As an HR manager, one of the most undesirable aspects of the job that you will probably have to handle at some point is employee layoffs. Informing an employee that their position has been terminated can leave you with feelings of guilt and anxiety. It can also be challenging from a legal perspective, as there are a number of things to consider in order to ensure HR compliance.
Despite these obstacles, handling layoffs is part of the job, so it’s important to have a plan in place. This is especially true in the post-pandemic world as, according to a recent survey by PwC, 50% of executives claimed they were reducing their headcounts. In fact, tech layoffs alone have accounted for 73,000 terminations so far this year.
So, what’s the best way to handle layoffs? Should you offer severance pay? And are there any alternatives to layoffs that you could consider?
Table of Contents
Table of Contents
The difference between layoffs, firing, and furlough
Let’s start by clarifying the difference between layoffs, firing, and furlough.
A layoff is when you terminate an employee’s position through no fault of their own. Layoffs usually arise when a company is experiencing financial difficulties. You may need to pay laid-off employees a severance package, although this will usually depend on the terms of their contract.
Essentially, laying off employees is a strategy used to downsize the workforce in the hope that a business can overcome financial difficulties by cutting costs. The decision obviously affects the employees in question, but it can also have a negative impact on a company’s reputation. What’s more, in the case of mass layoffs, they can damage the economy of the surrounding community, especially in smaller towns that are primarily dependent on a single employer or industry.
In contrast, when you fire an employee, it is usually because of unacceptable or unethical workplace behavior (such as stealing or harassment), a breach of duty, or underperformance. The only exception to this is if you hire at-will employees, as you can fire these types of workers without any valid reason.
Finally, furlough is when you temporarily suspend a worker’s employment but maintain their job title and employee benefits. If you work in manufacturing, for example, this might be a short-term measure you resort to while you undertake plant repairs. Or, as many industries experienced recently, as a result of a global halt in the economy resulting from the pandemic. When you furlough an employee, your aim is to reinstate them as soon as circumstances return to normal.
Reasons for layoffs
As we just mentioned, layoffs are usually implemented as a last resort in order to save a company that is experiencing financial difficulties.
There are a number of reasons why this might occur:
- A reduction in customer demand: If a company experiences a drastic drop in sales, then it will have a direct impact on a company’s cash flow. Layoffs can help to redress the balance by reducing costs in line with anticipated revenue loss.
- Economic downturn: If an economy is going through a financial depression or recession, it often results in a number of industries having to lay off employees in order to break even and stay in business.
- Corporate restructuring: If a company goes through a major restructuring process, then it can often lead to a number of layoffs. These usually relate to positions that have become obsolete. For example, you might automate certain duties if new technology becomes available. As a result, you may no longer require certain positions in your organization (robotics replacing factory line workers, for example).
- Product changes: If a company’s product line changes in line with evolving customer demand then it can result in changes in an organization. For example, you might need to hire new teams with new skills and replace existing teams who were working on discontinued products.
Best practices for HR teams
Now it’s time to get to the heart of the matter: what you can do to improve your internal processes so that you can handle potential layoffs as smoothly and delicately as possible.
Let’s take a look at 7 essential best practices that you and your HR team should be following.
Explore alternatives first
It’s important to remember that layoffs should always be a last resort. If you are considering laying off one or more employees, then it’s always best to consider your options carefully. You never know – there might be another viable solution that can help your company stay afloat without letting go of staff permanently.
The first thing to consider is the impact laying off an employee might have on your business. Reducing costs is all good and well, but if the employee is a major player in your business, then their leaving is bound to have an impact on overall productivity. How valuable are they for your business? Will you need to replace the role further down the line once the business is on a more secure footing? These are all important things to consider before you make a decision.
Alternatives to layoffs
It’s also vital that you evaluate if there are any viable alternatives to layoffs that might work for your business.
- Furlough: This could be a good solution to address short-term cash flow issues. You can still save money, but you won’t lose your staff permanently. For example, you could encourage furloughed employees to work a reduced schedule or take unpaid leave whilst still maintaining their employee benefits. They can then rejoin on a full-time basis once the company is in a better financial position.
- Job sharing: This is where two employees share duties that would normally be performed by one full-time employee. That way, you can still offer both employees a position in the company and provide them with a reduced but stable income instead of laying off one of them permanently.
- Pay cuts: If you opt for this solution, make sure pay cuts are agreed on and you implement them fairly across the entire organization. Although a pay cut will always hurt, you can still offer employees the stability of a permanent salary.
- Temporarily reduce perks or benefits: This can buy you some extra time to turn around your finances without having to let anyone go. For example, you could charge employees for meals that were previously free. Or you could encourage videoconferencing instead of business trips or pause the company’s 401(k) match.
Stay compliant (federal and state legislation)
Another important aspect to consider is making sure your layoffs are compliant with federal employment laws and state legislation. Layoffs can be a legal minefield so it’s important to understand your obligations as an employer to ensure HR compliance.
Make sure you read up on the following employment acts and include any requirements in your HR compliance checklist. That way, you can avoid any claims of unfair dismissal or any potential legal issues.
