Whatever term you use—downsizing, rightsizing, workforce reduction, or layoffs—this process is never easy, and most organizations consider it a last resort. While the primary goal is often cost-cutting, poorly planned reductions can have unintended financial and legal consequences.
Careful Planning Minimizes Risk
Although risks cannot be eliminated, thoughtful planning and execution can mitigate them. Before initiating a reduction in force (RIF), employers should ensure it is necessary by considering the following questions:
- What objectives will be achieved by downsizing?
- Is the primary purpose cost reduction?
- Is the goal to improve service quality?
- Is the intent to realign services and business structure?
If the primary objective is cost reduction, a lawsuit may challenge whether alternatives were explored before implementing layoffs. Employers should first evaluate other cost-cutting measures.
Alternatives to Layoffs
Reduction in Work Hours
While not ideal, reducing employees’ hours or workweek may be preferable to job eliminations.
Wage Freeze
Freezing or reducing wages can lower costs while allowing employees to retain their jobs.
Hiring Freeze
Pausing hiring before and during a workforce reduction can prevent resentment among laid-off employees and reduce the risk of discrimination claims. When critical positions must be filled, prioritize internal placements over external hires.
Additional Cost-Cutting Measures
- Reassign employees to available positions, including roles handled by independent contractors.
- Implement hiring freezes by restructuring jobs, facilitating job-sharing, or utilizing internal transfers.
- Reduce hiring needs through temporary employees or mandatory overtime.
- Offer voluntary, unpaid leave.
- Eliminate or reduce paid holidays and paid leave.
- Restrict or eliminate overtime hours.
Making Layoff Decisions
Use Fair Selection Criteria
Establish clear, objective criteria to determine who will be laid off:
- Seniority: Eliminating employees with less tenure can help avoid age discrimination claims, though it may mean losing valuable employees.
- Performance: Retaining top performers strengthens the organization but can expose decisions to claims of favoritism or bias.
- Compensation: Laying off the highest-paid employees is an efficient cost-cutting method but may disproportionately affect older employees, raising potential age discrimination and ERISA (Employee Retirement Income Security Act) concerns.
- Job Function: Eliminating specific roles rather than individuals can provide a more defensible approach.
Consider Severance Packages
If layoffs pose a legal risk, consult legal counsel on whether severance packages are advisable while ensuring compliance with ERISA and the Older Workers Benefit Protection Act (OWBPA).
Document Decisions
Thorough documentation supports layoff decisions and can serve as legal protection. Maintain records of:
- Board recommendations and meeting minutes.
- Justifications for downsizing.
- Selection criteria for layoffs.
- Specific reasons for each employee’s termination.
Communicating Layoffs
The Conversation
Plan the logistics: Who will deliver the message? What will be the employees’ last day? Will severance or COBRA benefits be offered?
When informing employees:
- Clearly explain the business rationale (e.g., funding cuts, economic downturn).
- Speak calmly, sincerely, and maintain eye contact.
- Anticipate questions such as “Why me?” and “Who will take over my responsibilities?”
Supporting Remaining Employees
Once layoffs occur, communicate openly with remaining employees and quickly reassign responsibilities. Expect a need for additional training.
Recognize that employees who remain may experience a “mourning period.” Foster a positive work environment by:
- Actively listening and minimizing criticism.
- Acknowledging and celebrating successes.
- Encouraging humor and maintaining trust through honesty.
As the organization moves forward, identify and support emerging leaders among the remaining employees.
Trust members can contact Gary Casey regarding potential unemployment charges related to layoffs and help for your separated employees with job outplacement services at no cost to you.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
