Managing Workforce Contraction During An Energy Slump: Frequently Asked Questions

As everyone knows, oil prices have sunk to a historic low for months. While that is good news for some people, many energy-related companies are now seriously considering workforce reductions and reorganizations in order to stay afloat. For example, in January, Schlumberger, the world’s largest oil field services company, announced it was laying off 9,000 people, and two other companies (BP and ConocoPhillips) announced hundreds of North Sea layoffs. Texas is one of the most economically-impacted states, as the energy downturn is predicted to result in the loss of over 140,000 jobs statewide.Unfortunately, failure to comply with various employment laws during a reduction-in-force (RIF) may lead to litigation or administrative penalties, negating the anticipated savings. In addition, energy companies have to “walk the line” during these cyclical slumps, as re-hire and recruiting will be a different concern once oil prices assuredly improve. To assist our clients in navigating this complex process, Thompson & Knight hosted a Compliance Lunch entitled “Falling Oil Prices and RIFs: A Roundtable Overview of the Most Significant Legal Compliance Obligations” last week to provide a generalized overview of the major issues associated with workforce reductions in the oil and gas industry. In case you missed this event (or didn’t take notes), we will address some common employer concerns arising from a RIF in the following weekly series:Severance and a Release of Claims: Practical ConsiderationsOne of the most common questions employers ask prior to implementing a RIF is whether a release of claims is necessary, and if so, how to structure the release.In Texas, there is no legal requirement that employees be paid severance upon discharge. That said, employers often choose to provide severance payments in exchange for a release of claims in order to foster goodwill and mitigate risk. Severance can take the form of anything, monetary or otherwise, that the employee is not already legally entitled to. For example, although severance is usually a monetary payment, employers may alternatively choose to offer equity acceleration payments, transfer ownership of the employee’s work laptop or cell phone, or waive pre-existing contractual requirements such as an employee’s non-competition obligations. In any event, companies should consider being generous when offering severance, especially if there is the possibility that the employer will need to rehire the employee once the economy improves.Generally, there are no “magic words” for releasing employment claims, with one exception. The Age Discrimination in Employment Act (ADEA) requires employers to follow strict procedures and timelines to obtain a valid release of potential age-discrimination claims from employees aged 40 years or older. When conducting a RIF, the ADEA requires that – among other things – an employer must give older workers 45 days to consider the release agreement and seven days to revoke their acceptance after they’ve signed it. In addition, a valid release under the ADEA must provide terminated employees over age 40 with a list of the ages and job titles of everyone in the “decisional unit” (i.e., the group of employees or department from which the layoffs were selected), as well as a statement of whether each employee in the decisional unit was offered a severance package. Employers who fail to comply with these requirements will not receive a valid release of age discrimination claims. It therefore is important to assess the risk of such non-compliance on a case-by-case basis. For example, if a RIF affects an entire department, the likelihood an employee will be able to assert a meritorious age discrimination claim is lower than in a situation in which employees are selected for a RIF based on subjective factors. *************************************Certainly, RIFs bring to light several complicated legal topics, and the above guidance and our related “Falling Oil Prices and RIFs: A Roundtable Overview of the Most Significant Legal Compliance Obligations” Compliance Program are intended to provide only a general overview of the common issues to aid in a basic understanding of the range of challenges and potential options. Next week we will address questions concerning whether your company needs to concern itself with the Workers Adjustment and Retraining Notification (WARN) Act during an upcoming RIF. Of course, we will be happy to address any complex issues or answer any specific questions you or your company may have at any time.  -Micah Prude, Thompson & Knight, LLP