With Unstable Economy, Hiring Freezes and Layoffs Could Be Looming

HR teams encouraged to create downsizing strategy—just in case

By Paul Bergeron June 6, 2022
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With Unstable Economy, Hiring Freezes and Layoffs Could Be Looming

​A steady trickle of headlines announcing hiring slowdowns, freezes and layoffs at familiar and successful companies such as Netflix, Walmart, Meta, Wayfair and Microsoft could be the early signs of job cuts later this year or into next.

Troubling economic data and trends led by inflation, rising interest rates and reduced consumer retail spending has executives eyeing moves to preserve cash flow and minimize expenses.

The U.S. workforce has been through this before, as recently as 2020 when the COVID-19 pandemic led to unprecedented job layoffs and significant workforce distress.

"Organizations should always be prepared for layoffs," said Phyllis Hartman, SHRM-SCP, president of PGHR Consulting in Pittsburgh. "It is difficult to predict the need for this action. That being said, layoffs should be a last resort to save money, as there are lots of negative impacts—morale issues, impact on survivors, loss of trust, etc.—no matter how well the layoffs are carried out."

CHROs and HR departments should be able to scale back very quickly based on their most recent experiences in the pandemic, according to Stacey Berk, founder and managing consultant for Expand HR Consulting in Rockville, Md.

"That will serve as a guide for most organizations," Berk said. "First, typically at the direction of the CEO, they slow hiring to include only the most critical jobs needing to be filled or pause hiring altogether, then limit promotions and then halt annual increases. HR next turns its focus on employee relations and other related initiatives, before the last result: planning for layoffs or RIFs [reductions in force]."

Look First at Underperforming Employees

Melanie French, managing principal at DLP Capital in St. Augustine, Fla., said she likes to remind senior leaders that while tough personnel decisions and hard organizational changes are never easy, avoiding them does not make them go away or solve the problems.

"Making the decision proactively and not waiting until revenues and sales are at low points actually can be healing and rejuvenating for front-line team members," French said. "During tough economies, waiting can be a death sentence for an organization that they might never overcome."

French always recommends to first look at underperforming employees when considering reducing headcount.

"Every organization should be able to identify its bottom 10 percent of performers at any time," she said. "This is the best place to start when facing a declining economy and potential headcount reductions."

Once these employees have been considered for layoffs, "if more adjustments are needed, look at what facets of the business aren't creating revenue. Non-revenue-producing roles are often hires managers make when they 'throw a body at the problem' instead of solving the actual problem."

Questions for Leadership

French said HR staff should bring its top leadership team together to clarify each position, workers' roles and the reason each position exists.

French advises that leaders ask the following about each position: Does it make us money? Does it contribute to employee engagement? Does it help to define or drive customers to our business?

"If the answer is no, then leadership needs to be honest with themselves and potentially make hard decisions."

She said executives and senior leadership positions should not be immune or considered indispensable—and that every position must be considered.

"Years ago, when evaluating for layoffs during a crash period, I put my own position into the list of layoffs," French said.

Her reasoning was that she had two vice presidents who she trained and they were "perfectly capable" of running the department.

The outcome was that French was moved to an open position in another department, ultimately saving the company from having to hire another higher-level person and potentially saving some jobs from being cut.

Looking at positions on every level indicates to the front-line and midlevel teams that "you are all in it together," French said. "Top-heavy organizations do not get the job done.

"Every role and position must have a purpose, a defined expectation for achievement of specific metrics, clarity in the purpose of the organization's business strategy and how their position plays into that strategy. Just because you thought you needed a senior leadership role in the past does not mean you need that same position today."

[HR Magazine article: Termination Tips for HR Practitioners]

Bad Layoffs, Bad Publicity

Michelle May Griffin, SHRM-CP, CEO of Griffin Resources in Tampa, Fla., said to prepare for layoffs, leadership teams should involve HR as soon as possible to give ample time to properly prepare documents, system updates, payroll and severance calculations.

Additionally, employment lawyers may need to be consulted in specific situations and if the Worker Adjustment and Retraining Notification (WARN) Act is triggered.

