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Crain's New York Business

Realism and Tact East Layoffs

By Tina Traster

August 10, 2008 - After Sept. 11, work dried up for Lúgh Studio Inc., a graphic arts firm that handles several financial clients. But Peter Byrnes, president of the Brooklyn company, didn't have the heart to lay off employees.

That sentimentality nearly cost him his business.

"By September 2002, we were in the hole for $250,000," says Mr. Byrnes. "It got to the point where I had to lay off everyone, give away 50% of my paycheck after taxes to repay debt, and rebuild the company from scratch."

If the economy continues to sour, Mr. Byrnes will act more swiftly.

Laying off employees is one of the hardest things a business owner may have to do. At times, however, layoffs are necessary to ensure the long-term viability of a company. No matter what, the decision will have financial and emotional consequences, both for those who are losing their jobs and for those remaining at the company. Layoffs will always be difficult—but there are ways to handle them effectively.

Be prepared.

Consult with an attorney to make sure that the company is in compliance with employment laws. Prepare official notification letters, severance package details and explanations of benefits. Review collective-bargaining and employment agreements to ensure that the company complies with layoff procedures and employee notification requirements outlined in union contracts or employee agreements.

Make arrangements ahead of time for job placement services. This will communicate the fact that the company will do what it can to care for its employees.

Stay in compliance.

The worker adjustment and Retraining Notification Act says that employees must receive 60 days' notice before they are laid off, or they may be entitled to 60 days' pay. The rule applies to firms with more than 100 employees that are laying off a significant number. For details, visit www.doleta.gov/layoff/warn.cfm.

Decide who will be laid off.

Establish a list of skills most critical to increasing productivity. Evaluate workers based on those criteria, rather than on performance or seniority, so that cutbacks are in line with restructuring goals. This is not the time to focus on performance.

Steer clear of the courts.

Treat people fairly, and do all you can to ensure that they perceive your treatment as fair. Avoid using a lottery system or targeting employees based on age, sex, race or any other demographic criteria that could appear to be discriminatory.

Get legal or accounting advice about Cobra obligations and about whether the company will pay benefits, such as accumulated vacation time, in a lump sum or in staggered payments. If you want a laid-off employee to depart at once, provide two weeks' pay in lieu of service.

Deliver the news personally.

Do not delegate layoffs to an underling, and never use e-mail to deliver the bad news. It is the company owner's responsibility to inform employees directly and in person.

Call a meeting with the employee, and include his or her manager and/or an HR staffer. Use a scripted notification process, and don't engage in small talk. Thank the employee for his time and service, and then explain why the layoff is a financial necessity. Tell him that the decision does not reflect on his work; avoid discussions of why one person was retained rather than another. Convey your sincere regrets.

Keep the meeting under 15 minutes. Then hand the employee a layoff letter that's been vetted by an attorney, including the reason that layoffs are needed. Tell the employee that her work was valued, highlight the useful or exceptional work that she performed, and wish her well.

Then usher the employee to HR or to an outplacement service.

Sweeten the departure.

Offer a generous severance package and the services of a professional outplacement firm. Outplacement support—which can last from one month to a year, depending upon an employee's position—must kick in immediately after termination. It should assist people in evaluating skill sets, writing resumes, accessing job resources, networking, and developing interview strategies.

Erik Dochtermann, chief executive of Manhattan ad agency KD&E, felt terrible about laying off an employee who had moved from San Francisco to join his firm—and had signed a two-year contract. But three months into her tenure, the economy was bad, business was way off and the new hire could not meet her goals.

Rather than risk an ugly verbal confrontation, Mr. Dochtermann offered the employee a chance to suggest in writing an appropriate way to sever their relationship.

"It turned out she agreed that the situation was hopeless, and that the economy was not going to improve in time for her to meet her targets," says Mr. Dochtermann. "She agreed to let me out of the contract, and I agreed to pay for her relocation back to San Francisco."

Cope with the morning after.

Be prepared to handle requests for referrals and job verifications. Tell terminated workers whom their prospective employees should contact, and offer post-employment letters verifying their titles, dates of employment and salaries. Agree upon what the company will say during reference-check calls.

Soothe the survivors

Layoffs generate aftershocks among remaining employees. Don't become elusive. This is the time to show leadership.

Tell employees why the layoffs were needed. Encourage them to ask questions and express their fears, and convey your empathy. Give them time to grieve. Let them know whether they will be required to take on extra work or responsibilities, and assure them that they will be trained.

To prevent a downward spiral in productivity and loyalty, reassure them that their jobs are safe—if they are. If more layoffs are possible, be honest about this. But bear in mind that it's best to complete layoffs in one fell swoop rather than implementing them in waves, which creates fear and kills morale.


SEVERANCE PACKAGES vary a lot by industry. Two weeks' pay is the minimum. Six to eight weeks' pay is more generous.

If a worker has a contract, you may be able to negotiate its end by offering a cash payment, a relocation package or assistance in finding a new job.

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