Workforce reduction criteria may include seniority, employee status, merit, skills, or a combination of these factors, with careful documentation and adherence to anti-discrimination laws to minimize legal risks.
Toolkit: Essential Strategies for Conducting Layoffs and Reductions in Force
Manage workforce adjustments confidently, effectively, and compassionately with expert insights, communication tools, and legal compliance resources designed for HR professionals.
One of the most challenging parts of an HR professional’s job is managing workforce adjustments such as furloughs, layoffs, and reductions in force (RIFs). A strategic approach to these types of changes has many characteristics in common with that used in fault-based terminations. As such, it:
- Begins with a strategic approach to hiring.
- Continues through the decision to conduct the change as opposed to another means of reducing the workforce.
- Requires notification to the various stakeholders in the process.
- Requires ongoing dealings with former employees in terms of benefits administration, reference requests, verification of employment and, possibly, responding to lawsuits.
- Requires effective management of remaining staff.
The terms furlough, layoff, and reduction in force are often used interchangeably, causing confusion for both employers and employees, but there are key differences between these actions. Understanding these differences is important for effective management, clear communication, and legal compliance. The terms are defined as follows:
- A furlough is a temporary, mandatory leave of absence from which employees are expected to return. It is often used to manage costs during slow periods without terminating staff.
- A layoff is a separation from employment due to a lack of available work, which could be temporary or become permanent.
- A reduction in force (RIF) is a broad effort to reduce the size of an organization’s workforce by permanently eliminating positions with no intent to rehire for those roles.
More than 1 in 7 HR professionals said their organization had conducted a RIF over the past 30 days, according to SHRM’s March 2025 Current Events Pulse survey. In this toolkit, you will find strategic insights, helpful tools, policy templates, answers to common questions, essential compliance guidance, and best practices to manage workforce adjustments confidently, effectively, and compassionately.
The Power of Feedback: Building Trust and Leadership
Lauren Fast, chief people officer at iS Clinical, discusses how HR leaders can maintain cultural alignment while navigating challenges such as layoffs, cost reductions, and employee disengagement. She highlights the critical roles of feedback, empathy, and trust in this People + Strategy podcast episode.
Communication Techniques, Tools, and Templates
Communication and accurate information are two of the most essential elements to conducting layoffs in the right way. Open, transparent communication delivered in an appropriate and compassionate manner before, during, and after layoffs occur can go a long way toward mitigating the aftermath on company culture. For example, if a company needs to cut costs, a first step could be for the executive team to take pay cuts and share that information with the rest of the organization long before layoffs have to occur.
When a RIF is announced, the reasons should be clear and succinct, and framed as a business imperative. HR should create messaging that is truthful and authentic, but also aspirational, staying away from canned phrases. Being transparent and uplifting with the remaining employees, who may be fearful about their jobs, can help them to move forward and prevent resignations. Find expert tips to help the employees who remain after a layoff in this All Things Work podcast episode.
HR should guide discussions from an objective, organizationwide perspective and be ready to answer questions related to severance and benefits. Individual layoffs should be delivered in a conversation, whether in person or virtually, whenever possible to preserve the dignity of the person and validate their work. For large-scale layoffs, HR may want to consider creating an online portal or website for impacted employees with links to resources.
Use the resources in this section to help create a communications strategy and implementation plan for the scenario facing your organization.
Examples
An announcement of a companywide layoff should emphasize securing the financial stability of the organization. Additional points to include are:
- The reason for financial losses, such as a lack of work in the industry.
- The company’s attempts to avoid layoffs by improving efficiency and reducing costs.
- The criteria used to eliminate positions (e.g., business necessity by job category or performance ratings).
In letters to employees whose positions are being permanently terminated due to a layoff or a downsized workforce, employers may want to address:
- The number of positions being eliminated.
- Separation benefits and coverage (e.g., health insurance or COBRA).
- Outplacement firm services for counseling and job search assistance.
- Severance terms in exchange for release of claims.
Employees who have been furloughed and are being called back to work should receive a recall letter that includes:
- The details of their return.
- Reporting structure, pay, and benefits.
- Language making it clear that not reporting back to work is the equivalent of job abandonment.
Pro Tip
Communicating about layoffs in a manner that is as transparent and humane as possible often requires training — even for the C-suite.
Selection Policies and Procedures
Ensure policies around workforce changes are current, compliant, and clearly communicated at the onset of employment by including them in employee handbooks and onboarding presentations. Policies should also be reviewed by legal counsel in advance of any scenarios involving workforce changes.
The first stage of identifying employees that will be impacted by these different scenarios is often when costly mistakes can happen. Leadership, in consultation with HR and legal counsel, can help avoid such situations through strategic layoff decisions that consider every alternative. Alternatives to layoffs may include:
- Reducing hours worked to spread the economic consequences of cost cutting among all employees.
