How to Handle Layoffs: 12 Best Practices for Companies and HRs

Karishma Bhatnagar -

The most fulfilling aspect of HR manager roles is optimizing human resources in organizations. However, it is also accompanied by an undesirable aspect – handling layoffs. Layoff is a new hr trend and it is the most difficult challenge for HR to overcome.

Many sectors saw high numbers of employee terminations in the post-pandemic world. And in 2023 so far, the US layoffs have hit a two-year high, impacting over 100,000 workers.

While HRs may try their best to respect employees’ sentiments in events like this, employees may not understand the circumstances from a legal perspective. And, when termination happens on a bad note, it can negatively impact employer branding.

So, what’s the best way for organizations to handle layoffs? We will understand all of it in detail in this article. Let’s first begin with some important terminologies and their meanings.

Layoffs vs. Firing vs. Furlough

Let’s understand the difference between layoffs, firing, and furlough for a better understanding of the topic.

Layoffs – A layoff is when an employee is terminated or asked to discontinue without any fault of their own. Employee layoffs are often the result of financial turmoil in companies and are usually followed by severance pay based on the contract signed between the employee and the organization. The aim is workforce downsizing to cut costs.

Firing – Firing is the result of unethical or unacceptable behavior, for example, stealing, duty breach, harassment, etc., on the employees’ part. No severance pay is given to them in this case. Also, organizations can fire employees for no valid reason if they were hired at will.

Furlough – Furlough is when an employee is temporarily suspended but can maintain their job title and employee benefits. It is observed in demand-based industries and is also done in events like plant repairs or an economic downfall during a pandemic. The employees are reinstated after the situation is back to normal.

5 Major reasons for layoffs

Some of the main reasons for layoffs include:

  • Economic downfall – When an entire economy is hit with a financial depression, it can affect different industries and lead to mass layoffs.
  • Reduced customer demand – A lower demand than usual from customers can reduce sales and impact the cash flow. Layoffs can restore the balance in this case.
  • Corporate restructuring – Company restructuring includes eliminating positions that have become obsolete, resulting in layoffs. One example may be terminating factory line workers by introducing automation and robotics.
  • Product or service changes – When a product or service line evolves, it can lead to organizational changes and create needs, for example, hiring an upgraded or better-skilled workforce. This can be a significant reason for layoffs.
  • Companies are hiring freelancers – There is a huge demand for freelancers and this demand is getting bigger and bigger. Companies are hiring freelancers, resulting in layoffs

12 Best practices for companies and HRs to handle layoffs and minimize their impact

The process of laying off employees is never easy, but in today's volatile economic environment, companies often face the difficult decision of implementing layoffs.

The process of downsizing can be challenging for both employers and employees, but it's essential for Human Resources (HR) professionals to handle layoffs efficiently to minimize the negative impact on the company's reputation and the affected employees.

Here are the effective ways to handle layoffs in the workplace:

1. Plan ahead

The first step in handling layoffs effectively is to plan ahead. HR should start planning for layoffs in advance. A well-structured plan will help the company minimize the impact on employees and maintain the business's operations. HR should create a plan that outlines the process, including the selection criteria for employees who will be laid off, the timeline, and communication strategies. It's important to consider the company's legal obligations and ensure compliance with labor laws.

HR should also work with the company's leaders to identify potential cost savings measures and alternative options to layoffs. For example, the company could consider reducing employee hours, implementing furloughs, or freezing hiring until the economic situation improves.

Suggested Read: Understanding Employee Rights & Support Companies Can Provide During Layoff

2. Provide training for managers

Managers play a crucial role in the layoff process. They are responsible for communicating with employees and implementing the plan. HR should provide training to managers on how to handle layoffs effectively, including the communication process, providing support to employees, and dealing with emotional reactions. This helps to ensure that the process is carried out professionally and with empathy.

Managers should also be trained on how to manage the remaining employees after the layoff process is completed. This includes communicating any changes in the company's operations or strategy, addressing concerns about job security, and maintaining employee morale and productivity.

3. Maintain confidentiality

HR should maintain confidentiality during the layoff process to avoid creating rumors or panic. HR should ensure that only those who need to know are informed of the layoffs. This helps to maintain employee trust in the company and reduces the risk of potential lawsuits.

HR should also ensure that any personal information about the affected employees is kept confidential and only shared on a need-to-know basis. This includes information about the reasons for the layoff, the selection criteria, and the severance packages offered.

4. Explore alternatives

Layoffs must be the last resort; organizations must explore their options first so they don’t have to let their staff leave permanently. This is especially important when you are required to lay off only a few employees.

For example, furlough can effectively address a temporary cash-flow problem without resulting in the loss of valuable employees. Pay cuts or reduced employee perks and benefits for a short while can also be great solutions if you can make your employees understand why these measures are necessary to stay afloat.

5. Help them find a new job

Companies can help their laid-off employees find new jobs by leveraging the flexibility and convenience of remote work opportunities. With the current shift towards digitalization, many companies are now offering remote positions, providing an opportune platform for laid-off employees to showcase their skills and experience.

Organizations can also look into various job boards in order to connect with potential job seekers and provide them guidance on how to land a new job. Popular job boards such as Adzuna, Indeed and Monster are widely used by employers, recruiters and job seekers alike due to their user-friendly interface and features that facilitate easy navigation.

Similarly, LinkedIn is another excellent tool for discovering new job opportunities as it is not just a platform for creating professional profiles but also allows users to search for jobs that match their expertise.

