For some, the ax comes in the form of a summons to a conference room with a supervisor and a staffer from HR. For others, the blow simply lands in their email inbox like a kick in the gut. Still others are told in groups to stay home Monday morning, and then asked to call in to learn whether they still have their jobs.
Layoffs and firings are never easy on their targets, but the swing of the ax has become particularly brutal and messy in an era when employers are trying to balance a host of competing concerns. Will terminated employees steal proprietary data on their way out the door? Are there legal risks, or even physical dangers? And how much will being “nicer” affect the bottom line?
But the question that isn’t asked often enough is this: Is there a way to send workers packing with their dignity intact while mitigating collateral damage to the remaining workers? Many management experts say yes — more humane methods of letting people go do exist — yet they’re not used nearly often enough.
“It’s like most things in management,” says Wharton management professor Peter Cappelli, director of school’s Center for Human Resources. “It’s easy to measure the costs; it’s harder to measure the benefits” of handling layoffs humanely. “So if you are the CFO, who is typically the person calling the shots, it seems simple to not do it. Saying ‘It’s the right thing to do’ doesn’t sway them. So a company would have to be pretty sophisticated about measuring benefits to persuade skeptical CFOs, who typically know little if anything about management, that this is a good idea.”
“It’s easy to measure the costs; it’s harder to measure the benefits” of handling layoffs humanely. –Peter Cappelli
Money is one factor, but sometimes an employer is simply looking to get the pain over with quickly, says Janice R. Bellace, Wharton professor of legal studies and business ethics. “It’s like an accident — something bad has happened and we want to just close the door on it and walk away from it. But I don’t think you can do [that]. Everyone knows about it, and they remember. Workers feel badly and it gives them a jaded view of the company. Somebody worked here for 10 years and you treat them like a criminal? The other employees say, ‘That can happen to me,’ and they have a different view of the company.”
This was undoubtedly the case at a Ford plant in Chicago where management recently laid off nearly 100 workers by robocall. Some thought it was a Halloween prank and showed up for their jobs at the assembly facility only to find that their ID badges no longer worked.
Sensitivity and Autonomy
The recent economic downturn certainly gave employers ample opportunities to think about how they handled layoffs, and perhaps change them for the better. Yet even with the labor market finally showing consistent signs of strength, GlaxoSmithKline this month announced it would lay off hundreds of workers, a move that followed hard on the heels of Microsoft’s decision to eliminate 18,000 employees and Hewlett-Packard’s October announcement that 55,000 of its jobs would soon be cut.
Practices surrounding layoffs have evolved only somewhat in the past few years, with both examples of greater and lesser sensitivity, says Kim E. Ruyle, president of Inventive Talent Consulting, a Coral Gables, Fla.-based talent management and organizational development firm.
“It seems like there are more extremes, both good and bad,” he says. “I can tell you that you don’t have to go back too far [to when] laying people off with email was almost unheard of, and now you’re hearing about that. On the other hand, there [is] a general understanding in the HR community that the way you mitigate some of the issues is increased transparency and providing as much autonomy as you can.”
If workers know a layoff is coming, Ruyle adds, the company can provide an explanation for why it needs to happen. “In some cases, organizations are empowering teams not only to make hiring decisions, but also to take the next step, where if you have to do some reduction in the workforce, the team can collectively decide that they’re all going to take fewer hours instead,” he notes.
Laid-off workers feel powerless, and granting them some options on the way out is one way of restoring control and alleviating stress, Ruyle says. “Even if I get a message that in the next 90 days [my company is] going to reduce the workforce by 10% — and here are three options for you in the event you are let go — just giving someone some options does a lot to reduce stress.” Some possibilities are offering workers choices about how to receive their severance and benefits, the timing of their exit and outplacement services, he adds. “To the extent that an organization can provide any kind of choice to people, it makes it much more amenable.”
Look for the Union Label
Years ago, many employers routinely used more humane methods when easing employees out the door, but these practices were often stipulated by union contracts, and unions have long been in decline. Buyouts, for example, can soften the blow, and they’re still used in some industries. Employees are typically offered several months’ pay plus continuing benefits, based on their length of service. In some cases, employers are given the right to decline an employee’s buyout application, giving the company a chance to hand-pick who they want to see stay or go.
President Obama is still lobbying Congress for passage of the Employee Free Choice Act, aka the “Card-Check” bill, which would make it easier for unions to organize, but the Act has been repeatedly blocked by Republican legislators and is unlikely to become law anytime soon. Meanwhile, few see union growth ahead, which means the kinds of collective bargaining contracts that once included built-in impediments to layoffs are, likewise, not likely to become more common again in the United States for quite some time, if ever.
For Kinder Layoffs, Go Overseas
Workers have more of an upper hand in countries where various statutes dictate how employers must handle layoffs and firings. In Japan and France, companies must demonstrate financial losses for several quarters before they are permitted to resort to layoffs. In the Netherlands, Colombia and China, governmental approval is required before a major layoff.
Germany has had in place, since just after World War II, a rigorous system of statutes and case law dictating how the dismissal process operates. Its rules stand in stark contrast to the most common situation in America: “at-will employment” — a classically Orwellian phrase in that it refers only to the will of the employer, who needs no good reason at all to fire anyone. Rather, German workers have contracts that spell out the circumstances under which they can be let go. Severance pay lasts from between four weeks and seven months, depending on one’s length of service, and before an individual employee can be fired, gross misconduct must be proven.
