Why Reduction in Force Cases Carry Legal Risk
With the recent spate of corporate downsizing, it is an opportune time to revisit the risks inherent in an improperly conceived and/or executed reduction-in-force (RIF). Even when an employer has a legitimate reorganization strategy or a need to cut costs, if the process even appears ad hoc, opaque, or biased, employees (and their lawyers) may infer discrimination. An organized and transparent execution of a RIF strategy will rarely result in litigation.
The Minnesota case of Engebretson v. Northern Tool is a case in point. There, a manager was directed to cut costs during the COVID pandemic. The manager was given full discretion to decide how to do so. That was a mistake. He decided to eliminate several positions he compiled no contemporaneous documentation of the factors he used to decide what positions to eliminate and what to retain.
One employee sued claiming disability discrimination and retaliation. The company defended the manager’s decision citing the employee’s lack of versatility and relatively short tenure, but this was documented after the employee made his claim, not before the RIF decisions were made.
The problem was that two years earlier, the employee developed some serious medical conditions, including pulmonary disease, and disclosed them to his employer and the manager. Thereafter, the manager (allegedly) reduced his interactions with the employee, took away key responsibilities, excluded him in certain communications, and became more critical on the employee’s performance evaluations, referencing “health issues.”
Then, when COVID hit, the employee requested and was granted permission to work remotely due to this health condition. Two months later, his position was eliminated.
The case went to trial and the jury found the company liable for disability discrimination and awarded the plaintiff $375,000 in damages. To make matters even worse for the employer, post-trial, the judge also ordered the employer to pay nearly 1.1 million in attorney’s fees and costs. With the employer’s own defense costs, this decision likely cost the employer well in excess of $2 million dollars. The Court of Appeals upheld both the discrimination verdict and more than $1 million in attorney’s fees.
It could have avoided.
Bottom line: Even when the business case for a RIF is real, the process can create liability if it’s poorly documented and poorly managed.
The Wrong Way: Red Flags from the Engebretson Case
The Engebretson record shows several “wrong way” signals that employers should take seriously:
- Unbounded discretion. A single leader made the decision with no consultation and no written criteria for selection. That kind of unchecked authority looks subjective and risky.
- Post-hoc rationales. HR asked for reasons only after the names were already chosen. Courts view that as reverse engineering, which undermines credibility.
- Performance and tenure claims without proof. If “versatility,” “skill set,” or “length of servicer” are cited as reasons, the file should already reflect them. In this case, the record did not.
- Risky context clues. Comments about health, sick leave, or “never missing a day of work,” along with closer scrutiny after the employee engaged in protected activity – asking for disability accommodations – appeared to have colored the decision.
Courts look at the whole mosaic, not just the stated reason for termination. The Court of Appeals upheld both the discrimination verdict and more than $1 million in attorney’s fees. The message is clear: RIFs live or die on process discipline and documentation.
The Right Way: A Defensible Reduction in Force Playbook
So, what does a defensible RIF look like? Employers can minimize legal risk by following a structured, well-documented approach and consulting with an experienced employment law attorney before finalizing the RIF list.
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Establish the business case first
Before any names are discussed, identify and document the financial or strategic drivers. That could be revenue pressure, restructuring, budget constraints, redundancy, shifting market demands. Obtain executive sign-off, define the scope, and lock in on a timeline.
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Define objective criteria at the position level
Start by clarifying organization-based factors, such as:
- Function of the position
- Current and forecast needs of the business
- Strategic direction and criticality of the position
- Interdependencies with other roles
Once those are set, add employee-specific factors that can be consistently applied across comparable members of your team:
- Verified performance history (ratings, KPIs, disciplinary records)
- Skills and cross-functional capabilities
- Ability to perform remaining work after the RIF
- Suitability for redeployment into other roles
- Compensation level (if considered, applied neutrally)
- Length of service and location
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Build a selection matrix
Create a matrix with pre-set weights and defined scales. Capture the source for each score, such as performance reviews or skills assessments. Require two levels of review (manager + HR/Legal). Finalize the matrix before any names are circulated.
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Run an HR and legal review, including adverse-impact analysis
One positions are chosen for elimination or restructuring, have the list vetted. This is where HR and employment law counsel add real value. For each proposed elimination, require decision-makers to defend their decisions to ensure that they are made in good faith and are defensible. Ask:
- What are the objective criteria that were used in making the selection?
- What is the rationale for the decision?
- Which employees in similar positions are being retained? Why were they not selected?
- Does the decision affect protected classes disproportionately?
- As was the case with Engebretson, are there red flags, like recent medical leave, a request for an accommodation, or a pending complaint that would qualify as protected conduct under discrimination or whistleblower laws?
If red flags appear, consider possible alternatives.
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Lock contemporaneous documentation
Once this is complete, finalize the business case, criteria, matrix, review notes, and approvals. Make sure you store them in immutable form. Avoid editing after the fact, to avoid suspicion of backfilling.
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Coordinate consistent communications
Draft scripts, FAQs, and notices that describe positions being eliminated, not people. Train managers on what to say (and what not to say). Severance agreements and benefits paperwork should align with the documented rationale.
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Preserve rehire and redeployment logic
If you have near-term openings, document whether and why affected employees are considered. Inconsistent rehire practices can undermine the RIF story.
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Train decision-makers ahead of time
A brief training can prevent offhand remarks about health, age, or leave that plaintiffs’ lawyers later use as exhibits. Managers who understand the legal stakes are less likely to make mistakes under pressure.
Quick RIF Checklist for Employers
If your company is planning a reduction in force, here’s a quick checklist to make sure the process is structured, consistent, and well-documented. Think of it as the minimum paperwork and preparation you should have in place before delivering any decisions.
- Written business case approved
- Position- and employee-level criteria defined
- Selection matrix completed with sources and weights
- Two-step HR/Legal review done
- Adverse-impact analysis documented
- Communications (scripts and letters) finalized
- Records locked in final form
- Manager talking-points training completed
Why This Matters for Minnesota Employers
Courts do not demand perfection, but they do expect a coherent, documented process that shows that a RIF was driven by legitimate business needs and objective criteria applied consistently.
The Engebretson case demonstrates what happens when those basics are missing: the business rationale may be legitimate, but the lack of process may invite a discrimination finding. And once the merits are lost, fee exposure multiplies quickly.
Final Thought: Process Is the Best Protection
A RIF is one of the riskiest employment actions an organization can take. But it does not have to end in litigation. The key is front-loading discipline into the process—documenting the business case, applying criteria consistently, running reviews, and locking the records before anyone delivers bad news.
Handled the right way, a RIF can serve business needs without creating legal exposure. Handled the wrong way, as Engebretson shows, even a cost-cutting exercise can turn into a costly legal battle.
If your business is planning a reduction in force, our employment law attorneys can help you design and document the process to minimize risk. Contact us today to start the conversation.
