The 7 Worst Mistakes Companies Make When Laying Off Employees
A Note From The Editor
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It's a new year, and with it, we can expect a new round of business successes, failures -- and realignments. Despite the fairly strong economy, Hewlett Packard Enterprise, Microsoft, GoPro, FitBit, NerdWallet, Etsy and Blue Apron were among the many companies who laid off employees in 2017.
As if layoffs aren't painful enough, many companies make matters worse by handling them poorly. Handling layoffs in a humane way is important for the morale of both the impacted and retained employees, it will impact the company's ability to hire strong talent later, it affects litigation risk (people who feel mistreated are more likely to sue), and, of course, it's the right thing to do.
As someone who partners with numerous companies on workforce reductions each year, these are the most common and truly egregious mistakes I continue to see:
1. Botching the announcement
Who can forget when Microsoft buried layoff news regarding 12,500 employees in the 11th paragraph of a memo or when AOL Patch laid off hundreds of employees via a conference call? In 2015, some Twitter employees learned they'd lost their jobs when they could no longer access email, and one semiconductor company called an all-hands meeting and then displayed the names of impacted employees on a screen.
A better option: hosting an all-hands meeting to announce that layoffs are coming and casting the vision for the company moving forward. Impacted employees should be notified later in private one-on-one meetings.
2. Offering crappy severance packages
Employees at game maker Gazillion Entertainment were asked to work 50-60 hour weeks and not take vacation. When they were laid off via email, they received no severance and were not even paid for their accrued paid time off (PTO).
While Gazillion provided pretty much the worst package imaginable, many companies offer less terrible but still awful severance packages. Sure, some talented, 20-something, single software developers have low-cost lifestyles and can score multiple lucrative job offers within a few weeks. But, many people can't and have families to feed and expensive rent and mortgages to pay. The bare minimum two weeks' pay that many early startups offer, typically involving the near-immediate loss of company-sponsored health benefits and no outplacement or career transition support, can feel like a kick out the door and subject many families to unnecessary financial hardship and emotional stress.
A better option: determining what matters most -- such as taking care of employees, limiting liability or maintaining employment brand -- and aligning packages with those objectives. Even on a tight budget, managers can connect impacted employees with their networks, or internal recruiters can provide resume reviews and job search advice.
3. Laying off people they need
Layoff decisions, even in large companies, are often rushed. Companies don't always have the opportunity to identify potential transfers of talent to other divisions. As a result, they lay someone off while hiring for the same skill set in another part of the organization.
A better option: considering internal transfers before layoffs occur. If that's not possible, impacted employees should be encouraged to apply for internal roles, and recruiters can help them navigate the process.
4. Death by a thousand cuts
Layoff ... after layoff ... after layoff. This layoff approach deeply dampens morale, as employees wonder who will be next. NerdWallet started 2017 as a San Francisco Business Times Best Place to Work. Then it administered three rounds of layoffs. Now it's ending 2017 with a tarnished employment brand and a Glassdoor profile filled with comments about how having three rounds of layoffs in one year "has crashed the company morale."
A better option: determining the go-forward strategy before the layoff occurs and trying to align the business in a single action.
5. Forgetting the law
While most people are employed "at-will," that doesn't mean there aren't rules. This includes providing advanced notice and making sure protected classes are not disproportionately impacted. Companies with at least 100 employees (75 in California) are required to file a WARN (Worker Adjustment and Retraining Notification) notice providing 60 calendar-day advance notice of a mass layoff. In 2012, Solyndra paid a $3.5 million settlement when it failed to do so. And if a layoff disproportionately impacts a protected group, such as employees over 40, minorities or people with disabilities, the company could face legal action. HPE is being sued on this basis for allegedly laying off employees over age 40 and replacing them with younger workers.
A better option: consulting an employment attorney in advance of a layoff.
Related: How to Discipline and Fire Employees
6. Forgetting to be human
In the process of trying to do everything "right," some managers forget to be human. It's amazing how often people rigidly follow a script during notification meetings for fear of saying something wrong. It's even more amazing how often they forget to mention the niceties, like the fact that they appreciate everything the employee did for the team or affirmation of the employee's abilities. Layoffs are emotional and raw; it's critical to show empathy when delivering such painful and often scary news.
It's also critical to help employees maintain their dignity. That's why having a security guard escort the employee out the door should be avoided, except in the rare cases where it's truly needed.
A better option: affirming each person's contributions, letting them collect their belongings and personal files off their computers, and giving them an opportunity to say goodbye.
7. Failing to plan ahead
Founders and executives at high-growth companies are often caught unprepared for layoffs. Many assume the only possible direction is up. With pressure to grow, it's easy to hire too many people too fast, and later need to lay off employees quickly. And, even under conditions of sustained growth, layoffs can become necessary due to acquisitions.
A better option: making a plan before it's needed. Strong executives define severance packages and procedures and have an outplacement provider on-deck.
There's simply no excuse for royally botched layoffs. No employee should learn of his or her job loss from a memo or a projector, no employee should suddenly lose health insurance, no employee should be let go without severance and vacation time paid out, and no employee should be deprived of dignity during such an emotional ordeal. There's always a better option.
Related Video: 11 Tips for Firing an Employee