How to Layoff Employees Ethically

Everyone involved in the layoff process experiences stress. It doesn't matter which side of the situation you are on. Whether it is a team affected by a reduction in workforce or an HR manager responsible for carrying out the task. No one wants layoffs.

Unfortunately, laying-off employees is often an unavoidable solution during economic hardships. There are numerous reasons why layoffs may be necessary and ranging from miscalculations to changes in the market. However, while layoffs are sometimes unavoidable, going about layoffs in an empathetic and ethical way is critical.

Whether the employee(s) are relatively new to your company, or someone who has been there since the beginning, layoffs can be done with respect and compassion. If faced with the possibility of layoffs, it's crucial to plan and make sure you are taking care of everyone involved.

The First Step of a Potential Layoff is Preparing Everyone Involved

No business owner wakes up one morning and realizes they need to lay off employees that day. Often they have weeks or even months of financial models and scenarios at their disposal to make accurate predictions. If your company is facing economic adversity, it is essential to be transparent with partners and employees.

Once you identify that layoffs may be coming, being transparent with the company is critical. Often business owners feel the need to protect their employees by keeping troubling information under lock and key. However, you hired these employees to help accomplish your dream and run your business. Keeping them in the dark about the company's situation will not only blindside them. It will also prevent you from using your best assets to your advantage. You trusted your employees with your company, and this doesn't change when adversity strikes.

Being honest with your employees ahead of time allows for two things to happen. You're all able to work together to come up with a solution, and everyone is prepped when the day comes if layoffs occur. For most, the worst part of getting laid off, apart from the financial burden, is the lack of time to prepare for knowing they could have done something to help if they would have known.

Deciding What You Can Afford

Deciding who stays and who goes is either an easy decision or a difficult one depending on the company. If you have over-hired and employees do not have enough work to do, the decision on who to let go is clear.

However, if there is a lot of work to do and the decisions are financial, the choice isn't as straightforward. When money is running low, you have to make some difficult decisions about what is necessary to keep the business afloat and what isn't.

Situations from company to company will never be identical, however decreasing marketing, stopping new projects, and consolidating teams are usually the first steps.

The Hardest Part

It's time to tell the employee(s) that the time has come to downsize. Hopefully, you have been transparent throughout the process, and employees have prepped that this was a possibility. Subsequently, getting straight to the point is extremely important. Beating around the bush and allowing for negotiation is a recipe for an emotional and heated conversation.

Start the conversation off by explaining that they are being let go. Explain why the decision was made and describe the resources provided to them. Be clear, concise, and provide documentation so they don't feel like they have to remember everything you say.

At this moment, you may want to give the individual the time to process and grasp the situation. Do your best to answer any questions that they have while remaining firm with your decision. Some individuals may want to leave immediately, and others may want to vent. While it is vital to help the employee feel heard, letting the meeting go on for too long will be unproductive.

The Layoff

After explaining everything to the employee and answering questions, you may ask for their ID badge, keys, or uniform. Depending on your relationship with the employee, you may also offer a letter of recommendation or be a reference.

Historically, due to finances and payroll, layoffs happen on Fridays so the company could present the employee with their final paycheck. However, you should have a meeting when you feel it is most appropriate for the company and the employee.

The Severance Agreement

While not required by law, a severance agreement can work in the favor of both the employer and the employee. Often paired with a release of all claims, the document protects the company from future lawsuits and gives the employee something to fall back on.

Severance pay usually includes a certain amount of money based on the duration the employee was at the company. It can also involve a continuation of health insurance, job assistance, and more. While an employee may try to negotiate the terms of a severance package, offering a fair package and being firm will cut any negotiation short. Legally, an employee has 21 days to sign a severance agreement.

Final Thoughts

Laying off employees is something no one wants to do. It's important to make the transition as smooth as possible for both your company and the employee. An ethical layoff can help protect your company's reputation and allow you to re-hire that employee when the company is more financially secure.

It's essential to plan ahead of time, be prepared when the time comes, and do everything you can to prepare and take care of your employees.

Layoffs are an emotional time for everyone, but it does not mean you have failed. The economy can be unpredictable, and your ultimate goal is to protect your company and its assets. Times of economic struggle can often help companies be leaner and more efficient, helping them accelerate growth when finances are more stable.