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Workforce Reductions and Downsizing

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What Is Workforce Reduction?

Workforce Reduction occurs when employer institutes a mass termination of employees in efforts to reduce costs. Workforce reduction is also known as downsizing, reductions in force, reorganization, or restructuring. While workforce reduction typically involves permanent termination of employment, it can also involve other methods, including:

  • Reducing the amount of work hours available for employees
  • Shifting employee tasks to reduce the number of worker positions
  • Instituting mandatory furlough or layoffs

Workforce reduction may occur for several reasons, including changes in economic markets, poor management, or other factors. Since workforce reductions usually involve a large amount of employees, employers need to exercise caution and foresight when planning such reductions.

What Happens with Employees during Workforce Reductions?

Workforce reduction or downsizing typically involves a two-step process, which may take anywhere from several weeks to several months or longer. 

1) Assessment: Employees are selected and assessed for possible termination. Selection may be based on the employee’s performance, although the termination usually depends on the company’s individual needs and budget. The employees are then fired according to the selection and assessment process.

2) Severance: After or during the termination process, employees may be offered benefits which serve to ease the transition period after termination. For example, an employer may choose to provide severance packages or unemployment compensation. Also, some employers provide “outplacement services.” These are services and counseling intended to assist the former employer in securing another job after termination. 

What Rights Do Employees Have regarding Downsizing Procedures?

In most cases, employment is done on an at-will employment basis, meaning that the employee may be terminated at any point, for any reason, so long as the termination is not illegal. Thus, employees who work on an at-will basis may be terminated in connection with downsizing or workforce reduction. However, even at-will employees have certain rights that protect them if they will be subject to workforce reduction. 

One of the most important rights that employees have is the right to be free from employment discrimination during termination processes. An employer may not discriminate against protected classes of persons when they implement downsizing. For example, the workforce reduction may not be based on the employees:

  • Race
  • National origin
  • Religion
  • Gender
  • Age

Other categories are also protected, such as disability. 

So, for example, if the employer only terminates a certain age group, they may be liable for employment discrimination. They may even be held liable if the downsizing unintentionally causes an unfair outcome with regards to a protected group.

In addition, some companies are required to follow termination laws governing 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. The notice needs to be directly addressed to the employees and must be in writing. Failure to provide notice could result in liability.

Do I Need a Lawyer?

Violations of workforce reduction laws are treated very seriously, since many different employees may be involved. 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. You may wish to consult with an employment lawyer if you have any issues at all regarding workforce reduction.

Photo of page author Matthew Izzi

, LegalMatch Legal Writer and Attorney at Law

Last Modified: 09-03-2014 02:56 PM PDT

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