Unless Your Last Name is Trump

8/12/2019 Unless Your Last Name is Trump

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How to Fire an Employee theLegal Way: 6 Termination

GuidelinesThese days, its much harder to get rid of a problem employee . Workers are more aware of their rights under thelawand theyre more likely to seek the advice of an attorney if they think theyve been wronged by their employer.The result: A lot of workers are getting even by suing their employers for wrongful discharge or discrimination.

The lesson: Fire away, but do it the right way. Use this special report , How to F ire an Employee the Legal Way , asyour guide on proper procedures to exercise your right to fire at will, lay the groundwork with progressive discipline,avoid wrongful termination lawsuits , and conduct termination meetings and exit interviews.

Termination Guideline #1 Fire at will: Employers'rights

Under the law in most states, if theres no employment contract , workers are employed on an at -will basis. Thatmeans employers have the right to fire employees at any time for any reason or no reason at all, and, conversely,employees have the right to leave the organization at any time.

If an employee is under contract, though, the terms of the contract apply. A written contract may specify the reasonsyou can terminate the employee, while an oral contract usually implies that termination can occur only for cause. Thatmeans the employer can terminate the worker only for poor performance, dereliction of duty, an act of dishonesty orinsubordination, or because the company needs to eliminate the employees position.

At-wil l l imi ta t ions

Over the years, the employers right to fire at will has been limited, as courts have recognized exceptions to the at -willdoctrine. Here are three major exceptions:

Exception 1: Discrimination. Under federal law its illegal to terminate workers because of their age, race, religion,sex, national origin or a disability that does not influence their job performance. Some states add other limitations for example, in many states, you cant fire someone over sexual preference.

Exception 2: Public policy . You cannot legally terminate an employee for reasons that violate public policy. Thatmeans you cant fire one of your engineers for informing the EPA that your company has been dumping toxic waste inthe river. By the same token, if a court orders you to garnish the wages of a worker whos behind on child support ,you cant fire him merely to save yourself the hassle of additional paperwork.

Exception 3: Just cause promise. If you tell your workers that they will be fired for cause only or otherwiseestablish guidelines that spell out how and when terminations will be handled you may be creating an impliedemployment contract.

Termination Guideline #2 The right way to fire: Lay thegroundwork

Its a lot easier to discipline a worker if youve made your expectations clear from thebeginning. Each employee should have a job description that lists the tasks you expect


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accomplished daily or weekly. Make it clear, however, that these tasks are subject tochange depending on the organizations needs.

If you have rules specifying how certain tasks should be performed, post them in thework area. That helps workers do their jobs correctly and helps you point out when a

rule is broken. Some employers state clearly in their handbooks that employees aresubject to firing without cause. Some companies ask employees to acknowledge this bysigning a form. Theres a trade -off here: Signing such a statement wont endear yourworkers to you and the company. A policy of firing only for just cause is more likely tobuild loyalty, but it might subject you to judicial review.

Termination Guideline #3 Avoid wrongfultermination suits: Use progressive discipline policy While no federal or state law requires you to create and follow a progressive discipline policy, courts often comedown hard on employers that promise progressive discipline but fail to deliver it. In fact, many employee lawsuitsstem from the employees perception that he or she didnt receive a fair deal.

Thats why the most reliable way to protect your organization from wrongful termination charges is to establish aprogressive discipline system and make sure your supervisors enforce it.

An increasing number of lawsuits have been filed in which terminated employees complain that employers haveviolated their own progressive discipline policies by firing the employee before working through all the rungs on theprogressive-discipline ladder.

Thats why your policy should include language allowing you to skip progressive discipline and fire employees rightaway for particularly egregious behavior.

While its usually your right to terminate at -will employees at any time for misconduct or lax performance, aprogressive discipline policy lets you make clear that problems exist and need improvement.

How it works: Your policy simply increases the severity of a penalty each time an employee breaks a rule. Typically, apolicy progresses from oral warnings to written warnings, suspensions and then termination. That way, employeeswont be surprised when they reach the end and are fired. By taking the surprise out of the firing, you lessen yourexposure to a wrongful termination lawsuit.

Termination Guideline #4 Beware of constructivedischarge Constructive discharge occurs when employees claim their working conditions were so intolerable that they wereforced to quit. Employers must stay within federal employment laws so they dont contribute to factors that triggerconstructive discharge claims, and dont hei ghten the risk of employee lawsuits.

1. What do the courts look at when it comes to claims of constructive discharge? What types of actions can lead tosuch a claim?

Heres how one state supreme court defined constructive discharge: An employee who is for ced to resign due toactions and conditions so intolerable or aggravated at the time of his resignation that a reasonable person in the


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employees position would have resigned, and whose employer had actual or constructive knowledge of theintolerable actions and conditions and of their impact on the employee and could have remedied the situation, but didnot, is constructively discharged.

What falls into the intolerable or aggravated category? Think: actions intended to humiliate (e.g., demoting a vicepresident to janitor overnight); actions intended to harass (e.g., requiring a black employee to work extra hours for thesame pay as white co- workers and punch a clock while others do not); actions intended to destroy the employeescareer or guarantee job loss (e.g., sudden, unexplained drops in performance ratings, skipped promotions, forceddemotions, pay cuts).

2. What other types of factors contribute to a constructive discharge claim?

Factors that may contribute to a constructive discharge claim either singly or in combination include whether anemployee suffered:

a demotion reduction in salary reduction in job responsibilities reassignment to menial or degrading work reassignment to work under a younger supervisor involuntary transfer to a less desirable position badgering, harassment or humiliation by the employer offers of early retirement or encouragement to retire offers of continued employment on terms less favorable than the employees former status a threat of violence or actual physical assault a threat of termination

Termination Guideline #5 Termination meeting:Choose firing words carefully

The time has arrived Youve evaluated all the reasons why an employee should beterminated. Youve run the decision through an employment law audit an d made sureyou have appropriate records and documentation supporting the decision. Now its timeto tell the employee that he or she is about to become a former employee.