- Adopting a voluntary separation program (VSP). which can help at reduce the risks of legal liability.
- Identifying and eliminating wasteful practices.
HR, managers, or anyone else selecting employees for a layoff, furlough, or RIF can follow these tips. The most effective method for developing selection criteria is generally to use a combination of ranking factors such as seniority, skill, and performance considerations. Further ranking factors may include an employee's promotability, attitude, skills, abilities, knowledge, versatility, education, experience level, quantity and quality of work, attendance history, and tenure.
HR can help shape the criteria, train leaders to design it in a nondiscriminatory way, and work to ensure it is applied fairly.
Frequently Asked Questions
Employees with performance issues can be included in a RIF if they meet the established, nondiscriminatory selection criteria and their performance problems are well documented. However, RIFs should not be used solely to address performance issues because this can lead to legal risks, morale problems, and challenges in filling necessary positions.
No specific waiting period is legally required, but employers should proceed cautiously when rehiring for an eliminated position to avoid legal risks, ensuring the elimination was justified by business needs and not a pretext for unlawful termination.
Pro Tip
Carefully orchestrated and executed downsizing plans used in conjunction with good documentation and layoff policies that have been reviewed by legal counsel can be an employer's strongest defense against allegations of discrimination.
SHRM Senior Certified Professional (SHRM-SCP)
Earn the SHRM Senior Certified Professional (SHRM-SCP) certification to advance your career as an HR leader and begin transforming your workplace. The SHRM-SCP certification is for people who develop HR policies or procedures, oversee the execution of integrated HR operations, direct an entire HR enterprise, or lead the alignment of HR strategies to organizational goals.
Step-by-Step Guide
- Develop selection criteria to identify employees for layoffs and review it to determine if an adverse (disparate) impact exists for a protected class.
- Determine the timing of the layoffs and ensure compliance with the Worker Adjustment and Retraining Notification (WARN) Act, which requires 60 days’ notice for large-scale layoffs.
- Determine severance packages and ensure compliance with the Older Workers Benefit Protection Act (OWBPA) when employees are asked to waive age discrimination claims in exchange for severance pay.
- Inform individual employees of their layoff and subsequently inform the workforce. A more general announcement to the workforce that layoffs or a reduction in force will be coming may in some cases precede the individual layoffs, depending on the company.
Q&A: Benefits Eligibility During Workforce Changes
Employee benefits eligibility can be significantly impacted during workforce changes and can vary according to the circumstances of the scenario. Laws regulating benefits administration include the Employee Retirement Income Security Act (ERISA), COBRA, and the Health Insurance Portability and Accountability Act (HIPAA). Review these Q&As for answers to common questions related to health care, paid leave, and unemployment benefits.
Furloughed or laid-off employees may lose eligibility for group health plans if their hours are reduced to zero, as outlined in the employer's written plan documents. Employers must review their plan rules for compliance, offer COBRA coverage if eligibility is lost, and carefully manage plan amendments to avoid tax, legal, and fiduciary risks.
Yes, employers can generally require the use of PTO or limit when it may be used, provided they comply with state and local laws and apply policies consistently and without discrimination. Clear, written policies are essential to outline restrictions, procedures for requesting leave, and how PTO is managed during absences, ensuring employees understand expectations and legal requirements are met.
Employees working part time due to reduced hours may qualify for partial unemployment benefits, and work-share programs allow employers to retain skilled staff by reducing hours while employees receive state-supported partial benefits.
Employees are generally eligible for unemployment benefits if they are terminated through no fault of their own, such as layoffs, significant pay or hour reductions, or involuntary terminations not caused by willful misconduct. Exceptions may apply for voluntary resignations, job abandonment, or furloughs, depending on the circumstances and state-specific rules.
When an employee's hours are reduced, benefits eligibility is typically governed by plan documents, employer policies, and applicable laws. Health insurance benefits may be protected under laws such as the Family and Medical Leave Act and the Affordable Care Act, while retirement plans must comply with the SECURE Act, which expands eligibility for part-time workers.
A Supplemental Unemployment Benefit (SUB) plan is a tax-exempt program that supplements state unemployment benefits during layoffs, helping employers save on payroll taxes and manage cash flow while providing laid-off employees with full severance pay equivalent to their pre-layoff wages.
Legal Considerations
A variety of federal and state statutes as well as municipal ordinances and regulations may be implicated by an organization's decision to conduct a layoff or reduction in force. Multinational corporations may be subject to layoff laws of the countries in which they operate, and even U.S. companies may have international law obligations in the area of layoffs.
Federal Laws
Worker Adjustment and Retraining Notification (WARN) Act
The federal WARN Act requires employers conducting a "mass layoff" or "plant closing" to provide 60 days notice to certain persons. The goal of this statute (and its state law counterparts) is to minimize harm to workers and communities caused by layoffs.
