California is an at-will employment state. (Every state but Montana is at-will.) This means that you can terminate someone for any reason or no reason, as long as it doesn't violate the law. So, you can terminate someone for wearing mismatched shoes, but you can't terminate someone for being pregnant. You can fire a pregnant woman for wearing mismatched shoes, but you better be able to show that you fire all people with fashion failures.
So, how could Yahoo possibly be facing a lawsuit for firing employees? There's no claim of discrimination. Just a claim that employees weren't fired, they were laid off.
What's the difference? It's more than just a label that you use to explain to people that you weren't at fault. It actually can trigger laws regarding layoffs. The Federal law is called the Worker Adjustment and Retraining Notification Act (WARN Act), requires businesses to give 60 days notice if they are laying off a significant portion of their workforce. The California version of this law kicks in at a much lower level. The New York Times says that 50 employees laid off within 30 days activates the California law, and 500 within a short time span activates the federal law. If the terminations activate these acts you either have to give employees 60 days notice or 60 days of pay in lieu of notice.
Yahoo fired over 1000 workers within a few months in 2014 and 2015, but they say they didn't lay them off. They say the people were fired for performance reasons. The plaintiffs claim they were laid off, not truly fired for performance.
While I'm not a lawyer, I'm pretty sure Yahoo will settle this case out of court. Here's why, and here's what you can do to prevent the same type of lawsuits should your business need to terminate a large number of employees.
Layoffs and firings are different. When you fire someone, it's because of their actions and what is going on in the rest of the company is irrelevant. The WARN Act says that for an action to be considered a firing and not subject to the WARN Act, it must be a separate and distinct firing. Because Yahoo was firing in groups based on a company-wide performance rating system, the firings were not separate and distinct.
When you fire someone, most of the time you bring in a new employee to replace that person. Your goal in firing isn't to reduce headcount, but to get rid of deadweight. In a layoff, the exact opposite is true. Your goal is to reduce headcount, and you're going to target the least productive members of your team to do so. From an outsiders viewpoint, that is what is going on at Yahoo. Headcount reduction is their goal. Therefore, the terminations were layoffs and subject to notification laws.
What you can do. It's rather unusual to activate these laws, as most businesses don't do layoffs large enough to trigger these acts. (Some states may have different laws.) If you fear you're coming close, you can offer 60 days severance to your employees to cover your legal obligations. Don't try to hide layoffs as firings, either to avoid paying higher unemployment taxes or to avoid triggering WARN and similar state laws.
Consult your attorneys before terminating. From this account in the New York Times, it is quite clear that Ms. Meyer did consult with attorneys prior to making her decision. They write:
Ms. Mayer has steadfastly refused to use the word "layoff" to describe the thousands of jobs eliminated since she joined the company. She even forbade her managers from uttering what she called "the L-word," instructing them to use the term "remix" instead.
That's the clear markings of someone who knows (or should know) that what she's doing is laying off employees, but she's hoping to do an end-run around the law. I suspect the courts will not be pleased with this.
What you should do. Don't play the language game. Fairly categorize your terminations. If you don't like the law, change who you vote for, don't try to break the law by calling it something different. Be honest with your employees about what is happening. If the law requires notification, give notification. When in doubt, err on the side of the employee.