How you break the news to the employee is key: Follow basic rules of legal andbusiness etiquette to allow the employee to leave with dignity and not return with alawsuit.

If the employees manager, rather than HR, is designated the bearer of bad news, atleast have an HR rep present at the meeting to answer questions the employee mayhave and to help reduce the risk of legal exposure by keeping both sides focused on thematter at hand. Also, it helps to have a witness, in case the employee challenges thetermination later.

Briefly deliver the news by summarizing the well-documented, job-related reasons for the termination. That way, whilethe employee may not like it, he or she will have little to dispute. Allow the person to offer his or her side of thestoryand even vent a little emotion without interruption.

Also, avoid using any harsh words during termination meetings that would serve only to inflame the issue. Stick to thefacts; dont make generalizing statements.


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Termination Guideline #6 Conducting exit interviews

Many employers think that conducting exit interviews with employees who have beenfired is a waste of time. After all, angry or bitter ex-employees would not be motivated todo something beneficial for the organization that just let them go. And if theyreharboring negative feelings toward the company, how helpful could their feedback be?

Exit interviews, whether with an employee who has been fired or who has resigned, canbe a valuable resource. Information learned in an exit interview can pinpoint areas ofconcern and provide a foundation for implementing changes.

Use the Exit Interview Form (Involuntary Termination) included in this report as a guidefor asking questions, or give it to the employee to complete during an exit interview.


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The Legal Intelligencer

August 1999

In today's business and legal environment, discharging employees can be time-consuming, unpleasant and expensive. Rather than ending with a farewell handshake,post-termination contacts with former employees often include lawyers' letters,compensation hearings, agency proceedings and actions in state or federal court.

Nothing can prevent disgruntled employees who believe they were terminated unfairlyfrom seeking redress. But here is a checklist of suggestions to help your clients reducethe possibility of post-termination legal proceedings and to increase the chances ofsuccessfully defending against claims that do arise.

1. Follow Company Policies .

Given recent Supreme Court decisions , it is imperative that every company have well-established employment policies (if your client's company has none, advise him or herto draft them now!).

Polices dealing with such issues as employee discipline, performance reviews ,terminations, or investigations of complaints alleging supervisors' misconduct or sexualharassment are a necessary part of any company's defense arsenal.

2. Create a Paper Trail. Incomplete and poor documentation makes companies vulnerable. Too often, poorperformance and employee misconduct are inadequately documented or notdocumented at all.

Without the timely reports and written records corroborating an investigation intoallegations of harassment or other claims, subsequent inquiries during agency hearingsor lawsuits easily can turn into scathing "he said, she said" disputes. Having a thoroughpaper trail can even serve to support management's version of events as well as refreshsupervisors' recollections.

3. Unite the Management Team . Whenever possible, discuss the proposed termination in advance with the appropriatemanagers and supervisors. Develop a consensus and present a united front whenterminating employees. Management should agree upon the reasons provided toterminated employees and whether the company will offer such benefits as severancepay and continuing health-care coverage.Prior to the termination, all appropriate departments---including human resources andlegal---should be consulted. Issues such as whether to seek a release of an employee'spotential claims (particularly when the employee in question is a member of a "protectedclass") in exchange for an enhanced severance and benefits package should beconsidered before the termination process commences.


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At the same time, decide which manager will handle the termination and which willfunction as the "contact person" for any subsequent communication with the formeremployee.

4. Two to Terminate. Have two managers conduct each termination interview. One should act as thespokesperson and convey vital information to the employee. The second is a witness tothe termination. The tandem process helps prevent at upset employee from claimingthat harassment or improper remarks were made during the meeting.

5. Keep It Short and Simple.Termination interviews should be private and short; when possible, they should happentoward the end of the day. Begin meetings by informing the employee immediately ofthe termination. The initial statement should be simple and direct, such as "I'm sorry, butyour performance hasn't improved and we have to terminate you," or, "unfortunately, the

company is downsizing and your position is being eliminated."6. Provide Severance and Benefits Information. Keep explanations short and fairly general since employees are often too shocked orupset to understand fully all the information supplied during termination interviews.

Provide a letter outlining severance, vacation pay, insurance, and other benefits foreach employee to review later. COBRA and pension or 401(k) information also shouldbe set forth in writing in accordance with applicable regulations.

7. Communicate with Current Employees. Understand that remaining employees may be concerned about their own job security. Ifyou discuss the terminations with your current employees, be brief, general andrespectful of the dismissed employees' privacy. This is particularly important in view ofthe increasing number of defamation claims brought by terminated employees.

8. Better Safe Than Sorry. Terminated employees quickly become disgruntled and may create dissention among acompany's current workforce. Consider requesting that a terminated employee leave thecompany's offices as soon as practicable. If necessary, make arrangements to deliverpersonal effects to form employees' residences, at the company's expense.

To prevent retribution, change security codes and locks, eliminate any access to thecompany's computer system, and remove former employees as signatories to any postoffice boxes or bank accounts.

9. Respect Everyone. Post-termination proceedings often begin against companies when dismissedemployees feel they were not treated with respect. These perceptions may be entirelygroundless, but wrongful-termination plaintiffs consistently testify that companies failed


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to treat employees properly and to respond to requests for minor changes in severancepackages or information on benefits. Accordingly, consider their requests seriously,even if the company cannot agree to them.

10. Promptly Respond to Inquiries.

It is important to continue answering discharged employees' queries for information.Employees may write seeking additional facts and explanations about theirterminations.

While there is no legal requirement to reiterate the reasons for the termination decision,respond promptly and professionally. This approach will help reduce hostility and helpdemonstrate a clear record of communication in the event of litigation or an agencyinvestigation.


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Unless your last name is Trump, you probably don't enjoy firing people. It's precisely because downsizing makesmanagers squirm that it tends to be done poorly.

In fact outplacement and workforce transition (e.g. career transition assistance and career management) ranks 6thout of 6 in core elements of a company's talent management strategy. This according to Right Management Canada,a leader in talent and career management solutions.

