Reduction in Force: Definition, Legal Issues, & Guidelines
Mary Cavanaugh May 09, 2023 Outplacement, HR Strategy
Currently, we are witnessing a boom in downsizing in the tech industry with tech giants like Google and Facebook conducting employee dismissals en mass. Sometimes a reduction in force is necessary, but a blundered execution can tarnish a company’s reputation for years to come — just look at Better.com (the company that fired over 900 employees via Zoom). According to Downsizing in America, the U.S. started to see reductions in force increase in the 1980s and early 1990s.
Planning a reduction in force process is care-intensive and requires knowledge mixed with tact. Within this guide, we’ll cover the basics of a RIF, how it differs from layoffs and furloughs, and what employers should consider before committing to a RIF. We also highlight economic impacts on organizations while providing information on critical legislation.
A reduction in force (RIF) refers to the process of eliminating positions or jobs within an organization. Modifying a workforce in this way is sometimes necessary due to financial constraints, changes in business strategy, mergers, or reorganizations. Rapid changes in technology and consumer behaviors, as well as economic volatility, can influence the need to downsize or reduce a workforce. A RIF can also be accompanied by hiring freezes and reducing the total hours available to a workforce.
During a RIF, employers might offer separation packages to employees that exit an organization. In some cases, outplacement programs are necessary to ease tensions during employee separations. Getting laid off is a trying ordeal and if an employee feels they have been slighted, they may spread negative opinions or even file against the company. A RIF can be difficult and stressful for both parties involved — and following legal RIF guidelines and proper business etiquette could require professional third-party assistance.
Although the terms are often used synonymously, technically the major difference between a reduction in force and a layoff is that layoffs are generally conducted due to a lack of available work, while a RIF occurs when a position is being eliminated without the intention of replacing it, thus resulting in a permanent reduction in company headcount. On top of that, a reduction in force is usually accompanied by a restructuring of an organization and a modification of business operations. In both situations, employees are technically unemployed; however, laid-off employees are sometimes asked to return to the same position within a company when the business regains momentum.
When an employee is furloughed, they will most likely return to work after a given period. Most furloughs are considered temporary and are conducted due to a shortage of work or a lack of funds for payroll. Unlike a layoff, the employee is technically still employed by the company while furloughed — and the employee can legally look for other work as well.
RIFs aren’t for everyone — you should carefully consider the readiness of your management teams and operational repercussions before making the decision to restructure. Ask whether or not HR and management are prepared and equipped with the knowledge required to undertake a reduction in force. HR teams should be well-versed in the legal documentation, potential liabilities, and unemployment benefits concerned with a RIF. Management should also have a clear understanding of the directive and unified message behind the operation.
Because a reduction in force is typically a permanent operation, take into account the current business model and operations in light of cutting labor. Make sure you can still provide adequate services to your clients and customers after a RIF. Additionally, it is critically important for you to also prepare for how it might influence remaining employees’ productivity, morale, and loyalty.
Employers can enjoy monetary and operational benefits from a well-executed RIF. On the other hand, a poorly-conducted RIF can leave a company’s reputation at the mercy of social media and news outlets. Downsizing and workforce reduction can be a double-edged sword; effective when wielded properly, but dangerous without proper training and preparation.
- Save on labor costs – it goes without saying, but downsizing can help to cut labor costs. A reduction in force that requires some employees to receive reduced benefits or a reduction in rank can also help save salary costs.
- Eliminate redundancies – business models change, and when they do, some jobs lose their value to a company. When this happens, a reduction in force can help to eliminate those positions for good, ultimately moving the company forward.
- Increase efficiency – creating lean teams is what most leadership teams strive for. By keeping your most essential and top-performing employees, you can effectively cut slack from your business operations.
- Customer retention – unfortunately, some businesses aren’t prepared to keep up with customer demand after restructuring their workforce. Furthermore, a company’s reputation can suffer if customers and clients feel that the company was unfair or irresponsible towards its employees during downsizing.
- Staff loyalty – remaining employees might see management or the organization in an unfavorable light after a mass exodus of coworkers. Outplacement and career transition services can help ease company culture shock and prevent a decrease in employee dedication.
- Litigation and liability – it is not uncommon to see employees pursuing lawsuits against employers post-RIF. Reduce this risk by carefully reviewing guidelines from the Department of Labor, creating exit strategies for employees, and leveraging your HR expertise.
Litigations and legal issues usually accompany poorly conducted reductions in force — most are concerned with a disproportionate amount of senior employees chosen during screening. Using an adverse impact and demographic analysis can help your HR team lookout for potential litigations and curtail unfair choices by management. Moreover, employees can be entitled to healthcare coverage (sometimes for up to 3 years) depending on the circumstances during their transition. Crucial legislature to review before a RIF includes:
- WARN – the 1988 Worker Adjustment and Retraining Notification Act requires employers to issue a WARN notice 60 days in advance to a RIF if the company has over 100 employees and is laying off 50 or more workers — or if 50 or more employees are receiving a reduction in hours by 50% or more.
- ADEA / EEOC – both the 1965-founded Equal Employment Opportunity Commission and the 1967 Age Discrimination in Employment Act inhibit marginal favorability towards a specific demographic when selecting employees during restructuring or downsizing. In essence, organizations can’t disproportionately remove employees of a specific age, gender, or demographic.
- COBRA – in 1986, the Consolidated Omnibus Budget Reconciliation Act was signed into effect. It dictated that qualified employees can retain health coverage for 18 months after being laid off. This coverage can sometimes increase to 36 months for the employee’s dependents in the event of a divorce. Employers must also give proper notice and documentation concerning COBRA to all exiting employees 30 days after issuing a WARN notice.
Before conducting a reduction in force, it is important to devise a game plan to eliminate confusion and create a cohesive message. Prepare your managers and HR teams to answer employee questions — both occupational and legal. Communicational contingencies should also be considered, especially for companies with remote workforces.
Proper communication can turn exiting employees into loyal advocates and protect your brand’s reputation. It will also help to reduce the possibility of litigation and legal fees. Also, unemployment costs and organizational upset can be decreased when professional outplacement services are used during a workforce reduction.
Keystone Partners recognizes it is a difficult decision for any organization to reduce their workforce. . This is where we come in — our team of seasoned experts can guide your organization’s leaders in developing a comprehensive plan for notifying employees and managing the logistics of the process. We understand that every organization has unique needs, which is why we tailor our services to meet your specific requirements.
We offer a variety of services, ranging from training your HR team on how to navigate challenging transitions to supporting departing employees through customized career consultations. With our help, you can minimize organizational disruption and reduce potential risks, leaving your company to focus on its core operations. Contact Keystone Partners today to find out how we can support your business during these challenging times.
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