The word “layoff” makes most of us shudder. No one wants layoffs to happen, yet occasionally they may be necessary. We’re going to take a hard look at what layoffs entail and how to manage them.
Ultimately, proper management will help your company and employees to recover.
Table of Contents
What are layoffs? This term, and several related ones, are often used without being clearly defined. Let’s examine what they each entail.
Layoffs vs. Furlough vs. Firing
Furloughs and firings differ from layoffs in key ways. Be careful not to use one term when you mean the other.
Layoffs are the involuntary termination of employees due to a lack of available work. The employee holds no fault in this situation. In some cases, layoffs are temporary—the company recalls the employee when business improves. However, there is no guarantee of rehire. Some employees who are laid off never return.
According to SHRM, the term “layoff” is often used incorrectly. In a layoff, the company hopes to rehire the employee after its situation improves. If it has no intention of rehiring, this constitutes a reduction of force rather than a layoff. That would be a type of permanent firing in which the employee does not hold blame.
A reduction of force can also stem from the choice to eliminate a certain position. In some cases, a layout can become a reduction of force if the company cannot rebound from tough circumstances as hoped.
Employees who are furloughed remain employed by the company. They stay on the payroll. However, they are required to take a mandatory leave of absence or a particular number of unpaid leave days, SHRM explains. The company may outline a specific schedule they must follow for this leave.
Their employment may be restored after the difficult financial period has passed.
A furlough can last for weeks or months, says The Wall Street Journal (WSJ). In some cases, the employee doesn’t work at all during that time. Furloughed employees in both Canada and the U.S. may be eligible for unemployment benefits.
A firing is a termination in which the company considers the employee at fault. In other words, the employee has done something to trigger the termination. For example, the employee might have displayed poor performance over a long period of time.
Reasons for Layoffs
The following can be signs that layoffs are coming.
Mergers and Acquisitions
These changes can cause substantial restructuring within a company. Elimination of some positions may result, causing layoffs. For instance, layoffs may weed out redundant roles, boosting efficiency and cost savings.
If your company is going through a major restructuring, discuss these changes with employees. If they don’t know what to expect, it could trigger career cushioning and voluntary departures.
If profits are dropping, a company could opt to downsize. This could be caused by an economic downturn. Or, it could result from changes within the industry that make the company less competitive. Technological advancements or offshoring among competitors are two examples.
“Because ‘people’ costs—compensation and benefits—typically represent half of a company’s total operating expenses, it is natural that organizations aiming to reduce expenses tend to focus on shedding employees,” explains SHRM.
Automation of Roles
If some roles or responsibilities are automated, layoffs could result. However, that’s not the inevitable result of automation. If business is high, the company might upskill employees for new roles.
Trends in Layoffs
The big tech world has been undergoing substantial layoffs in recent months. Companies like Amazon, Microsoft, Google, and IBM have laid off thousands of employees.
Some companies are undergoing mass layoffs due to overly ambitious hiring practices. “We hired for a different economic reality than the one we face today,” said Sundar Pichai, CEO of Google. As the economy seemed to bounce back during the pandemic, they ramped up hiring. But in many cases, those choices proved unsustainable.
Others postponed layoffs during the pandemic due to fears of negative publicity, Forbes notes. So, some of the layoffs we’re seeing today are simply postponed layoffs.
Alternatives to Layoffs
Consider whether layoffs are the best option before taking action. Rather than laying off some employees, companies can pursue other options:
- Shortening workdays (or weeks) for all staff.
- Furloughing some employees.
- Creating job-sharing arrangements.
- Changing some salaried roles to contract positions.
- Allowing voluntary attrition (not replacing employees who resign).
- Cutting certain benefits and eliminating business travel.
Such options can help staff collectively weather tough financial situations.
Logistics of Layoffs
Take the following steps in preparation for layoffs and during the process. By doing so, you’ll ensure compliance with relevant laws and support everyone involved.
Look at collective bargaining agreements and employment contracts. Make a note of any standing agreements to ensure compliance.
Determine Selection Criteria
Here are a few criteria you might consider when laying off employees:
- Employment status (part-time, full-time, etc.)
You can also use multiple criteria ranking, which assesses a range of components like attitude, abilities, and performance on a ranked scale, SHRM asserts. Be transparent about what criteria you use. Also remember that you cannot consider leave status (e.g., whether an employee is on family leave).
Make sure layoffs don’t adversely affect one protected class of employees more than others. These groups include people of particular races, ethnicities, abilities, genders, religions, and ages, for instance. Review your state or province’s labour laws, as well as national laws, for particulars. Otherwise, unconscious bias can erode advancements in DEI during layoffs.
Assemble a team to review “layoff candidates,” advises HBR—and budget plenty of time for this task.
Compensation and Benefits
Consider, based on laws and contracts, what pay and benefits you must provide.
Determine if you’re obligated to provide severance pay and for how long.
In Canada, employers must either give two weeks’ written notice about layoffs or pay the employee two weeks’ salary. (Mass layoffs have some additional requirements that we’ll cover later.)
Likewise, if you’re considering furloughs, make sure to comply with salary regulations. For example, in the U.S., an employee with “exempt” status, according to the Fair Labor Standards Act (FLSA), must be paid a salary while on furlough. However, there are ways around this, notes SHRM.