Done badly, a downsizing can paralyze your remaining staff. They become risk averse and fearful for their ownfutures. Also your most valuable performers may start looking for a better place to work.

So have a look at these best practices in downsizing, and in helping survivors to excel . You'll improve morale andmaybe even increase productivity.

Consider Alternatives To Downsizing

The fully loaded costs of downsizing are bigger than you might think. Termination, business disruption, replacement,and training can be 1.5 to 2.5 times the annual salary paid for the job. On top of this is the plunge in spirit amongsurvivors after a layoff.

Before you do forced dismissals, consider all other options to save money and produce efficiently. This could mean afreeze on hiring, raises or benefits; letting contract and temporary employees go; reducing wages or work hoursacross the board; or scheduling unpaid employee furloughs. Instituting job sharing is another alternative.

Also calculate if you can achieve your goals via normal attrition (staff leaving on their own). If not, how aboutvoluntary termination - such as offering buy-outs and early-retirement incentives.

Make sure to let your staff know you've done everything in your power to avoid layoffs. It will help ease the hardfeelings if you actually have to downsize.

Be Fair When Choosing Who To Let Go

If you can't avoid layoffs, at least try to avoid appearing biased in who you downsize. For instance if you only dismisspeople you don't like, remaining staff may feel that their own level of performance doesn't matter - but that beinglikeable at any cost does. And if you only terminate older workers, you run the risk of being sued for agediscrimination.

One way to show your fairness is to give a second chance to valued employees you're thinking of laying off. Providethem with an opportunity to improve, if performance or attitude is the issue. Some extra coaching or training might dothe trick. If it doesn't, other staff will at least see that you've tried.

Think Ahead

Having a clear, well-defined vision of the company is imperative before the layoff is executed. Management shouldknow what it wants to accomplish, and where the emphasis will be in the new organization.

You should plan out how roles will be reassigned and workloads shifted. Make sure you know exactly what duties theterminated employees handle and how these will be covered going forward. In a small company, responsibilities maybe divided informally. Dont wait until the lease payment on the office is late to realize that the downsized worker paidthat bill.

Communication is also critical. Announce departures quickly and honestly to your remaining staff. Nothing createsparalyzing anxiety like silence after a trauma.

Reassure them, if true, that no further layoffs are planned in the foreseeable future. Recovery from a layoff ishastened if managers and employees are allowed to speak their minds freely. It can be an occasion for the team topull together and renew ties.

Downsize With Dignity

If you were dismissed one day, would you want to be removed from the premises by security guards, with no chanceto say goodbye to your peers? Probably not.
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There are ways to downsize that leave employees with their dignity . You don't want to alarm the survivors, nor shouldyou burn bridges with valued staff you've had to let go.

Here are some of the aspects that your remaining staff will be watching for carefully:

A sensitive dismissal process that gives the departing worker a solid chance of moving forward successfully.This includes a generous severance package, a positive reference (if doable), and career transition coaching by a

professional - also known as outplacement . Allowing the affected employee to resign, if they choose to, rather than being terminated An agreed upon "statement of departure" that is as neutral or positive as possible Giving the employee a chance to collect their important possessions from their office, and time to say a brieffarewell to co-workers Providing security if there's a likelihood the employee will become violent or unstable

An additional way to blunt the pain of layoffs is to do them in a s ingle batch, when feasible. Otherwise you keep amorale-sapping sword dangling over your remaining staff.

Help Survivors Adjust To The New Normal

At the most basic level, survivors want answers to two important questions.1. How will my own role be affected?2. Should I be looking for a job elsewhere?

To answer question 1, inform survivors of their new assignments right away. Do it one on one so you can respond totheir questions and personal concerns.

As for question 2, announce the measures you've planned ahead for to retain, motivate and reward survivors. Howwill you keep your staff performing? By doing the following:

Monitoring individual efforts and providing relevant feedback Continuing to keep staff informed of evolving changes Rewarding positive behaviours with small bonuses or perks Standing up for your people so that they get what they deserve

Two groups of survivors that are often overlooked are the managers who do the dismissals, and the HR professionalswho may be present at layoff meetings. The process is highly stressful for them. They may require counselingsubsequently. Your other staff might too. You can arrange for Employee Assistance Plan (EAP) counseling for thosewho'd like it.

Downsizing Strategies

Generally speaking, an organization that decides to eliminate redundantemployees does so by using four broad strategies: attrition, voluntarytermination (including employee buy-outs and early-retirement offers),

compulsory termination, and across-the-board cuts .[xiv]

Attrition , in which firms do not replace people who leave, is the simplestmethod. With this approach, employees have the opportunity to exercise freechoice in deciding whether to stay or leave, and thus the potential for conflictand feelings of powerlessness is minimized. At the same time, however,
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attrition may pose serious problems for management, because it is unplannedand uncontrollable.

Voluntary termination , which includes buy-out and early-retirement offers,is a second approach to downsizing a workforce. The main advantage of abuy-out is that it gives employees a choice, which tends to reduce some ofthe stigma associated with the loss of a job. At the same time, there are threeimportant downsides to buy-outs. One, they are expensive. Employees withlong service find them attractive. Two, the best workers may leave.There isdemand for their skills, and low-performers may stay because they are lessmarketable. Three, both high- and low-performing workers may leave out offear . Many worry that they could be dismissed later without any financialcushion. To illustrate this approach, consider the buy-out plans recentlyoffered by Ford Motor Company and General Motors .[xv]

At Ford, offers ranged from $35,000 for workers with 30 or more years ofservice, who could keep their full retiree benefits, to a flat payment of$100,000 to younger workers who agreed to leave the automaker and to giveup retiree health care and Ford

pensions. For workers who chose to go to college or vocational school for fouryears, Ford provided tuition, half their usual pay, and full medical coverage.Workers who chose this plan could keep any accumulated pension but had toleav e behind any retiree health benefits. Almost half of Fords hourlyproduction workers (38,000 workers) took one of the offers.

