Downsizings, layoffs and mass plant closures are very difficult; their difficulty should never be underestimated. Even when successfully implemented, there is sadness and much ill will generated. Business should view these acts as a complex process consisting of many phases and tasks that require coordination and careful decision-making. Make every effort to understand exactly what your organization plans to accomplish by a reduction in force before moving forward.
Documenting business reasons for a reduction in force
Describe and document the business reason. Identify why the reduction is necessary. Gather sufficient data to form a baseline as well as to document the business need/shortfall/problem. Identify what alternatives were tried or considered, and why rejected or failed.
Task force. Consider establishing a task force composed of members of management that will guide the analysis. The group should set parameters, timeframes and expectations. Also consider what steps will be necessary for the company in order to avoid future reductions in force arising from a similar set of factors.
Proof. In the event the company is ever challenged in court, the documentation in all probability will be used to establish that the company had a business reason for its actions. Therefore, it is important that the documentation be prepared completely and thoroughly. Evidence used to prove discrimination generally originates with the employer, such as:
Statistically significant adverse impact analysis showing that the action negatively affected protected class members disproportionally and the action was not explained by a valid business purpose;
Admissions of illegal intent by agents of the company who were involved in or had authority over the reduction;
Comments made by supervisors or managers demonstration an improper or illegal intent such as poor old Paul, he's just getting too old;
Evidence that proves that the business reasons announced by the company are false; or
Inconsistent statements made by an authoritative (or document such as a handbook).
Therefore, an employer should ensure that the employer's proof
is documented in the file. For example:
There should be scripts
distributed to assist managers and supervisors when answering questions.
There should be a written explanation
of why the reduction in force is occurring.
All financial and workforce analyses should be retained.
Company supervisors who make statements that are illegal or improper should be disciplined as those misrepresentations are discovered.
Conduct legal and policy review. Prior to a financial review, there should be a review that includes:
Whether or not state or federal law will govern the proposed reduction in force.
Whether or not policy issues or contracts limit possible actions.
Consideration of prior restructuring precedents.
If there are limitations apparent from this review, such as a plant closing law (for more information, see ¶24,110
), these limitations must be identified before the financial analysis begins because the limitations will foreclose what initially may have appeared as possible options. Defer discussions and decisions, such as designing separation agreements, until after the decision to reduce staff has been made.
Do not single out individual employees to include in a reduction in force because they have high salaries and/or expensive benefits. An employee should not lose his or her job solely because benefits are more expensive than the average.
Be sure you conduct an audit of the personnel manual, employee bulletins, handbooks and any other employee communication that could address the terms and conditions of employment prior to a reduction in force. Statements made in these documents may be considered promises if future litigation results.
Financial/business analysis. Analyze the line items that are being negatively impacted and the costs of the restructuring. Project the financial situation post restructuring. Document all work. Benchmark analysis steps with other companies and industries.
Typical methodologies include:
Prepare organization charts reflecting the structure prior to the business problem, at the time of the proposed reduction, and a forecast of the organization after the reduction. Do not necessarily limit the analysis to the area that has a shortfall, for example, unless there is no relationship between that area and other organizational units.
Prepare a workforce analysis of each unit affected prior and post reductions. If several selection alternatives are under review, perform the analysis on each alternative. If there is disparate impact on protected classes of employees, whether age, race, or sex-based, consider other strategies to be employed and, at the least, document the business necessity or selection justification (such as seniority). Have human resources (and counsel if you wish to argue privilege) prepare the analysis consistent with the company's affirmative action plan document. Also have a company-wide analysis done for comparative purposes.
Make financial analyses correlate the employees affected with the business problem. For example, if the reason for the reduction in force is the loss of a major customer, then those employees that serviced that account should be the ones affected as a general rule; however, seniority or other selection methods may dictate otherwise. Whatever the case, describe and detail the business decision.
Prepare and forecast all routine financial reports for comparative purposes. Be sure there have not been changes to the methods used to create the analysis and that the analysis conforms to generally accepted accounting standards.
Establish a close working relationship between accounting and human resources in order that costs, such as outplacement, are adequately reflected.
Account for all financial impacts. In addition to salary and salary-related expenses, a reduction in force can provide other cost-savings such as reduced overhead expenses and other line item operating cost savings. There may also be increased expense items such as computer costs after the reduction that must also be included in the analysis.
Establishing a record. Documentation is key. Not only may companies be sued by employees who lose their jobs, shareholder suits and other negative publicity are not uncommon. Regulated and/or publicly held companies must provide information to interested parties on request. The least costly defense is one that is accomplished before any lawsuit by preparing clear and convincing documentation of the need for the action, independent of the individuals affected. Deducting the costs of restructuring as a business expense may result in an Internal Revenue Service audit of financial records supporting the deduction.
Approval process. Follow a clear approval process. Include the sign-off approval of all managers and senior officials who are directly affected if possible. The final decision should be made by a senior official with authority to take such action.
At the outset, however, this point should be stressed: human resources management is based on the conviction that the individual employee's morale and commitment to the job mean a definite-though difficult to measure-economic gain to his employer. Therefore, the loss of morale and commitment is costly although it may not be measurable.
<p>Downsizings, layoffs and mass plant closures are very difficult; their difficulty should never be underestimated.</p>