How to Prepare for Potential Layoffs

There's some sobering news amid other encouraging recent employment data that may take you by surprise in this tight labor market. After all, "now hiring" signs are everywhere, and some sources paint a picture of a historically strong jobs market.

Even so, within the past year, Google, Amazon, Microsoft and other major tech companies have announced layoffs of more than 70,000 workers. Disney has also revealed mass layoffs. Furthermore, only 12% of the economists surveyed in early January by the National Association for Business Economics (NABE) anticipate employment increasing over the following three months, down from 22% in the fall. Those expecting payrolls to shrink rose to 19%. NABE said it's the first time since 2020—when COVID was new—that more respondents anticipate a decline in employment, rather than growth.

Don't assume your company won't be going down this road before long. Instead, think strategically about preparing for a potential reduction-in-force (RIF) and how your company would handle matters. Besides becoming smaller, what do you want your post-layoff workforce to look like? What skills, experience and work habits will be most essential to your business going forward?

Viewed from that perspective, you might find that some employees who have been superstars are less critical to your future success than steady, reliable workers who tend to fly under the radar.

Take a Proactive Approach

Before you identify candidates that might be part of a RIF, review all personnel files. No matter what your gut feeling is about particular employees—either positive or negative—it's important to keep d--ocumentation showing you had a rational basis for laying off the employees you ultimately select. That could help you successfully defend against a discrimination charge.

Note that the legal and regulatory hoops you must jump through may vary by your company's location and size. For example, the federal Worker Adjustment and Retraining Notification Act (commonly known as the WARN Act) generally applies to employers with at least 100 full-time employees. However, 13 states have adopted their own versions of the WARN Act, typically affecting smaller employers. New York's version of the law affects companies with only 50 workers, if at least 25 are laid off. California's version might seem a little more flexible since it affects companies with at least 75 workers where 50 or more workers are laid off, but the employee count includes full- and part-time workers.

Employers subject to the WARN Act must provide a heads-up 60 days in advance to employees who will be laid off. Some states, including New York, require even longer notice periods.

The WARN Act is specific about what you must communicate to employees facing a layoff. However, that doesn't mean the notice should be written in legalese that seems uncaring. You can express the basic message in the context of why the RIF is necessary. Put a human touch on the matter by acknowledging that this isn't a process that you relish.

Besides, you may later want to rehire some of the employees you lay off. That's a common occurrence in today's work environment. So, you don't want to burn your bridges with a seemingly cold-hearted layoff notice that could annoy or aggravate those selected.

3 Steps to Avoid Litigation

The WARN Act and any local variations are relatively straightforward. But you still risk running afoul of the anti-employment discrimination provisions in the landmark Civil Rights Act of 1964.

Generally, the prospects of your company facing a lawsuit increase when the layoff hits protected class employees harder than others. Protected class employees are part of a group that qualifies for special protection by a U.S. law or policy. For instance, you can't discriminate due to race, religion, age or gender. If a RIF has a "disparate impact" on a member of a protected class, you could find yourself facing discrimination charges.

If you take the following three steps, you may be able to reduce the chances of a lawsuit.

1. Look for disparate impact. After you've drawn up a tentative list of the employees you intend to lay off, determine whether one or more protected classes, including older employees, are affected proportionately more than others. Although all workers age 40 and up have protected status concerning age discrimination, it's not an all-or-nothing proposition. A disproportionate layoff of 40-year-olds is less likely to trigger litigation than a disproportionate RIF of 60-year-olds would.
2. Review your HR files. If job performance is a key criterion in your decision-making, you'll need to document below-average work if you're accused of discrimination. Ideally, you'll also have proof showing that you've made efforts to help those employees improve. The same principle applies as when you terminate an employee for cause.
3. Analyze job functions. Even if your layoff plan has a disparate impact on protected class employees, it might be justified based on job functions. For example, if you buy equipment automating much of the work in a department that has a high concentration of protected class employees, you can probably make a strong case that you aren't discriminating. And that argument is strengthened if you can also demonstrate that those employees aren't qualified to perform other jobs in your organization.

Another point to keep in mind: Some protected class employees who are laid off may have low productivity due to a lack of training opportunities as compared with other employees. If that's the case, be aware that this could create a problem you'll need to address, perhaps with the help of a consultant.

Early Retirement Alternative

If it turns out that the largest group of employees you're targeting for a RIF is comprised of older workers, consider giving them an early retirement bonus opportunity. That way, they can effectively "lay themselves off."

Apart from any concerns about discrimination charges, you want to facilitate a smooth departure of laid-off employees. Some employers may be subject to notification requirements under the WARN Act or a state or local variation on the law. Even if you're not in the crosshairs, you might worry about terminating employees abruptly and would rather provide a soft landing.

On the other hand, keeping employees who know that their jobs will end in a couple of months may be disruptive and damage morale. A WARN Act-compliant alternative is to award them two months' pay for leaving their jobs immediately.

Final Thoughts

Find the best approach for your situation by consulting with expert professionals. The sooner you know how to tackle layoffs, the easier it will be to do if the need arises.

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