By Maggie Johnson
It’s said that employees are an organization’s most valuable asset. A stable workforce creates a workplace with no paranoia of job loss, high employee morale, increased knowledge and job skills, and higher productivity. Often, a company that has been recognized as a Best Place to Work has a stable workforce.
A stable workforce shows the leadership’s effective strategic planning. I met a CEO of a well- known New York-based, international financial services firm who told me that in more than 30 years of business, his company has never laid off an employee. He explained that this has been due to in-depth and far-sighted business and workforce planning, with consideration for possible changes and dips in market conditions. As such, his workforce doesn’t fluctuate. New positions are added when planned, consistent business growth levels are reached. At a conference, I heard a tech firm leader state that no one is ever fired at his company; the hiring selection process is rigorous; and in the event an employee’s work is shown not to be up to par, management is considered accountable for inadequate training or assimilation of the employee into the organization.
However, reductions-in-force (RIFs) and layoffs often happen these days as companies merge with or acquire other organizations, change and/or re-organize to become more competitive, or to cut labor cost when business is failing. “. . .[F]irms that are laying off are almost by definition in trouble,” says Peter Cappelli, management professor and director for Human Resources at Wharton University (How Layoffs Hurt Companies, April 12, 2016).
Whether you call a staff reduction a RIF or a layoff, the result is the same—employees have lost their jobs. The differences between the two are slight: a layoff may be classified as having the right of recall if the company’s conditions improve, and if the job or similar work becomes available. A RIF, on the other hand, may be classified as the permanent elimination of a particular job, department or division. In this article the terms RIF or layoff are used interchangeably.
For the laid off employee, the loss of a job is ranked number 8 out of 43 on the Social Readjustment Rating Scale (developed by psychiatrists Thomas Holmes and Richard Rahe), up there with life events such as the death of a close family member (number 5) and imprisonment (number 4). For the company, the following is an example list of RIF consequences. There may be several others:
- The cost of severance pay
- Loading surviving workers with additional work; thus, increasing overtime and burnout
- Increase in unemployment tax
- Increase in the number of resignations by surviving employees
- Low employee morale
- Potential lawsuits from laid off workers
- The loss of trust in management
- A lack of employees if your company rebounds
- Cost of seeking out and rehiring former laid off workers
- The surviving workforce, no longer loyal, who have lost faith in the company, and whose production is deteriorating
- The company seen as an unfavorable option for employees and potential clients or customers
Before swinging the proverbial RIF axe, consider if there are alternatives to a RIF or, at least, reducing the number of affected employees, such as:
- Eliminating all overtime
- Stopping all temporary work hires
- Eliminating bonuses and pay increases
- Enacting furloughs and reduced work schedules
- Negotiating pay reductions
- Offering early retirement packages
When you have concluded that reducing payroll costs and staff are the only viable option, make sure to include natural attrition (and how resignations will most likely increase after the RIF) in your staff reduction calculation. You should also focus on retaining the good reputation of the company following the staff reduction. One important step to accomplishing this is to simply treat laid off employees with courtesy and respect and by allowing them to leave with dignity.
A company’s budget will affect severance programs, the provision of outplacement services and so forth. But there are factors outside of financial considerations that can help to make a layoff less painful. Hopefully, your organization won’t have to lay off any of its employees, but if that day should come, the following is a list of suggested Do’s and Don’ts.
- Don’t be untruthful to the affected party about the reason for the layoff. For example, don’t tell employees that their job is eliminated because their job duties will be outsourced when you have no intention of doing so. Known lies create suspicion in the minds of laid off employees; those suspicions may then grow to thoughts of unlawful discrimination as the reason for the layoff, which could then result in you landing in a very uncomfortable legal hot seat!
- Don’t lay off an employee to curry favor with someone or for any other spurious reason. Be a good manager and reject office politics intruding into your prudent decision making.
- Don’t ever lay off an employee in revenge. Retaliation is illegal under federal and various states’ whistleblower acts such as New Jersey’s Conscientious Employee Protection Act of 1986 (CEPA). Don’t let a frail ego get you into legal hot water!
