Potential Perils in Workforce Downsizing: The Challenges of Compliance and Damage to Company Reputation
In the face of economic uncertainty, many companies are grappling with the difficult decision of layoffs. However, there are alternatives to this drastic measure that can help businesses cut costs in a more straightforward way, while also preserving employee morale.
One such alternative is to reduce the number of contract workers or offer voluntary separation packages. This approach can help avoid a reduction in force, which can lead to internal morale issues and reputation damage. These issues can be as costly as the economic forces leaders seek to mitigate.
When layoffs become necessary, it's crucial for employers to comply with all relevant laws. For instance, the Older Workers Benefits Protection Act (OWBPA) applies to workers aged 40 and over, and failure to comply can result in significant liability, including back pay and penalties. Similarly, the Worker Adjustment and Retraining Notification (WARN) Act requires companies to give written notice to employees, union representatives, and the local government at least 60 calendar days in advance of a mass layoff. Some states and municipalities, such as California, have their own additional WARN laws.
To avoid potential layoff-related litigation and impact analyses, employers should document the reasons for selecting employees for layoffs. These reasons must be legitimate, nondiscriminatory, and not related to retaliation. Direct evidence of discrimination should be avoided during this process.
Performing a disparate-impact analysis can help determine whether selection criteria are fair for all groups. Employers should also consider other laws like the Age Discrimination in Employment Act of 1967 (ADEA) and Title VII of the Civil Rights Act of 1964 before conducting a layoff. Compliance with these laws can be technical, and employers often fail to define the decisional unit correctly or provide job title and age information for the correct group of employees.
In addition to legal considerations, businesses must also consider the human effects of layoffs. Companies may take months or even years to return to normal productivity levels after a layoff. To mitigate these effects, employers should develop a clear, advanced communications plan to instil confidence in the plan and in the company's leadership among remaining employees.
Treating dismissed employees with respect and empathy is also crucial. This includes offering fair severance conditions and considering measures like early internal transfers and retraining for affected employees. Companies should also carefully consider how they treat unaffected employees to maintain morale.
GE Vernova, for instance, has publicly committed to seriously examining alternatives to layoffs to protect employees and maintain morale. The company emphasises support measures like early internal transfers, retraining, and fair severance conditions.
In 2021, nearly 700,000 people have lost jobs due to company responses to economic uncertainty. This trend is not limited to specific sectors, with many sectors, including federal government employment, retail, and consumer goods, experiencing job losses. According to a recent survey, about 45% of companies predict they will shed jobs this year.
In conclusion, navigating layoffs requires a balanced approach that considers legal, regulatory, and business impacts, as well as the human effects of layoffs. By exploring alternatives, complying with relevant laws, and treating employees with respect and empathy, companies can make difficult decisions in a way that minimises harm to both their employees and their business.