- The Worker Adjustment and Retraining Notification (WARN) Act. This is a federal law drafted to ensure workers are provided with sufficient time to prepare for the transition between their current jobs and new jobs. If you hire 100 or more full-time workers and you intend to lay off at least 50 at a single site, then you must provide said workers with a minimum of 60 days’ advance written notice of mass layoffs.
- The Immigration Reform and Control Act of 1986. According to this federal law, you must not knowingly hire employees who are not authorized to work in the US. However, if you do hire unauthorized workers then, once they are employees, most federal employment laws relating to layoffs will apply, regardless of citizenship or immigration status.
You also need to consider the following federal statutes that protect workers against discrimination:
- Civil Rights Act of 1964 (Title VII)
- Age Discrimination in Employment Act (ADEA) (1967)
- Americans with Disabilities Act (Title I) (ADA) (1990)
- Fair Labor Standards Act (FLSA) (1938)
- Occupational Safety and Health Act (OSHA) (1970)
- Family and Medical Leave Act (FMLA) (1993)
- Equal Pay Act (EPA) (1963)
- The Immigration and Nationality Act (INA) (1952)
Finally, make sure you check your own state’s labor and employment laws to ensure HR compliance.
Have a communication plan
Make sure your internal communications policy includes a clear communication plan in the event of layoffs. Essentially, you need to outline how you will inform employees of layoffs, and the official procedure that you will follow.
Your communication plan should include the following information:
- The process for notifying employees that they have been laid off, and the possible reasons you will give for letting an employee go. Generally speaking, you should break the news during a face-to-face meeting with the employee in question. You should then send the employee a follow-up email detailing everything that you discussed in the meeting.
- How layoffs will be officially communicated internally to the remaining workforce. It’s important to be transparent here and inform the general workforce of layoffs as soon as possible. This will help to quash any potential rumors that might affect overall morale and productivity.
- Who will be responsible for drafting official press releases, and the information that will be disclosed to the media.
- In the event of restructuring, which departments and positions will be affected and the criteria for selecting cuts.
- Whether laid-off employees will be eligible for severance pay (more on this below).
Be aware of adverse impact and disparate treatment
According to the EEOC (Equal Employment Opportunity Commission), adverse impact is defined as: “a substantially different rate of selection in hiring, promotion or other employment decision which works to the disadvantage of members of a race, sex, or ethnic group”. This includes layoffs.
Disparate treatment, in turn, is when a company intentionally discriminates against protected classes using business policies. Title VII prohibits intentional discrimination based on race, color, religion, sex, or national origin.
To avoid potential discrimination claims that could damage your reputation, make sure your layoff policy includes the necessary provisions so that protected groups are not disproportionately impacted. The best way to do this is by using the four-fifths rule to see if you are laying off a high number of employees from protected groups. If you are, then you need to reassess your policies accordingly.
You can find out more about adverse and disparate impact here:
Consider severance pay
According to US employment law, you are not legally required to offer severance pay to laid-off employees. The only exception to this is if you explicitly included it in a worker’s employment contract.
Despite this fact, most companies choose to offer a modest severance when they lay off employees. This is because it can show departing employees that you respect and value them. And this, in turn, can prevent them from potentially damaging your reputation as an employer. Plus, it leaves the door open for departing employees to potentially return at a later date. Offering severance pay can also help to reassure existing employees that you have their best interests at heart.
In terms of what to offer in your severance pay package, there is no “one-size fits all” solution. The lump sum you offer a departing employee will depend on what you stated in their contract (if a severance pay clause was included), your industry, the size of your company, and an employee’s position and level of seniority. Most employers will also include any accrued vacation time and unreimbursed expenses, if applicable.
In terms of benefits, by law, employers of a certain size must offer the opportunity to continue health insurance coverage under the company’s plan at the departing employee’s expense. You could also offer to extend an employee’s life and disability insurance coverage for a defined period of time.
Provide support and assistance during layoffs
Make sure you offer laid-off employees as much support and assistance as possible. After all, this is likely to be a difficult situation for them. This means showing empathy, listening to what they have to say, and answering any questions they might have. It also means dealing with any emotional reactions sensitively if the news has come as a surprise.
You should also offer to help them in any way you can at a professional level. For example, you could include outplacement support in your severance package. This is where you help laid-off employees with their transition into another employment. You could offer them guidance with their resume and interview coaching. You could even put them in touch with recruitment agencies and networking events if the employee feels that it would help. Ultimately, you want to help make the transition run as smoothly as possible.
It’s also important to create the right environment for delivering the news. Arrange a meeting where you will have privacy and plan for uninterrupted time. Also, make sure the employee’s direct manager is aware of what’s happening so that they can provide them with support after the meeting.
Support remaining employees during layoffs
Finally, it’s important to support your remaining employees during the process. Layoffs are always unsettling for organizations. Your employees are likely to be worried about their laid-off colleagues and also concerned about their own job security. Make sure you’re as open and transparent as possible throughout the entire process. Hold a meeting with all your staff once you have notified the relevant employees that they are being laid off. Explain your reasons in as much detail as you can and reassure your workforce that the decision was difficult but necessary. Make sure they understand that their jobs are safe. And remind them that you are there to answer any questions that they might have.
Ultimately, make sure all your managers adopt a unified approach with consistent messages. This will help you avoid any further disruption during an already difficult process. The better you and your managers handle your layoffs, the easier it will be to grow as an organization moving forward.