While every business would prefer to avoid the trauma of a RIF, unfortunately it’s an inevitable cycle that hits every organization at some point. A critical element when facing the prospect of a reduction in force (RIF) is planning and preparing extensively.
To implement a reduction in force (RIF) as quickly and humanely as possible, spend some time planning out how you will address all the relevant issues.
Here are 5 essential things to consider when planning reductions in force:
1. Are there alternatives to the reduction in force (RIF)?
Many companies choose to implement reductions in force without first considering if there’s anything less drastic that could work such as temporary pay cuts, reducing hours, freezing some benefits, implementing a company shut-down for an extended period around the holidays, forcing the use of vacation time, or consolidating offices, etc.
There are many, many alternatives that should be considered up front. Organizations implement reductions in force to preserve cash. So first consider whether there are other, less drastic ways to preserve cash.
When I was at PMC-Sierra after the dot.com bust we faced enormous pressure to cut expenses. One measure we took to avoid a layoff was to implement a company-wide shutdown for two weeks around the holidays. In doing this, we required employees to use their vacation time or allowed them to borrow vacation time if they did not have enough in their bank to cover it.
This saved us about a $1m a day and the employees loved coming back to the office after two weeks with no work piled up due to everyone being out. It was a very slow time of the year for our business so it worked. Later that year we did the same thing in the summer around the July 4th holiday. The key was giving our employees as much advance notice of this event as possible.
Due to the potential trauma and massive distraction and disruption they create for an organization, reductions in force should be a last resort after every other alternative is considered – and there are many to consider.
2. What is the reduction in force selection criteria and is it consistently applied?
Once you determine a reduction in force (RIF) is necessary, the next step is to identify your criteria for employee selection. The stated business goals should be used to clarify the criteria for selecting people.
For example, let’s say a stated business goal involves a change in business strategy that makes some functional departments less strategic or “core” to the business. In that situation, it would make sense to reduce headcount in the affected department per the stated business goal. People, both those subject to the layoff as well as the remaining employees, will always question the fairness of the selection criteria, so it’s imperative you have a sound rationale for who is selected.
Developing a consistent approach that is applied across the board will go a long way in reducing the risk of discrimination claims as well as the perception of arbitrary, unfair actions, which can have grave cultural consequences for your workforce.
Employers must use objective, business related criteria that can be easily explained to the organization (and third parties such as employee side attorneys), such as:
- length of service or seniority;
- a specific department or office location
- elimination of specific job functions or levels
- pre-existing job appraisal data and documentation related to successful performance of critical post-reduction functions
Employers should have a documented, objective comparison of employees where skills and job performance are the criteria in making layoff determinations.
Create and maintain documentation to support the decisions made in the layoff process. These records will be critical in the event of litigation challenging some aspect of the layoff.
3. Determine size of layoff and duty to WARN
Another key issue is determining the size of the layoff. There’s nothing worse for morale and productivity than a culture of fear and anxiety where employees are more concerned about another round of layoffs than in driving the business forward. If you have to do several rounds of staff reductions back to back, employees begin to lose confidence in the company leadership.
NOTE: Sometimes, employers make the mistake of decreasing the size of the layoff to avoid legal notice requirements of the layoff (as explained below). However, organizations likely lose more by experiencing successive rounds of layoffs than experiencing a single layoff. In the short term, it might be more painful, but if the size of the reduction is enough to help the company move forward, the collective acceptance of the action in the company is greater.
Depending on the size of your layoff, you may also have a state and/or federal duty to notify your workforce before you can execute the layoff.
The federal law is the Workers Adjustment Retraining and Notification Act (WARN), which requires employers with 100 or more employees to provide employees, bargaining representatives, and local government officials with 60 days advanced written notice of a mass layoff or a plant (or office) closing.
A mass layoff involves a reduction in force of at least 33% of full time employees and a minimum of 50 employees at a single site.
A plant closing involves shutting down a single location if it results in the layoff of 50 full time employees. Most states, including California, have their own version of the WARN act and are typically more protective of employee rights than the federal law.
For example, California’s WARN act covers employers with 75 full or part time employees and mass layoff means laying off 50 or more employees from a single site within 30 days.
In that situation, the employer must provide 60 days advance written notice to the affected workers, to the Employment Development Department (state administrative agency) AND to the chief elected official of the city or county in which the layoff is going to occur.
4. Conduct a layoff analysis for disparate impact
Once you’ve established your layoff criteria, decided upon the size of your layoff, and generated a potential list of affected employees, you need to conduct an analysis to determine if it will disproportionately impact a group of legally protected employees. For example: people over age 40, women, African-Americans, Latinos, etc.
An outside statistical consultant, HR expert, or legal counsel can assist in assessing the vulnerability of the layoff to claims of adverse impact. It is very important to have an expert validate your plans. Pay particular attention to the number of affected older employees and/or experienced salaried workers.
One tendency in looking for cost savings is to reduce payroll which often targets high salaried employees. Be careful that you are not disproportionately including older workers in this because it will inevitably lead to people believing age was a motivating factor.
Further, laying off the more experienced members of a department or team can save money but there may be a high productivity cost.
5. Severance and Release Issues
Typically, employers will provide some amount of severance — often based on a formula such as years of service and position/title. If offering a severance, it’s common to request the employee to sign off and release any and all claims against the employer in exchange for severance. As always, check your state and country laws when deciding what is appropriate for your reduction in force (RIF).
Severance is offered to help employees in large measure to have some financial security while they seek another position. While not mandatory, many organizations have a severance policy so that it can be consistently applied.
Many employers are generally familiar with the provision of releases to employees in the context of individual terminations. But many employers are unaware of the specific, heightened requirements for obtaining a valid release from employees over the age of 40 in the context of a layoff.
These heightened requirements are the result of the Older Workers Benefit Protection Act (OWBPA). Among other requirements, in the context of a group termination program such as a layoff, (1) employees over 40 must be provided with information about eligibility factors to participate and time limits of the program, (2) job titles and ages of all employees eligible or selected for the program, and (3) ages of all employees in the same job classification or organizational unit not eligible or selected for the program.
To learn more about how to plan, conduct, and recover from a reduction in force (RIF) without sacrificing your culture, download your free guide!