At GM, 35,000 workers accepted checks ranging from $35,000 to $140,000 toretire early. Another 12,600 employees at GMs former p arts unit, Delphi, didthe same, helping the automaker slash $5 billion in costs. Unfortunately, thatwas not enough to save the company. As economic conditions deterioratedduring the Great Recession, General Motors was forced into bankruptcy inJune 2009. A move that once seemed unthinkable became inevitable afteryears of losses and market-share declines, capped by a dramatic plunge in

sales.More than 2,000 dealerships were closed, as GM shed its Pontiac,Saturn, Hummer, and Saab brands. In addition, more than 20,000 U. S.workers lost their jobs, and investors in $27 billion worth of GM bonds,including mutual funds and thousands of individual investors, ended up withnew stock in a reorganized GM worth a fraction of their original investment.Owners of current GM shares had their investments essentially wiped out . [xvi]
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Early-retirement incentives (ERI) , in which a company offers moregenerousret irement benefits in return for an employees promise to leave at acertain time in the future, are often part of a larger buy-out scheme.Sometimes, early-retirement offers are staggered to prevent a mass exodus.

Retention bonuses with different quit dates may be used to ensure an orderlyexit.

From an organizational viewpoint, managers assume that early retirementopens up promotional opportunities for younger workers, but one researchstudy found that it is difficult to predict accurately how many older workerswill take an ERI. Typically, about one-third of those offered ERIs accept them,but there is a great deal of variation .[xvii] Beyond that, high performers mayleave if an organization offers open-ended, non-targeted ERIs, and incentivesmay not work. For example, lump-sum bonuses, such as one- weeks extrapay for each year of service, are relatively ineffective in persuading olderworkers to retire early. On the positive side, poor performers are more likelyto take ERIs because they lack confidence about future pay increases.

Compulsory termination , in which departing employees are given nochoice, is a third downsizing strategy. Plant closures and the wholesaleelimination of departments or business units are examples of this approach.

Although it is, of course, unappealing to employees, the managers who makethe decisions do have the opportunity to design and implement criteria based

on the needs of the business .[xviii]Eliminating jobs or entire business unitsalso makes it less likely that employees will prevail in lawsuits allegingdiscrimination.

A final downsizing strategy , across-the-board cuts in every department, isperhaps the least effective downsizing option. Such cuts emphasizestandardized treatment of employees, but ignore the strategic importance ofdifferent department s to a firms overall success and ignore differentperformance levels ofemployees. Suppose one department iscomprised ofsuperstars, and anotheris comprised of slackers. Why shouldthe same

percentage of superstars andslackers be laid off? The Economist magazinedescribed this problem asSnip, Snip, Oops! [xix]

Selecting Employees for Downsizing

Once the decision to implement layoffs has been made, a variety of decisioncriteria are available to determine who goes and who stays. Generally
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speaking, in the United States employers are free to use whatever criteriathey wish in terminating employees, as long as the criteria do not discriminatebased on membership in a protected class, are not arbitrary or capricious, andare based on legitimate business reasons. Here are five important guidelines:

Identify departments and functions that are strategically critical, alongwith critical employee skill sets going forward.

Identify criteria that reflect legitimate business needs. Use a funnel approach to selection; that is, evaluate employees by

critical skill sets first, followed by job performance, disciplinary actions,and seniority (to break ties).

Document the criteria and processes used. Conduct analyses to ensure that there is not a disproportionate effect of

layoffs on members of protected classes, and have all analyses anddocumentation reviewed by an attorney.

As noted above, begin by identifying specific departments or functions basedon their strategic importance. In doing this, companies try toretain pivotaltalent those employees with skill sets needed to execute businessstrategies in the comingyears .[xx] A firm may move in stages, first selectingspecific departments or functions, and then turning to amultiple-hurdleor funnel approach . In this approach, managers identify critical skill sets andthen take explicit steps to retain employees with those skills, letting them

know how important theyare to the organizations future success. Job performance becomes the most important factor when there are morepeople with critical skill sets than there are available positions in thedownsizedorganization. Generally speaking, employers tend to retain people who haveperformed well in the past and who have not had disciplinary problems.Unfortunately, in some organizations, the lack of reliable and validmeasurements of performance forces reliance on other criteria.

Once the available pool of employees is limited to those with critical skills,

high performance, and few, if any, disciplinary problems, and the firm still hasmore workers than required what is the next step? At this point, manyemployers use seniority or tenure with the organization as the criterion fordecision-making.

Ultimately, reducing the workforce can be an opportunity to addressperformance problems that have festered over the years and to terminate
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employees whose performance has been weak. However, in all downsizingscenarios, sound professional practice requires that firms conduct adverse-impact analyses before implementing such a strategy. Document the criteriaand processes used in downsizing, and have results and materials reviewed

by an attorney who specializes in employment law.Note that even when some adverse impact is expected from downsizing, thisoption is still viable if the criteria used are job-related and reflect legitimatebusiness needs. Having identified who will go and who will stay, the next stepis to manage the downsizing process in a dignified, respectful manner. Ournext section addresses that important issue.

Managing the Downsizing Process

Despite a variety of styles and strategies used to let employees go, there is acore set of sound professional practices. Here is one such set .[xxi]

Be transparent about the current conditions that the organization faces, andthe potential impact on the workforce. Employees want to hear the truth, andthey want to hear it from the CEO. In small businesses, employees oftensense when a company is in trouble; pretending things are fine will only hurta leaders credibility. Provide regular updates at least every 4 -6 weeks thatinclude reports on year-over-year revenue, net income, current businessstrategy, and future prospects. Invite employees to ask questions and raiseconcerns. Allow them to identify redundant jobs, wasted activities, andbloated cost structures that will improve efficiency and cut costs. People whoknow what is going on can be part of the solution. Beyond that, if peopleknow that their employers tried to use other options to preserve jobs, and usedownsizing as a last resort, that will help to ease the pain. At Reflexite, acompany that makes reflective safety products and films, the CEO regularlycommunicated the effects of the downturn, and employees had been involvedin discussions about the business. After exhausting all other options, the firmcut 75 positions in one division. The employees general reaction? Losing our

jobs is painful, but at least we know you did all you could. [xxii]

