Layoffs

Why it’s crucial to have a strategy when conducting layoffs

It’ll help keep morale from crumbling.
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3 min read

As companies grappled with layoffs over the past 18 months, various leaders attempted to provide transparency regarding the reasons for reducing their workforces. The hiring boom triggered by the pandemic led many tech companies to implement layoffs once economic conditions changed, leaders of Stripe, Meta and Coinbase have admitted.

Not all CEOs will take to LinkedIn or issue a public mea culpa for enacting layoffs, however. And according to Daniel Prokott, partner at the law firm Faegre Drinker, reasons behind layoffs are influenced by a multitude of factors, spanning macroeconomic headwinds to the whims of individual decision-makers.

When companies enlist Prokott to help, it’s typically to carry out layoffs according to the letter of the law. He stressed that choosing who gets cut can’t be an impersonal transaction on par with certain infamous Zoom meetings immortalized in a recent episode of Succession.

“You want everyone who’s being let go to feel respected and treated fairly,” Prokott told HR Brew. Having a strategy in mind well ahead of time can reduce the chance of a sloppy process that can crater morale.

Why companies do layoffs. While a large decline in revenue could hurt any business, there are other tactical moves an employer may make to ensure its business is leaner. Outsourcing, for example, may not mean a company is hurting, but it could happen when “there is a portion of the business that may not be declining, but just relative to other aspects of the business [is] not as profitable,” he explained.

Additionally, a company might pivot to a new focus, necessitating different budgetary needs and talent, triggered by market and industry trends. “Changes in business focus…can happen even when there may not be a specific decline,” Prokott explained.

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How companies choose. When deciding who is cut, “it’s important that companies really try to identify a set of criteria that are going to be used at the outset of the decision-making process,” Prokott explained.

Companies carry less legal risk when they eliminate an entire department “because everyone in that department is being treated similarly,” he said. But when cutting employees across an organization, it’s imperative employers ask tough questions, such as: “Why are we doing this? What are the business reasons for it?” Eliminating employees can also run the risk of violating anti-discrimination laws, such as Title VII of the Civil Rights Act of 1964, which prohibits a variety of employer decisions based on an employee’s “race, color, religion, sex or national origin,” according to the Department of Labor.

Criteria that can inform the decision typically encompass job performance, skill set, and years of service, he said.

Prokott emphasized that it shouldn’t be a “trickling of decisions over a course of time where employees are left wondering, on a regular basis, ‘Is there going to be another round of people who are going to be let go?’”

Layoff messaging should be personalized, Prokott stressed, even though the fragmented nature of remote work may make face-to-face interaction difficult. Treating employees with dignity is important “not just to the employees who are departing, but to the employees you’re retaining,” he said.

Quick-to-read HR news & insights

From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.