Deciding to Do a Layoff
Companies that consider layoffs are usually trying to cut costs in order to dig the company out of a hole or make it more profitable. But keep in mind that layoffs can be costly in other ways. For example, the company may have to pay severance packages, remaining workers’ productivity and morale may decline, and the company might even be faced with a lawsuit, depending on how the layoff is conducted.Given the risks, companies should carefully consider whether they really need to conduct layoffs and whether they can do so legally.
Consider Alternatives to Layoffs
In some cases, less painful alternatives can do the trick. These might include:
- a freeze on hiring, promotions, or pay raises
- a freeze on filling positions left vacant when employees leave voluntarily
- cutting other costs
- pay cuts
- asking employees to take time off or reduce their hours
- reducing authorized overtime, or
- providing voluntary termination incentives to allow employees to decide whether to quit in exchange for a package of benefits.
Avoid Legal Problems
If you’ve considered the alternatives and a layoff is still your best option, make sure you are on solid legal ground before you do anything. In order to avoid legal trouble, do the following:
Have a legitimate business reason. Your company should have valid, business-related reasons for the layoff. Otherwise, you invite lawsuits from disgruntled employees. A decrease in sales, loss of a credit line, or overstaffing are legitimate reasons for a layoff; trying to get rid of older workers or punishing union supporters are not.
Check written personnel policies. Some companies lay down their own specific rules as to when, and how, the company may conduct a layoff. Know the rules and follow them.
Review actual policies and past practices. Even if your company doesn’t have written policies regarding layoffs, it may have established a company policy by actions or statements. For example, if a company has always paid severance to workers it laid off in the past, it may have to do so now.
Check employment contracts. If a worker has an employment contract with the company, check it carefully to make sure you can lay off the worker for economic reasons. The contract also might require severance.
Review collective bargaining agreements. If the workplace is unionized, check the collective bargaining agreement for any limits or rules on laying off workers.
Consider offering severance or other termination benefits. Even if the company is not required to offer severance or other termination benefits, consider doing so anyway. It’s a good way to show laid off employees, retained employees, and the general public, that the company values the workers’ contributions and is concerned for their welfare.