Treat laid-off employees with respect and sensitivity. Give soon-to-be-terminated employees plenty of advance notice, and, if appropriate, tell themthat the organization will write a strong letter of reference on their behalf. Besure that immediate supervisors not HR professionals deliver the newsof the layoff to affected employees and that they do so in private. The


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immediate supervisor must be able to make the business case about the needfor layoffs, and the criteria for dismissals. Some companies have an HRrepresentative present along with the immediate supervisor during thatprocess. Allow employees to vent, and always treat them respectfully. The

role of HR in this situation is to listen and to empathize, not to argue. Finally,create a severance plan that provides tangible economic benefits, and thatreflects managements compassion and understanding of the impact of thetermination. Although the trend is for companies to offer less in severancepayments, fully 93 percent of them require employees to sign releases ofliability in order to receive severance pay .[xxiii] Outplacement assistance thatcan assist employees in job-hunting and networking can be particularlyvaluable, but ensure that severance arrangements are consistent across unitsand divisions .[xxiv]

This is precisely what eBay did when it reduced 10 percent of its globalworkforce in 2008, almost 1,000 people. U. S. employees were allowed tostay on for up to four weeks to take care of personal needs, to say good-byeto their colleagues, and decide when they would leave. This element ofpersonal control is critical. It provides laid-off employees at least some sensethat they are still in command of events that affect them. In addition, all U.S.employees received at least five months of severance pay, plus four monthsof paid health-care benefits, plus 1-3 months of outplacement services.

According to Beth Axelrod, eBays senior vice -president of HR, How you treat

the leavers has a strong impact on how the stayers feel about the company. Ensure that procedures used to make decisions are seen as just and fair.Research has demonstrated time and again that the procedures used toselect, notify, and support employees are critically important. This is known as

procedural justice. When laid -off employees perceive downsizing proceduresto be fair, they tend to file fewer claims of wrongful termination, andvoluntary turnover among surviving employees is much less frequent. So alsoare incidents of theft, violence, and sabotage. Indeed, procedurally fairtreatment has been demonstrated to result in reduced stress and increasedperformance, job satisfaction, commitment to an organization, andtrust .[xxv] Conversely, when employees feel that they have not been treatedfairly, they may retaliate in the form of theft, sabotage, and even violence.One way to promote perceptions of fairness, as we saw in the eBay exampleearlier, is to give employees a sense of personal control by offering optionsthat might include choice in the forms of severance, actual departure date,and outplacement assistance. The lesson is clear: sound HR practices, as
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reflected in procedural justice throughout the process, and practices thatfacilitate commitment and fit with the organization, can reduce the negativeeffects of downsizing considerably .[xxvi]

On the day of discharge, give employees options on how they want their exithandled. That includes when and how to collect their personal things, saytheir good-byes , and depart with as much grace and dignity as possible. Dontallow an unwarranted fear of sabotage to govern the exit process. Here aresome sensible security measures to consider: Protect computer systems bytaking away access codes from terminated employees, and have terminatedemployees turn in their building-access cards to thwart them from returningto the premises. Dont allow long -time, loyal employees to be marched out ofthe building by security personnel, carrying boxes of their personal belongingsand passing by surviving co-workers.

Give survivors a reason to stay, and new hires a reason to join. Both groupswill experience transitions. Explain how the decision to cut staff is necessaryfor the organizations long -term health. Give survivors hope by describingfuture business plans, targets, and details. Describe a future full of promise,one that will allow the company to seize business opportunities witheveryones determination and buy -in. Encourage everyone to participate ininventing the future. Explain that you will be investing in those who remain,building skills by retraining everyone in the new ways of operating.

Carefully examine the impact of employment downsizing on all HR systems.Recognize that downsizing is just one tool in a portfolio of strategies toimprove firm performance. That portfolio includes workforce planning,staffing, compensation, performance management , training, job safety, andemployee relations. How should each area change in light of the new strategyor environ ment facing the organization? Let the 3 Cs care of customers,constant innovation, and committed people guide that examination.Japanese electronics giant, Matsushita Electric Industrial Co. did just that. Itshaved billions of dollars from its cost base by cutting its domestic workforceby 19 percent from 2001-2005, and by closing 30 factories. At the same timeit boosted spending on research and development, and renewed its focus oncreating innovative products (Panasonic cameras, DVD recorders, and flat-screen televisions). Two years later, its stock was up 33 percent.

Consequences of Downsizing on Those Who Remain
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Clearly there are ripple effects of employment downsizing for a variety ofstakeholders, from survivors who remain, to those laid off, to the largercommunities affected. For purposes of this article, we focus particularly on theconsequences of downsizing for survivors and their organizations.

Examinations of the broader effects of employment downsizing on otherstakeholders are available elsewhere .[xxvii]

Those who remain often feel guilty and depressed .[xxviii] Manystudies have found that morale, loyalty, and trust in management declineafter a downsizing. So also does organizational commitment, job satisfaction,and job involvement. At the same time, stress levels, intentions to quit, andactual levels of voluntary turnover all increase, due at least in part to thelossof a sense of personal control over importantevents in ones life. Thisconstellation of symptoms is known assurvivor syndrome. [xxix]

Two groups of survivors that are often overlooked are the managers who dothe firing, and the HR professionals who are often present at layoff meetings.The process is highly stressful and exhausting for them, and many requirecounseling subsequently .[xxx] Here is how David Pottruck, former co-CEO ofCharles Schwab & Co., Inc., described his experience after the firms firstlayoff.

