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Journal of Service Science and Management, 2020, 13, 209-228
https://www.scirp.org/journal/jssm
ISSN Online: 1940-9907
ISSN Print: 1940-9893
DOI:
10.4236/jssm.2020.132014 Mar. 31, 2020 209 Journal of Service Science
and Management
Layoffs and Downsizing Implications for the
Leadership Role of Human Resources
Bahaudin G. Mujtaba1* , Tipakorn Senathip2
1Nova Southeastern University, Fort Lauderdale, FL, USA
2Ramkhamhaeng University, Bangkok, Thailand
Abstract
Downsizing or laying off employees is usually the strategically planned eli-
mination of large numbers of personnel or workforce to enhance organiza-
tional effectiveness and economic outlook. Downsizing has some temporary
or immediate advantages such as boosting profits, avoidin
g bankruptcy,
creating new relationships, re-
organization, and getting rid of “deadwood” or
disengaged employees. The disadvantages of layoffs or downsizing in an or-
ganization can include reduced skilled workers and low morale, as the em-
ployees experience mixed emotions, dismay, stress, guilt, or even envy. In ad-
dition, layoffs can reduce existing employees’ satisfaction and commitment to
the organization, which can result into lower performance. Human resources
(HR) professionals and managers must effectiv
ely manage the impact of
layoffs on people. The immediate financial hardship of a layoff could affect
both the physical and psychological well-
being of an individual worker, while
also causing bankruptcy, depression, and more severe illnesses. Layoffs coul
d
result into long-
term impacts since unemployment can last up to six months
or longer. There might also be experiences of hopelessness when laid off em-
ployees are having difficulty finding new employment. This article provides
an overview of layoffs as we
ll as their impact on employees. In addition, the
paper explains the role of HR personnel throughout layoffs, which are to en-
sure that the organization is able to enhance its overall effectiveness. In their
role as project managers who are leading the layo
ff process, human resources
professionals must focus on the legal, ethical, and socially responsible imple-
mentation of transitioning people and the organizational culture. Further-
more, managers can introduce new technologies or robots to reduce the need
fo
r large numbers of employees in the future, and they might consider
changing location of the business or organization to be closer to the relevant
material resources while better serving customers.
How to cite this paper:
Mujtaba,
B. G., &
Senathip
, T. (2020). Layoffs and Downsiz
ing
Implications for the Leadership Role of H
u-
man Resources
.
Journal of Service
Science
and Manage
ment, 13,
209-228.
https://doi.org/10.4236/jssm.2020.132014
Received:
January 18, 2020
Accepted:
March 28, 2020
Published:
March 31, 2020
Copyright © 20
20 by author(s) and
Scientific
Research Publishing Inc.
This work
is licensed under the Creative
Commons Attribution International
License (CC BY
4.0).
http://creativecommons.org/licenses/by/4.0/
Open Access
B. G. Mujtaba, T. Senathip
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and Management
Keywords
Layoffs, Reduction-In-Force, Downsizing, Role of HR, Rightsizing, Ethical
Implications
1. Introduction
A layoff, or cessation of workers employment, is at times a temporary suspen-
sion but often a permanent termination of employees from their jobs in the or-
ganization. Layoffs and downsizing decisions are not necessarily caused by any
specific fault of the employees, but are usually a consequence of decreasing sales
or customers, cash, and/or material resources within the organization. Many
times, companies decide to lay off some of their non-essential personnel during
economic slowdowns to avoid bankruptcy. Mergers also can cause layoffs, as firms
try to convert their organizational cultures into lean operations. A layoff can be a
consequence of mismanagement or faulty administration that was not able to keep
the company afloat. Layoffs can be a consequence of declining industries (such as
mining, steel, railway, newspaper, etc.). Cutting costs through outsourcing has in
the past been a factor that caused companies to lay off large numbers of em-
ployees. Plain downsizing, another form of organizational restructuring, also
causes lay-offs. Layoffs are one of the mechanisms companies use as short-term
solutions to lower labor costs (Telford, 2018; Travaglione & Cross, 2006; Petzall,
Parker, & Stoeberl, 2000; Jordan & Zitek, 2012; Kokemuller, 2017).
