With today’s troubled economy leading to downturns in many companies’ businesses, an owner’s first
instinct is often to cut back on a company’s
typically biggest expense: labor costs.
Businesses across the board are looking
to minimize expenses in these tough economic times, but as tempting as it may be to
cut labor, there are many reasons to consider alternatives, says Peter B. Maretz, a
shareholder with Shea Stokes Roberts &
Wagner.
“During the dot-com burst, companies
readily cut employees, and they came to
regret not being more creative,” says
Maretz. “There is an opportunity here not
just to keep quality people, but to build
employee loyalty, which is priceless.”
Smart Business spoke with Maretz about
how your company can avoid layoffs, and
how to handle layoffs if that becomes the
only option.
What can be done to avoid layoffs?
Even in the toughest of economies, there
are strategies you can employ to avoid layoffs. First, consider reducing hourly
employees to four-day workweeks, rather
than five. Keep in mind, however, that this
only works for hourly employees. If you try
to cut back salaried employees’ hours and
pay, you run the risk of turning them into
hourly employees, then you’re faced with
the risks of overtime costs.
What you can do with salaried employees,
though, is have them take one-week, unpaid
vacations, or have them take a modest 1 or
2 percent pay cut, being mindful of whatever contractual obligations you have with
those people. Your employees may be more
willing to take the unpaid vacations. While
that particular pay period will cause a financial crunch, their long-term finances would
stay the same. Also, many employees feel
that if they agree to a pay cut, they’ll never
get their salaries back up to where they
were, even if you tell them that it’s a temporary pay cut.
Other ways to avoid layoffs include cutting bonuses; scaling back or eliminating
overtime; monitoring spending on travel,
supplies and amenities; and cutting back on
company parties or picnics.
If you do have to lay people off, what factors
need to be considered?
First, consider federal and state Worker
Adjustment and Retraining Notification
(WARN) Acts. Under WARN, if you employ
75 or more people and are laying off 50 or
more in a 30-day period, or are relocating or
terminating operations, you must give a 60-day written notice to employees, the state
dislocated worker unit (such as the California Employment Development Board) and
the chief elected official of the city or county
in which the layoffs are occurring. Failure to
provide this notice will lead to hefty fines, up
to $500 per day. There are exceptions to this,
such as if you are in the process of raising
capital, as well as additional requirements,
so be sure to consult your labor counsel.
How should you go about laying people off?
If you’re forced to do layoffs, follow these
steps:
- Define clear, objective reasons for the
layoffs and communicate those reasons. - Centralize the process and don’t push it
down to department heads. Make sure the
message remains consistent. - Be clear on selection criteria — make
sure everyone knows who is getting laid off
and why. Seek out volunteers first with severance incentives, such as early retirement,
extended pay or covering COBRA costs. - Implement wage and hiring freezes.
- Clearly document every decision.
How do you decide who stays and who goes?
First, consider the company’s needs, and
then consider a merit-based approach where
the weakest performers are let go first. But,
keep people who are versatile, those who
can switch from department to department.
Independent contractors and consultants
don’t fall under WARN Acts, so consider cutting them, as well.
Be careful of claims of disparate impact.
Cutting the highest wage earners could mean
you cut a disproportionate number of older
workers, exposing you to an age discrimination claim. Keeping the senior most people
could expose you to gender or race discrimination claims if recent efforts to diversify
means women or people of color make up a
disproportionate number of your least senior
people. Plan your layoff carefully, being
mindful of the affected demographics.
Note whether any of your candidates for
layoff have had recent problems, such as
harassment claims, disability leaves, or general complaints about the working conditions. These people are not immune to layoffs, but you do have to make sure you define
a clear and defensible reason for laying them
off, or you may face a retaliation claim.
What should be done to calm the nerves of
the staff that remains after layoffs?
For one, don’t promise that the layoffs you
just did will be the only ones that will happen.
Let your employees know that you’re doing
all you can to ensure that layoffs won’t happen again. Also, highlight the other cuts you
made, especially ones made to management.
Even if cutting a management perk won’t
make a big difference financially, it will speak
volumes to your employees, who will see
that you’re all in the same boat.
PETER B. MARETZ is a shareholder with Shea Stokes Roberts & Wagner. He regularly advises businesses on all aspects of
employment law. Reach him at [email protected] or (619) 237-0909.
