How to Conduct Mass Layoffs

Mass layoffs are difficult for any business, but when changing circumstances require a workforce reduction it is critical to make a plan.

By , Attorney · UC Law San Francisco

If you'll be laying off a large number of employees because times are tough for your business, you'll want to follow a structured approach. Here is an outline of a sound layoff protocol you can modify to your needs.

Get Senior Employees on Board

Meet with any senior managers to make sure they are fully in the picture and understand (even better, fully agree with) your plans. Include your human resources person or bookkeeper who will handle the necessary paperwork, if you have one. All these people must commit to 100% confidentiality.

Pick a Day for the Layoffs

Choose a day where all senior managers will be in the office to break the news to the laid-off employees. Contrary to advice you may read elsewhere, we don't believe that there is a magic best day. Pick a day when the maximum number of people you'll be letting go will be in the office. Choose a time that lets you give departing employees a couple of hours to leave the building, and still leaves you time to gather remaining staff for a company meeting to help restore morale.

Prepare Final Paychecks, Recommendations, and Severance

Have your bookkeeper prepare final paychecks, which should include pay for the entire final day plus all accrued vacation. Some states require you to pay employees their final paychecks on their last day; others on the next scheduled payday or within 72 hours. To be sure you comply with your state's law, it makes sense to give employees their paychecks on their last day. In addition, some states require you to pay out accrued but unused vacation days on the last day, something that is more efficient than trying to do it later. Almost all states have penalties for not paying wages when due—with some charging $1,000 per employee, per pay period, and others exacting a penalty of 30 days' wages per employee not paid on time.

Also prepare a polite letter of recommendation for each departing employee, giving dates of employment, duties, and a general statement of approbation. Your employees will appreciate your courtesy, and it may make the day go more easily for all. Even if you are laying off a worker who fell far short of the ideal, don't include anything negative—just limit this person's letter to dates of employment and duties.

If you plan to grant severance pay, prepare a separate check to be given to the employee in exchange for agreeing not to sue you over the termination. You'll need to prepare an appropriate release to have the departing employee sign. State law requirements differ somewhat in this area, so you should consult an employment lawyer about the release, especially if you suspect an employee might sue.

Pay Modest Severance If You Can

No law requires you to pay laid-off severance to employees, unless you've promised it (in your employee handbook or an employee contract, for example). But if you can pay modest severance without putting the survival of your business at serious risk, it's a good idea for several reasons:

  • Departing employees will feel more respected and be far less likely to bad-mouth you to others.
  • Continuing employees will see that even when your business is in the dumps, you are going the extra mile to be fair. As a result, they are more likely to put their shoulders to the wheel.
  • When times eventually improve, you may want to rehire some of the people you have laid off, which will be far easier to do if they see you as a fair employer.
  • You'll feel better about yourself.

How much severance you pay is up to you. Obviously, you can't absorb a hefty hit to your bottom line. Typically, small businesses already in severe economic distress can't afford to pay more than a week's pay for each year served. But to avoid claims of discrimination, be sure to be consistent in how you pay severance, using an objective formula to calculate it.

Break the News All at Once

On the appointed day, if you have enough managers, have them meet with each departing employee, and then have the managers escort the employees to a private meeting room or, if necessary, your office. If you fear an employee might become violent, arrange for appropriate help to be standing by, as unobtrusively as possible.

Start the meeting by briefly explaining the economic necessity that requires the layoff. Because people will likely be shellshocked and unable to absorb lots of information, keep it brief. For example, if your business just lost a $200,000 contract and the bank is threatening to pull your line of credit if you don't quickly cut expenses, it's enough to say just that. Don't forget to thank the departing employees for their hard work and, if you feel it's appropriate, apologize for the fact that economic necessity has forced you to cut such loyal people. Then tell people that in the envelope in front of them, they'll find their pay through today plus accrued vacation. At this stage, if you have a human resources manager, or failing that, an office manager, you may feel that it's less embarrassing to all to step out of the room, leaving the details of collecting keys, signing releases, and answering practical questions, such as eligibility for health coverage under COBRA, to someone else.

While the departing employees are still in the conference room, send a short email (or otherwise notify) all continuing employees of what's going on and ask them to attend a company meeting later the same day. Your email should simply say that the difficult economic times have forced you to reduce overhead and cut the number of employees. It should include all employees on the layoff list, thanking them for their hard work and dedication. That's it—leave the longer explanation for the company meeting.

Secure Your Computer System Before Employees Pack Up

While laid-off employees are in the meeting room, have whoever handles your computer system disable the computers of any laid-off employee who has enough knowledge to destroy or steal data or crash your network. If a departing employee wants to remove personal files from their computer while packing up, you can have someone sit with them while they do so.

Departing employees should be given an hour or so to pack up and be out of the building. It's polite to have boxes at the ready and to allow coworkers to help them pack. But in a couple of hours, everyone should have left. If you haven't already done it, make sure all computer access passwords and codes have been disabled.

Hold a Company Meeting

The same day, if possible, convene a company meeting and explain what happened and why. The more honest and up front you are, the more you'll be respected. This is not a time for an in-depth PowerPoint about financial details, but a few slides illustrating your business's financial situation might help.

For more information, see out HR article on how to conduct a layoff.

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