The term “layoff” is synonymous with and often associated with concepts
such as reduction-in-force (RIF), downsizing, rightsizing, termination, firing,
reengineering, restructuring, and voluntary separation options (VSO) when a
large number of workers’ employment is being discontinued with an organiza-
tion. Organizational layoffs are designed to improve productivity, economic
outlook, and overall competitiveness, and they are often perceived as the only
way to save companies from bankruptcy (Neto, 2018). When layoffs are an-
nounced, it can be a huge disappointment to those who are immediately im-
pacted by it. For example, right after the Thanksgiving Holiday (November 26,
2018), General Motors (GM) announced that it would close five manufacturing
facilities and lay off around 15,000 workers. According to the company, these
closings and layoffs will help them save about $6 billion each year as they shrink
their management ranks while terminating the employment of thousands of
American and Canadian production workers (Lynch & Telfor, 2018). As can be
seen from Table 1, less than a decade ago, GM had announced the layoff of
around 47,000 employees in 2009 (Zillman, 2015). While such layoffs might be
necessary for survival and/or competiveness, it has a devastating impact on
working adults who have to provide for their family members.
While some workers today feel that immigration is a threat to their jobs, many
are ignoring the dangers of modern technology or automation, which has greatly
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Table 1. Major layoffs of the past few decades.
Company/Organization Layoff Year Number Downsized
Oil/Gas Industry (
global
) 2015-2016 350,000
IBM July 1993 60,000
Citigroup Nov. 2008 50,000
Sears Roebuck & Co. Jan. 1993 50,000
General Motors Feb.
2009
47,000
AT & T Jan. 1996 40,000
Ford Motor Co. Jan. 2002 35,000
Kmart Corp. Jan. 2003 35,000
Circuit City Stores Jan. 2009 34,000
Boeing Co. Sept. 2001 31,000
Bank of America Sept. 2011 30,000
Hewlett-Packard Sept. 2015 28,000
General Motors Dec.
2018
15,000
increased output and productivity in the developed economies. Trade among
countries is another variable as firms usually outsource jobs to cheaper markets in
terms of labor cost as well as for tax purposes. For example, AT & T has closed 44
call centers in the last decade and the jobs went offshore where workers are often
paid around $2 per hour, compared to over $10 in the United States (Sainato,
2018). This outsourcing of jobs can create poor working conditions for the
emerging market countries without adequate labor protections. In the past, we
have seen outsourced jobs sometimes completed by young teenagers and children
that were working in factories with sub-standard conditions. Similarly, outsourc-
ing jobs to lower-cost labor markets always makes existing employees wonder
about when their jobs will be going to new markets or automated by technology.
Regardless of the cause, in today’s workplace layoffs have become common-
place as organizations actively seek ways in which to reduce expenses and op-
timize labor costs. Due to economic challenges, layoffs are often viewed as an in-
itial course of action within organizations, the rationale being to improve imme-
diate company profitability and reduce costs. While some executives and man-
agers might be tempted to jump on the bandwagon of quick cost reductions
through layoffs, Cunningham (2016), in the article entitled “
After
350,000
Layoffs Oil Companies Now Face Worker Shortages
,” emphasizes that the
economy can easily turn around; therefore, decision-makers should think twice
before letting experienced human resources leave the organization. Slav (2016)
advises that the oil and gas industry’s global layoffs of 350,000 workers in 2016
was heavily influenced by the temporary ups and downs of prices and produc-
tion (supply and demand); consequently, laying off too many people too quickly
can put firms in an awkward position of having to rehire workers, if they are not
patient, careful and strategic in their decision-making. A sample of layoffs in the
oil and gas industry during early 2016 is shown in Figure 1.
