Whether you call it downsizing, “right-sizing,” a layoff or a work force reduction, one thing remains indisputably true: Letting employees go is one of the toughest things an employer ever has to do. Before moving forward with a reduction, employers need to consider all alternatives.
“Setting up a framework to consider a work force reduction is necessary; look at all these planning factors first,” says Kerry Davidson, an attorney in the Labor & Employment Service Group with Levenfeld Pearlstein, LLC.
Smart Business spoke with Davidson about how to ensure the reduction process runs smoothly.
How do you plan for a work force reduction?
The key is to never lose sight of the business reasons for the change. Is a business reacting to something short term? Is there a possibility of less drastic alternatives, such as reduced work schedules, unpaid leave alternatives, voluntary separations, hiring freezes, wage freezes or delayed capital expenditures?
First, trace the work flow. Determine what work is being affected without even thinking about what individuals could be impacted. Trace the flow of that work to see what job positions touch the work. Then, determine the impact on those particular positions. You may need to eliminate a single position, or you may have a flow of work that affects parts of many different positions.
What is the next step?
Determine how the remaining work will be done. Once you have considered all the positions that are directly and indirectly affected, then you can look at the individuals in those positions and define the relevant population of employees.
Next, you should consider your selection criteria. This may be based on seniority or ‘last in, first out,’ which is often the easiest and most defensible criteria. On the other hand, you may find this does not meet your business needs because you want to retain your best performers. Many employers then look to performance.
What are the possible mistakes business owners can make during a reduction?
One of the most common mistakes is failing to define your legitimate business reasons before looking at the relevant employee population. You can also have problems if you do not conduct due diligence to make sure your personnel documentation supports your selection criteria.
Additionally, you can run into trouble if you react too quickly or fail to consider alternatives. For example, there are state and federal laws that require prior notice of larger reductions. There are wage and hour laws governing termination payments. You may have contractual obligations based on a union relationship or written policies. If you want to pay severance in exchange for a release of legal claims, special waiver requirements may apply. Lastly, don’t forget that the key to effective rightsizing is retaining the appropriate work force.
How do you make sure company morale remains high despite the downsizing?
Morale is one of the challenges that employers face in rightsizing and downsizing. First, treat your departing employees with dignity and respect. So many lawsuits are filed not because an employer did anything wrong but because of the way the individual was treated at the end of the relationship. Second, poor morale can spread among your remaining employees if you fail to treat employees in a way that is perceived as fair or shroud your business decisions in mystery.
Communication is absolutely essential. What you say may need to be tempered by various laws and individual confidentiality concerns. On the other hand, you should be keeping people in the loop and giving them as much guidance and hope as possible, without making promises. If you’re doing reductions in several different waves, you should communicate when one wave is over and when you expect the next wave will be. In some cases, employers need to consider retention bonuses if there are key employees they really do not want to lose.
How can a decision-maker avoid making mistakes in the reduction process?
Employers need to see downsizing and rightsizing as part of ongoing succession planning. They need to ensure that it is part of their long-term goals.
Because so many reductions are based on performance or skill and ability, it’s key to document and stress performance issues when they arise. If there are performance issues, you should address them. If employees are not meeting your expectations, they should be warned. If they don’t respond to warnings, then they may not be the right employees for those positions. One of the keys to finding your ‘right’ size is to have the ‘right’ people doing the work.
The last way to avoid mistakes is ensuring that you reach out to an expert who understands the many laws that may apply and how these laws intersect and who has the practical experience to understand the many factors at play.
KERRY L. DAVIDSON is an associate in the Labor & Employment Service Group with Levenfeld Pearlstein, LLC. Reach her at (312) 476-7596 or [email protected].