“A furlough that encompasses a full workweek is one way to accomplish this since the FLSA states that exempt employees do not have to be paid for any week in which they perform no work,” they explain.
After layoffs, U.S. employees typically lose their health coverage, notes the WSJ. However, they could continue their health insurance under COBRA (the Consolidated Omnibus Budget Reconciliation Act) while paying the plan’s costs.
In Canada, employees may have the option to convert employer-provided health insurance to a private plan while paying the premiums.
Continuing benefits for a set period of time can maintain a strong employer image. Consider whether you can afford to do this after layoffs.
During a furlough, employees could lose benefits if they don’t work a certain number of hours per week. Otherwise, they’ll often retain benefits. This depends on their contract with the employer.
RRSPs and 401Ks After Layoffs
In Canada, a group registered retirement savings plan (RRSP) can be moved by the employer to an individual account for a laid-off employee. The employee can opt to transfer these funds to another plan administrator if desired.
In the U.S., laid-off employees with a 401(k) can keep that plan with their former employer if they have over $5,000 in it. They can also move it to an IRA or to a new 401(k) with their next employer. So, review the amounts in their plans.
Look at the “vesting schedule” governing your 401(k) plans as well. Essentially, employees will always keep money they’ve personally put into their 401(k). But the vesting schedule determines how much of their employer’s contributions they’ll keep. This can vary based on time spent with the company.
Talk with employees you’re laying off one-on-one. Explain why you made this decision. Clearly present the criteria used and resources available to them (we’ll share more below). Give them time to ask questions as well.
In high-profile layoffs, companies often make public apologies, HBR notes. That hasn’t always been the case, but today, it strengthens their employer reputation. Make a statement to current and laid-off employees apologizing to those whom you’ve let go.
Provide Resources for Laid-Off Employees
Sharing the right resources can soften the blow during layoffs. Plus, it will help employees to thrive despite the loss of their job.
Guidance on Unemployment Benefits
In both the U.S. and Canada, employees are usually eligible for unemployment benefits after layoffs. Informing them about these benefits and how to apply will help them take prompt action.
Career Counseling Services
Connect employees with career counseling specialists. In some U.S. states, workers can connect with such services provided by the Department of Labor, for instance. These services include resume preparation assistance, career counseling, interview skills-building support, job search help, and help with unemployment insurance.
A Good Reference
Assure employees that you’ll speak highly of them if used as a reference for future jobs. Mention some of the abilities you’ll highlight.
Share tips on how to develop professionally in order to make themselves more marketable. You might suggest particular workshops, training, or conferences that could benefit them. Managers could even continue providing some level of mentorship to laid-off employees who want that support.
You may have colleagues who would love to bring these employees on board their company. Introduce them to these connections, especially if you doubt you’ll be able to rehire them.
Support Your Remaining Employees
After layoffs, remaining employees’ performance typically declines by 20%. And 74% of retained employees undergo a drop in productivity, Susan Peppercorn writes in HBR. They’re often dealing with uncertainty or “survivor guilt.” So, talk about these feelings in the open.
“The good news is that workers who felt that their managers were visible, approachable, and open were more than 70% less likely to report a productivity drop, and 65% less likely to report a decline in the quality of their organization’s offerings,” writes Peppercorn.
Use good performance management software to support these employees, too. These tools can help them focus on goals and build morale as they see their progress.
Managers who lay off employees carry a heavy burden. First, they have to deal with the guilt and stress involved. Second, they may have to carry a heavier workload to make up for losing staff. Today, managers are experiencing more burnout and quitting at higher levels.
Performance management software can help them work more efficiently, lowing stress and burnout.
Now, let’s review some particulars about handling mass layoffs.
Managing Complex Layoffs
Good management will benefit all those involved in mass layoffs, which involve special considerations.
Canadian law pertaining to layoffs of 50 or more employees within a 4-week period requires the following:
- Providing notification of termination 16 weeks in advance.
- Establishing a joint planning committee to prepare.
- Providing severance pay for those who have worked at least 12 consecutive months with the employer. They’re entitled to 2 days of wages for each year they’ve worked for the organization, or a minimum of 5 days of wages.
In the U.S., employers carrying out mass layoffs must comply with the Worker Adjustment and Retraining Notification (WARN) Act. This means doing the following, SHRM explains:
- Providing 60 days’ notice to employees you’re laying off.
- Stating the expected duration of the layoff (or whether it’s permanent).
- Explaining eligibility and procedures for rehire.
Now, let’s sum up a few things to avoid during the layoff process.
What Not to Do During Layoffs
Make sure all HR staff, leaders, and managers understand what to avoid during layoffs:
- Keeping employees guessing. Instead, tell them exactly what’s happening.
- Overburdening remaining employees. Don’t expect them to do twice as much work for the same pay. Instead, reprioritize duties.
- Act like everything is normal. Offer space for remaining employees to share their concerns and ask questions.
Handling this tough situation expertly will help employees to thrive moving forward. In some cases, the company might then be able to bring them back on board as circumstances change. Regardless, you’ll help keep your image strong by treating departing employees with respect and care.
Learn how performance management software can help avoid the need for layoffs. Request to demo our product today!
Disclaimer: Primalogik is not a law firm and does not provide legal advice.