Reduction in Force? 5 Tips from an HR Pro. A practical approach with examples and wizardry.

I get paid to be an HR Pro, but I’m really a wizard. Did you know the word wizard comes from the word wys, meaning wise?  I’ve been called, Old Wise One, too, and I’m cool with that.  What I’ve never been called is an f’n lawyer.  So I can’t offer any legal advice.  Just years of experience and wisdom as an HR practitioner.

Punchline: Get help from an experienced HR professional and legal counsel. They’ll help you craft a written reduction in force (RIF) plan. Because those businesses that take the time now to prepare are the ones that are most resilient and able to bounce back from an economic crisis.

Before you get started, explore alternatives to RIFs such as a temporary reduction of hours, reclassifications to part-time, fourlos, reassignments, etc.  A cautionary note: If you’re a DEI leader with many diverse employees in junior roles, you might be erasing years of diversity efforts if you decide to lay off your most junior employees.  Lily Zheng offers the following alternatives for DEI leaders who care about what might happen to their diverse workforce during a RIF: 

  1. Have your senior leaders take a pay cut or forgo bonuses.
  2. Offer voluntary furloughs, or opportunities for time off without pay.
  3. Choose not to renew the least-utilized/least-beneficial vendor services.
  4. Reduce hours for non-mission critical employees.
  5. Reskill or upskill your current employees to take on more essential or critical roles.
  6. Strengthen the relational aspects of your culture while cutting the material perks (“swag”).

Also, this is the time to decide on whether you’re downsizing and also reorganizing duties, departments, creating new positions, etc.

Whatever you decide, mitigate risk by involving your employees and treating people right and without any consideration to any factors outside of those that are related to business necessity.

Because the last thing you need is to offend people with a shoot-from-the-hips, reactionary approach and have a class-wide suit on your hands that’ll eat up costs and fees in litigation and cause disruption when all you’re trying to do is focus on your business.

1. Test For Adverse Impact.

The Age Discrimination in Employment Act (ADEA) forbids age discrimination against people who are age 40 or older. The ADEA explicitly states that it is unlawful for any employer to refuse to hire, discharge or to otherwise discriminate against any individual because of his or her age, with respect to the individual’s compensation, terms, conditions, or privileges of employment; or to limit, segregate, or classify employees in any way that would deprive an individual of employment opportunities or adversely affect his or her status as an employee because of his or her age.

Age discrimination comes up more often than claims based on other protected characteristics. So let’s look at an example and what might be a practical approach to handle such situations.

Example: You have an employee, Jesse, 50 years old.  His supervisor is James, 35.   They’re friendly and kid around with each other. James always calls Jesse Old Man, and Jesse is a good sport.

And Jesse’s job get’s cut as part of your RIF.  Suddenly, Jesse is not too friendly anymore.  He sues you for age discrimination.

What if you’re having to outsource an entire department?  And all the employees in that department are over 40.

But Old Wise One, you may ask, what if we base our decisions on performance and non-age factors like slashing costs, what’s up with that?

I’ll tell you what’s up with that – that there, is what we call, an adverse or desperate impact age discrimination claim waiting to happen if you’re not careful. Adverse/desperate impact refers to an employment practice that appears neutral but has a discriminatory effect on a protected group. 

Desperate impact age discrimination happens when an employer’s policies disadvantage older employees even though the policy itself does not mention age, is age-neutral on its face, and applied without any intent to discriminate against older workers.

I get it.  Because isn’t the point of conducting RIFs, is to cut expenses?

Yes, but what ends up happening is that the more senior the employees are, the larger the salaries and expenses are for those employees, and sometimes it makes sense to eliminate those positions first. If you do this, there’s a good chance that you’ll impact many individuals over 40.

Tips:

  1. Put your best face forward. Treat terminated people with respect and professionalism; and they’ll be more inclined to treat you the same.
  2. Mitigate risk: Involve a pro or legal early on in the process to review policies and decisions because maybe the criteria you’re using has a greater impact on one particular group than on others.
  3. Disparate Impact Analysis. A good way to mitigate risk is by conducting a disparate impact analysis to help you detect a discriminatory effect on people in a particular protected class. Then adjust your RIF policies accordingly.
  4. It pays to involve legal counsel early because they’ll be the ones defending you in litigation. They’ll help demonstrate that your downsizing practices were based on reasonable factors other than age. They’ll help justify that your decision and practice was consistent with business necessity.
  5. Diversity. It helps if your decision-makers are diverse and objective, so work on your DEI efforts pronto.

2. Prepare Severance And Separation Agreements Now.

Consistently follow written severance policies to guide how you offer a severance as part of your separation agreements.  Separation agreements are written contracts outlining the terms of an employee’s separation from your company. Include a release in exchange for the severance package.  This helps mitigate claims of discrimination.

Separation agreements include:

  1. A release of future employment claims against your company. 
  2. The rights and obligations a terminated employee has.
  3. The severance payment and benefits you are offering in exchange to the employee to ensure enforceability of the release.
  4. Any state-specific requirements for employees waiving their rights in exchange for the severance payments and benefits.

Tips:

  1. Establish objective criteria for your severance agreements to mitigate discrimination claims. For example, your policy might include one week of severance per year of service.
  2. Include an attachment containing a statement of the objective criteria used for your RIF decision for severance agreements affecting people over 40.  This is required by the ADEA and the Older Workers Benefit Protection Act (OWBPA). Legal counsel can help here.
  3. Make sure your written severance policy is up to date and reviewed by legal.
  4. Collective Bargaining / Employment Agreements. If you have employment agreements, read and follow them carefully. Because agreements may dictate the circumstances for terminating employees, (with or without cause), and whether or not a severance or a release comes into play.

