Workforce reduction, more commonly known as downsizing, occurs when an employer institutes a mass termination of employees in an effort to reduce costs. This also may be referred to as reductions in force, reorganization, or restructuring.
While workforce reduction typically involves the permanent termination of employment, it can sometimes involve other methods, including:
- Reducing the amount of work hours that are available for employees;
- Cutting holiday bonuses and freezing salary increases;
- Shifting employee tasks to reduce the number of employee positions;
- Lowering or getting rid of supplemental payments for overtime; or
- Instituting mandatory furlough or layoffs.
- Both terms mean a type of leave from work, but generally, workers on furlough usually can return to their jobs, whereas a worker who is laid off cannot unless it is a temporary lay-off. This will depend on the circumstances of the layoff.
Since workforce reductions usually impact a large number of employees, employers need to exercise caution and foresight when planning such reductions. Otherwise, they could face many consequences.
Workforce reduction may occur for several reasons, including changes in economic markets, poor management, a scandal that affects the reputation of a company, low sales performance, and other various factors.
In addition to reducing costs, workforce reduction is also used to increase earnings for a company. For example, if a staffing department hired too many employees for a particular position, the company may be spending more money than it needs to on labor costs.
Thus, reductions in workforce can help the company lower costs while simultaneously enabling it to keep more of its earnings.
Workforce reduction or downsizing is typically a two-step process, which can take anywhere from several weeks to several months, or longer. The two steps involve the following:
- Selection and Assessment: First, the employer selects certain employees and assesses them for possible termination. The selection may be based on the particular employee’s performance, but normally termination depends on the company’s individual needs and budget. The employees are then fired according to the results of the selection and assessment process; and
- Severance: After or sometimes during the termination process, employees may be offered benefits that serve to ease the transition period after they are terminated. For instance, an employer may choose to provide severance packages or unemployment compensation. Also, some employers provide, “outplacement services.”
- Outplacement services are different types of services and counseling intended to assist the former employee in securing another job after they have been terminated.
In most cases, employees are hired on an at-will employment basis. This means that the employee may be terminated at any point, for any reason, so long as the termination is not found to be illegal. Thus, employees who work on an at-will basis may be terminated when a company decides to downsize or plans a workforce reduction.
Despite the fact that employees are usually hired on an at-will basis, even these employees have certain rights that protect them if they are subject to workforce reduction.
One of the most important rights that all employees have is the right to be free from employment discrimination during a company’s termination process. An employer may not discriminate against protected classes of persons when they are deciding which employees to select to discharge. For instance, the workforce reduction may not be based on the employees’:
- National Origin;
- Gender; or
Other categories that also receive certain protections include employees with disabilities, veterans, and those who are pregnant.
So, for example, if the employer only terminates a certain age group, then they may be liable for employment discrimination. An employer can even be held responsible if the downsizing unintentionally causes an unfair outcome in regard to a protected class of people.
Additionally, some companies are required to follow termination laws that govern corporate layoffs. Under the Worker Adjustment and Retraining Notification Act (WARN Act), companies composed of more than 100 employees must provide workers with notice of termination at least 60 days prior to a mass layoff.
Also, the notice needs to be directly addressed to each individual employee that is facing termination and must be in writing. Failure to provide notice could result in liability.
Violations of workforce reduction laws are treated very seriously due to the impact that downsizing can have on a large number of employees. Thus, if a workforce reduction is not conducted properly, the employees may be able to obtain various remedies, including reinstatement to employment and compensation for lost wages.
If you have any questions or concerns, or are involved in a matter regarding workforce reduction, you should strongly consider contacting an employment lawyer. A well-qualified lawyer will be able to determine whether any of your legal rights have been violated, and if so, also assist you in getting any possible remedies.