A "mass layoff" occurs when at least 500 employees, excluding part-time employees, lose employment during any 30-day period, or if at least 33% of the employees at a single site of employment lose employment during any 30-day period, unless that percentage amounts to fewer than 50 workers.
WARN notices must be given to three distinct groups:
- Each representative of the affected employees, or, in the absence of a representative, to each affected employee.
- The state or entity designated by the state to receive such notice.
- The chief elected official of the local government where the mass layoff or plant closing will occur.
The U.S. Department of Labor offers a WARN Guide Advance Notice of Closings and Layoffs for employers.
Equal Employment Opportunity Laws
Workforce reductions can adversely impact people with characteristics protected by anti-discrimination laws. These laws include Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act (ADEA), including their anti-retaliation provisions. Many states have similar laws.
Employers conducting a layoff must be careful not to discriminate intentionally against any person in a protected class or to discriminate inadvertently against a group of persons in a protected class. In many cases, employers may have to choose between workers with similar performance ratings. To reduce legal risk, employers can take several steps:
- Develop criteria for making selections in advance. Applying the criteria inconsistently is a common error.
- Prepare a business case and have a third party review it.
- Conduct an adverse impact analysis to identify and remediate any statistical evidence of age bias. A disparate impact analysis is used for comparisons of employees in a particular protected class.
Employers in unionized environments need to take additional precautions with regard to collective bargaining agreements.
Older Workers Benefit Protection Act (OWBPA)
Employers must also comply with the OWBPA to effectively release claims under the Age Discrimination in Employment Act when employees are asked to waive age discrimination claims in exchange for severance pay. There are three basic types of separation agreements for the following situations:
- None of the employees being terminated are 40 years or older.
- A single employee age 40 years or older is being terminated.
- More than one employee is being terminated and at least one terminating employee is 40 years or older.
Wage and Hour Laws
Mass layoffs invite scrutiny from employees and plaintiffs' attorneys as to grievances employees may have had but never bothered to pursue. In the context of a layoff, a single employee or group of employees may bring claims for violation of the Fair Labor Standards Act (FLSA) or its state counterparts alleging improper classification as exempt employees (making them ineligible for overtime) and other minimum wage or overtime pay violations.
Laws Providing for Reinstatement Rights
Both the Family and Medical Leave Act (FMLA) and its state counterparts, as well as the Uniformed Services Employment and Reemployment Rights Act (USERRA) and similar state laws, provide for employee reinstatement under certain conditions. Review these Q&As for more details.
An employee on FMLA leave is entitled to be reinstated to the same position or an equivalent position—in terms of pay, benefits, and other terms and conditions of employment—except in the case of any of the following:
- Bona fide job elimination.
- Termination for reasons not related to the employee's medical condition or use of leave.
- The employee's inability to return to work upon the expiration of all available leave.
USERRA applies to all employers, regardless of size, and to all regular employees, regardless of position or full- or part-time status. It regulates leaves of absence taken by members of the uniformed services, including reservists, and by National Guard members. There are three exceptions to USERRA's re-employment obligations:
- The employer's circumstances have so changed as to make such re-employment impossible or unreasonable.
- Re-employment would impose an undue hardship on the employer.
- The employment from which the person leaves to serve in the uniformed services is for a brief, nonrecurrent period, and there is no reasonable expectation that such employment will continue indefinitely or for a significant period.
State Laws
Unemployment insurance. Employees laid off through no fault of their own generally will be entitled to unemployment insurance benefits, provided other eligibility requirements have been met.
Severance pay. There is generally no federal obligation for severance payments; however, some states do include severance pay requirements for certain workers.
Service letter laws. Some states have laws requiring employers to provide upon written request basic information about a former employee such as the nature, character, duration of employment, the rate of compensation and the reason for termination.
Employee access to personnel records. A majority of states require employers either to copy, or make available for inspection and copying, a former employee's own personnel file. States differ as to the applicable time periods, the scope of records the employee must be permitted access to and the means by which the state enforces the rule.
Common law claims. Employees may allege common law claims that their layoffs constituted wrongful discharge in violation of:
- A written or oral contract.
- A contract implied in the terms of an employee handbook.
- Written or oral promises that the employee would be treated in a certain way, which the employee relied on to his or her detriment. This theory is known as "promissory estoppel."
SHRM Resources
- Severance Waiver and General Release: Group Layoffs of Employees Age 40 and Over
- Lump Sum Severance Payments and Unemployment Benefits
- Designing and Administering Severance Pay Plans
- Involuntary Termination of Employment in the United States
- Managing Human Resources for a Company in Bankruptcy
- Multistate Laws Comparison Tool
Pro Tip
Determining whether the WARN Act even applies to a particular layoff can be a complex task, so in all but the most clear-cut situations, it is wise to consult with experienced legal counsel. Damages and civil penalties can be assessed against employers that violate the WARN Act.
Expert Advice
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