Small Business

A Better Way to Handle Layoffs


To ensure objectivity and avoid wrongful termination suits, employers must have a valid reason and document it before approaching employees

With an economic downturn, downsizing often follows. Unfortunately, employers who trim their workforces may be vulnerable to wrongful termination litigation if they don't adopt fair employee practices and document termination procedures, says Aleicia Latimer, associate general counsel and human-resources services manager at AlphaStaff Group of Fort Lauderdale. Latimer spoke recently to Smart Answers columnist Karen E. Klein about how planning and procedure can help small-business owners get through tough times. Edited excerpts of their conversation follow:

No business owner wants to lay off employees. But if the process becomes inevitable, where does the small-business owner start?

Prior to doing any type of layoff or reduction in force, you want to establish a business reason and document what are you looking to accomplish with the layoff. Document what's put your company in this situation. Is it the economy? Is it your industry? Your regional location?

How formal do you make this document?

I would say you should be able to articulate your business reason for having to take this action in pretty formal fashion. The reason for this is, even if you carry out your layoff perfectly, there may be a chance that someone will say their job shouldn't have been eliminated and sue. If that happens, you want to have documentation of your reasoning, your process, and why the laid-off employees were chosen.

So you want to avoid any type of discriminatory issue, or even the appearance of one, in taking this action?

Yes. Make sure that before you launch into layoffs you've explored alternatives and documented them also. For instance, you might try limiting overtime, shortening work weeks, and reducing expenses. Ask people who want to retire to step forward, and provide them with a severance package. Your process should include proof that you tried other remedies before jumping right to layoffs.

How do you decide who gets let go?

That part is always difficult. Keep your criteria as objective as possible by analyzing each employee group in your company and determining what makes a successful employee in that category. Set the bar and base it on skill. Look at anything that's objective: Number of sales, production levels, or customer service scores. Set up a spreadsheet of the metrics involved, then go through and look at each employee and how their numbers match up. That process should help you determine which people are the ones you have to let go.

Once you have that preliminary reduction group, look at demographics such as age, race, and sex. You want to make sure that your layoff is not going to be affecting one group more than others. If almost everyone you lay off is a woman over 40, you might have a problem. Talk to your legal adviser or an outside consultant before you do the layoff to make sure you're being objective.

What about measurements like employee reviews or seniority. Are those still valid metrics?

I don't recommend that you use employee reviews initially, since those are done by managers and are often subjective. But you can use them when you get down to deciding between individuals. Seniority is an objective measure, so it's still good to take it into account. Just be careful if all your less-senior employees are women and minorities, because you don't want to affect just those groups inadvertently.

What kinds of benefits do you recommend for laid-off workers?

This depends on your company, of course. We do suggest that you have legal counsel or your human resources partner look over any severance package you offer to make sure it is drafted properly. There is legal language on issues such as COBRA that you'll need to include, informing your employees of legislative protections. You'll also need advice on whether you're going to pay benefits like accumulated vacation time in a lump sum, or staggered payments. There are a lot of important decisions.

When you're communicating the news to the employees affected, make sure you have the person's manager and an HR specialist in the room. You want others to document the process, and to answer questions the employee may have about his or her benefits. If you have a union representative, you'll need to communicate with that person and examine the collective bargaining agreement as well.

How much information do you give them?

I suggest you don't go too far into the details, but just inform them that their job has been eliminated effective on a certain date. Tell them you're providing job counseling, or a referral to a temp agency, if you can do that. If they ask why, use those objective metrics that we mentioned, telling them that you looked at sales figures over the last year, and set a certain criteria for those whose jobs were retained. Be honest, be consistent, and be objective. You want to conduct the meeting as respectfully as possible. Don't make false promises, and don't over-praise them or their performance.

What information do you give the rest of your employees and when?

Communicate with your remaining workforce immediately after the layoffs. You want to continue to motivate them, yet be honest about the economic downturn that put you in this position. Remind them of the earlier steps you took to avoid the employee reduction. Emphasize that you want to give them some input on how you can continue to cut costs or make other changes. You'll also need to assure employees whose jobs may include new responsibilities that they will get the appropriate training.

This has to be a nerve-wracking time for everyone. How do you reassure your remaining employees that they're not next?

Let them know that you're still personally committed to providing a quality product and excellent customer service. Tell them how important they are to those goals. However you have to also be honest about the future and don't guarantee there will always be jobs at your company. I suggest that you not focus on that, but on promising them that you'll continue to communicate and be as up front with them as possible.


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