What a Small Business Owner Should Know Before Laying Off Employees

Though economists are telling us the recession has come to an end and things are beginning to rebound, the unfortunate result of an economic downturn that has lasted so long and affected so many industries, countries and skillsets is that the recovery is likely to take a very long time to show itself to small businesses.  This being the case, small businesses are still finding themselves having a need to cut costs and layoff employees.

While no business owner likes laying off an employee, those that have been ‘in the trenches’ awhile will typically reach the appropriate conclusion when necessary and begin developing a strategy to do what’s needed. 

However, it’s at this point when many small business owners may find themselves in a difficult situation.  If a layoff has not previously been required, then the small business owner will rarely have knowledge of the laws and issues involved in conducting a layoff with a minimum of risk – to the company and the employees.  The following information should be helpful in guiding you down the path of a worry-free layoff.


One of the most prominent employment statutes is the Workers Adjustment and Retraining Notification Act (WARN) of 1989. The WARN act gives workers and their families time to plan for a transition caused by employment loss. Slightly fewer than half the workers in the United States are covered by the statute, as it only applies if there are 100 or more employees in the company.

According to Heather Gatley, senior partner and vice-chair of the labor and employment practice at the Florida-based law firm of Steel, Hector & Davis, WARN requires employers to give employees and local governments 60 days of advance written notice of plant closings and mass layoffs in the following situations:

  • Plant closing – An employment loss during any 30-day period at the single site of employment for at least 50 full-time employees.
  • Mass layoff – An employment loss at the single site of employment during any 30-day period that must involve at least one of the following circumstances:
    • A reduction that affects at least 50 full-time employees who make up at least 33 percent of the company’s workforce.
    • A reduction that involves at least 500 full-time employees.

So, what does it mean to you? If your company fits any of these criteria you are required to provide the employees notice of a layoff. Therefore, in order to  A) keep the peace and  B) keep things as productive as possible until the layoff takes place, make sure you develop a comprehensive down-sizing program that takes care of the company – and the soon-to-be ex-employees as much as possible.  You should also insure that you have a plan to take care of the company’s remaining employees, who are just as likely to be shell-shocked as those who are out of work, but will also have the added burden of extra work to make up for those who are gone.

Documenting business justification and protected classes

Though employees would likely not consider it, from management’s point of view, deciding whom to lay off is hardly an easy decision. Senior executives must establish a documented, justifiable business reason for the layoff and analyze its effect on various protected classes of employees, typically defined by age, gender, race, and national origin. Unless the company can prove that its actions were genuine, and not a pretext for discrimination or sleight-of-hand (cutting a department only to resurrect it with a new name and new people), it could face lawsuits, according to Gatley. Federal protected class laws apply to companies with 15 or more employees, and while local laws vary, they typically cover companies with smaller numbers.

So how does a company insure they are fulfilling their legal obligations to employees, while still meeting the needs of the company?  The best way is to hire an outplacement consulting firm who specializes in these projects and can guide you thru them.  Another benefit offered by such firms is their ability to provide Job Search services at varying levels to those employees who have been down-sized.  This helps to make both the out-going and remaining staff feel that the company has been as responsible as possible, and provided every assistance they were able to insure the welfare of all involved


Steps to Downsizing with an Outplacement Progam

Though it may not have occurred to you if your firm is currently experiencing difficult circumstances, making use of an outplacement service can help to strengthen the relationship between your firm and its departing employees.  In spite of the fact that economic or other circumstances may have required that you ask an employee or group of employees to leave your firm, you can show your understanding of the difficult transition they’re about to undertake, and at the same time you can thank them for their previous service to your company.  This can be accomplished by providing outplacement services to ensure they are provided with the tools to move on to the next phase of their careers as quickly as possible.

Historically when most companies downsize, they send employees off with a severance package and little else.  However, companies that want to do right by their former employees enlist the aid of an outplacement firm to help displaced employees transition quickly into new jobs, or advise them on alternate career paths that can lead them to exciting new opportunities.  

And as beneficial as this service may be for the employees, surprising to most employers, it’s also good for the company.  Benefits provided to the firm from an outplacement program can include public enhancement of the company’s image, aiding the company in its reorganization efforts, and reducing the risk of legal liability from downsized employees or government entities who decide that the company did not act in good faith in its downsizing process.

If your company is in a position where it is considering a layoff, I encourage you to consider the following action steps as you finalize your plans.


Action Steps

Hire an outplacement service company or consultant – Outplacement firms assist not only in helping employees transition out of the company, but also in helping the company understand the legal issues regarding employee termination. Outplacement firms provide career coaches that work one-on-one with employees by helping them to update their resumes, assess their strengths and weaknesses, and prepare for new career opportunities.  If you’re undertaking a company-wide layoff, outplacement firms can handle the transition process for a single employee, for dozens or even hundreds of employees. And due to their experience, such companies know the type of services and support that former employees need most during this time, as well as ways to make the layoff process easier for both employer and employee.

