ezExplanation
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.
Scope
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).
Regulatory citations
- None
Key definitions
- None
Summary of requirements
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:
- Business process reengineering — Revamping product line or focusing on specific markets to increase or add value.
- Downscoping — Reducing product lines to expand on the profitable lines.
- Re-training workers — Retraining or cross-training employees to handle other priorities in the company that have a more positive effect on the revenue stream and allow labor force flexibility.
- Workweek adjustment/overtime reduction — Job sharing, reduction-in-hours, elimination of overtime, and job-“borrowing” where employees work in whatever areas need the extra help.
- Hiring freeze/reduction by attrition — Voluntary early retirement, hiring freezes, and not filling open positions.
- Negotiating wage and benefit concessions — The workforce may well accept wage and benefit reductions as an alternative to workforce reductions.
- Reducing layers — Organizations may consider eliminating layers of management or operations before reductions in the blue-collar workforce.
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:
- Provide as much advance notice as possible to foreign employees so that they can try to secure an alternate visa status. This may allow those foreign nationals to remain in the U.S. or to remain without spending time out of status.
- Be aware of the immigration-related obligations that apply to the organization based on the types of foreign employees being laid off. Different visa categories have different requirements when terminating employment. Failure to comply with these requirements could result in considerable financial liability for the employer.
- Consider if any changes in the workforce would affect an employer’s H-1B dependency designation. Changes in a company’s classification can substantially affect that employer’s legal compliance obligations.
- Understand how downsizing could affect prohibitions against displacing U.S. workers.
- Consult an immigration attorney if unsure of the issues involving foreign employees.
Steps in layoffs.
- Keep lines of communication open. Nothing feeds speculation and rumors more than a lack of adequate communication. Explain to employees the reasons for layoffs, how the layoffs will be implemented, and which jobs or departments will be affected. Make the communication two-way; allow employees the opportunity to ask questions and voice their fears.
- Explain the new strategy. Let the remaining employees know how the layoffs and restructuring will affect the company’s profitability and future plans. Make sure that employees know how their roles will affect the success of the strategy. Explain how work will be redistributed and how departments will be affected.
- Redefine and set goals. Redefine the company’s priorities according to the new strategy. Set realistic goals that will accomplish the priorities and explain how progress will be measured.
- Involve employees. Layoffs and downsizings often create fear and tension in the remaining employees, which can be alleviated by involving employees in the change. Employees will have important ideas to share about the work environment. Include employees in problem solving groups and transition committees.
- Rethink and innovate. Reengineer the business; look at things from a new perspective. Hire consultants if that is appropriate. If the company continues to do the same things in the same way, it will end up with the same problems that led to the first layoffs, only in a smaller size.
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:
- Good planning,
- Good communications, and
- Assisting departed employees to become re-employed.
This approach will result in the least amount of hostility in the downsized, help promote loyalty in the remaining employees, and minimize lawsuits.