How One Hotel’s Layoff Misstep Led to a $749,000 Settlement
A Costly Oversight: How One Hotel’s Layoff Misstep Led to a $749,000 Settlement
A client of ours was referred to us after settling a lawsuit brought by four former employees who sued the company for failing to comply with its own layoff policies. The client, the COO of a boutique hotel in Hollywood, Florida, had to navigate a difficult workforce reduction due to economic shifts impacting their business.
The Background: Economic Shifts and Workforce Reductions
The hotel, known for providing affordable accommodations to international tourists—primarily from South America—participates in package tour arrangements. However, in recent years, several South American countries imposed restrictions on how much money their citizens could take out of their home country. This policy change indirectly reduced the disposable income of these travelers, leading to a decline in the hotel’s primary customer base.
To adapt, the company shifted its marketing efforts toward attracting tourists from Central America. However, with this transition came a necessary downsizing, leading to the layoff of 20 employees. This was the second major workforce reduction for the hotel, the first occurring in 2008–2009 during the Great Recession, which resulted in 26 employees being let go due to economic downturns.
The Root of the Problem: A Forgotten Policy
During the previous layoffs in 2008–2009, the company implemented a formal layoff policy to ensure transparency and structure. The policy clearly stated that layoffs would be determined based on tenure, allowing senior employees to replace less senior employees in the same or similar job classifications if they were qualified. This provision was designed to protect long-term employees and provide consistency in decision-making.
However, over 16 years later, the leadership team had changed significantly. Many of the original executives had retired, and with them, institutional knowledge of past practices and written policies had been lost. When it came time for the most recent round of layoffs, the new leadership team decided to use performance as the primary layoff criterion, aiming to retain top talent while transitioning their business focus.
This decision directly conflicted with the existing layoff policy. Unfortunately, no one in management was aware of the long-standing policy because it had not been regularly reviewed or documented in an accessible manner.
The Legal Fallout
Of the 20 employees laid off, four filed lawsuits against the company, citing noncompliance with its own policy. They argued that had the company followed its stated tenure-based layoff process, they would not have been let go. Upon reviewing the case, leadership quickly realized their mistake and opted to settle with the four employees rather than risk prolonged litigation.
To mitigate further risk, the company also offered additional severance pay to the remaining 16 laid-off employees in exchange for signing a release of claims clause. This clause prevented them from pursuing legal action against the company in return for extra compensation.
What initially seemed like a simple oversight ended up costing the company $749,000 in back wages, benefits, civil penalties, legal fees, and court costs—all due to:
A failure to properly document previous layoff proceedings
Inconsistent policy application
Lack of institutional knowledge transfer
Absence of regular employee policy reviews
Implementing Safeguards: A New Approach to Layoffs
Following the lawsuit, the company took immediate steps to prevent a similar situation from happening again. They partnered with Company Bridge Program to oversee their layoff procedures moving forward. Now, when an employee is laid off, our Transition Specialists guide managers through a structured Layoff Decision-Making and Documentation Process to ensure compliance and consistency.
Additionally, offboarded employees are provided with career transition support, including:
✔ Career coaching
✔ Resume modification assistance
✔ Virtual assistance for navigating next steps
This structured process ensures that layoffs are handled consistently, policies are followed, and management applies criteria uniformly. Most importantly, it helps maintain the company’s reputation, prevents legal exposure, and provides impacted employees with the necessary support to transition into new opportunities.
The Takeaway: Learn from This Costly Mistake
This case serves as a critical reminder of why policy documentation, leadership continuity, and compliance matter. Workforce reductions are difficult, but failing to follow established policies can lead to significant financial and reputational damage. Policies, when not followed, can become a legal liability. Here’s a guide to protect your business: Click here
If your organization is considering layoffs or restructuring, don’t leave compliance to chance. Book a free 30 minute consultation with the Company Bridge Program today to ensure your processes are sound, transparent, and aligned with best practices.