Facing up to our first layoff was probably the worst feeling that I ever hadin business. I went through a period of incredible sadness and sense offailure. I co uldnt imagine the way we had let down these people and thesefamilies who had to depart. We made every effort to undertake thatprocess with as much dignity and generosity for employees as we could.We wanted to make sure that those who were still here respected the waythe company dealt with those who left. Because if there were otherlayoffsWe dont want to see any destruction of employees loyalty to thecompany. [xxxi]

For both laid-off employees and survivors, keep in mind that there issomething known as the psychological contract that guides the relationshipbetween workers and employers. Employees infer a set of expectations fromtheir employers actions, including t he expectation of fair treatment.Downsizing is often interpreted by workers as a breach of the psychologicalcontract, and surviving employees may respond by withholding effort and
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involvement, or through absences or quitting. For example, high-performingemployees often take jobs elsewhere in order to avoid the uncertainties andambiguities in a downsizing environment .[xxxii]

Keeping workers engaged and involved. A recent study [xxxiii] examined howlayoffs moderate the relationship between high-involvement work practicesand productivity, and how continued investments in high-involvement workpractices through the period of layoffs maintain workforce productivity. High-involvement work practices are those that create firm-specific employeecapabilities that are difficult for other firms to imitate or transfer. They cover awide range of systems and routines, from team-based production and semi-autonomous work groups, to gainsharing and flexible work design, toinformation sharing and opportunities for training and development.

Using a large sample of Canadian firms that responded to a Workplace andEmployee Survey conducted by Statistics Canada over a 4-year period, theresearchers found a negative relationship between high-involvement workpractices and productivity in workplaces with higher layoff rates. Workplacesthat continued to invest in high-involvement work practices, however, wereable to avoid productivity losses, as compared to workplaces that discontinuedsuch investments.

At the most basic level, survivors want answers to three important questions.

Were departing employees treated fairly, with dignity and respect? Aswe have seen, how an organization treats the leavers sends importantsignals to those who remain.

Why should I stay? This is a me -question that survivors wantanswered. What will be the impact on my career and professionaldevelopment? Is there a future here worth working towards?

Is there a new business strategy? Will the organization ultimately bebetter off as a result of the downsizing?

Conclusion

Employment downsizing is not a cost-cutting cure-all, nor does it guaranteethat short-term savings will exceed long-term costs. At the same time, cashflow is the lifeblood of organizations, and to preserve it, some level of


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employment downsizing may be necessary. If that is the case, use theresearch-based findings outlined here to downsize employees humanely andwith dignity, and be proactive in dealing with the predictable reactions ofsurvivors. Do the layoffs early rather than later in a recession, in order to

avoid dismissing workers just before demand picks up again. Late-recessionlayoffs can be especially costly in terms of severance and other payments todeparting employees, coupled with rehiring costs later. Avoid doingdownsizing just because it seems trendy, or because all of your competitorsseem to be doing it. Above all, be very conscious of its consequences.

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Cost-reduction Stages

The conceptual framework shown in Figure 1 encompasses three timeframe-related phases commanding severalinternal cost adjustments that have produced a variety of stage-related HR practices. It is important to note that theHR practices are cumulative. In other words, the practices in each stage are not unique to the actual phase, butapplicable in subsequent phases in a cumulative fashion.

First stage: Short-range cost adjustments

The first stage of the cost-reduction framework represents short-range cost adjustments in response to a short,temporary decline in business activities (Vernon, 2003). These business slowdowns are expected to last less than sixmonths (Gandolfi, 2008). Most likely, the firm resorts to minor, moderate cost-reduction measures in this stage.These preliminary adjustments should enable the firm to shun RIF-related layoffs and involuntary cutbacks and returnto normal business activity within four to six months (Gandolfi, 2008). Typically, this phase originates with anunexpected drop in sales or a decline in sales forecast. It is characterized by short-term expenditure adjustments toprevent a medium-range downturn or a more lasting, long-range decline. The immediate recognition of a temporarybusiness slip and the resolute engagement in preliminary cost-reduction methods should allow the firm to focus itsoperations in a cost-sensitive mode for a quick recovery (Vernon, 2003).

[FIGURE 1 OMITTED]

The probability of success for the short-range cost adjustments hinges on a number of factors: First, seniormanagement must be able to articulate the business necessity for the cost-adjustment measures effectively andstress the short timeframe of the strategy. A firm's ability to convey the message that preliminary cost-reductionmeasures at the present time will likely prevent RIF-related layoffs in the future is critical. Second, the HR's role is tocommunicate decisions made by the board of directors to the entire workforce promptly and to implement the cost-reduction methods swiftly. Third, the employees' flexibility in allowing the firm to modify cost structures increases thechance of success for the planned cost alterations. Therefore, a firm's capacity to overcome a business downturn inthe first stage will depend to a large degree on its organization's ability to respond to the new environment byimmediately and resolutely modifying expenditures (Vernon, 2003).

Suggested HR practices for short-range cost adjustments. A review of the literature and the popular press reveals

several HR-related practices that firms have implemented for preliminary cost reductions. The following is a non-exhaustive overview and explanation of some of the approaches suggested by scholars and implemented by firms inthe global corporate landscape.

* Hiring freeze

A hiring freeze is a mild form of downsizing that reduces labor costs in the short term (Littler, 1998). However, a hiringfreeze does not imply that there is no hiring activity at all. Some firms hire new employees while cutting jobs at thesame time (Vernon, 2003). While this practice may make sense in terms of supplying the firm with key personnel, ittends to send a confusing message to the workforce. As an example, in its latest attempt to fight rising jet fuel costsand a deteriorating U.S. economy, American Airlines imposed an immediate hiring freeze on all management andsupport staff (Maxon, 2008).

* Mandatory vacation

Mandatory vacation involves requiring employees to use their accrued vacation days or requiring them to take anumber of unpaid vacation days during a certain time period. While employees might not want to be told when andhow to use their entitlements, they will nonetheless appreciate the reaffirmed job security (Vernon, 2003). At the timeof writing, Chrysler plans a corporate-wide shutdown of its U.S. operations during two weeks in July 2008 to improvethe automaker's efficiency and boost productivity (Govreau, 2008).

