4 Common Mistakes Leaders Make When Laying Off Employees

Let’s be clear…..layoffs are awful. There is no way around this truth. For most of us, deciding to layoff employees is one of the most disturbing decisions we’ll ever make regarding our businesses. If your stomach doesn’t churn at the mere thought of laying off employees, you’re doing it wrong. These events are emotionally charged, ripe with legal risk, require extensive logistical planning and crystal-clear communication. Unfortunately, many leaders fail to realize the complexity of layoffs until they’re in the thick of it. Here are four of the most common mistakes companies make when laying off employees.

#1: Using layoffs to manage performance

Less than 24 hours after Arizona’s shelter-in-place order was issued someone said to me, “we’ll probably use this time to get rid of some of our low performers”. It’s an unfortunately common sentiment because layoffs are not a performance management tool. Performance management is a process of aligning individual work and behaviors to standards and demands of the business through positive (ie, bonuses, promotions, recognition) and negative (ie, disciplinary action, involuntary termination) reinforcement. Layoffs however are born from business necessity, often financial instability or restructuring. While the distinction may seem subtle, it isn’t. Because employees laid off by a company are typically eligible for rehire (or promised to be “recalled”) and employees terminated for poor performance are not, how a company hires following either type of termination can differ drastically. Companies choosing not to rehire qualified laid off employees into open positions, open themselves up to allegations of wrongful termination and/or discrimination. Aside from the legal risk, retained employees can find the mixed message of layoffs and performance terminations conflicting. Most people associate layoffs with companies in financial jeopardy – triggering unwanted attrition (specifically, high-performers). Although performance terminations can be difficult for new and inexperienced managers, when done consistently and fairly they can have a positive impact on an organization. Most employees appreciate having control and being empowered to determine their success, making a case for performance management over unnecessary layoffs.

#2: Underestimating the financial impact

Years ago I worked with a company that conducted two rounds of layoffs in one year. When I learned about the plan for round two, I was shocked and asked for a meeting to understand why. We were approaching year-end and like many leaders, our CEO was preparing for a shareholder meeting, wanting to show some cost saving measures to gain (or maintain) shareholder confidence. Our business cycle depended heavily on our Q1 revenue. Based on our layoff earlier in the year, it took us more than three months to return to our projected revenues. The climb out of a December layoff, not to mention over the holidays, would jeopardize our most profitable (and important) Q1 revenue. For anyone familiar with this cycle, it’s the layoff trap. We’d layoff to cut costs, but inadvertently cut revenues, making the cost savings irrelevant, making a case of more layoffs, and so on. But then the CEO responded, “I just want to be who we want to be in the new year” meaning we would move forward with the December layoffs. My concerns around December layoffs hurting our Q1 proved to be wrong. We did not take three months to recover. We took more than six. Layoffs can be a strategic cost-savings method. Neglecting to recognize the toll layoffs have on employee morale, consumer confidence and ultimately revenue will lead to disaster.

#3: Failing to assess adverse impact

Are your layoff practices discriminatory? It’s best to let the numbers do the talking. Adverse impact refers to apparently neutral employment practices that have discriminating effects. In recent years, workplaces have recognized the importance of recognizing and assessing unconscious bias. While bias is often unintentional, the impact is nonetheless harmful. Because the only way to prevent bias from jeopardizing our workplaces, ethically or legally, is by forcing an objective look at our decisions and trends, it’s important to assess layoff implications as objectively as possible. HR must ask the hard questions – are layoffs disproportionately jeopardizing certain groups of employees? This is not an easy question to ask. When data suggests certain groups are being laid off more than others (particularly when it’s an underrepresented group or protected class), it’s a particularly difficult but vital discussion. Layoffs rarely come about during happy and financially stable times for a company. The best thing we can do for our business in these times is make sure we have the best available information to make the best decisions. Whether intentional or not, a company that engages in discriminatory practices, puts itself at risk. When we, as HR leaders, fail to take the precautions to ensure our business practices are fair and ethical, we hurt both the companies and employees that depend on us.

#4: Poor internal communication

Typically layoffs are in an effort to keep a business afloat or improve the company’s financial standing. Unfortunately though, we forget our company’s success is determined by those who remain with the business. While we may think employees are grateful to still have jobs and should work harder than ever – this is not what happens. Employees may feel an initial wave of relief at having evaded layoffs, but it’s a feeling quickly replaced by guilt and anxiety. Many of today’s employees look to work as a source of friendship. Working on projects together as we do at work, naturally creates feelings of belonging and acceptance. So, when the jobs of some employees are sacrificed and others spared, remaining employees often experience survivor’s guilt. And, because we associate layoffs with financial instability, employees are left feeling powerless and anxious, fearing they will be the next to be laid off and jobless. Communicating the reasoning and strategy around layoffs with remaining employees is critical to a company’s success. While the legal risk may reside with laid off employees, risk of the business failing resides with remaining employees. Even the most litigious and financially sound layoffs will be unsuccessful when leaders fail to communicate with retained employees. It is not a time to rely on email. It is not a time to let employees learn about layoffs in press releases. Silence translates to heartlessness. These communications resonate most when leaders relay a compassionate, confident message visibly (in person or via video), helping empower employees by sharing strategic steps to ensure company success.

The truth is, even when you do everything right, layoffs are just less awful. There is no way take the sting out of “today is your last day” or tactic that protects a company from allegations of wrongful discharge. What we can do is recognize the responsibility that comes with leadership – employees depend on us to provide for them and their families. We ask them to take time and energy away from their friends and family to help us deliver on our promises to customers. Layoffs should not be executed haphazardly. While they may be necessary, layoffs should be used with extreme caution as a last resort. When leaders treat work like it isn’t important, so will employees.

About the Author

Teresa Marzolph is an experienced HR professional, helping clients achieve exceptional business results by optimizing and aligning high-performing employee experiences. Bringing more than 15 years of human resource and management experience to Fahrenheit Advisors, Teresa has worked in a variety of industries including healthcare, broadcasting, tech, and skilled trades. Passionate about the importance mid-market companies have on our communities, Teresa is committed to mid-size employers. Leveraging her expertise in employee relations and performance management, she helps them attract and retain valuable employees, critical to their operational and financial success