3. Ask For Volunteers To Go First.

It’s a good idea to ask for volunteers to go first before you put your RIF into action. When people volunteer, you enter into a voluntary severance agreement and this is good news because you don’t have to do involuntary terminations, which can be stressful and risky if not done properly.

Tips:

  1. Plan how to ask for volunteers.  Because if enough people volunteer, then you might not have to do any involuntary RIFs.
  2. Plan on how to operate without your top performers.  Because you just might lose them if they volunteer to take the severance pay.  FYI: Your top performers will be okay, easily finding new jobs – so there’s little worries here.
  3. Inviting employees to retire early is also a good idea – just plan on how you deliver this message: don’t say, Yo! Don’t you think it’s time to retire, you know, give others a chance?

4. Communicate Early And Often.

Effective business communication is more than just the distribution of information: it is clear and logical, and it helps put people at ease during a RIF. It’s about thoughtfully linking your goals to messages that help people gain a better understanding of the topic. And better understanding leads to seeing and understanding the perspective of others: the tough situation the company is in and why it must conduct a RIF. Create a communication plan so that you’re all on the same page, transmitting the same message.

Example: Consider these questions when creating your communication plan:

  1. What’s our main goals and objectives for the RIF plan?
  2. How much transparency do we offer regarding our financial health, critical issues and concerns?
  3. How do we communicate terminations and the criteria used for selecting employees to be laid-off?
  4. How much communication is too much?
  5. What are we legally required to communicate?
  6. Are there any special compliance requirements; notices that we must deliver to our employees?

Whatever you decide on with your communication plan, it’s important to provide as much advance notice as possible before you begin laying-off people.

Give people time to process what’s happening.  Believe me, employees will have a lot of questions: am I at risk, who’s next, is this the first wave of terminations, is my position safe, do I need to start looking for a job?  Be prepared.

And it’s a good idea to talk to those who remain. Be honest and open about your process.  Because they’ll ask you if you are going to lay-off more people.  And it’s totally cool to share your plans with them.

Example: You might say something like: Our biggest concerns are about the impact our decisions have on people and keeping the business viable, and right now, we believe that we have the right amount of positions to allow us to keep operating.  We will continue to monitor the situation and keep everyone informed with new developments.

When you’re terminating someone, it comes down to your delivery and how it’s perceived and taken by the employee. Here’s where your emotional intelligence and communication skills shine.  Take a look at this blog for more insight into this topic, How To Be A Good Firer (aka A Kind Terminator).

Tips:

  1. Termination conversation. Get two people in a private room along with the employee to avoid any he said, she said scenarios. Document your termination conversation.
  2. Help them find new jobs. One of the best things you can do to avoid a lawsuit is to help termed employees get new jobs. If people have a new job lined up, then they’re more likely to move on; but if they’re struggling and have no job, the idea of suing you seems like a good idea.
  3. Legal notices. Make sure you’re complying with legal notices for mass lay-offs. At the federal level there’s the WARN Act. Some states may have mini-WARN laws, unique requirements, or special plant closing laws – so do your homework.
  4. Communicate often. Have an Open Door policy and provide employees with an informational handout that explains the situation with bullet points or FAQs.  The goal here is to educate, provide honest communication, and to calm nerves.

5. Document Everything.

Meet with executive staff, HR and legal to develop a written RIF plan.  Written criteria and guidelines support your decisions for the RIF.  Your documentation provides a written record of the business reasons and business case for justifying your actions when implementing your RIF.

As you’re working on your documentation plan, do a company-wide documentation audit.  Here are some sample questions to explore in your audit:

  1. Are we clearly spelling out our objective factors for the RIF?
  2. What are the most important situations that require us to use objective factors for making decisions that affect the employment status of our employees? Has this always been the practice?
  3. Do we have a history of consistently and fairly applying our policies and practices?
  4. What are some best practices for self-auditing our company policies to ensure the fair and equitable treatment of our employees?

At the end of your audit, you’ll be in a better position to revise or establish clear, written policies and apply them consistently and fairly.  If you’re inconsistent with your application of policy, then you open yourself to discrimination claims.

Examples and Tips: Review the following when evaluating the documentation of objective factors and other practices that define the treatment of employees:

  1. Employee Handbook. Review all policies, especially those that define the employee-employer relationship (employee classification, at-will statements, terminations, etc.) and affect the treatment of employees (EEOC statement, protected classes, anti-descrimination, performance criteria, access to benefits, promotions, etc.).
  2. Policies should have neutral language (unbiased, ungendered) and align with your business objectives. If you cannot find a business reason for the policy, delete it!
  3. Job Descriptions: Align qualifications, expectations, and essential job functions with organizational performance metrics for meeting business objectives. 
  4. Performance Management: Clearly spell out performance standards, evaluation criteria, and appraisal policies and documents. This helps justify that your downsizing decisions were in part due to objective job performance factors.
  5. Don’t overlook other areas: onboarding; access to professional development; promotions, pay raises; and benefits.
  6. Training. Train your managers on policies and how to care personally about people while challenging them directly to build emotionally healthy relationships. Communication skills, such as the use of emotional intelligence skills, are the most significant skills management can develop through training and practice. 

We’re Here To Help! 

We’d be honored to help you evaluate your handbooks, HR policies and practices, and RIF plan.  Contact us today to learn how be the change HR can help you align your RIF plan with your business objectives.

We also have prepared a free assessment to help you Recession Proof your HR.  Contact us to get on the list and receive your free copy!

Written By: Raul T. Pereyra.  Raul is an HR Pro and Consultant with be the change HR. He has over 20 years of experience as an educator, trainer, and HR Pro. Raul’s expertise includes DEI, employee engagement, and HR compliance. Connect with Raul on LinkedIn.