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Effectively Conducting Mass Layoffs: Legal Obligations and Best Practices for Employers

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published February 15, 2023

By Author - LawCrossing

Effectively Conducting Mass Layoffs: Legal Obligations and Best Practices for Employers

Legal Obligations and Best Practices for Employers Conducting Mass Layoffs
 
In May 2022, a European tech company's operations manager was tasked with cutting 140 employees without clear instructions from the top. Other tech companies were also reducing staff during that month. The operations manager developed a simple metric to determine who to lay off, rating employees as three (rockstars), two (performing well but not essential), or one (underperforming). This method can be legally questionable without data-driven criteria. With more layoffs anticipated in 2023, Sifted consulted with experts on how to handle them effectively.
 
Determining the Minimum Viable Organization for Cost-Saving Targets
 
When companies conduct layoffs, they usually have a "cost-saving target" in mind, according to Learco Finck, the co-founder, and CEO of talent firm The Big Search, which conducted layoffs itself in the previous year. The companies calculate the amount required to reduce costs and increase their runway by a certain number of months and use that amount to determine the number of staff to be laid off. In the best-case scenario, they start by removing agency workers and contractors and then move on to full-time employees. They assess which departments and people are essential to business function and decide what the "minimum viable organization" would look like to continue operating while achieving the cost-saving target.
 
Key Principles and Consultation Requirements for Mass Layoffs in Europe
United States
 
In Europe, employers must follow certain key principles when conducting mass layoffs, such as pre-layoff consultations. Employers are legally obligated to inform employees about their risk of redundancy and provide a formal letter explaining the company's proposed restructuring and how it will impact them. Employees at risk of redundancy should be invited to a formal consultation meeting where they can propose alternatives to being laid off, such as taking on additional responsibilities, working part-time, or becoming a consultant. Roger James, a partner at Ogletree Deakins, emphasizes the importance of following these legal requirements.
 
When proposing mass layoffs, European employers must consider employee suggestions but are not required to agree to them. Redundancies should be a last resort, and employers should explore all alternatives first. If over 20 redundancies are proposed, employers must inform the relevant public authority and follow additional rules. Employees are entitled to notice pay and, in some cases, redundancy pay. Employers may offer generous settlement agreements to quickly dismiss employees, avoiding consultation requirements. The notice period and entitlements vary depending on the country and the employee's length of service and age.
 
Consideration of Alternatives and Transparency in Layoff Communication
 
Employers must consider alternatives proposed by employees before confirming redundancy. Transparency is crucial in communicating layoffs humanely and protecting the employer's reputation. Being open about financial positions and providing factual evidence is important. Training department heads to communicate layoff decisions, severance packages, and future concerns is recommended. Initiating staff cuts in person can make the process more "personal" and kind.
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