Inside the layoff process

A look at what goes into an employer's decision to reduce its work force

In this March 22, 2011 photo, job applicants wait in a long line at a job fair in San Jose, Calif. (AP Photo/Paul Sakuma) In this March 22, 2011 photo, job applicants wait in a long line at a job fair in San Jose, Calif. (AP Photo/Paul Sakuma)

In today’s economy, smaller work forces are the reality, though reducing staff is typically the last resort, says Sheryl Kovach, president and CEO of Kandor Group, a human resources consulting firm in Houston. Cutting costs in other areas, such as overtime pay, salary, benefits plans, and other types of capital or equipment expenses, is usually the first course of action.

But sometimes a reduced work force can’t be avoided, especially in a poor economy.

Preparing for a work force reduction

Before a work force reduction, the HR department should be aware of potential legal issues, particularly concerning protected classes, says Jessica Miller-Merrell, CEO of Xceptional HR, an HR and social media consulting firm in Oklahoma City. Title VII of the Civil Rights Act of 1964 protects certain classes of employees based on categories such as race, nationality, sex, age and religion, and letting go only members from these protected classes can cause major legal problems.

“When you’re selecting a group of people to lay off, you want to make sure that the decision isn’t based on a protected class,” Miller-Merrell says. “Normally, you want to pull an analysis to see the groups of people you’re considering. What are their ages, sexes and races? You or at least your attorney want try to cover all of those bases before the manager even gets involved.”

Preparing a severance package is also a way to avoid potential legal implications, Kovach says. When a departing employee accepts a severance package, he or she signs a waiver that typically states the employee is accepting a monetary sum in exchange for not suing the employer for wrongful termination. Despite making this protective move, employers are not always clear of wrongful termination lawsuits.

“That waiver cannot be signed under duress,” Kovach says. “When a plaintiff challenges the enforceability and validity of the waiver they signed in exchange for money, there’s no law that regulates those waivers. It’s all determined by different case law throughout the different circuits in the U.S.”

Once the legalities are sorted, the HR department should decide how the layoffs will be determined, Miller-Merrell says. Typically, layoffs are based on performance or tenure, with the last employee being the first to go. If the layoffs are performance based, an HR department should be prepared to back up its claims. Miller-Merrell suggests having performance reviews and documented conversations ready in case there are disagreements.

Depending on the situation, an HR department must then decide if it will inform employees of the layoffs through group or individual meetings, Miller-Merrell says. If the layoffs are performance based, individual meetings are more appropriate while group meetings are typically better for controlling the message.

“During a group meeting, you’re sending the message all at the same time, so somebody doesn’t have to hear it from somebody else,” Miller-Merrell says. “With social media, text messaging and electronic communication, you can sit in someone’s office and give them the news individually that they’re being laid off, and the first thing they do when they leave the office is send out a tweet or Facebook message.”

The effects of work force reduction

After a work force reduction, there is often a negative shift in morale, and HR departments must be ready to handle the new employee attitude. Immediate communication from the senior leadership team should be delivered through a series of talking points that discuss the company’s future, Miller-Merrell says.

“You need to make sure that you are sending a specific message about what the future position of the company is and why changes are being made,” Miller-Merrell says. “Otherwise, employees will make up their own stories, and they tend to be creative.”

By not addressing the layoff, an employer could also lose some of its top talent to other companies, Kovach says, and employees who do stay may become disgruntled, which decreases productivity.

Naturally, many employees are scared they are next in the line if another round of layoffs hits, but these fears must be tactfully handled, Kovach says. Managers are often first confronted with layoff concerns, and they should be trained in handling possible situations without making any verbal promises.

“As a manager or HR representative, you never want to tell an employee, ‘Don’t worry. You’re fine. Your job is protected,’ because that can change the very next day,” Kovach says. “If you tell a person that and then they get laid off, you can potentially create an implied contract of employment, which can be challenged in court.”

Instead, Kovach recommends managers and HR professionals explain to employees that more layoffs are not anticipated, assuming that is the case. At this point, all an employee can do is focus on his or her job and better position the company for the future. 

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