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Figure 1. Layoffs in the oil industry in early 2016 (Slav, 2016).
Laying off employees, whether letting go of a single employee or conducting a
group layoff, can be one of the most emotionally difficult tasks for management
and human resources (Mujtaba, Ping, & Jieqiong, 2013; Sarwar, Khan, & Mujta-
ba, 2018). Given the associated emotional and financial strain a layoff can have
on the employee and his/her family, it is vital that companies weigh the pros and
cons of mandatory layoffs to ease emotional/financial pains and to avoid poten-
tial legal disputes.
While
voluntary separation options
(VSOs) do provide incentives for a re-
quired number of workers to leave the organization so that the firm can meet its
fiscal budget requirements, layoffs do not provide options and are usually im-
posed on workers without any flexibility of taking a reduced salary or an ex-
tended vacation. It is important for managers and employees to distinguish be-
tween
firing
and
laying off
employees.
Firing
refers to employee termination
based on any valid or rational economic reason. Unfairly firing a person from a
job often makes workers feel angry, confused, and/or lost and may lead into de-
pression because of feeling helpless over what to do next in life (Bennett &
Moehring, 2015). However,
laying off
refers to employee termination based on
company economics, to avoid bankruptcy, and/or for overall competitiveness.
The main purpose of layoffs is maintaining profitability of the company through
reduction of the workforce in the organization (George, 2014). During difficult
economic times in the company, laying off employees can be a cost-effective
method of maintaining productivity while at the same time increasing profits
(Schmitt, Borzillo, & Probst, 2012).
On a periodic basis, we learn about a new company laying off a significant
portion of its labor force in order to cut cost, to avoid bankruptcy, to boost prof-
its, and/or to reinvent its business model. These layoff decisions tend to have se-
verely damaging effects on the business needs of an organization along with
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negative consequences for the lives of those that are laid off, downsized, termi-
nated, demoted, and/or moved into a lateral position in a remote destination.
This unforgiving reality of layoffs further amplifies the need for companies to
fully research and plans all options prior to implementing a downsizing policy of
reduction in force. Managers and HR professionals must consider all the positive
and negative aspects that will come from implementing any layoff plans. Proper
research regarding the pros and cons will demonstrate to shareholders that the
company is taking the necessary precautions to ensure that it will remain suc-
cessful in the end. Even with the negative publicity surrounding a reduction in
force or downsizing decision, companies continue to utilize these measures as a
strategic step forward.
Although making the decision to dismiss an employee is rarely easy, organiza-
tional leaders should carefully weigh the pros and cons of reducing the work-
force. Companies should first consider all available alternatives to layoffs such as
extended vacations, reduced salaries, furloughs, putting a freeze on all “hiring
and promotion,” and/or reducing authorized overtime. Given the various risks,
organizations should carefully consider whether they need to conduct layoffs,
and if so, can they implement such a downsizing decision in a legal, ethical, and
socially responsible manner.
2. Rationale for Layoffs
Layoffs seem to be more and more common as an initial step for avoiding
bankruptcy, or to boost profits. Therefore, layoffs are an unfortunate reality of
the modern workplace locally, nationally and internationally. According to Noe,
Hollenbeck, Gerhart and Wright (2018: p. 197), while people tend to believe that
downsizing is something that a company implements in difficult times of reces-
sion or when facing bouts or stretches of poor performance, but in fact, “many
companies that are doing quite well still downsize for strategic reasons.” Organ-
izations choose the option of layoffs, reduction in force, or downsizing for sever-
al reasons: “many organizations are looking to reduce costs, and because labor
costs represent a big part of a company’s total costs, this is an attractive place to
start” (Noe et al., 2018: p. 197). In order to remain competitive in the market,
companies look to cut costs in any area of their business that they can, including
its human resources. Depending upon the quantity and quality of the company’s
workforce, reducing labor costs is one of those areas where firms can signifi-
cantly lower its expenses quickly. This reduction in force might only give the
firm a temporary competitive advantage to avoid bankruptcy as with fewer labor
expenses a company can sell its products at a lower price than competitors; the-
reby giving it the opportunity to increase market share.