"Many companies have received bad publicity for conducting mass firings via virtual meetings," Griffin said. "HR departments should make every effort to terminate employees individually, provide customized documents immediately and save time for questions."

She said the document package could include:

  • Information for benefits conclusion.
  • Expectations for federal COBRA or mini-COBRA.
  • Last paycheck information (date, amount, paid-time-off balance, etc.).
  • How to transfer 401(k).
  • Who to reach out to for additional questions.
  • Options for filing unemployment.
  • Other FAQs pertinent for that organization.

"When a layoff is too large to handle internally, organizations should look into investing in outsourcing firms for assistance," Griffin said. "For example, firms can provide outplacement services paid for by the organization to help the laid-off employees find new jobs faster and easier. Many organizations are opting for options like these to help employees navigate this challenging job market."

If you do decide to cut positions, be sure to retain at least some recruiters, advised Josh Zywien, chief marketing officer of Paradox in Detroit.

"When economic factors are strong, companies across almost every industry dramatically ramp up hiring—and usually lag on the recruiting resources to meet that hiring demand because they cut back during down economic cycles," he said.

"This leads to huge swings in capacity, with many recruiting teams that are under capacity when the labor market is strong and way over capacity when the labor market weakens—and that creates frustrating experiences for both candidates and recruiters."

Provide Staff Development Opportunities

Hartman advises that organizations do a thorough job of performance feedback and provide employees with development opportunities now.

"This will help to enable good decision-making when selecting positions to eliminate," Griffin said. "It also may increase the chance that survivors who the organization wants to retain do stay. Communicate honestly about the organization's financial condition. Engage employees in ways to save money and increase profit which could reduce the need for layoffs."

Griffin said now is the time to develop a plan for how to communicate about layoffs—before actions are taken.

"Communication is a key to retention, morale and engagement," she said. "Encourage employees to ask questions and try to answer them honestly. Make sure there is cross training for critical positions and a plan for reorganizing workflow."

If there is a good chance that layoffs might occur, Griffin said to consider using contractors for some work or offering part-time positions rather than hiring full-time regular employees for open positions.

"If the organization has many workers nearing retirement, consider offering incentives before layoffs," she said. "It is [crucial] to be careful to avoid discriminatory actions and ensure any participation is voluntary."

When Public Companies Go Private

A CHRO and organizational design and development executive, who wished to remain anonymous, said that while working for a business operating in the public sector domain, he faced the potential of the business closing down and laying off more than 2,000 employees, due to privatization concerns. His company created three potential scenarios to handle the situation.

Scenario 1 was business as usual; scenario 2 was pivoting the core business to focus on a new sector; and scenario 3, the worst-case scenario, was having to close down the business completely.

"We identified flags in the external environment that would tell us whether the probability of each scenario was increasing or decreasing and had subsequent triggers that detailed our response to each flag," he said.

For example, if the company saw the public sector make certain appointments indicating that privatization was more likely, then the company reduced investment in in-house administration skills.

"For each scenario, we did an organizational design and workforce planning exercise that highlighted the talent requirements that would enable us as an organization to be able to respond effectively," the executive said. "This exercise also included a view of the current skills we had, the new skills we would have to acquire or build for each scenario, and critical skills that had to be retained. Our planning also included a perspective of skills that had to be transitioned or otherwise exited depending on the defined parameters of each scenario.

"As a precautionary measure, we did identify where we should stop investing in recruitment and not replace from a permanent appointment perspective until we got clarity on some of the flags," he added.

In terms of preparing employees, the company shared some of the potential scenarios with them and also had open discussions on future opportunities and how the company could transition them into other parts of the group if this business was to close down.

"We were fortunate that we had other options on the table for some employees, whilst for others we worked from a principle of responsibly sharing information with them when available to also support employees to make their own decisions about their career," the executive said.

This process is ongoing, he said, but the intention has always been to help employees with financial planning, career guidance and support, and, where possible, to invest in providing some additional skills to laid-off workers to improve their employability.

Paul Bergeron is a freelance writer based in Herndon, Va.

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