The tech industry has entered 2023 in dramatic fashion, starting the year off with a huge wave of industry wide layoffs that have impacted thousands of tech workers, in the U.S. and beyond. This dramatic correction comes just months after many of these same tech firms hired a large number of extra headcount in response to increased needs during the pandemic. Now, many of these same firms are expressing hiring remorse, messaging in most cases that the hiring that occurred during the heart of the pandemic was overdone.
A prime example of this trend can be seen with a mega tech company, who embarked on significant hiring during the global pandemic to match surging demand. “To match and fuel that growth, we hired for a different economic reality than the one we face today.”
According to tech job tracker, Layoffs, around 140,000 tech jobs were lost in 2022, and so far more than 94,000 workers in U.S. based tech companies have been laid off in mass job cuts in the first month of 2023 alone.
Undoubtably at play here, alongside the overzealous hiring issue, is the economic uncertainty being faced in 2023. Many tech firms are cutting costs ahead of a rumored widespread economic downturn. Layoffs are expected to continue through 2023, now impacting companies beyond the tech industry. With the threat of a recession comes a slowdown in tech purchasing at an enterprise. IT buyers are cutting back on corporate purchases. Even with many companies instituting a three day in the office requirement, the need for additional PCs in the home and other digital resources have been diluted. However, looking beyond 2023, some companies are strategically hiring and planning for growth with the thought that when things turnaround and there is demand in the future, they will be ready.
As we saw during the financial crisis 15 years ago, when mass layoffs occur, often what follows is litigation against the company undergoing such layoffs by those impacted.
For example, at the height of the financial crisis, EEOC charges had a dramatic increase of 15% from 2007 to 2008. While every major protected category saw an increase, the most notable were for age discrimination by 28.7% and retaliation. This increase in EEOC charges continued for the next five years until 2013 when charges started to slowly decrease. As such, history would suggest that an uptick in litigation surrounding employment related wrongful acts is quite likely. Often such litigation stems from challenges relating to methods used in deciding which employees to terminate, such as, negligent evaluation, wrongful termination, failure to employ or promote, allegations of employment contract violations, claims for severance and discrimination, particularly age discrimination asserting that the workforce reduction is designed to eliminate older workers.
Companies anticipating or having undergone recent layoffs can take steps to mitigate exposure to employment practices liability litigation. First, adherence to the requirements of the Worker Adjustment Retraining and Notification Act (WARN) is crucial. The WARN Act generally requires employers to give 60+ days notice when making mass layoffs or shutting down sites. Other steps employers can take is to ensure proper planning has taken place are as follows:
Alongside outside counsel, engagement with your Employment Practices Liability (EPL) broker early is important to ensure proper notifications are made under relevant policies. In some instances, it may be prudent to provide notices of potential claims to the EPL insurance carrier. This is typically a decision that is made on a case by case basis after review of the policy terms with your EPL insurance broker. In addition, if the EPL policy is coming up for renewal and there will be a change in carriers you will want to ensure that a review of the terms in both policies is conducted, particularly the definition of claim and the notice triggers under both policies.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