As technology continues to develop and provide cost effective options, global
leaders and managers will continue to explore innovations and diverse organiza-
tional leadership structures in order to gain a competitive advantage (Mujtaba,
2019). The introduction of new technologies can reduce the need for a large
number of employees. As we can see from historical data of the past four dec-
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ades, technological advancements have negatively affected manufacturing and
industrial workers by providing fast automation at reduced cost for repetitive
tasks. In most cases, the rationale for deciding to downsize is straightforward:
by reducing costs, executives hope to improve firm profitability (Ramlall,
Al-Sabaan, & Magbool, 2014). Some of the pros (rationale/reasons) and cons
(possible externalities or unintended side effects) of layoffs are in Table 2.
Another reason why firms are laying off workers is to shift manufacturing or
other business needs to an overseas location where products can be completed
with cheaper resources. Consequently, jobs are moving from one country to
another that is closer to the resources needed at cheaper rates, resulting in
downsizing in the nation that exports the jobs. While these practices may have
positive short-term effect on reducing labor costs, they can, at least temporarily,
compromise efficiency in customer service due to cultural differences, and in
speedy manufacturing since laws vary internationally.
Ultimately, we can summarize the benefits or advantages of a layoff as follows:
Enables human resources professionals and managers to ensure that the
company has the best employees on its team.
Layoffs allow the company to
purge itself of those disengaged or “dead wood” employees that are not mak-
ing a meaningful contribution. Accordingly, companies have the opportunity
to closely analyze the performance of their employees and determine which
workers should stay (Reddy, 2018).
Allows the company to get rid of redundant jobs.
Because organizations are
being asked to work leaner and more efficiently while developing growth and
innovation, layoffs can serve as a strategy to ensure that companies are aware
of the critical responsibilities for each position. This will give companies an
opportunity to perform a proper analysis and job design so that there is no
unnecessary duplications or waste (David, 2011).
Table 2. Pros and cons of layoffs.
Pros of Layoffs (Reasons) Cons of Layoffs (Externalities)
Increasing profits, economic outlook,
and overall company competitiveness.
Cutting costs by reducing employee
benefits and liability.
Laying off high paid employees
and replacing them with
lower paid employees.
Getting rid of disengaged workers
that cannot “pull their own weight”
(“dead wood”) and simply increase
workload for other employees.
Stockholders might receive a better
return on their investments.
Strategically planned layoffs lead to
smarter organizations when tasks
are properly revamped and
reassigned (Mannino, 2010).
Existing employees might be in a bind when
knowledgeable and skilled workers are laid off.
Consequently, customer service may suffer.
Current workers and laid off employees may
risk suffering from occupational,
psychological and other health issues
Limited employees within a
company/department may lead to more
unhappy workers, which in turn may
lower company revenue.
Laying off skilled workers may slow
down production damage quality
within the company.
Attitudes become negative because
employee thoughts of the possibility
of easily being replaced and just being
a number to the company.
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Provides an opportunity to change the culture of the organization
. Most ex-
ecutives agree that the organization’s culture drives workplace productivity,
creativity, profitability, firm value, and even growth rates. As such, layoffs
can give the company a chance to not only retain its best employees, but to
also develop an organizational culture that is comprised of the right attitudes,
values, and talent aimed at ensuring that the company is competitive.
Causes employees to become engaged and more productive
. As the company
begins to build a new culture for the future, leaders must encourage their
people to take ownership of their time to eliminate unnecessary work, and to
be creative in continuous improvement (Perlman, 2014).
Helps to reduce labor costs
. Most organizations are looking to reduce costs,
and because payroll is considered a liability on the balance sheet, having the right
employees can make the company leaner and more competitive (Reddy, 2018).