- Don’t lay off a highly proficient employee purely because his or her salary is more than you can currently afford. Try negotiating a pay reduction instead of losing expert talent only to replace it with a lesser-skilled, lower paid employee.
- Don’t layoff an employee because you think he or she is too old, too fat or too anything! Layoffs should only occur because of an honest, absolute job-related need to do so.
- Don’t engage in the drip, drip, drip effect. If you have to lay off a group of employees, get it done and over. Layoffs that continue every so often create fear among the workforce as they never know if they will be selected for the next round of job loss.
- Don’t layoff an employee and then hire someone else to perform his or her job. That is not a lay off due to a job-reduction factor. Instead, this appears as a pretense for an undisclosed reason for the termination of employment, possibly due to unlawful bias, which may raise legal red flags. Do not use the excuse of a layoff to terminate an employee whose work you are not satisfied with. If you have not done so, that employee should be given the opportunity to improve his or her performance by being given verbal and/or written guidance, a performance improvement plan, or warning in accordance with your company’s policy.
- Do make sure to give laid off employees all necessary information in writing pertaining to payroll, benefits, severance and COBRA. Some employees may be upset and not take in all of the information you are giving them when receiving the bad news. They may not think of or ask relevant questions. Make sure you let laid off employees know whom they can call at your company if they have any follow up questions.
- If possible, do give a period of notice to affected employees rather than an immediate layoff with Security walking them out the front door. A period of notice can help with a smoother transition of work; should help to allay fears and concerns of remaining employees; and may boost the reputation of your company as a thoughtful employer. If you are concerned that laid off employees who have been given notice may sabotage or steal company equipment, documentation or property, make sure to advise them both verbally and in writing that any such acts would result in their immediate dismissal without benefit of severance pay or references.
- Do make sure to comply with all pertinent federal and state law. For example, if you require the employee to sign a Release of Claims agreement in exchange for severance pay, make sure that laid off employees over age 40 are provided with a written disclosure form of the ages of all employees in the group or class who were selected or not selected for the severance program in accordance with the provisions of the Older Workers Benefit Protection Act of 1990 (OWBPA). The OWBPA also requires that applicable employees be given 21 days to consider the Release of Claims/Severance offer, which increases to 45 days when there is a RIF of two or more employees who are over the age of 40, and seven days to revoke the agreement after execution. In addition, make sure you understand and comply with any applicable requirements of the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act). It is advised that you consult your attorney about these legal requirements.
- Do call and/or email laid off employees when jobs at your company become available that they could likely perform. Don’t recruit and fill with a new employee before you make that call or send that email. You should not assume that your laid off workers have found other employment. Even if they have, they should be given the opportunity to return to your company.
- Do hold RIF meetings early in the week instead of Friday. Affected employees then have the opportunity to reach out to outplacement services (if provided), recruiters and other sources to immediately start their job search instead of waiting until the following week. Any layoffs early in the week also enables you to communicate with and monitor the effect on remaining staff and curtail unwanted speculation and gossip over the weekend.
- Lastly, do communicate with surviving employees shortly after the layoff. Don’t let them find out about the staff reduction through the office “grapevine.” Be honest in your communication. It is best to hold a face-to-face meeting to explain about the decision to lay off their colleagues and to answer their questions. Make sure to inform surviving workers that the work contributions made by individuals who were (or will be) laid off are appreciated. It is natural that your remaining employees will feel fearful and sad, which may affect productivity. It is your job to help them get past this event and to rebuild their morale and faith in management and the company.
You may have several Do’s and Don’ts of your own in addition to or instead of the ones listed above. If so, please feel free to share them, along with your thoughts on staff reductions in general.
I have more than 25 years of experience in HR Leadership that spans the healthcare,education and financial services industries. I also hold a law degree (LLB) with honors from the University of London and have SPHR and SHRM-SPC designation from HRCI and the Society for Human Resource Management, respectively.
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