If you're a startup founder or HR leader, chances are you've watched the wave of tech layoffs with growing concern.

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Over 95,000 workers at U.S.-based tech companies lost their jobs in 2024, and 2025 isn't looking much better, with around 401 layoffs already affecting nearly 95,000 employees in just the first half of the year.

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Nobody wants to let people go, but sometimes, it's unavoidable. Maybe funding dried up, your strategy changed, or market conditions forced your hand. Whatever the reason, if you're facing the difficult decision to conduct layoffs, you need to do it right.

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Getting it wrong can damage your company's reputation and make future hiring nearly impossible.

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Fortunately, there's a clear path through this process. While employment laws can seem overwhelming, following the right steps will help you conduct layoffs that are legally compliant and fair to your employees.

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This RIF compliance checklist breaks down everything you need to know to conduct a reduction in force without legal issues.

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Pre-Layoff Planning and Documentation

Proper RIF compliance checklist execution starts with thorough pre-layoff planning and documentation. This step protects your startup from legal challenges and demonstrates good-faith business decisions.

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Establishing Legitimate Business Reasons

Document clear, objective business reasons for your RIF, such as revenue decline, funding shortfalls, market changes, or strategic pivots. Avoid subjective performance-based justifications that could trigger discrimination claims.

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Financial data, market analysis, and strategic planning documents should support your rationale.

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Creating a Comprehensive Paper Trail

Build solid documentation through board resolutions authorizing the RIF, financial statements showing business necessity, and strategic planning materials. Include budget projections, cash flow analyses, and investor communications.

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This paper trail becomes important if employees challenge the layoff's legitimacy or question the selection criteria.

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Assembling Your Legal and HR Team

Engage employment counsel early (ideally before announcing internally). Your team should include legal counsel familiar with employment law, HR professionals experienced in layoffs, and executives authorized to make final decisions.

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Also, involve your startup's general counsel, outside employment attorney, and senior HR leadership.

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Timeline Considerations and Advance Planning

Allow 60 to 90 days minimum for proper RIF planning. This timeline accommodates WARN Act requirements, equity modifications, severance negotiations, and communication planning. Start planning immediately when layoffs become likely to prevent compliance gaps and legal vulnerabilities.

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WARN Act Compliance

The Worker Adjustment and Retraining Notification (WARN) Act is an important component of the RIF compliance checklist that requires employers to provide advance notice before mass layoffs or plant closures.

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When WARN Act Applies to Your Startup

The federal WARN Act applies when your startup has 100 or more employees and plans to lay off 50 or more workers at a single employment site within any 30 days.

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This includes full-time and part-time employees who have worked at least six months in the past year. Even if your startup doesn't meet the federal threshold, you may still be subject to state mini-WARN acts with lower employee counts.

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60-Day Advance Notice Requirements

Covered employers must provide written notice at least 60 calendar days before the effective date of layoffs. This timeline is non-negotiable and starts from the date employees receive notice, not when it's sent.

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Failure to provide adequate notice can result in back pay and benefits liability for each affected employee.

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WARN notices must be sent to three groups:

• Affected employees or their union representatives
• State dislocated worker units (typically state labor departments)
• Chief elected officials in the local government where layoffs occur

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Each notice must include the layoff's expected date, whether it's temporary or permanent, job titles and number of affected employees, bumping rights (if any), and contact information for additional details.

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Exceptions and State Variations

Limited exceptions exist for unforeseeable business circumstances and natural disasters, but these require meeting strict legal standards.

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Many states have enacted mini-WARN acts with different thresholds; California requires notice for 50+ employees with 75+ affected workers, while New York covers employers with 50+ employees laying off 25+ workers.

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Selection Criteria and Anti-Discrimination Compliance

Developing objective, defensible selection criteria ensures RIF compliance and protects your startup from discrimination lawsuits. Your selection process must be based on legitimate business factors, not employee characteristics protected by federal and state laws.

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Establishing Objective Selection Criteria

Create measurable criteria such as job performance ratings, skill assessments, attendance records, and business unit needs. Document these criteria before beginning the selection process, ensuring they directly relate to business objectives and future operational requirements.

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Avoiding Discriminatory Impact on Protected Classes

Federal law prohibits discrimination based on race, color, religion, sex, national origin, age (40+), and disability. Analyze your proposed layoff list for disparate impact on protected groups.

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If certain demographics are disproportionately affected, be prepared to justify the business necessity of your selection criteria.

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Age Discrimination (ADEA) Compliance

The Age Discrimination in Employment Act requires special attention when laying off employees over 40. Avoid using criteria that indirectly target older workers, such as "digital nativity" or "energy level."

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If your layoff disproportionately affects older employees, ensure your selection criteria are demonstrably job-related and consistent with business necessity.

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Disability and Pregnancy Protections

Under the Americans with Disabilities Act, you cannot select employees for layoffs based on disability status or perceived disabilities. Similarly, pregnancy discrimination is prohibited under Title VII.

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Employees on FMLA leave retain their layoff protections and cannot be targeted due to their leave status.