The costs or disadvantages of layoffs can include:
Causes remaining employees to have more responsibilities
. While specific
positions are eliminated during a downsizing, the quantity of work generally
remains consistent. Remaining employees are saddled with additional re-
sponsibilities and requirements that can affect the amount of work they are
expected to perform. If not managed properly, the added stress due to work-
load increases can erode any productivity boost (Acevedo, 2017).
Many
employees
may have a low morale because of fear of losing their jobs
.
Downsizing and layoffs introduce many different changes in an organization
including a change in how comfortable and secure employees feel about their
job within the organization (Heathfield, 2019). Accordingly, employees may
abandon the commitment to their employer because of loss of trust and fear
that their job is also at stake. Bruno (2008) explained that while the morale
and productivity of remaining employees will be affected if they feel that the
layoffs were handled badly, it may also end up limiting its revenue growth, as
well.
High
human
suffering
. Downsizing activities may financially and psycholog-
ically negatively affect employees or a significant percentage of a company’s
staff.
Loss of specialized skills and knowledge
. Laid off employees retain knowledge
that is often lost during downsizing. As such, laying off skilled workers can
also leave companies in a bind once the climate does get back to normal —
having to hire and retrain new workers can put a business at a competitive
disadvantage (Bruno, 2008).
Remaining employees might start exploring their options of working else-
where
. After a layoff, no employee totally relaxes; they are waiting for the
next round of downsizing or cost-cutting layoffs, which may include them
(Heathfield, 2019).
3. Impact of Layoffs on People
It is true that a reduction in force or downsizing can provide strategic benefits,
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but it can also create negative circumstances that will damage the overall effi-
ciency of the organization. For many companies where downsizing is not han-
dled properly regarding motivation and morale of the remaining staff, it can
disturb the commitment and productivity of its workforce, which in turn will
affect revenues and bottom-line profits. The reality is that downsizing leads to
the loss of experienced talent, and it disrupts the social networks needed to
promote creativity and flexibility within the organization’s culture. This can sig-
nificantly hamper the company from moving forward unless management is
able to immediately adjust to the deficiencies by redesigning jobs and imple-
menting new technology to offset the loss of talent.
Industries that rely on the timely manufacturing of their products and engage
in significant customer contact will be affected the most. Another negative effect
of a poorly planned downsizing is that many times companies let go of expe-
rienced and talented individuals that are critical to their success. Some managers
and firms let go of workers who are irreplaceable due to their accumulated and
specialized expertise. When this happens, the blame should fall on the managers,
executives, and human resources personnel who clearly do not understand the
skillsets and talents of their existing workforce. Prior to implementing a down-
sizing policy, managers need to specifically evaluate and outline which em-
ployees need to be laid off and which ones need to remain in order for the busi-
ness to continue operating as smoothly as possible. Unfortunately, many com-
panies seem to terminate employees indiscriminately or based on higher salary
levels, and as a result, face the consequences of severely weakening their skilled
talent pool, thereby damaging immediate sales, and eventually reducing profits.
Another aspect of layoffs that does not get much traction when it comes to
downsizing is in regards to those employees that remain with the organization.
The workers that are not let go may suffer from “survivor’s remorse” which can
severely damage their work ethic and overall company commitment, since the
“employees who survive the purges often become narrow minded, self-absorbed,
and risk averse” (Noe et al., 2018: p. 199). The shock of seeing so many talented
colleagues and friends lose their jobs can have a significant negative impact on
everyone’s motivation and overall attitude (Mujtaba, 2014). Once this type of
shock sinks into the culture of the organization, employee morale and job com-
mitment can plummet, when not managed effectively by managers and human
resources professionals.
