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Organizations should prepare themselves and address the issues associated with a down economy. This article will address how to assess workforce-management, evaluate all options when faced with difficult business times, and implement sound decisions. When layoffs seem imminent, directions will be provided on how to analyze whether they are necessary to reduce workforce costs or whether alternatives will allow the organization to meet its needs and retain valuable employees, while carefully considering the legal and practical implications of a reduction in force.
Finally, the effects of restructuring and layoffs have on the “surviving” employees will be addressed, and how to equip management with the skills and tools to keep employees positive and productive even while feeling the stress of a down economy.
Are Layoffs Necessary to Reduce Workforce Costs?
The past two years have seen unprecedented job eliminations, with “layoffs” as the primary method to reducing costs while continuing business. Employees in operations were most affected by layoffs, but technical and professional employees were also affected. Employment declined in technology, manufacturing, retail trade, transportation, and government and finance. On the other side, many companies have taken active steps to keep employees while cutting costs and continuing business operations, despite lost profits and budget deficits. How did they do it?: flexible management strategies.
In this tight economy, businesses need to think creatively and plan carefully before embarking on a permanent labor cut. In many cases, companies that have downsized too many, too quickly, ultimately have paid a larger price by having to rehire laid-off employees at a greater cost or in consulting roles.
Other Considerations – Legal or Contractual
In addition to the business strategy assessment and the cost/savings ratio associated with various business alternatives, the organization must also consider any legal ramifications imposed by federal, state, and local laws, existing or pending contracts, and collective bargaining agreements. For example, most states have wage and hour laws regulating minimum wage, work hours, and provisions for pay. In considering alternatives to layoffs, an employer would need to assess how changes in work hours, pay, or other terms and conditions of employment might implicate these laws. For example, if an employer attempted to control costs by imposing a condensed workweek in which employees work three ten-hour days for a total of 30 hours per week, but the state law required overtime payment for any time worked in excess of eight hours per day, the employer would be required to pay overtime for the two additional hours worked each of the three work days. This scenario might defeat the purpose of the 30-hour workweek imposed by the employer to control costs.
Also, several states passed laws addressing plant closings and mass layoffs. The requirements imparted by these laws may be different that the Federal Worker Readjustment and Notification Act (the “WARN” Act) and impose notification and/or other responsibilities on employers engaging in layoffs.
Another consideration is parameters placed on the organization by collective bargaining agreements. For example, a large steel corporation is party to a collective bargaining agreement, which mandates one manager to a set represented employee ratio. According to the agreement, should the corporation decide to close a plant or conduct a layoff, the management structure should be trimmed accordingly to maintain the designated ratio. If the corporation failed to consider this agreement in its employment decisions, it could risk violating the terms of the collective bargaining agreement.
Many factors should be considered before implementing changes that will impact employee retention, compensation, benefits and morale. First consider the longevity prediction of the economic downturn to determine the severity of the changes that need to occur. Next consider the cost/savings ratio to ensure that changes will not exceed their utility. Finally, consider the legal ramifications imposed by federal, state and local laws, contracts, and collective bargaining agreements, as well as the organizational goals and culture/morale issues. If a reduction in force is necessary, an employer’s ability to demonstrate a legitimate business purpose for employment decisions is a strong defense should those decisions be challenged. Therefore, it is important that the organization can demonstrate it thoroughly reviewed its business financial and condition information and undertook a detailed cost/savings analysis.
Avoiding Layoffs – Alternative Strategies
After assessing the magnitude of the economic downturn and likely duration of the strategy to be implemented, evaluating the costs and savings, and considering any legal ramifications, an employer next must decide on what strategy(s) will best address its situation.
1 Luke Vernon, A Manager’s Toolkit for Avoiding Layoffs, Employment Management Today, Winter 2003, Vol. 9. No. 1, http://www.shrm.org/emt/articles/2003/03wintervernon.asp.
3 Though one purpose of considering alternatives to layoffs is to preserve positions within the workforce, it should always be diplomatically communicated to employees that if they are not happy with the alternative, they will not be forced to live with it and may leave the company if so desired.
4 See, e.g., Fortune Magazine, (ISSN 0015-8259) Vol. 139 No. 1 page 118+ Features/Cover Stories/The 100 Best Companies.
5 Luke Vernon, A Manager’s Toolkit for Avoiding Layoffs, Employment Management Today, Winter 2003, Vol. 9. No. 1, http://www.shrm.org/emt/articles/2003/03wintervernon.asp
9 Luke Vernon, A Manager’s Toolkit for Avoiding Layoffs, Employment Management Today, Winter 2003, Vol. 9. No. 1, http://www.shrm.org/emt/articles/2003/03wintervernon.asp.
10 Creative Approaches to Layoffs, Ruth Morss, Salary.com.
11 Creative Approaches to Layoffs, Ruth Morss, Salary.com.
12 Small Companies Find Layoff Alternatives, Joyce M. Rosenberg, Associated Press, November 27, 2001.
13 Even “at will” employees may have offer letters, which may provide the argument of “guaranteed” minimum salaries. To avoid this problem, consider including language in all offer letters that references the possibility of future adjustments.
14 Luke Vernon, A Manager’s Toolkit for Avoiding Layoffs, Employment Management Today, Winter 2003, Vol. 9. No. 1, http://www.shrm.org/emt/articles/2003/03wintervernon.asp
16 Creative Approaches to Layoffs, Ruth Morss, Salary.com.
17 SHRM White Paper, RESTRUCTURING AND DOWNSIZING: MANAGING DISRUPTION, Ronald Adler, Donna Bernardi Paul, and Nancy Glube, October 2001, Reviewed November 2002.
19 Society for Human Resource Management Layoffs and Job Security Survey, as reported by the CHH Labor Law Reports-Employment Practices (December 20, 2001).
Contributing Authors: Stephanie Davis, Esq., Lily Garcia, Esq., Jennifer George, Esq., Denise Kazlauskas, Esq., Trish Lewis, Esq., and Ginger McRae, Esq.
First Published in a different version by Aspen Publishing, “Workforce Strategies in a Down Economy,” 2003.
Denise Kay, Esq., SPHR is a Senior Consultant with Employment Practices Solutions, Inc., a nationwide consulting firm dedicated to assisting employers with employee relations issues. Denise is a licensed attorney in the State of Colorado and is certified through the Society for Human Resource Management (SHRM) as a Senior Professional in Human Resources (SPHR). In addition, she is a trained mediator and is an instructor at the Keller Graduate School of Management of DeVry University teaching business law, employment law and negotiation skills courses. Denise serves on the SHRM Colorado State Council as the Governmental Affairs Director and as a committee member of the ASIS/SHRM partnership to develop a National Standard for Workplace Violence Prevention and Intervention. Further, she is the Community Coordinator for the Colorado Bar Association’s Domestic Violence: Make It Your Business Program educating employers on the impact of violence in the workplace.
Employment Practices Solutions, Inc., is the premier nationwide employee relations resource. Our MISSION is to help you prevent and correct employment claims and enhance employee relations. Our STRENGTH is our team of experienced employment attorney-consultants. Our GOAL is your peace of mind.
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