When financial challenges require employers to cut payroll costs, company leaders are left in the difficult position of planning a reduction in force. A recent case issued by the Ninth Circuit highlights the importance of having legitimate business reasons to justify a company’s decision on which positions should be eliminated.

In Merrick v. Hilton Worldwide, Inc., a 60-year old Director of Property Operations and twenty-year employee at a California Hilton hotel filed suit against the company after being separated during a reduction in force (RIF). The employee, Charles T. Merrick, alleged that Hilton’s decision to let him go constituted age discrimination in violation of California law. Hilton filed a motion for summary judgment, seeking to dismiss Merrick’s lawsuit because it did not offer evidence creating any genuine issues of material fact on the age discrimination claim. The lower court reviewed the evidence and agreed that the company had terminated Merrick for legitimate business reasons and that he failed to provide sufficient evidence to show that those reasons were pretextual for age discrimination. The employee appealed to the Ninth Circuit.

On review, the Ninth Circuit agreed with the district court’s ruling that Hilton had presented legitimate business reasons for eliminating the Director of Property Operations position. These reasons included the fact that (1) eliminating Merrick’s salary, which was the second highest at the hotel, would hit the payroll reduction number they needed by only eliminating one position; (2) property operations was neither a high revenue generator nor guest-facing; and (3) other customer-facing departments were already short-staffed due to previous RIFs.

Merrick alleged that these reasons were pretextual for discrimination by arguing that Hilton did not offer him a transfer to an Assistant Director position. He also alleged that the responsibilities of his position were deliberately mischaracterized by hotel managers who decided to eliminate his position, and that the company failed to comply with its own RIF guidelines in letting him go. The Ninth Circuit disagreed with these arguments. As to the first, the court noted that evidence showed that the Assistant Director position was not available at the time that Merrick was laid off. As to the second, the court noted that company management was entitled to make business judgments about what positions were revenue-generating and guest facing, so long as those judgments were not motivated by discriminatory animus. As to the third, the court noted that there was no evidence suggesting that any minor deviation from RIF guidelines were intentional.

Considering the foregoing, the court affirmed the lower court’s grant of summary judgment and dismissed Merrick’s case. If the company had not taken the time to develop legitimate business explanations for its RIF decisions, however, the outcome in this matter might have been very different. This serves as a reminder that employers should not act hastily when planning layoffs. It is important to take time to carefully weigh alternative courses of action and select the one that makes the most business sense without disregard for applicable law.