Managers must be aware that layoffs and downsizing can have undesirable ef-
fects on those individuals that are terminated from the company as the lack of
pay, health benefits, and meaningful work has negative implications for finan-
cial, physical, and even psychological aspects of human beings, causing bank-
ruptcies, illnesses, and severe depression (Kurebwa, 2011; Datta, Guthrie, Basuil,
& Pandey, 2010). Some individuals will unfortunately have a difficult time ad-
justing to life after being let go, especially those who have been working with the
company for a long period of time. Generally, depression, anxiety, and lack of
confidence are common struggles for victims of layoffs. In some cases, these
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feelings of despair can become chronic mental health conditions that adults will
battle for the rest of their lives. The situation becomes even grimmer for those
adults that are the primary “breadwinners” (wage earners) for their families. It
can also be extremely challenging for those who live on a limited budget and
“paycheck to paycheck.” Downsizing can be an extremely difficult and unfortu-
nate circumstance that might seem insurmountable for some adults to over-
come. One study (Cappelli, Bassi, Katz, Hnoke, Isterman, & Useem, 1997) found
that stress-related illnesses were 50% higher in the companies that had down-
sized their workforce compared to those companies that had not undergone
downsizing. Furthermore, cases of employee burnout were more than twice as
high at companies that had downsized compared with those that had not. Since
work provides structure for one’s time, social connectedness, feelings of
self-worth, and the valued role of being a “breadwinner” in the family, losing
one’s job entails confronting the losses associated with such social and psycho-
logical benefits (Ramlal, Al-Sabaan, and Magbool, 2014). As such, involuntary
job loss or layoffs are stressful and can have a negative impact on mental health
of those who are impacted by it (Latack, Kinicki, & Prussia, 1995). A major fac-
tor that contributes to the failure of most organizations to achieve their corpo-
rate objectives after major layoffs or downsizing is that they do not adequately
and effectively address the “people factor” throughout the process as it relates to
the surviving employees (Appelbaum, Delage, Labib, & Gault, 1997).
Aside from the short-term effects and damages, downsizing can also affect an
individual’s long-term plans through the negative stereotypes that are attached
to it, especially for older workers who are often discriminated against in acquir-
ing new employment. Research has demonstrated that even when layoff victims
can survive the immediate challenges, in the long term, an extended stretch of
unemployment (lasting over six months) can negatively stigmatize the individu-
al, further reducing future opportunities (Noe et al., 2018: p. 197). For most
adults, it is difficult enough to get a job even without the stigma of being laid off
from one’s tenured employment. This difficulty increases exponentially for indi-
viduals that are let go as many are left wondering when their next opportunity
for employment will come as they go from interview to interview. In order to
offset prolonged periods of unemployment, most adults will search for any type
of work, including entry-level part-time positions and volunteer opportunities,
in order to boost their chances of steady employment. Unfortunately, a pro-
longed lack of success in being rehired may cause some individuals to give up
looking for employment, which further decreases their self-confidence, intrinsic
motivation, and self-worth.
Layoffs can take a heavy toll on both employees and their family members. A
newly laid-off employee can experience feelings of anger, irritability, vulnerabil-
ity, rejection, and helplessness. These negative emotions can also spread
amongst loved ones, creating long-term hardships for those who are terminated
as part of the rightsizing or downsizing policies. Even though there is no
clear-cut or linear step-by-step process in which a laid-off employee deals with
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the challenges of being let go, the emotional, social, financial, and physical im-
pacts are some of the hardships that these adults might experience (Kurebwa,
2011; Datta, Guthrie, Basuil, & Pandey, 2010; Mujtaba & McCartney, 2010):
Emotional impact:
We know that the workplace serves as a primary source
for forming social connections with other professionals in an industry. Fur-
thermore, work serves as a way of contributing to the society. After losing
one’s social connections and/or means of professional contribution, termi-
nated employees may experience feelings of anger, helplessness, and other
negative emotions as workers become uncertain of the future and their new
reality of unemployment.