Make an alumni program part of your outplacement strategy  – Though circumstances may require you to lay off employees in your current situation, you may find your firm needing to rehire them if the company’s financial state improves, the economic climate changes, or if new positions open up for which their skills (and existing company knowledge) would be transferable.   Adding an alumni program to your planned outplacement services allows you stay connected to valued former employees while also providing them with a way to stay in touch with colleagues and friends for support during their transition and beyond.

Downsizing Staff Doesn’t Have to be Traumatic – for Companies or for Staff

As more and more people worldwide lose their jobs, many for the first time in their careers, a percentage of those downsized are becoming frustrated with their employers’ handling of the situation and making decisions to take ill-advised actions such as those detailed in the story below.  To be fair, when such an action is taken, it is rarely meant to cause any sort of harm, but rather to express the former employees’ frustration in the hope it will cause change.  Obviously there are a great many reasons for this anger and frustration, but among them is one that is unlikely to  be discussed – firms that handle their downsizing in a clumsy, inappropriate manner without regard to the needs of long-time loyal employees.

As an experienced Outplacement Consultant, I have been involved in a significant number of layoff actions for firms of all sizes.  The ones that are typically most successful are those that have been well-planned, have used my company (or a similar one) to develop and implement a process for the downsizing – for the company and the employees (those being laid off AND those remaining), and where the company has been open and honest with the reasons, the timing, and other relevant information.  Obviously, while the word “successful” is one I am hesitant to use, for the purpose of this example it is appropriate.  What I mean by “successful” is a layoff where the terminated employees do not feel mistreated and are as well taken care of as possible with services to help them obtain new employment, where the remaining employees have a clear understanding of the current and future situation, and where the employer has provided notice and treated its employees with respect;  and all of these actions have resulted in a well-mannered, well-organized layoff with terminated employees being provided resources and opportunity, remaining employees being confident that their jobs are secure and their former associates have been well-treated, and where the employer achieves its staff reduction without trauma and maybe even receiving a “thank you” or two.

Having counseled employers in this situation, I can state as a fact that most employers cannot comprehend that there will be any reaction to a layoff other than anger and mistrust.   However, I can assure you as a result of my personal experience with employers who’ve done it right – and with employers who haven’t – that those who choose to implement a well-planned, respectful process will actually have employees thanking them for providing them the ability to take advantage of new opportunities.  I’ve seen it with my own eyes!

My best advice to you if your firm is in a situation where it is considering a downsizing is to hire a consultant, plan a process so that you only have to do this once, and take care of your employees (terminated and retained) as well as you possibly can.  It will benefit you in both the short-term and the long-term in ways you can’t imagine – even after the economy has turned and your company has rebounded.  I encourage you to read the article below and take steps to insure that your employees don’t feel the need to take such actions.  Should you need guidance regarding a potential downsizing, please feel free to contact our firm, Strategic Growth Concepts, at info@strategicgrowthconcepts.com.


Freedom For Kidnapped 3M Boss

Vidya Ram , 03.26.09, Forbes

But French ire over layoffs and the economy is growing.

Workers at a factory in the French town of Pithiviers have finally released Luc Rousselet, a French manager for American firm 3M who was held in his office for more than a day after being locked in by employees who were angry about layoffs.

Public anger over job cuts and bonuses has been more widespread in France than in the U.S. and Britain, where public ire is largely aimed at high ranking figures in the financial services sector. The home of former Royal Bank of Scotland (nyse: RBSnews people ) boss Fred Goodwin was attacked on Wednesday, while in the U.S. senior managers at American Insurance Group (nyse: AIGnews people ) have been warned to take extra care. (See “Calling All Banker Bodyguards.”)SNEnews people ) French operations was held hostage over night by angry employees, protesting the terms of their severance package. (See “Want A Better Payoff? Kidnap Your Boss.”) In February workers at a factory of tire maker Michelin (other-otc: MGDDFnews people ) held two managers hostage overnight.

Last week, millions demonstrated across France against the government’s handling of the economy, and demanding salary caps at companies that are laying-off people. Less than two weeks ago, the head of Sony’s (nyse:

“In France there is an established culture of public and political protest that Britain the U.S. don’t really have,” said David Lea of Control Risk Group. “The preservation of jobs is considered a major goal, so companies, particularly those that are engaging in pre-emptive layoffs, are facing problems.”

So far, none of the situations seem to have taken a violent turn. Pictures taken through windows of the building show a disgruntled looking Rousselet eating dinner, with a bottle of sparkling water. “He is in good spirits and in good shape,” 3M (nyse: MMMnews people ) had said in a statement on Thursday. “3M is now prepared to restart the negotiation process with the union with the assistance of a mediator and local government officials.”

The workers locked Rousselet, a supply chain director, in his office after discussions over how to handle the 110 layoffs at the 225 person factory. 3M, which produces everything from post-it notes to dog collars has announced job cuts across its operations globally.

The author, Linda Daichendt, is Founder, CEO and Managing Consultant at Strategic Growth Concepts, a consulting firm specializing in start-up, small and mid-sized businesses. She is a recognized small business expert with 20+ years experience in providing Marketing, Operations, HR, and Strategic planning services to start-up, small and mid-sized businesses. Linda can be contacted at linda@strategicgrowthconcepts.com and the company website can be viewed at www.strategicgrowthconcepts.com.