Downsizing is dangerous for morale, for productivity–and for lawsuits. Today’s expert untangles this treacherous territory.
Fear and insecurity experienced as a result of downsizing, layoffs, or any type of significant restructuring spawns a “retaliatory wave” of lawsuits, as well as affecting morale, which results in poor productivity, says Diana Gregory.
So, employers need to identify and implement measures that will minimize legal exposure and reduce loss of business effectiveness and efficiency, she says. Gregory is senior human resources specialist (SPHR) at the Walnut Creek office of Administaff, a professional employer organization (PEO) and human resources outsourcing firm.
Dealing with downsizing requires work in three crucial areas, Gregory says:
• Planning, Analysis, and Evaluation—before, throughout, and after the action.
• Communication—with all stakeholders, including employees, customers, and vendors.
• Legal Compliance—including proper notifications to local officials and agencies, ERISA considerations, final pay, and separation agreements (and, if applicable, abiding by collective bargaining agreements).
Planning, Analysis, & Evaluation
Let’s say, for example, that your organization has decided to outsource all IT functions. Your first step will be the analysis of workforce data, Gregory says. Create a spreadsheet of all employees considered in the organizational changes and include the following information:
• Age, race, hire date, job title(s) going back up to 5 years,
• Performance ratings going back up to 5 years, including any cross training, correctional or disciplinary letters, and counseling sessions going back up to 5 years,
• Hire agreements and offer letters (Be sure to review these documents.),
• Recorded complaint(s) and dates (The actual details associated with a complaint, such as sexual harassment, should remain confidential.),
• Status, i.e., active or on leave of absence. (If a worker is out on workers’ compensation, FMLA, etc., the situation requires special consideration.).
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Evaluation and Selection
No matter how consistent or business-related your decision seems, be sure that someone knowledgeable about the legal implications of terminating employees, including both federal and state employment law, reviews your plans, advises Gregory.
Also, involve more than one manager or supervisor in the evaluation process to avoid accusations of illegal bias.
Let’s say you choose to terminate the lowest performers first, and identify the first group to be let go. Then, upon analysis of those affected, you discover that a high percentage—much higher than the percentage in the whole employee population—is over age 40 (or belongs to another protected class).
That’s a warning sign, says Gregory. Your terminations could expose your organization to a legal challenge, particularly if performance ratings and the documentation to back up those ratings is subjective, inconsistent, or otherwise open to interpretation.
Remember, also, that terminating an employee following any recent type of “protected” activity, such as filing a discrimination or harassment complaint, is a “prima facie” case for a retaliation claim.
Finally, maintain the documents you use for evaluation in case the organization is ever required to “prove” that its process was consistent and nondiscriminatory.
Communication with Stakeholders
Once the determinations have been made on whom will be affected, prepare a detailed timeline of communications, and determine the actual content of the communications.
The plan should include what media will be used (e.g., e-mails, WebEx, meetings), who will create the various pieces, who will deliver the news, and when. Consider the following:
To all employees:
Include the “big picture,” explaining in general why the downsizing/reorganization is necessary. Consider frequently asked questions (FAQ) sheets and/or an online question-and-answer forum to address benefits, final paychecks, references, outsourcing (if any), unemployment insurance, etc.
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To managers:
Explain roles, expectations, and timelines. Hand out scripts and checklists and discuss the need for consistency of message, how employees are allowed to gather items and leave buildings, what to collect (credit cards, keys, etc.), and how computer security will be handled. Consult with your attorney if unsure what to say.
Allow managers to discuss any safety concerns they may have with certain employees.
For affected employees:
Create an exit letter, a so-called “no-fault” letter for employees that states “XYC Company has reorganized for business reasons, and the reductions in staff were necessary and not necessarily reflective of employee performance.”
In the next issue of the Advisor, more tips on downsizing, and a word about the “HR Red Book®,” the answer book for HR questions.