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Documentation Requirements

Maintain detailed records of your selection criteria, decision-making process, and rationale for each employee decision. Document all meetings, scoring matrices, and comparative analyses.

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This documentation becomes critical if you face discrimination claims or EEOC investigations.

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COBRA and Benefits Continuation

During a RIF, startups must manage complex COBRA compliance requirements to avoid penalties up to $110 per day per affected employee. Having a good knowledge of these obligations will help you maintain legal compliance during layoffs.

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COBRA Eligibility and Notification Requirements

COBRA applies to employers with 20 or more employees on more than 50% of business days in the previous calendar year. Qualified beneficiaries include terminated employees and their covered dependents who had group health coverage the day before the qualifying event.

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Startups must provide initial COBRA notices within 44 days of the layoff, containing specific information about continuation rights, premium costs, and election procedures.

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Timeline for COBRA Notices

The 44-day deadline for COBRA notices is non-negotiable and begins from the qualifying event date (termination). Late notices can result in significant penalties and extended coverage obligations.

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Startups should prepare COBRA administration processes before implementing layoffs to ensure timely compliance.

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Benefits Continuation Options and Employer Obligations

Employers must offer continuation of the same group health coverage previously provided, usually for 18 months. Premium costs can be charged to former employees at 102% of the full premium cost.

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Startups must maintain accurate records of coverage elections and premium payments while ensuring seamless coverage transitions.

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State Continuation Coverage Laws

Many states have "mini-COBRA" laws extending beyond federal requirements. California's Cal-COBRA covers employers with 2-19 employees, while New York requires 36 months of continuation coverage.

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Startups must comply with both federal and applicable state continuation requirements, often requiring coordination with multiple insurance carriers.

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Handling HSAs and FSAs

Health Savings Accounts remain employee-owned after termination, but employer contributions may cease.

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Flexible Spending Accounts require careful administration (employees usually have until the end of the plan year to use remaining balances, though a COBRA election may extend this period).

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Equity and Stock Option Considerations

Equity treatment during layoffs must be carefully planned to ensure compliance with securities laws. Your decisions here will impact your company's finances and employee relations.

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Vesting Acceleration Decisions and Board Approval

Any equity acceleration during an RIF requires formal board approval and proper documentation. Most equity plans require explicit board authorization for acceleration, even in termination scenarios.

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Consider partial acceleration for key employees to maintain goodwill while preserving cash flow. Document all acceleration decisions with a clear rationale to support potential future audits or disputes.

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Treatment of Different Equity Types

Different equity instruments have specific rules for layoff situations:

• Incentive Stock Options (ISOs): Terminated employees usually have 90 days to exercise vested options, though this can be extended to up to 5 years without losing ISO status if properly structured.
• Non-Qualified Stock Options (NQSOs): More flexible exercise periods, but carefully review exercise deadlines in your plan documents.
• Restricted Stock Units (RSUs): Generally forfeit upon termination unless vested, but consider acceleration for retention purposes.

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Tax Implications for Departing Employees

Equity acceleration triggers immediate tax consequences for employees. Accelerated vesting of ISOs may trigger Alternative Minimum Tax (AMT) liability. RSU acceleration creates ordinary income tax obligations.

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Provide clear written guidance about tax implications and recommend that employees consult tax professionals.

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Modification of Equity Agreements and Documentation

Update stock option agreements to reflect new vesting schedules and exercise periods. Ensure all modifications are properly documented and filed with the appropriate regulatory bodies. Consider offering extended exercise periods to ease the financial burden on laid-off employees.

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Communication Strategy for Equity Changes

Develop clear, written communications explaining equity treatment during layoffs. Address common questions about vesting acceleration, exercise periods, and tax implications. Provide individual equity statements showing vested shares and exercise deadlines.

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Also, host group sessions to explain complex equity provisions and ensure consistent messaging across all affected employees.

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Severance and Final Pay Requirements

Severance and final pay must be properly handled to ensure RIF compliance. Violations can result in significant penalties and legal exposure for startups.

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State-Specific Final Pay Deadlines

Final pay requirements depend on the state. California requires immediate payment upon termination, while Texas allows until the next regular payday.

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New York mandates payment by the next payday, and Massachusetts requires payment on the termination date. Startups operating across multiple states must comply with the most restrictive requirements to avoid wage and hour violations.

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Severance Plan Design and Legal Considerations

Severance plans require careful structuring to avoid ERISA compliance burdens. Implement individual severance agreements rather than formal plans to maintain flexibility.

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The main design elements include payment schedules, benefit continuation periods, and clawback provisions. Ensure severance calculations comply with state wage laws and don't inadvertently create additional legal obligations.

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Release Agreements and Age Discrimination Waivers

Release agreements must meet specific legal standards to be enforceable. For employees over 40, the Older Workers Benefit Protection Act (OWBPA) requires 21-day consideration periods and 7-day revocation rights.

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Group layoffs involving multiple employees over 40 trigger additional disclosure requirements about the ages and positions of affected workers.

