We have all seen the headlines: plant closings; mass layoffs; reductions in force. In the first month of this year alone, nearly 600,000 jobs in the United States have been lost. In Virginia, nearly 6,000 jobs have disappeared during that same time period, hundreds in the Hampton Roads area. To some extent, every business is looking for ways to boost the bottom line, but figuring out a way to maintain high levels of quality and service while controlling costs may be the ultimate challenge.
For many companies, the greatest potential for cost savings may come from reducing the size of its workforce. The decision to discharge even one employee, let alone a group of employees is always difficult and emotional for the employer as well as the affected employees. This is true even when the reduction is essential to the very survival of a company.
Both the decision to lay off employees and the reduction itself can be fraught with pitfalls, legal and otherwise. Often times, in a rush to quickly affect the ledger sheet, companies are short sighted in their approach. If the process is not handled well, the anticipated cost savings may be eroded by lawsuits, a reduction in productivity, low morale among remaining employees, bad press and diminished customer loyalty.
It goes without saying that all reductions in force should be fully scrutinized to insure compliance with federal, state and local law, such as the Worker Adjustment and Retraining Notification Act, commonly know as WARN, Title VII of the Civil Right Act of 1964, the Americans with Disabilities Act (“ADA”), the Family and Medical Leave Act (“FMLA”), the Age Discrimination in Employment Act and, if releases will be part of a severance package, the Older Worker Benefit Protection Act. If a company has preexisting personnel policies or written guidelines for reductions in force, they should be followed to the extent practical. If a policy exists but it is no longer applicable, it should be revised accordingly. Where no written policy exists, companies should review past reductions in an attempt to minimize employee belief that those laid off previously were treated more favorably.
Lawsuits associated with reductions typically target the methods used for selecting employees for lay off claiming that one protected class or another was treated unfairly or discriminated against. Consequently, employers must pay close attention that appropriate selection criteria are established, documented and followed. But, developing and following the selection criteria is only half of the task. A procedure must also be developed to fully document the decision-making process. Legal counsel and/or Human Resources should conduct a confidential review of the entire group selected for reduction, comparing the group against the entire pool of employees to insure there is no disparate impact on a particular protected class.
While it is imperative for employers to develop, implement and adhere to certain legal strategies when contemplating a reduction in force, it is equally important to treat employees with dignity and respect throughout the process. An employee who believes he was treated disrespectfully is more likely to bring claims associated with the discharge. A well executed legal plan can better position a company to prevail if such a lawsuit is filed, but the manner in which employees are separated, and how the reduction is perceived by the public, customers and the media, may do as much if not more to reduce the risk of lawsuits being filed in the first place.
If the decision has been made to reduce the work force, before doing anything else, the company must articulate and document the business or budgetary reasons for management’s decision and the goals the company hopes to achieve. Initially, this may be a high-level, internal exercise, but the message developed will later be used to communicate to supervisors, employees and external audiences. The message must be easy to understand, but more importantly, it must be authentic. Managers need to appreciate the rationale behind the plan in order to support it. This is especially true for first line supervisors who often get the bulk of questions, phone calls and complaints. Everyone on the management team must be able to respond consistently with accurate information. Additionally, by describing the economic climate and other factors that motivated the need for savings and by outlining other money-saving options either adopted or rejected, employees are more likely to trust the decision, even if they do not like it.
Next, develop a comprehensive communications plan to deliver the defined message to all appropriate audiences including affected employees, remaining employees, customers, vendors/suppliers, trade and mass media, financial institutions, shareholders and government and community leaders. Establish a timetable for these communications to protect employees from rumors and leaks. Nothing will damage the trust employees may have in the company more than learning about the reduction from the media or other sources before the decision is officially announced.
While the scripted message will necessarily contain required legal notices and other objective information, humanize the delivery of the news by showing empathy for the difficulty of the situation, acknowledging the contributions of the work force and providing support and assistance to those who desire it. Meet with affected employees individually and inform them of their selection in private meetings using trained management personnel. If individual meetings are impossible due to large numbers, consider conducting meetings by department, shift or unit. This way affected employees are surrounded by familiar faces and not by strangers.
Be brief, consistent and direct as to the decision and the explanation, but do not be cold. Explain how and why the job was eliminated and specify whether the layoff is permanent or temporary. Outline any recall or rehire rights, available severance benefits, health insurance conversion rights, termination payments and transitional services, if available. Because employees will be shocked and understandably upset during these meetings, their ability to absorb the information may be limited. Therefore, be sure to provide all relevant information in writing and provide the name and contact information of a specific individual or individuals who will be available to answer questions going forward.
Carefully select the location and time of the announcement and meetings, taking into account the potential for emotional outbursts and even violence. Choose a segregated section of the building, preferably an area with a direct exit, so affected employees do not have to pass by their work area or large numbers of people after receiving the bad news. By allowing employees to maintain their dignity and to the extent possible, their privacy, negative reactions may be minimized. Additionally, consider having employee assistance professionals on site on the day of the announcement or available at a specific time and location later in the day or in the days following.
Many employers also provide outplacement services to help affected employees transition more easily to their new circumstances. These services can generally be provided at minimal or no cost either through private companies or in conjunction with state agencies. Employees, who are able to secure new employment or come to terms with their separation through the assistance of their former employer, may be less likely to bring claims. Where practical, employers may want to make follow up calls or send letters to affected employees, especially those who have not taken full advantage of the resources offered by the company.
Finally, do not ignore the needs of the employees who remain. At this time, perhaps more than ever, they need attention. These are the employees who will get the business through the difficult times and help meet the goals hoped to be achieved by the reduction. Many employees will have feelings of guilt if friends or family members were separated. Feelings of insecurity or fear of additional reductions are natural and should be expected. Still other employees may be resentful if they are required to take on a greater share of the work.
This is the time for members of management at all levels to be visible and vocal. Keep employees updated about the financial condition of the company and seek their input for other cost cutting measures. Let them know what is working and what is not. Look for low cost ways to recognize hard work and commitment such as publishing an employee’s name in the newsletter, distributing coupons for a free lunch or dessert in the cafeteria or by awarding movies tickets for a job well done. Host a brown bag lunch with a speaker on budgeting or conduct low cost meal cooking classes. Remember, based on the selection criteria these are probably the best and brightest of the workforce. Now is not the time to lose them to other jobs or mere complacency.
There is no way to fully protect a company from lawsuits following a reduction in force, but treating both the affected and remaining employees with sensitivity and compassion will go a long way to minimizing that risk. Although the impact of negative publicity is hard to calculate, the mishandling of such a significant event can erode confidence in your business among customers, shareholders and lending institutions. One of the few recession-proof assets a business has is its reputation. And, when the economy improves, that reputation earned during difficult circumstances, will speak volumes to potential customers and employees.