Restructuring and Resizing the Workforce: Legal Issues for the California Employer

March 01, 2010

Since the start of the recession in December 2007, employers across the United States have faced tough economic conditions, in which survival depends upon the immediate conservation of cash, while at the same time reducing liabilities, avoiding litigation risks, and preserving the company’s future in the form of its human capital. The immediate need to reduce expenses resulted in widespread layoffs. Although the economy is showing signs of renewed life, the term “jobless recovery” – as evidenced by continuing job losses and double-digit unemployment -- is frequently heard. The impact of the recession is keenly felt in California, where unemployment rates topped 12 percent statewide in September 2009. In rural counties in California, unemployment rates have reached 20 percent. Meanwhile the number of high-tech jobs in Silicon Valley has decreased by over 16 percent since 2001.

Layoffs are not, however, the sole means that have been used by employers to reduce expenses. In a September 2009 survey conducted by of 400 human resource departments nationwide, 78 percent of the employers reported changes to their human resources policies affecting everything from work schedules to pay increases. A majority of the employers (53 percent) reported wage freezes, and the average merit pay increase was 1.5-2 percent – far lower than in prior years.

This paper discusses some of the legal issues surrounding the measures available to employers for restructuring and resizing the workforce, particularly in California. These measures include: hours reduction, pay and benefits reductions (including management of PTO and paid vacation accrual), temporary shut-downs, early retirement programs, as well as layoffs. 

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Reproduced with permission from HR Decision Support Network (Mar. 1, 2010). Copyright 2010 by The Bureau of National Affairs, Inc. (800-372-1033).