Even if it will only affect a small part of the business, many companies face workforce downsizing at some point. The “why” is usually obvious. But it’s often more difficult to decide how to make these cuts. Here, I’ll suggest a general approach to selecting who will stay and who will go in consideration of possible legal constraints.

For more on this topic, check out my free webinar: Conducting Your Next Reduction in Force.

What’s the Motivation?

Money makes the world go ’round, and it’s usually what prompts companies to downsize their workforces. But finances aren’t the only reason organizations reduce their headcount.

Here are a few other reasons why a business may downsize:

• Transition to New Operating Method
• Automation of Functions
• Elimination of Redundancies
• Reallocation of Talent

Whatever the reason, make sure everyone involved in organizing the reduction in force understands it before they choose individual positions and employees. The company should document the rationale up-front. Then move on to evaluating how best to achieve the desired business outcome.

Don’t Identify People First

To best prevent and defend against claims by affected employees, companies should leave the identification of specific employees to the end of the selection process. The earlier specific employees are identified, the more likely they are to perceive the decision as being personal. Thus, the more likely they may believe the decision was discriminatory or in violation of their personal rights.

Sure, if the whole purpose is to outsource all engineering functions, and your company has two engineers, it will be obvious early on who will lose their jobs. But at least make sure there is a valid, documented reason for eliminating the internal engineering function. (Think about the scenario where your two engineers are in their 60s and are longtime employees. Be prepared to prove that their age isn’t the reason for the company’s decision!)

Especially where the goal is to reduce overall labor costs, most companies should start from the premise that all facets of the workforce are in play. Some will quickly narrow in on particular departments or job functions. But again, the rationale for those decisions should be documented as you move down the path toward the selection of individual employees.

Determine the Workforce Goal

Through the reduction analysis, the company should ultimately determine what it wants its workforce to look like after the downsizing is complete. This still doesn’t mean who the specific employees are. Instead, the focus is on functions, tasks, skills, etc.

For example, a company that initially has 125 employees may decide that it would operate best with about 100 employees. It then determines that all “front office” functions are still necessary–say, 25 employees. Of the other 75 post-reduction positions, 50 may be in production and 25 in sales/customer service. If there are currently 65 production employees and 35 sales/customer service employees, then the company must eliminate 15 production positions and 10 sales/customer service roles.

Next, the company must decide how to choose the 15 production and 10 sales/customer service employees to let go.

The company has options to get to the desired workforce size. It could gradually downsize by attrition when people leave. Or it could offer an incentive for employees to voluntarily resign. But here we’ll assume the company wants to reduce the workforce all at once through involuntary terminations–what many would call a layoff.

Picking the People

This component of workforce downsizing often becomes the most personal. It also creates the greatest risks of claims by affected employees. So, it’s important for the company to make these decisions without considering protected individual characteristics.

As discussed, ideally managers shouldn’t sit around the room and just throw out names of whom they want to see leave. Instead, the company should determine a structured selection process and apply it consistently.

Selection procedures may end up being objective or relatively subjective.

One straightforward objective selection criteria is length of service. If the company in the above example wanted to, it could just retain the 50 production and 25 sales/customer service employees who have been with the company the longest. The biggest downside to seniority-based workforce downsizing is that it doesn’t account for employees’ relative job performance and skillsets.

Subjective selection criteria, such as most performance evaluations, increase the risk of manager bias, if unintentional. Supervisors may naturally recognize people like them (based on age, race, sex, etc.) as being higher performers. Thus, it may be better to have multiple managers evaluate each individual and arrive at some quantifiable measure. Then the company would rank all the employees and keep the top ones.

No selection method is perfect. But it is important to establish the selection procedure before applying it to particular employees. Applying one method and then starting over after it doesn’t result in the “right” people being chosen adds risks to the equation. A company should specifically document why it changed course, assuming it has a legitimate non-discriminatory business reason to do so.

Additional Factors and Hurdles to Workforce Downsizing

The above analysis assumes employers have full discretion to determine which employees to let go in a workforce downsizing program. However, that might not always be the case.

If there is a union involved, the collective bargaining agreement may dictate how a reduction in force will occur. For example, unions often bargain for layoff based on inverse seniority. The union contract might also provide for severance pay that could affect the size of the reduction that the company pursues. Or it could even result in the company avoiding reductions in the unionized workforce altogether.

Some companies also have contracts with individual employees. These might either guarantee employment for a certain amount of time or, again, require severance pay.

Finally, even a carefully prepared employee selection process could produce arguably discriminatory results. If a disproportionate number of the employees losing their job share the same protected characteristic (e.g, race, sex), then the employees might have a claim for disparate impact employment discrimination. That type of claim can be viable even if the company had no intent to discriminate. When workforce downsizing involves a large enough pool of employees, employers can conduct statistical analyses to evaluate latent bias in their selection process. Skewed results may be one good reason to rework the selection procedure and start again.

For more on workforce downsizing, check out my free webinar on Conducting Your Next Reduction in Force.