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Do You Have To Layoff Employees? Avoid These Costly Mistakes

Do You Have To Layoff Employees? Avoid These Costly Mistakes

The country’s boom and bust cycle has led to hundreds of thousands of layoffs across the country in recent months. Technology and media-related organizations have taken the majority of headlines in this regard, including household names and employers such as Amazon, Microsoft, and Google. A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee’s performance.

Coming off the end of the year, many companies are currently reviewing annual budgets and attempting to adjust overhead costs to increase (or create) profitability. If this sounds familiar to your situation, it’s crucial that you proceed with caution. Avoid stumbling over legal issues that could cost your business more money than the money you’re trying to save by laying off your employees. Continue reading to understand the most common mistakes business owners make when they lay off employees.

Failure To Follow Legal Requirements

Business owners must follow legal requirements when laying off employees. One of the most common mistakes business owners make is being unaware of the Worker Adjustment and Retraining Notification (WARN) Act. The WARN Act helps ensure advance notice in cases of qualified plant closings and mass layoffs. The U.S. Department of Labor has compliance assistance materials to assist workers and employers in understanding their rights and responsibilities under the provisions of WARN.

The following are frequently asked questions when it comes to complying with the WARN Act:

Am I covered by the WARN Act?

This act requires employers with 100 or more full-time employees to provide at least 60 calendar days advance written notice of a worksite closing affecting 50 or more employees or a mass layoff affecting at least 50 employees and one-third of the worksite’s total workforce.

If I’m considered a temporary layoff or furlough, do I need to provide workers with a notice under the WARN Act?

A WARN Act notice must be given when there is an employment loss, as defined under the Act. A temporary layoff or furlough that lasts longer than six months is considered an employment loss.

Will the Department of Labor provide me with a letter stating that I have complied with the WARN Act?

No; The WARN Act is enforced by private legal action in the U.S. District Court for any district where the violation is alleged to have occurred or where the employer transacts business. Any dispute regarding the interpretation of the Act, including its exceptions, is determined on a case-by-case basis in such a court proceeding.

Additional questions and answers can be found here. Failure to follow legal requirements can result in legal action against the business and could potentially damage your business’ reputation.

Not Having A Clear Plan

If you’ve come to the unfortunate realization that you are considering or have considered laying off employees, it’s critical that you have a plan in place. Be sure to document the process in which you choose and the steps you will take to ensure it’s the same for every layoff. Consider adding the following to your plan:

  • Intended post-layoff organizational structure
  • Business objectives
  • Identify job positions that are unnecessary or redundant 

This ultimately helps you create a documentary record and avoid the legal risks caused by discrimination claims. Laying off employees is a significant decision that requires careful consideration and planning. Business owners need to have a clear plan that outlines the reasons for the layoffs, the process for selecting employees to be laid off, and the support that will be provided to the remaining employees.

Hiring Replacements To Fill “Eliminated” Positions

While you may already know this, it’s important to remind yourself that you should not eliminate a position and then fill it shortly after. The consequence could be a lawsuit on your hands and, most likely, hefty costs headed your way. The lawyer could argue that when you “eliminated” the position, it was a pretext for discrimination as you went and hired another individual for that same position shortly after. If you lay off an individual because you’re eliminating their position, then do just that. After six months, you can reevaluate the need.

Not Communicating Effectively

A common mistake business owners make when laying off employees is not communicating effectively. This should come as no surprise. When employers don’t communicate effectively, it leads to confusion for the employees you lay off. If it comes down to the fact that you’re making more money, why are you laying off your employees?

To avoid this mistake, be clear about why you are laying off your employees. If you feel that appeasing your shareholders is more important than keeping individuals employed, explain that to these employees. It’s important to be honest and transparent about the reasons for the layoffs and their impact on the business and its employees. Failure to communicate effectively can lead to confusion, resentment, and distrust among employees.

No Support For Those Who Are Affected

Amidst a massive layoff season for large companies, we see many of these businesses lacking support for their laid-off employees. HR departments and management teams have decided to scale back what they spend on support, such as career coaching, for those affected by the layoff.

Layoffs create a stressful and uncertain environment for employees. As a business owner, you should provide support and resources to help them through this challenging time. Consider providing them with access to the following:

  • Counseling services
  • Financial advice
  • Career coaching
  • Employee assistance programs (EAP)

On the other hand, keep your support relevant. Remember in early 2022 when Peloton laid off about 20% of its workforce but gave them a free annual Peloton membership on their way out? Employees, and customers alike, were appalled by the company’s misstep. Support is good, but proper support is better.

Not Considering Alternatives

Business owners should always consider alternatives to layoffs before making a final decision. Currently, many businesses are tightening their belts and searching for methods to reduce costs without resorting to employee layoffs. While layoffs provide immediate savings to the organization, they ultimately come with long-run costs that businesses can suffer for years.

So, if you’re leaving layoffs as a last resort, there are a variety of alternatives you can take to put your company in a position to navigate any obstacle thrown your way. Consider the following alternatives:

  • Furloughs
  • Offer employees a voluntary short-term sabbatical
  • Consider pay cuts
  • Establish a hiring freeze
  • Offer early retirement 
  • Cut work hours
  • Reduce insurance premiums

Not considering these alternatives can have a negative impact on the morale and motivation of the remaining employees.

How A PEO Can Help During These Challenging Times

Laying off employees is never an easy decision for any business owner. It can be a difficult and emotional process; however, it’s sometimes necessary for the survival and success of your business. If it comes down to laying off employees, avoid these common mistakes mentioned above. Fortunately, when you partner with a professional employer organization (PEO) such as Group Management Services (GMS), we help you avoid these common mistakes. GMS experts provide you with the guidance and support you need. We ensure you follow legal requirements, communicate effectively, explore alternatives to layoffs, and support remaining employees. Contact us today to learn how we can help you during these challenging times.


Frequently Asked Questions

What's the difference between a layoff and a furlough? 

A layoff is the elimination of a position. A furlough is a temporary unpaid leave of absence or reduction in hours typically resulting from a lack of work or budget cuts. 

When can I lay off employees? 

If you're expecting or seeing a significant decrease in business sales, you can institute layoffs. This looks different for every organization but may include one or more of the below situations: 

End of a contract or a season

End of casual/part-time work

End of the school year

Temporary shutdown of operations

Permanent shutdown of operations

Position eliminated/redundant

Company restructuring

Employee bankruptcy or receivership

What will employees be paid on? 

Employees terminated without cause and on layoff will likely receive employment insurance (EI). For most individuals, the basic rate for calculating EI benefits is 55% of the average insurable weekly earnings, up to a maximum amount. 

Can my employee work while on EI? 

Yes, you can recall employees for short periods of work, but it must be under a week. 

How long is a layoff for? 

The maximum time for a temporary layoff has been extended from 60 to 120 days to ensure temporarily laid-off employees stay attached to a job longer. This change was retroactive for any temporary layoffs related to COVID-19.

How do I recall employees back to work?

Employers must provide a written notice to the laid-off employee, and it must include the following:

Be in writing

Be served on the employee

State that the employee must return to work within seven days of the date the recall notice is served on the employee

How are positions identified for layoff? 

Before implementing a layoff, agencies conduct workforce planning processes. The Department Director or Administrator must determine which areas will be affected based on the following criteria:

Geographical location

Class series

Class and applicable option

Full or part-time positions

What information is included in a layoff notice? 

A layoff notice must include transfer or displacement options for:

Statewide transfer within your department

Voluntary demotion to another position within the department and geographical location

Move back to the most recent former class

How much notice of layoff should my employees get?

Permanent employees must be given a minimum of 30 days written notice.

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