Cost-Cutting Options to Consider Before Layoffs
Alliance for Children and Families, January 15, 2009
Cost Cutting: Options to Consider Before Layoffs
Protecting your organization and softening the blow for employees
It has become painfully obvious that the year 2009 will require careful management of agency resources. It will be a rare organization that does not find it necessary to reduce staff. Let’s review the rules for layoffs and reductions in force so that you will feel confident that these difficult decisions will be implemented correctly.
Remember that layoffs are not the only way to reduce costs. Here are some other cost-cutting options:
• job elimination or consolidations;
• hiring freezes;
• work sharing and job sharing;
• reduced workweeks;
• reduced salaries or reduced hourly pay, benefits, and/or incentive programs;
• elimination of overtime work;
• seasonal or short-term shutdowns;
• voluntary or involuntary unpaid leaves of absence/vacations; and
• early retirement.
Employers applying these strategies to deal with bona fide financial distress will often find that courts are sympathetic to the employer even if decisions inevitably result in some amount of discrimination.1
However, be aware that a decision to eliminate employees on the pretext of financial difficulties can open you to a charge of discrimination if the pretext can be proven.2 A too-easy reliance on financial issues could place you in legal jeopardy if it is clear that you are using this as an excuse to get rid of a class of employees who are protected due to age,
race, or their recent whistle blowing3 or unionizing activities.4
Also, you are always on firmer ground if you have identified your agency as an “at will” employer, a policy available in some states that allows you to terminate employees for any reason or no reason. Again, a caution: an “at will” policy will not protect you if your decisions are clearly discriminatory or retaliatory, and financial difficulties are not provable.
It is best to begin with a critical evaluation of agency programs and services. Which are essential to your mission? Which have reliable funding streams? Which are you most successful at? You cannot successfully retool your workforce unless you first know what your remaining employees will be needed to do.
When you have finished evaluating your programs, develop guidelines that will drive your decision making for staff elimination. Typical guidelines are:
Length of service. Seniority is a favorite criteria. If you cut costs by eliminating your most junior employees, it is easy to make decisions that are demonstrably fair. However, this often results in elimination of those with the greatest potential for future success. Seniority is best used as a tie breaker where two employees are equally qualified.
Be cautions about using value-laden words when you make job elimination decisions that will impact older employees. Employees who hear that you are “getting rid of the dinosaurs” may well have a claim against you for age discrimination.5
Performance. Performance is a great criteria, but only if your performance evaluation system can withstand scrutiny. If documentation in your personnel files cannot justify a decision based on performance, then either don’t use that as a criteria, or make your decisions afresh, very carefully, and base them on long- and short-term performance rankings that are objective and not subjective.6
Job Skills. Evaluate the position descriptions that will remain after the reduction. Do they adequately state the skill or experience level needed? Your reduced workforce must be capable of performing those jobs that remain in the agency, and the jobs must be geared to agency needs. If an older worker does not have the necessary skills for the available positions, then his or her elimination can be justified. This is “business necessity” at its most basic level.
Larger organizations should have a written layoff policy that can be implemented as the need arises. Those agencies with more than 100 employees will need to abide by the requirements of the Worker Adjustment and Retraining Notification Act7 when certain conditions exist.
Your state may have enacted special laws that deal with reductions in force. Check with legal counsel to be sure that you abide by any applicable state laws as well.
Softening the Blow
If you have the resources to do so, you may find that morale is greatly helped within your remaining staff if they know you have tried to soften the blow of temporary or permanent layoffs for their former coworkers.
The greatest fear for most employees is loss of their health insurance benefit. Consider funding health care benefits for those who are temporarily laid off, or providing some extra months of coverage for those who are permanently laid off. Additional considerations are: providing transition programs such as resume assistance, search services or career counseling, and covering job loss within your employee assistance program.
This is very important: If you provide severance funds or any other benefit that is not actually earned or vested, be sure to get a severance agreement that releases your agency from any liability in exchange. This is a quid pro quo situation, where you give something and get something back.
You can and should require a release in exchange for the unearned compensation. It is foolish to give up anything of value (especially money) without getting peace of mind and closure in exchange. If any employee is over the age of 40, be aware that the Age Discrimination in Employment Act imposes specific periods for employees to review and revoke release agreements.8
Rolling It Out
If you plan on terminating a number of employees at the same time, it is wise to plan talking points for the discharge day so that all employees get the same message but in private meetings.
I suggest that each employee meet with at least two agency managers, preferably one being their supervisor and the other a human resources professional. A good agenda would include an explanation for the decision, alternatives that have been considered, criteria used to make layoff
decisions, and severance or other benefits offered. If there is severance, be sure that no severance is provided until a release is signed and effective.
Most professionals consider Friday afternoon to be the most logical time for implementing a reduction in force. In my experience, this has held true, but this is a matter for your discretion.
Return to Work
You may decide to have a recall policy so that employees who were laid off or are on unpaid leave may be recalled if finances ease and their skills are needed. Typically, these policies will
not offer automatic recall unless the job classification, performance records, and skill levels are tightly matched.
Be aware that you may be challenged if you recall only some of your workers but replace others who may be in a protected class (age, race, etc.). This may raise questions about whether the layoffs for financial reasons were pretextural in the first place.