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When Should Employers Tell Employees That Layoffs Are Looming?

Advance notice could result in a talent exodus

​Many employers don't plan adequately for layoffs and don't inform employees soon enough that a staff reduction might be needed, according to HR and legal experts.

Poor planning, communication and implementation of layoffs raise the risks of costly mistakes. Lost productivity, reduced morale and expensive class-action lawsuits are among the pitfalls, experts say.

Early involvement by HR can even help an organization avoid layoffs. "HR has to be more forward thinking" by showing executives the big picture on staffing, said Chris Zatzick, Ph.D., an associate professor at Simon Fraser University in British Columbia, Canada.

He said a company that is considering layoffs but might need to hire people in six months or a year should consider alternatives, such as job sharing, reduced hours across the board and finding new positions for current staff. Zatzick said laying off an employee can cost as much as $100,000, not including the expense of hiring a replacement if needed.

Voluntary layoffs represent another way to avoid mandatory staff cuts. One downside is that the organization has no control over who leaves and what talent gaps might result.

If strategies for avoiding layoffs fail, say HR and legal experts, employers must have a plan for cutting staff. First and foremost, they must comply with the Worker Adjustment and Retraining Notification (WARN) Act, a federal law enacted in 1988 that requires employers to give employees 60 days' notice of certain plant closings and mass layoffs.

In general, employers must comply with the WARN Act if they have 100 or more employees. The law covers layoffs of 50 or more employees at a single worksite during a 30-day period, as well as general layoffs depending on the number of people and the percentage of the employer's workforce being laid off.

In addition, some states and localities have their own laws covering layoffs, some with more stringent requirements than the WARN Act. According to Catherine P. Wells, an attorney with Chiesa Shahinian & Giantomasi, whose offices are in New York and New Jersey, the following states have layoff laws: California, Connecticut, Hawaii, Illinois, Iowa, Maine, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Tennessee, Vermont and Wisconsin. Some of the measures are optional or affect only plant closings.

"The biggest thing that employers are failing to do is give adequate notice. Some smaller companies don't even know that the WARN Act exists," said Denise R. Giraudo, a partner in the Washington, D.C., office of law firm Sheppard Mullin.

Wells agreed. "People don't consider the WARN Act as early as they need to. Often, smaller employers are surprised" when they learn how it affects them, she said.

Rolling layoffs—terminating some employees on one date and more later—can be particularly problematic because of the complex formulas of the law, noted David J.B. Froiland, a shareholder in the Milwaukee office of law firm Ogletree Deakins. "Remember that timelines change, budgets change, revenue changes," he said. "It can have a pretty significant impact on your WARN Act analysis," and miscalculations can lead to violations and litigation.

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Many Reasons to Hesitate

It's not surprising that many employers are hesitant to notify workers that layoffs are possible. Proprietary business information that could help competitors must be kept confidential. The suggestion that a workforce reduction is being contemplated could cause top talent to leave, result in bad news coverage and drive down stock prices.

However, some experts say that employees want to know if layoffs are being considered. "I think that in most cases people see it coming," Froiland said. Communicating with them about what the organization is doing to stabilize its finances and ensure its survival can help.

"You have to address it head-on," even if it's not yet time for layoffs, Giraudo said.

Deciding how to notify employees about layoffs is tricky, particularly for organizations planning to remain in business. Demonstrating respect is crucial. "It's best to tell the employees face to face," Giraudo said.

A town hall meeting can work if large numbers of people are affected. "Be as transparent as possible with the communications," said Lindsay Witcher, senior director, global practice strategy, for RiseSmart, an outplacement services provider based in San Jose, Calif.

Providing assistance to employees who are being laid off enhances the employer's brand and sends a positive message to the surviving workforce. "Do everything you can to offer a soft landing for employees," suggested Carol Olsby, SHRM-SCP, an HR consultant and author with Carol Olsby & Associates near Seattle.

Olsby said HR can contact other employers to suggest that they hire people who are being laid off. In addition, employers that are downsizing can offer temporary retention bonuses, outplacement services, career fairs and resume assistance.

"I always put myself in the position of the recipient" of the layoff notice, Olsby said.

Companies that are going out of business might have less of a need to send a positive message.

The Toys R Us Example

When Toys R Us announced in March that it was closing all of its U.S. stores, it said that it would pay all 30,000 employees who wished to stay on the payroll for 60 days.

Some of the company's 735 U.S. stores had fewer than 50 employees and were not subject to the WARN Act requirement of 60 days' notice. Toys R Us did not respond to requests for comment on its reasons for keeping all willing employees on the payroll for the final two months.

Some HR leaders said the move appeared to reflect a desire to respect the contributions of the workers over the years. "It's a very stand-up way to handle the situation," Witcher said.

Others said the decision might have been made to simplify administration of the shutdown, given the complexities of complying with varying laws around the country. "It's so much easier to make it uniform," said Alix R. Rubin, an employment attorney based in Fairfield, N.J.

Or, Toys R Us might have been motivated by a desire to minimize lawsuits from disgruntled employees. "Usually, when there are payments that are made by employers, the employers want to get something back for that, such as a severance agreement that includes a full release [of legal claims]," Froiland said. 

Steve Bates is a freelance writer in the Washington, D.C., area.

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