* Reduced workweek


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Firms sometimes resort to a reduced workweek. This may translate into a reduction from 40 to 35 or fewer hours,thereby reducing short-term payroll expenditures. While most employees appreciate being able to spend more timewith their families, a reduced paycheck is not always welcomed. Also, employees may find that the same amount ofwork still needs to be performed while they spend less time on the job (Gandolfi, 2008). Nucor Steel Corporation inSouth Carolina has avoided layoffs for 35 years by resorting to two and three workdays for its employees during

downturns (George, 2004). In a similar vein, in 2008, workers at a St. Thomas automotive parts plant in the U.K.voted a reduction in their workweek rather than see 200 employees leave permanently (De Bono, 2008).

* Cut in overtime pay

Minimizing or abolishing overtime pay for employees can be a powerful technique of reducing operational costs in theshort term (Vernon, 2003). Firms may institute an across-the-board (i.e., all employees) abolition or confine the cut toselected categories, such as nonmanagerial, blue-collar, or salaried employees (Gandolfi, 2008). In 2004, GM andFord and car-supplier Visteon Corporation slashed overtime pay for most employees indefinitely (Dybis and Garsten,2004).

* Salary reduction

Salary reduction methods have been standard practice for firms experiencing unexpected financial pressure.Whereas salary reductions mitigate financial concerns in the short run, extended salary reductions can negativelyaffect employee morale and loyalty. Also, while companywide salary reductions prevent layoffs, there is a clear riskthat top performers will be encouraged to leave for competitors that dangle superior compensation (Gandolfi, 2008).In 2006, White Electronics Designs introduced salary reductions of 5% for salaried employees and 10% formanagement, while the hourly workers remained unaffected. In 2006, a collation of Intel managers agreed to take atemporary 100% pay cut to avoid permanent layoffs. Prior to that, Intel announced that it had planned to cut 10,000employees, including 1,000 managers (Paul, 2006).

* Temporary facility shutdown

Temporary facility shutdowns occur when a work site closes for a designated period of time, while someadministrative functions still perform (Vernon, 2003). A shutdown allows employees to have time off without using

their vacation days. While overall company production decreases, the firm can achieve considerable costs savings,thereby avoiding layoffs. In early 2008, Aleris International shut down its rolling mill production in Virginia to alignproduction with demand. As a consequence, production for customers was phased out and transferred to otherfacilities within the U.S. (Aleris, 2008).

* Soliciting cost-reduction ideas from employees

Employees appreciate the opportunity to make a positive impact on their workplace and environment. Firmsfrequently solicit cost-reduction ideas from employees, who are often creative in producing such solutions. This HRpractice has proven to be most effective when employees are able to make suggestions in the early stages of costcutting (Vernon, 2003). At Martin Heyman Associates, all professional construction consultants are encouraged tocontribute cost-reduction ideas. Unfortunately, many executives still do not realize that employees are the bestsource of such ideas because workers on the job are in a prime position to identify and recognize waste (Yorke,2005).

This overview has shown that there are numerous HR tools at an executive's disposal to reduce short-termexpenditures. While some firms have come up with innovative ideas, others have used layoffs as a very first resort.

Again, it must be understood that the techniques introduced in this stage are cumulative and applicable in otherstages. Moreover, the utilization of each HR practice is unique in that each selected tool will have certainconsequences that need to be carefully considered by management prior to adoption.

Second stage: Medium-range cost adjustments


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The second stage of the cost-reduction framework comprises medium-term cost adjustments in response to amedium-range business downturn exceeding six months (Vernon, 2003) and up to 12 months (Gandolfi, 2008).These secondary cost-reduction adjustments are frequently signaled through extended company-wide or industry-wide forecasts of diminished sales activity. If properly recognized and executed, the firm may be able to transition tomid-range cost adjustments and thus prevent long-term, RIF-related layoffs and forced downsizing. In this phase

constituencies need to recognize that deeper cost-reduction strategies may be required to avert downsizing-relatedlayoffs. Senior management must be able to present the purpose and objectives of the expenditure adjustmentsconvincingly to the entire workforce. This should ensure employee buy-in and commitment. Adopting HR practices inthis stage could potentially alter employees' work environment. Therefore, the HR department will play an essentialrole in the conduct and transition of these practices (Gandolfi, 2008).

Suggested HR practices for medium-range cost adjustments. A review of the literature and the popular press revealsseveral HR-related practices that corporations have used trying to obtain secondary cost reductions. The following isa non-exhaustive summary of practices recommended by scholars and introduced in the corporate landscape.

* Extended salary reductions

Extending salary reductions can be a method of choice if an economic downturn exceeds six months (Vernon, 2003).

While the extension of salary reductions can negatively affect employee commitment and morale, advocates stressthat employees would prefer a smaller income temporarily than a permanent loss of their jobs. As with short-termsalary reductions, there is a risk that high-performing individuals are encouraged to pursue external employmentopportunities (Gandolfi, 2008). Firms have generally been innovative regarding altering variable pay options.Specifically, while some firms balance the reduced salaries by distributing once-a-year payments over 12 months,others substitute stock awards for variable cash payment. For example, U.S. firm 415 Production offered an overall5% pay cut or a four-day work week reflecting the appropriate decrease in pay to its employees (Morss, 2008).

* Voluntary sabbaticals

Voluntary sabbaticals, also called furloughs, allow salaried employees to take voluntary leaves for a designatedperiod of time. Companies may offer sabbaticals with considerably reduced or no pay. Most firms continue to providebenefits during sabbaticals. Sabbaticals enable firms to reduce their medium-term expenditure and can be effective in

avoiding downsizing-related layoffs (Gandolfi, 2008). While employees may feel motivated and re-energized upontheir return, HR professionals point out that medium-and long-term sabbaticals may cause employees to lose theirleading edge and to return with outdated skills. Interestingly, evidence suggests that firms offer generous sabbaticalsduring times of economic growth but refrain from this HR practice during tough financial periods (Vernon, 2003).Practical examples abound. For example, in 2001, consulting firm Accenture announced that 800 employees qualifiedfor a special voluntary sabbatical program, while 600 employees were going to be laid off permanently (Taub, 2001 ).In 2001, Information and Communication Mobile, a Siemens division, offered its employees a one-year time-out atreduced pay without losing their jobs permanently (Perera, 2001). Siemens was thus able to reduce costs withoutlosing high-performing employees during difficult economic times.

