How To Handle Layoffs

Collette McKenna Parker

December 8, 2008

I t might be in the back of your mind, or it may be at the forefront, consuming your every thought. The idea that layoffs at your company could be inevitable is a bleak vision shared with the rest of Atlanta, and really, businesses across the country.

The jobless rate in Atlanta reached 6.8 percent in October; the state rate is 7 percent - and believe it or not both of those are higher than the national average of 6.5 percent, according to the Georgia Department of Labor. In real numbers, it means about 343,000 Georgians are looking for work, and it's expected to get worse through 2010.

"When your expenses are growing quicker than your profitability and your revenue is declining, it's time to at least consider layoffs," says Dan Campbell, CEO of Hire Dynamics. As ugly as layoffs can be, there are right ways and wrong ways to go about it.

Deciding Who Gets Fired
The Right Way: Ask, what's vital to the organization? Layoffs are best done with a scalpel, says Marv Davis, managing partner of Grisanti, Galef and Goldress and author of Take No Prisoners. First, identify the departments in which you want to make cuts, and then identify who you think you can do without. Low performers are at the most risk here, and administrative roles start to look like luxuries you can't afford.

Also consider which jobs you can combine. Look at each function and ask, can I live without this function? Can I combine it with another? Do I have the internal talent? "You'd be amazed how much you can skinny down an organization," says Davis. And remember, you can't live without your sales people.

The Wrong Way: Some companies prefer to make cuts based on seniority, because that's usually the path with the fewest legal problems. No one can claim discrimination if the 75 newest hires were the ones to go, blind. But you risk losing the future of your company.  Similarly, companies who offer too many early retirement packages risk losing too much intellectual property and experience. Also be cautious about letting people go who have good relationships with your customers or who are revenue producers.

The Deed
The Right Way: An actual termination should be done in person, by the immediate supervisor. If possible, the element of surprise should be avoided; if the person has been underperforming, he or she should be notified and given opportunities to progress. Of course, there are occasions where advance notice can't be given - like the loss of a major customer - and layoffs are inevitable. (Companies which employ more than 100 people at a single site must be aware of WARN, a law that mandates 30 days notice before layoffs.) 

Either way, every employee must be given the chance to leave the company with dignity. The reason for their termination should be explained, and arguments with that person should be avoided at all costs. Offer services to help them find another job, such as paying for resume services or job searches. Especially if the layoff was only because of the economy, offer to be a reference or make a phone call on his or her behalf. The way this person is treated will be watched by the rest of the employees; if he or she is treated badly, other employees will worry about their own necks. "Anything you can do to help those people you let go is a positive for the people who remain," says Davis.

The Wrong Way: Have you seen the Air Tran commercial where the employee is fired over the phone and he immediately flies to New York to punch his boss in the middle of his speech? Don't terminate employees over the phone or email. And even if he or she gets angry, don't engage in an argument. Every person reacts differently to bad news and, while it may not be professional for them to start shouting, it is human. It's the job of the boss to remain calm and not fight back. "If they need to vent, let them do it," says Campbell. "Don't have an ego. Don't tell them they were a poor employee."

Considering Those Who Stay
The Right Way: The employees who stay will likely feel they dodged a bullet and be willing to do more work without additional pay. But that doesn't mean morale will be good.

"Over-communicate," recommends Campbell. Once the layoffs have been administered, meet with the remainder of the company and let them know why the cuts were made and that the round of layoffs is complete.

Let employees know the layoffs were due to the economy. "A constant balance of a leader is to be positive, encouraging and provide a vision, but at same time be realistic about what's going on in the marketplace. If we don't do what's best for the company, we won't have money for our employees," says Campbell.

Continue company meetings every six weeks to communicate the state of the economy and the state of the company. Have regular conference calls for people to ask questions. Go out to your branches for visibility. And celebrate little gains, like a sale or a good month, with a lunch for the remaining employees, suggests Davis.

The Wrong Way: Without all of that communication, rumors begin to fester, morale plummets and productivity follows. People can waste a lot of time talking about layoffs and worrying about their own job.

The Upshot
Don't forget some basic housekeeping for terminated employees: collect company property, keys, cell phones and ID badges. Collect passwords, voice mail codes or any other information for getting into files and customer contacts. Check your HR policies about paying the employee for unused sick or vacation time, and include any unpaid commissions or expenses in the last paycheck. Also make sure he or she has not had any advances or owes the company any money; that will need to be deducted out of his or her last paycheck. Have HR send a letter to the employee explaining how long his or her health coverage will last, and any information about life insurance, retirement plans or other benefits.
 
"In tough economic times layoffs have less to do with the individuals than with economic circumstances," says Campbell.

Allowing people to leave with dignity protects the people who are left behind and prepares your company for the future when you may be hiring those same people back, or interacting with them as your customer.

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