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Layoffs, also known as reductions-in-force (RIF), are permanent or temporary reductions in a workforce population. In general, an employer is free to lay off or terminate employees as necessary due to business conditions, as long as the terminations are done in a non-discriminatory manner.
If an employer is large enough, and the layoffs will affect enough workers, the employer must comply with the provisions of the Worker Adjustment and Retraining Act (WARN).
Pitfalls of layoffs. Layoffs may not always provide the financial relief that the company may think it will. Some research indicates that less than half of all downsized companies achieved the desired reduction in company expenditures, with less than 25 percent showing any increase in productivity.
Layoffs can also result in a loss of key personnel. By cutting too deeply, a company can actually start to harm itself by removing needed expertise in critical areas. If the company workload is not lessened, the reduced workforce will only have to try to do more work with fewer resources.
If there is not a solid plan in mind for reorganizing the company after the layoffs, the company could just end up with a smaller version of what didn’t work before. There may also be a loss of institutional memory, and certainly there will be performance interruptions even if there is a temporary increase in revenues.
Alternatives to layoffs. There may be alternatives to layoffs that offer better options to some employers. Employers should consider alternatives to layoffs, such as:
Employer responsibilities. Layoffs in the workforce place certain requirements upon the employer with respect to continuing health coverage, vested retirement benefits, and unemployment insurance benefits. States do not require the payment of severance pay or other benefits to the employees who are being let go.
Foreign workers and layoffs. Employers facing layoffs should also consider the visa status of any foreign workers in their employment. In some cases, employers may be liable for travel or other financial responsibilities for those being laid off. Below are some general guidelines to keep in mind when developing the company’s layoff strategy:
Steps in layoffs.
Effects upon employee morale. When a company begins a program of layoffs, it rarely only makes one round of cuts. Usually there are waves of cutting, restructuring, and reorganization that create a tremendous amount of stress on the remaining employees. Often when further cuts are anticipated, it causes decreased productivity and poor morale.
In rare cases, the employer will face increased threats of, or incidents of, workplace violence. Some employees may just be looking for the axe to fall, while others may feel guilty about not being let go when co-workers had been, leaving an anxious and mistrustful group of survivors.
The remaining employees may lose respect for and allegiance to the company, and no longer be willing to trust information that comes from management.
Collective bargaining agreements. Collective bargaining agreements will further complicate the layoff scenario. Most such agreements detail the procedures to be followed for giving notice, recalling laid-off employees, and selection of those to be laid-off which must be followed. Unions may be willing to protect the number of jobs, while making wage and benefit concessions if necessary to keep members employed. Of course, at some point in the future the union will expect the members to be rewarded for making sacrifices for the good of the company.
After it is over. Studies have shown that following layoffs, the surviving employees exhibit predictable behavioral characteristics, including showing a distrust of management, and a drop in productivity and moral. Surviving employees may see the displaced employees as victims, especially if management has been seen to treat those employees poorly or without tact.
On the other hand, in situations where management has been seen to care for laid off workers, remaining employees may become even more committed and more loyal to the company.
Once the downsizing is complete, meet with remaining employees to discuss the future prospects of the company, assure them that their jobs are secure, explain how the company will maintain profitability, and answer employee questions and concerns.
Best practices. Companies should strive to reduce the amount of employee discontent through:
This approach will result in the least amount of hostility in the downsized, help promote loyalty in the remaining employees, and minimize lawsuits.