* Employee lending

With this HR practice, the current employer lends an employee to another employer firm for a set period of time whilecontinuing to pay salary and providing benefits (Vernon, 2003). The borrowing firm, which can be a competitor, inreturn, reimburses the lending company for part or all of the salary. While employee lending can dramaticallydecrease medium-range expenditure of the lending firm, some employees may not wish to work for a third party.There is also the risk that the borrowing firm decides to hire the employee permanently once the contracted period islapsed. As a consequence, the lending firm would loose a critical knowledge base (Gandolfi, 2008). TexasInstruments engaged in lending HR staffers to vendors for up to eight months with the intention of bringing them backto their original jobs at the end of that period. The supplier reimbursed Texas Instruments for their staffers' salariesduring the loan period and agreed not to offer them permanent jobs (Morss, 2008).


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* Exit incentives

Exit incentive options give employees the option of leaving the firm and collecting severance pay or taking earlyretirement (Vernon, 2003). This strategy enables firms to target jobs while recognizing employees for their serviceand helps the firm retain the remaining employees (Gandolfi, 2008). Exit incentives can be costly and may create anentitlement mentality for the remaining workforce in the future (George, 2004). In 2007, technology-outsourcing firm

EDS (Electronic Data Systems) offered extra retirement benefits to its 12,000 U.S. employees in an offer to acceptearly retirement (EDS, 2007).

Corporate leaders need to be innovative about reducing medium-term expenditures. As with the previous stage,some firms have demonstrated creativity and resourcefulness regarding the design and implementation of medium-range cost-reduction practices. Anecdotal evidence indicates a natural tendency for firms to resort to layoffs hastily bydefault without considering legitimate alternatives (Gandolfi, 2008).

Third stage: Long-range cost adjustments

The third stage of the cost-reduction framework represents long-term adjustments that are necessary if a firmexperiences a prolonged business downturn exceeding 12 months. This stage may be recognized through anextended decline of current and projected customer demand or extremely volatile economic conditions (Vernon,

2003). The third stage generally requires extended expenditure adjustments by the firm (Gandolfi, 2008). In thistimeframe RIF, layoffs, and downsizing-related activities are frequently inevitable. The third stage has two phases(see Figure 1). Phase 1 contains workforce reduction strategies that firms commonly adopt after a prolongedbusiness downturn. While RIF and downsizing activities should always be seen as a last resort, firms should avoidmass layoffs at all costs (Macky 2004; Gandolfi, 2007). Companies who find themselves engaged in deep workforcecuts must adopt HR practices that instill loyalty and commitment in the remaining and exiting workforces (Vernon,2003). In contrast, Phase 2 encompasses HR activities that aim to re-attract formerly laid off individuals and hire newemployees in a post-downsizing period. This presupposes that the RIF have been implemented, that the businessdownturn has ended and reversed, and that the firm is able and willing to re-hire.

Suggested HR practices for long-range cost adjustments. Firms forced to embrace permanent RIF and layoffs havereported mixed results. While the execution of downsizing promises immediate financial relief, considerable empiricalevidence demonstrates that downsizing-related strategies do not automatically translate into improved organizational

performance (Littler, 1998; Macky, 2004). Such strategies have significant secondary consequences for the firm andits stakeholders (Gandolfi, 2006). While downsizing and RIF-related layoffs should always be a strategy of absolutelast resort (Gandolfi, 2007), it is clear that layoffs are at times warranted, desirable, or unavoidable. Once the firm hasconducted RIF-related activities, the firm will need to re-position itself to be able to re-attract those laid off or hire newemployees. Again, this presumes that the economy has bounced back sufficiently and that the firm is in a position tohire again. Some firms re-hire formerly laid off employees, whereas others opt to return to the labor market and seekout new talent. How does the firm attract previous employees? The following constitutes a brief summary of threecommonly-used practices.

* Rehiring bonuses

While some firms provide a monetary rehiring bonus for veterans to return within a specified period, others hire laid-off employees as external consultants. In some cases, firms realize that they cut too many or the wrong employees,while in other cases management decides to hire back after the economic downturn (Vernon, 2003). Evidencesuggests that employees and consultants return to the downsized firm with improved monetary rewards (Gandolfi,2006). For instance, in 2001 and after two rounds of deep layoffs, Charles Schwab Corp. offered a $7,500 hiringbonus for any previously downsized employee rehired by the firm within 18 months following the layoffs (Morss,2008).

* Maintaining communication with laid-off employees

Firms frequently make a concerted effort to maintain friendly relations with laid-off employees (Vernon, 2003).


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Modern-day technology, including Internet forums, 24-7 hotlines, and e-mail, provides effective ways to foster andsustain positive employer-employee relationships (Lublin, 2007). This is particularly important if firms intend to rehirethe former employees when the economic climate has improved.

* Internal job fairs

Firms should make every possible attempt to retain high-performing employees (Gandolfi, 2008). A powerful methodis an internal job fair, where firms host events to help place and redeploy downsized employees within the company.For example, the Ford Motor Company is currently putting on internal job fairs in its U.S. plants to entice employeesto find new careers beyond the assembly-line (Vlasic, 2008).

Concluding Comments

This paper has presented a methodology of cost-reduction stages enabling firms to minimize, delay, or circumventreductions-in-force, layoffs, and downsizing-related activities. The depicted conceptual framework is an extension ofVernon's (2003), George's (2004), and Gandolfi's (2008) original work on cost-reduction stages, including anexpansion of the third stage incorporating two distinct phases. The research has shown that the key to responsiblecost reduction and the selection of appropriate cost reduction methods can be found in the alignment of a firm's costreduction practices with its current cost-reduction stage. The paper has further established that it is difficult for a firm

to accurately forecast the duration and magnitude of a business downturn. Consequently, firms have a naturaltendency to respond reactively rather than to anticipate economic declines.

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