downsizing process and to support increased expenditures for employee retraining.