Tag: reduction in force

Workforce Downsizing Selection Procedures

Workforce Downsizing Selection Procedures

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.

Voluntary Separation Programs

Voluntary Separation Programs

Voluntary separation programs can be mutually beneficial devices for making workforce adjustments. Employers can use them on their own or as a precursor to an involuntary program. Each program is different, but some common elements appear regularly.

What Is a Voluntary Separation Program?

Generally, I’m talking about any circumstance where an organization provides a group of employees the opportunity to resign voluntarily and obtain specified benefits that they would not otherwise be entitled to receive.

Reasons for Voluntary Separation Programs

There are many reasons why companies decide to implement voluntary separation programs. These are probably the most common:

Reduce Headcount

Whether due to lower business volume, technological advances, or other factors, sometimes companies no longer need as many workers. The result: a reduction in force. The options? Voluntary or involuntary terminations. It’s usually not enough for a company to announce that it needs 10 fewer employees only to discover that 10 people are ready to leave anyway. Instead, they may try to offer some inducement to entice employees to move on.

Reduce Payroll

Although reducing headcount can sometimes be a cost-saving measure, it doesn’t have to be. Some companies may have reason to downsize without spending less on labor costs. Space constraints, for example might make it economical to pay fewer people to do as much or more work.

But often money is a significant factor. And reducing payroll doesn’t have to mean reducing headcount. The focus could be on parting ways with more highly compensated employees. The company may even plan to replace them very soon, but with someone who demands a lower wage or salary.

Reorganize Functions

Neither money nor numbers have to be primary considerations. An organization may simply have the wrong personnel for their business going forward. Voluntary separation programs may coincide with retraining programs, for example. The idea could be to allow those who don’t want to transition to new roles to leave the company with some form of compensation for helping the business progress.

Facilitate Retirements

Companies can’t force employees out because of their age. But there may be ways they can make it easier for an employee to retire voluntarily. Many workers of traditional retirement age who would like to retire cannot afford to do so these days. In some situations it makes sense for their employers to provide an optional retirement program that would provide monetary or other (e.g., health insurance) benefits to allow employees to wrap up their careers on their own terms.

Structuring Voluntary Separation Programs

The ideal first step is to determine the company’s goals. Is it one of the four categories above? A combination of them? Something else?

With goals in mind, the employer can then consider which employees will be eligible to participate in the program. The program shouldn’t discriminate based on any protected characteristic, but not everyone needs to be offered the chance to participate. If the goals correspond to functional or headcount issues, then the company might only offer the program to specific departments or job functions. If costs are a factor, then the offer may extend only to relatively high earners.

The next step is to determine what to offer the employees. Usually, this would include some amount of cash severance pay. Health insurance or other benefit continuation may also be appropriate. Sometimes employers also offer out-placement services, like career counseling or skills training, to individuals who will remain in the workforce rather than retire altogether.

Normally, if the employer will be giving out something of value to employees who choose to leave, they should require the employee to sign a release of claims. Otherwise, despite the “voluntary” nature of the program, employees may turn around and sue the company. They may claim wrongful termination, or the allegations may relate to other aspects of their prior employment. Most employees who choose to participate in a separation program won’t object to signing a release. Those who do were probably going to cause trouble anyway. Then at least their reluctance or refusal to sign sends a valuable signal to the employer.

(Click here more on employee releases.)

Pitfalls to Avoid

Voluntary separation programs often work out well. However, as with everything, there are traps for the unwary. Here are some.

First, some employers use these programs to get younger. This raises potential age discrimination concerns. Merely offering a voluntary program that gives more senior employees the opportunity to resign/retire usually shouldn’t be unlawful. But companies must be careful about their approach. An employer who has been outspoken about getting younger to cut costs, bring on new skill sets, etc., can expect rumblings about age discrimination (if not litigation) if it later terminates the employment of older workers, even if justifiable on factors other than age.

Second, employers should obtain releases only after employment has ended. Sometimes employees accept a voluntary severance package, sign a release, and then continue to work until a later separation date. Then if something transpires between signing the release and the formal separation from employment, the release will not stop the employee from asserting a claim.

Third, organizations must plan for multiple possible outcomes. Sometimes the voluntary program produces the desired workforce changes on its own. Other times, too many, too few, or the wrong employees elect to participate. It may be possible to structure the program to avoid some of these bad outcomes (e.g., by limiting participation to a particular number of employees). But, whatever the approach, the voluntary nature leaves the results largely in the employees’ hands. Thus, employers should plan ahead for the next steps based on different contingencies.

Fourth, business needs can change quickly. And it takes time to design and implement a voluntary separation program. It is often best to keep a tight timeline for the program, so it wraps up before business conditions change significantly.

Final Thoughts

Implementing a voluntary separation program requires considerable planning. For most companies this planning should involve a team who can both provide the necessary background information/skills and keep the program confidential until launch. Team members ideally should include upper management, supervisors, human resources, and legal counsel experienced with group termination programs.