Making Layoffs to Save Your Business, Without the Guilt

Managing layoffs to help your business survive.

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When your business is struggling, you may find yourself looking at laying off employees -- a dark day for any small business owner. Letting people go is always hard. In a big company, a CEO can order 10,000 job cuts without ever meeting anyone who gets laid off. But reducing a small workplace entails the excruciating task of laying off people you know well and are on friendly terms with. It's so hard that some businesspeople watch their business fail rather than wield the axe.

But, to survive, you must accept the proposition that your duty to your employees is limited by economic reality. Remember, you hired employees in an effort to make a profit, not to pay them in all circumstances, forever. Keep in mind that your employees understand that layoffs may be necessary when times are tough. After all, they read the newspapers and see the stories of layoffs in businesses that range from small local factories to multinational companies.

If you have been in business some time, it may help to remember that over the years you've provided employment for lots of people, some of whom moved on when they found a better opportunity. The fact that forces outside your control are now causing your business to contract doesn't make you a bad employer or a bad person. The longer you resist or delay necessary layoffs, the more you put at risk your business and its ability to provide jobs in the future.

Decide How Much to Cut

The conventional advice is that it's less demoralizing to employees to have one big layoff than a series of small ones. In other words, toss away your rose-colored glasses and cut heavily, so that you're sure you won't have to do it again. You don't want employees constantly nervous about their jobs as they watch coworkers leave one by one. There's obviously much truth in this. But knowing and caring about your employees as you do, your instinct is probably to cut the minimum number of jobs required by your new tough-minded recession business plan. Fine, as long as employees understand that although you hope to avoid more job cuts, they might be needed. Show them how the business is doing and how much revenue you need to bring in each month, and let them know that if the revenue targets aren't hit, more jobs might have to go.

Eliminate Jobs You Don't Need or Can't Afford

Although your focus should be on eliminating jobs, you may want to do some shifting of job responsibilities. If you find that an employee in a position slated to be cut is more efficient and qualified than someone occupying a position you plan to keep, make the substitution.

Don't Discriminate Illegally

It is illegal to make employment decisions based on age, gender, race, disability, religion, national origin, or any other legally protected category. So make sure you don't discriminate for an illegal reason. Normally in layoff situations, where you first identify job slots that you can eliminate and then cut the people occupying those slots, you'll have little to worry about, because you'll likely end up laying off people of different ages, genders, race, and so on. But if after making your list, you find that most people on it are, say, women over 40, rethink your plan or talk to an employment lawyer. Otherwise you may open yourself to an age discrimination claim.

EXAMPLE: Because sales have dropped, Acme Lumber decides to cut ten of its 30 employees: three from the office, four from the lumber shed, and two drivers. Three of the employees—two men and one woman—are over 50, two are African American, and one long-term employee uses a wheelchair. There are seven men and three women in the group, and their average age is 40, which more or less mirrors Acme's overall gender and age makeup. If Acme acts based on a logical plan to cut tasks and retain people with the most needed skills, it should have no concerns that any of these employees can succeed with a discrimination claim.

For more information, see our HR article on Making Layoff Decisions.

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