SOP Friday: Layoffs and Downsizing

By Karl_Palachuk
In Channel
November 22, 2013
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Karl Palachuk / Karl Palachuk

One of the hardest lessons you’ll ever learn is how to reduce the size of your workforce. Generally speaking, there are three reasons for “letting someone go” from your business:
– You are firing them
– Your business is shrinking (and therefore your workload)
– Technology has reduced the need for manpower

Each of these in turn has sub-categories. You might fire someone for being incompetent, for stealing, for showing up drunk, or for many other reasons. Your business might be shrinking because you lost a key client, sales are down generally, etc. And with regard to technology, I mean more than automation. This also includes outsourcing.

Whether we like it or not, laying off and downsizing are part of owning a business and having employees. And the more employees you have, the more you’ll experience letting people go. It is a hard thing to do. And (at least for me) it’s a hard thing to get used to doing.

In an earlier post I wrote about The Firing Process. In this post I will address the other two reasons for downsizing: Your business is shrinking or your need for employees is shrinking. In either case, you have the hard job of telling someone that they can’t work for you anymore.

I recommend that you adopt a few simple policies to make this process as smooth as possible for everyone involved.

First, find out about the laws in your state. Unfortunately, we live in a time where you can stumble into illegal activities or lawsuits if you don’t handle things correctly. If you do not have an official Human Relations officer, you should get some outside advice. That might be an H.R. specialist or an attorney who specializes in employment law. My preference is an attorney.

One example of stumbling into law is the final paycheck. In some states it is required that you give the employee a final paycheck upon departure. That way, they don’t leave with you owing them money. I think this is a good idea even if not required. We pay the employee through the end of the day.

If there are outstanding bonuses, sales commissions, etc. you may not be required to pay them at this time. But it’s a good idea if you do. Make the break as clean as you can. It also gives them a little extra money at a time when they obviously need it.

Another example is “at will” employment. Find out if your state has “at will” employment. That means that employees can be dismissed for any reason or no reason, and with no advanced warning. The reason I like to work with an attorney is that you can accidentally end up negating this status if you DO give a reason. If you give a reason when you don’t need to, you might open the door to litigation.

I always have letters of dismissal reviewed by my attorney. After awhile I feel pretty safe, but I still do it. I’m not an attorney, so I hire someone else to play that role.

Second, be professional and don’t play games. No one likes to be laid off and no one likes to lay people off. So don’t do stuff like wait until 5PM on Friday or take someone to a public mall to give them the bad news. That kind of thing happens in the movies to demonstrate how horrible the boss is.

I think it is much more humane to give them the news early in the day so they can run over to the unemployment office and get their paperwork started. And Monday is much better than Friday. That way they can spend the week looking for a job instead of spending the weekend seething and sulking. Hold a quick meeting with the person. Give them a letter that simply says that you no longer need their services (this is the one approved by the attorney two paragraphs ago), and let them say goodbye.

A Few Things to Consider

As a general rule, it is best to have the laid off employee depart as soon as possible. Even finishing out the day can cause disruption in your business. And hanging around for a few weeks can cause all kinds of minor problems.

You can remain on very friendly terms with the people you have let go. Over the years our company has grown and shrunk more than once. But we still have a good “family” of former employees to get together socially.

The final thing to consider is References or Referrals. You should set a policy now about whether you will give references and under what circumstances. Remember that the safest route is always to treat all employees the same, to the extent that’s possible. Again, talk to your attorney.

You might have a policy that you DO give references as long as the employee has had good job reviews at their most recent quarterly reviews. Or you might say that you simple DO NOT give references.

Since we are talking about layoffs that are not firings for cause, support and personal empathy are completely appropriate. In most cases, for small business, we are laying off people who are our friends.

Related SOPs

There are two things you should do as part of the employee on-boarding process that you’ll revisit at this time. One is to have the employee sign an employment agreement. That agreement should state that employment is on an “at will” basis. You should give the employee a copy of the agreement they signed when they were hired.

The other item to give the employee is a copy of the non-disclosure agreement they signed when they were hired. And whether you have concerns or not, you should take a moment to remind them that your processes, procedures, and sensitive information are part of the agreement, as are the processes, procedures, and sensitive information of your clients.

Laying people off is never fun. But sometimes your business needs to shrink in order to survive. Policies like this are not enjoyable to contemplate, but it’s best to think about them before you need them.

Comments welcome.

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About this Series

SOP Friday – or Standard Operating System Friday – is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete “table of contents” for SOP Friday at SmallBizThoughts.com.

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Next week’s topic: Financial Goals – More than Revenue Targets

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