Furthermore, online platforms such as Freelancer, Upwork and Fivver are excellent resources when it comes to finding freelance jobs in any field. These sites provide a broad range of services that can be easily accessed from home or any other location with internet access.

6. Understand compliance

Layoffs must always be compliant with the employment laws in your country. So, make sure that every HR team member is aware of the employment acts. For example, according to the WARN Act in the US, workers must be provided with a minimum of 60 days’ notice for the transition. So, make sure that your team reads up on critical laws like Title VII, FLSA, ADEA, INA, etc.

7. Communicate effectively

In the event of layoffs, you must have an internal communication plan ready that covers:

  • The process of informing employees of their termination
  • The process of officially communicating layoffs to the remaining employees
  • Who will be responsible for drafting the press releases and the amount of information that must be disclosed
  • Information on the criteria for deciding cuts and how restructuring can impact departments and positions
  • Information on whether laid-off employees will be eligible for severance pay

Each of these points is important to ensure effective communication between the organization and former employees.

8. Be aware of adverse impact or disparate treatment

According to Equal Employment Opportunity Commission, the adverse impact can be defined as “a substantially different rate of selection in hiring, promotion or other employment decision which works to the disadvantage of members of a race, sex, or ethnic group.” This includes layoffs. And disparate treatment is when an organization discriminates intentionally based on race, religion, color, sex, or national origin.

So, to avoid such potential claims of discrimination by laid-off employees, make sure that your policy includes necessary provisions, so no protected groups are impacted.

9. Consider offering severance pay

US employers are not liable to pay severance to laid-off employees unless explicitly mentioned in the employment contract. But, you can still choose to offer moderate severance pay to communicate to employees that they are valued. This safeguards the employer brand and reassures remaining employees who may be anxious about their job security.

10. Be prepared to apologize publicly

Today, CEOs are expected to apologize publically for layoffs. And an apology must consist of three critical elements:

  • Acknowledgement of the harm and apology for it
  • Explanation of why this step was important
  • An offer of repair for people who have been affected by layoffs

A public apology structured this way helps communicate the company’s sentiment to workers and the market.

11. Prioritize employee well-being

Layoffs can have a significant impact on the affected employees' well-being. HR should ensure that employees receive support during the transition, such as counseling and access to resources that can help them cope with the stress of losing their jobs.

HR should also offer assistance in finding new employment opportunities, such as resume writing, job search strategies, and interview skills.

HR should also ensure that employees who are staying with the company are aware of any changes in their roles or responsibilities and are provided with the necessary training and support to adapt to these changes. This helps to maintain employee morale and productivity during difficult times.

12. Evaluate and learn

After the layoffs have been implemented, HR should evaluate the process and learn from any mistakes. This helps to ensure that future layoffs are handled

Examples of companies who have handled layoffs smartly and successfully

There are numerous examples of companies that have had to handle layoffs over the years. Here are a few notable examples:

1. Netflix

Netflix is known for its culture of transparency and direct communication. In 2020, the company announced that it would be laying off 15 employees in its marketing department.

However, instead of keeping the news quiet, Netflix's management team decided to address the layoffs directly in a company-wide meeting.

In the meeting, the CEO explained that the layoffs were due to a shift in the company's marketing strategy, and he encouraged employees to ask questions and share their thoughts on the decision.

This approach demonstrated Netflix's commitment to transparency and its respect for employees.

2. Zappos

Zappos, the online shoe retailer, is known for its unique culture and employee-centric approach. In 2020, the company announced that it would be laying off 8% of its workforce due to the economic impact of the COVID-19 pandemic.

However, instead of simply announcing the layoffs and providing severance packages, Zappos' management team went above and beyond to support their employees. The company offered a range of benefits to affected employees, including continued healthcare coverage, access to mental health resources, and even job search assistance.

This approach demonstrated Zappos' commitment to its employees and its belief in treating them with respect and dignity.

3. Cisco

Cisco, the networking and technology company, has a reputation for being data-driven and analytical. In 2020, the company announced that it would be laying off approximately 3,500 employees due to a shift in its business strategy.

However, instead of relying solely on management's judgement to determine which employees would be laid off, Cisco used data analysis to identify the employees who were most likely to leave voluntarily.

The company then offered those employees a voluntary departure package, which included severance pay and job search assistance. This approach demonstrated Cisco's commitment to making data-driven decisions and its respect for employees' autonomy.

4. Yahoo

Yahoo, the internet search and media company, has had a difficult few years, with declining revenue and a series of high-profile security breaches. In 2017, the company announced that it would be laying off approximately 15% of its workforce, or approximately 2,000 employees.

However, instead of handling the layoffs directly, Yahoo outsourced the task to a third-party firm. This approach was criticized for its lack of transparency and its failure to show respect for employees who had contributed to the company's success.

5. IBM

IBM, the technology and consulting company, has a reputation for being analytical and results-driven. In 2020, the company announced that it would be laying off an undisclosed number of employees due to a shift in its business strategy.

However, instead of simply announcing the layoffs and providing severance packages, IBM took a more proactive approach. The company offered affected employees the opportunity to enroll in a skills training program, which would help them acquire new skills and increase their chances of finding new employment.

This approach demonstrated IBM's commitment to its employees and its belief in the importance of investing in their future.

Key takeaways

Handling layoffs is a difficult task for any company. However, different companies can take different approaches to the process, depending on their culture, business model, and economic situation.

Companies that prioritize transparency, employee support, and data-driven decision-making are more likely to handle layoffs effectively and minimize the negative impact on employees and the company's reputation.