Workforce Reductions and Downsizing

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 What is Workforce Reduction?

Workforce reduction, also known as downsizing, restructuring, or reorganizing, may occur when an employer terminates a large number of employees in an effort to reduce business expenses. Although a reduction in the workforce event will typically involve permanently laying off certain employees, there are some situations wherein it may involve the following alternatives instead:

  • Reducing the number of work hours available for all workers employed by a company;
  • Slashing annual holiday bonuses and freezing promotions or salary hikes;
  • Shifting employee responsibilities to reduce the number of job positions;
  • Eliminating or getting rid of supplemental payments for overtime (if allowed by law);
  • Implementing mandatory furlough or layoffs.
    • Both terms refer to a type of absence or leave from work. Generally speaking, however, a worker who is furloughed will usually be permitted to return to their jobs, while a worker who is permanently laid off will not be able to return to their position unless they were only temporarily laid off. Of course, this will depend on the circumstances surrounding a worker’s discharge.

In addition, since downsizing and reduction in the workforce events tend to impact a large number of workers, employers would be wise to exercise caution and foresight when planning to downsize their business. Otherwise, they may risk being subjected to several legal consequences, such as a class action lawsuit brought by their workers.

Why Do Workforce Reductions Occur?

Reductions in the workforce may arise for a number of reasons, such as changes in the economy or poor management skills.

In addition to reducing company expenses, workforce reductions may also be used as a method to increase earnings for a business. For instance, if a company’s human resources department mistakenly hired too many workers for a certain position, the company may be spending more resources on labor costs than is necessary for it to succeed.

Accordingly, workforce reductions may occur to not only help a business to lower costs, but also to enable a business to retain more of its profits.

What Happens to Employees During Workforce Reductions?

In general, a downsizing or a reduction in the workforce event typically involves a two-step process that can take anywhere from several weeks to a few months to complete, or possibly even longer. The two primary steps that normally occur when a business is downsizing include the following:

  • Evaluations and decisions: An employer must first evaluate all of their employees and determine which ones may potentially be discharged during a downsizing of the company. While it is legally permissible to base terminations off of individual employees’ work performance, most downsizing will take into consideration a business’s budget and needs. Once an employer has made their decisions, the workers will then be let go in accordance with the results of the evaluation process.
  • Severance packages and unemployment: Either during or after the termination process is complete, a worker who is discharged will often be offered benefits or a severance package to help ease them into the transition period between their termination and searching for a new job. In some cases, an employer may offer unemployment compensation instead.
    • In addition, some businesses have implemented “outplacement services” to assist terminated employees with finding a new position or to obtain career counseling tips to help them with career-related issues like how to successfully perform during an interview.

What Rights Do Employees Have Regarding Downsizing Procedures?

In the majority of states, most employees are considered to be hired on an at-will basis. This means that a worker could potentially be terminated at any time and for any reason or for no reason at all, so long as the firing is not in violation of the law. Accordingly, employees who are hired on an at-will basis may be terminated when a business downsizes or proceeds with a reduction in the workforce event.

However, just because a worker is hired on an at-will basis, does not mean that they do not have any rights. Similar to most workers regardless of their work status, an at-will employee will still retain certain rights that they may exercise to protect themselves if they are ever subject to a downsizing or reduction in the workforce event.

One of the most significant legal rights that all workers are typically granted is the right to be free from discriminatory activities or employment discrimination during a business’s hiring and/or firing process.

In fact, an employer will be found to have been in violation of the law if it can be proven that they discriminated against groups of workers based on traits that are deemed to be legally protected in deciding which workers to discharge during a workforce reduction.

Some examples of traits that fall into protected categories of persons under the law and therefore cannot be the reason that an employer dismisses a worker will include the following:

  • Age;
  • Religion;
  • Color;
  • Veteran status;
  • Ancestry or national origin;
  • Sex;
  • Race;
  • Gender identity;
  • Pregnancy status; and/or
  • Mental or physical disabilities.

The categories of persons mentioned in the list above will receive legal protections against employment discrimination under federal law. It is also important to note that each state may have adopted their own version of a state discrimination law that incorporates other traits. For instance, the state of California makes it illegal for employers to discriminate against a worker based on their marital status and/or sexual orientation.

As for an example of how these categories may be used by a worker when filing a claim against an employer for employment discrimination, consider this brief scenario:

  • A business is experiencing financial problems. To ensure that the business does not have to file for bankruptcy, its board decides to downsize and must reduce its workforce. The board decides it would be best for the business to get rid of all pregnant workers since they will be on maternity leave soon and thus will not be able to work anyway. The board discharges all pregnant employees the next day, regardless of how long they have worked for the business.
    • In the above scenario, the pregnant employees would have grounds to file an employment discrimination lawsuit against the business.

In addition, an employer may also be held liable if a reduction in the workforce event unintentionally causes a discriminatory or unjust outcome that only affects certain protected categories of persons. Some companies may even be required to comply with termination laws that regulate corporate layoffs under a federal law known as the Worker Adjustment and Retraining Notification Act, or simply the WARN Act.

According to the provisions set out by the WARN Act, a business that employs more than 100 workers will legally be required to provide workers with notice of widespread termination at least 60 days in advance before a downsizing event occurs. The notice must be in writing and must also directly address each individual worker that a business intends to discharge. Failure to provide notice to workers can subject a business covered by the WARN Act to legal liability.

Do I Need a Lawyer to Help with Workforce Reduction Issues?

As previously discussed, issues involving reduction in the workforce violations are taken very seriously due to the widespread effects that downsizing can have on a business and a large number of employees. As such, an employee will have the right to seek a variety of legal remedies if a workforce reduction is not properly executed, which may include compensation for lost wages as well as reinstatement to their former job position if they were laid off.

However, a reduction in the workforce issue is not always the easiest to prove. Therefore, it may be in your best interest to speak to an wrongful termination lawyer in your area if you are involved in a dispute over a downsizing or reduction in the workforce event. An experienced employment lawyer will be able to assess the facts of your case and can determine whether any of your legal rights as a worker have been violated under the laws in your jurisdiction.

If your lawyer finds that your rights as a worker have been violated during a reduction in the workforce event, then your lawyer will also be able to assist you in potentially recovering a monetary damages award and/or some other form of legal remedies. In addition, your lawyer will be able to help you to draft and file any required legal documents either with a local government agency or in the proper civil court.

Depending on the circumstances surrounding your downsizing matter, your lawyer will also be able to provide legal representation during negotiation talks with your employer and/or at any legal proceedings related to your workforce reduction case in court. Lastly, if you have any questions or concerns about reduction in the workforce issues that need to be addressed, your lawyer will be able to respond to those as well.


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