Layoffs are straightforward in cases where a company is going out of business, but it is “much more complex and much more risky for employers deciding to reduce the workforce,” says Frankfurt-based lawyer Holger Thomas, who leads WilmerHale’s employment and labor department in Germany. Companies can’t pick and choose whom to lay off, but must make decisions based on length of service, age, whether the employee is supporting children and whether the employee is severely handicapped.
“You don’t have to go back too far [to when] laying people off with email was almost unheard of, and now you’re hearing about that.” –Kim E. Ruyle
“The criteria of performance is not a part of the selection process,” says Thomas. Decisions must be approved by an internal labor-management committee called a works council. “If they don’t agree, the employer cannot hand out the letter of termination.”
Employees who disagree with their outcomes can petition a court to overturn the decision. Says Thomas: “If an employer decides to lay off people, he really has to have valid grounds and really has to think about what is the reason, because there is always a high risk he would lose a case at the labor court, and then they would have to reinstate, which is always quite expensive. We don’t really see many cases here of an employer dismissing people and not having any reason to do so.”
“It’s a more humane way of doing things. It does force companies to think about the implications,” adds Wharton management professor Matthew Bidwell. “It doesn’t mean you don’t get layoffs, but you have to do it in such a way that you make people whole, which strikes me as sensible.”
In Germany, the business community looks upon these regulations as a necessary evil, but one that comes with benefits, says Christian Hendrik Zeller, a partner with Frankfurt law firm Zeller & Seyfert.
“In my personal opinion, most companies with more than 10 employees accept the German labor law restrictions because … they know that these disadvantages are compensated by some current locational advantages, such as well-educated employees, good internal organization of the workforce, stability in the labor market and good infrastructure,” says Zeller. “I think that most of the relevant players in Germany are aware that this is a very fine line and that an economy can only afford such a high level of social benefits if there are other factors — like good education and good infrastructure — that help to reduce the higher costs caused by governmental regulations like the dismissal protection.”
Would the German business community continue these protections if not required by law? “Maybe there is also a cultural affinity in Germany to favor stable structures,” says Zeller. “But I am not sure if companies would really keep the same level of employee protection if these protective laws would not be mandatory.”
The U.S., by comparison, has the Worker Adjustment and Retraining Notification Act — WARN — which requires most employers with 100 or more employees to give 60 days’ notice of a plant closing or mass layoff. But WARN has neither the breadth nor teeth of European labor law. Says Bellace: “During the financial crisis, there were a couple of instances where somebody woke up to the fact that notice had to be given, because in banking they had never paid attention to the statutes.”
“You talk to people where there has been a big round of layoffs, and a year later people are still traumatized and demotivated, and that can be very damaging.” –Matthew Bidwell
As a result of these regulatory and cultural differences, U.S. workers receive, on average, the worst severance packages of 29 industrialized nations surveyed, regardless of employee level or length of tenure, according to a Right Management 2008 study.
Overthinking Risks
But beyond altruism, employers have good reason to consider better treatment of outgoing talent — starting with not burning bridges. “You hear all these stories of organizations laying people off and bringing them back as consultants — in some cases signaling that ‘we really didn’t think before we did it,’” says Bidwell. Moreover, “for the survivors, seeing the company behave in that way is, I think, a real shock. You talk to people where there has been a big round of layoffs, and a year later people are still traumatized and demotivated, and that can be very damaging.”
The toll can be expensive, says Bellace. “When you think of goodwill toward a company and the willingness to pitch in extra,” failure to treat departing employees with respect has consequences. “People never put a price tag on that, but there’s a price to be paid,” she notes.
Among the most common reasons employers cite for their less-than-humane treatment of departing employees is simply cost: Paying for severance and outplacement services can add up. But fear is also a factor. “My sense is that so much of it ends up being run by the lawyers,” says Bidwell. “We’re so worried about being sued, we end up with policies about how we have to do it, and those policies are geared toward those few exceptions, and end up being damaging to everyone else.”
Employers may have good reason to worry about proprietary information leaving the building with departing workers. In a 2009 survey of 945 workers who were fired, laid off or who quit, 59% admitted to stealing data. But how they were treated mattered, according to the “Jobs at Risk = Data at Risk” report by the Ponemon Institute: 61% of those who felt negatively about their employer said they had pilfered data, while only 26% who felt positively did so.
Violence is also a concern. But incidents like the recent one in Alabama, in which a fired UPS worker killed himself and two others, are exceptionally rare, many point out.
“Sometimes we forget that what is on the news is the extreme outlier rather than the norm,” says Bellace. A lawyer herself, she notes: “Sometimes the advice lawyers give is based on thinking of every worst possibility, rather than saying, ‘How likely is it that the people you are laying off will be violent or saboteurs?’ I think that’s a real trend in America.”
It’s been nearly two decades since then-Secretary of Labor Robert Reich called for more humane treatment of downsized employees. “The real question is how downsizing is done, rather than whether to downsize,” he said. “Companies that downsize through buyouts and attrition, that help their workers get new jobs and that sometimes provide outplacement services, end up much better positioned than companies which simply wield the ax. [They have] a better chance of retaining the loyalty of the surviving workers. Trust is one of the most valuable yet brittle assets in any enterprise. So over the long term, it’s far better for companies to downsize in a humane way.”
And yet not a lot has changed. Why? “First, the financial return on doing so isn’t clear to people at the top, especially so because they are skeptical about claims concerning these returns,” says Cappelli. “That’s not unreasonable given that every consulting firm makes claims that what they recommend pays off. Second, on matters around employee relations, most companies are motivated mainly by what everyone else is doing, even if there is a compelling case that better practices pay off. It would take several high-profile companies moving in a different direction to get some change.”