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Accrued Vacation, PTO, and Other Benefit Payouts

Vacation payout requirements depend on state law and company policy. California treats accrued vacation as earned wages requiring immediate payment, while other states may allow forfeiture based on policy terms.

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Review employment agreements for specific benefit obligations and ensure payroll systems accurately calculate final payments.

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Continuation of Non-Compete and Confidentiality Obligations

Communicate which obligations survive termination. Non-compete enforceability varies by state, with some jurisdictions requiring consideration for post-employment restrictions.

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Confidentiality and non-solicitation agreements usually remain binding regardless of termination circumstances. Document these continuing obligations in termination communications to preserve enforceability.

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State-Specific Requirements and Variations

In addition to federal RIF compliance requirements, startups must also deal with several state and local layoff laws that often impose stricter standards than federal regulations.

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California's Additional Notice Requirements

California's WARN Act expands federal requirements, applying to employers with 75+ employees (versus 100 federally) and requiring notice for layoffs affecting 50+ workers within 30 days.

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The state mandates a 60-day advance notice to the Employment Development Department and local workforce investment boards. California also requires specific language in notices and imposes additional penalties for non-compliance, including back pay and benefits for up to 60 days.

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New York's WARN Act Variations

New York's WARN Act mirrors federal requirements but adds important provisions for specific industries. The state requires employers to provide notice to collective bargaining representatives and local elected officials.

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In addition, New York imposes stricter notification requirements for healthcare facilities and mandates posting requirements in multiple languages when applicable.

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Other State-Specific Layoff Laws and Regulations

Several states have enacted mini-WARN acts with different thresholds and requirements:

• Illinois requires notice for layoffs affecting 25+ employees at facilities with 100+ workers.
• Wisconsin mandates a 60-day notice for layoffs affecting 25+ employees.
• Massachusetts requires notice to the Attorney General's office.
• Connecticut has specific requirements for manufacturing facilities.

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Local Jurisdiction Considerations

Many cities and counties have implemented their layoff notification requirements. For instance, San Francisco requires a 30-day notice for layoffs affecting 50+ employees, while Philadelphia mandates notice to city officials for significant workforce reductions.

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These local laws often include additional penalties and specific procedural requirements that startups must carefully review.

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Post-Layoff Compliance and Follow-Up

Post-layoff obligations require ongoing attention to avoid legal issues and maintain your startup's reputation.

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Monitoring for Additional WARN Act Obligations

Track any subsequent layoffs within 90 days of your initial RIF. If combined workforce reductions exceed WARN Act thresholds, you may trigger new notification requirements.

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Document all employment changes and maintain records for potential aggregation calculations.

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Handling Unemployment Insurance Claims

Respond promptly to unemployment insurance inquiries from state agencies. Provide accurate information about termination reasons and any severance payments, which may affect benefit timing.

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Inconsistent responses can create legal vulnerabilities and increase your unemployment insurance rates.

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Managing References and Employment Verification

Establish clear protocols for reference requests and employment verification. Train remaining staff on approved responses to avoid inadvertent discrimination claims or defamation issues.

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Implement a neutral reference policy to minimize legal risks while supporting former employees' job searches.

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Addressing Potential Legal Challenges

Monitor for discrimination claims, WARN Act violations, or severance disputes. Maintain organized documentation from your RIF process and respond quickly to any legal notices.

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Simplify Your RIF Compliance with Chore's Expert HR Solutions

Handling layoffs is already one of the hardest things a startup founder will face. Adding complex legal compliance requirements on top of that emotional burden makes the process overwhelming.

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That's where Chore comes in. We’ve been through this process countless times and know exactly what needs to happen when. Chore ensures your selection criteria won't land you in legal issues. We can help you get those COBRA notices out on time, and handle all the paperwork that comes with equity changes.

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What's valuable is that you're not hiring a full-time HR person just for a layoff. You get access to senior-level expertise exactly when you need it, without the long-term commitment. Schedule a free consultation to learn more about how Chore can simplify your RIF compliance.

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FAQs

What is a RIF and when do startups need one?

A Reduction in Force (RIF) is a permanent elimination of positions due to business reasons like budget cuts, restructuring, or strategic pivots. Startups usually conduct RIFs during funding shortfalls, market downturns, or post-merger integration.

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How much advance notice do I need to give employees before a layoff?

The Federal WARN Act requires 60 days' notice for companies with 100+ employees laying off 50+ workers. Many states have additional requirements with shorter thresholds. Always check your state's specific laws.

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How do I avoid age discrimination claims during an RIF?

Ensure your selection criteria are genuinely job-related and apply consistently. If employees over 40 are disproportionately affected, document legitimate business reasons. Consider offering enhanced severance with proper age discrimination waivers.

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Do I have to offer COBRA to laid-off employees?

Yes, if you have 20+ employees and offer group health insurance. You must provide COBRA notices within 44 days of the qualifying event and allow 18 months of continued coverage.

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Am I required to provide severance pay?

Federal law doesn't require severance, but some states mandate it for mass layoffs. Even when not required, severance can help secure releases and maintain goodwill.

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