Social impact:
Layoffs can have a devastating impact on an employee’s per-
sonal and professional relationships. If a laid-off employee’s main circle of
friends includes those who remain employed with the company, then it
might cause unwanted tension within his/her circle of former colleagues. Al-
so, the laid off employee’s spouse may wonder how he/she should comfort
the husband or wife. Additionally, if unemployment status lasts for a signifi-
cant period the employed partner may display signs of resentment and ques-
tion whether the laid off employee is working hard enough to find a new job.
Financial impact:
It is clear that expected layoffs will lead to financial burden
for many employees, both short-term and long-term. Sudden change in em-
ployment status can have a detrimental impact on the household as it may
lead to unwanted debt and physical/mental strain on one’s spouse. Addition-
ally, any new employment may not be comparable, especially if the worker
receives significantly reduced wages, causing further difficulties for strug-
gling workers to maintain the family’s overall quality of life.
Physical impact:
Losing employment can also lead to long-term physical as
well as psychological health problems. Sudden loss of a job increases levels of
stress and anxiety. Additionally, lack of employment can lead to loss of in-
terest in outside activities and a depressed mood. A sudden increase in stress,
anxiety, and depressive behavior can lead to chronic physical conditions such
as heart disease, gastrointestinal disorders, and high blood pressure.
Seeking support, thinking positively, and other coping actions to find a new
job will increase the morale of the laid-off employee; and on the opposite side,
disengagement and psychological separation will cause the individual to suffer
physically and emotionally, making it more difficult to find a new job. Wage loss
is another significant effect that displaced and laid off workers suffer from both
in short-term and long-term. In situations of layoffs, in order to obtain some
kind of income, individuals often accept lower paying jobs outside of their pro-
fession and industry to keep busy and contribute to society. Table 3 provides
some general suggestions for workers who lose their job as part of downsizing or
restructuring policy.
4. The Role of HR in Layoffs
When there are layoffs, companies can run into legal issues with some of the
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Table 3. Suggestions for laid-off employees.
If you have lost your job
,
the following are some thoughts, suggestions
,
and activities to do as part of your transition to a new responsibility
.
1) Acknowledge the reality of losing your position.
2) Note that being laid off is not necessarily your fault, so do not feel guilty about it.
3) Let your family members and friends know that you are not working.
4) If you feel upset, disappointed, frustrated, and angry, then acknowledge it as it is normal.
Learn to manage your emotions constructively and productively. The reality is that you
lost a position, not your profession.
5) Be patient and strategic with your time off by doing what you enjoy the most.
6) Exercise; take care of your health and develop productive hobbies.
7) Socialize; connect with “long-lost” friends, colleagues and family members.
8) Be frugal; save your funds for a “rainy” day.
9) Review your skills/experiences, update your resume, and begin thinking of your next
opportunities.
10) Network and send resumes out for many possible jobs while meeting with experts in
your profession.
11) Read published books, articles and trade industry news every day for at least
one hour to stay updated in your profession and field of expertise.
12) As you wait for the next opportunity, become a micropreneur by capitalizing
on your existing skills as a part-time business owner, contractor, and/or consultant.
employees that were laid off, especially if a large number of them are from any
protected minority-status categories based on gender, race, religion, age, etc.
(Cavico, Mujtaba, & Muffler, 2016; Cheretis & Mujtaba, 2014; Mujtaba, 2010).
During layoffs, companies can face potential discrimination lawsuits if the
layoffs are not supported by solid data to support the financial or economic ben-
efits in a clear and transparent manner. Lawsuit settlements or defense of legal
claims can get expensive and further hurt an organization (Kokemuller, 2016;
Cavico & Mujtaba, 2014). It should be noted that the human resources depart-
ment is morally, legally and formally tasked with the responsibility of hiring,
compensating, training, developing, monitoring, retiring, coaching/counseling,
and selecting the right positions and/or employees to be laid off when the or-
ganization has to reduce its workforce (Liu, Gong, Zhou, & Huang, 2017). Hu-
man resources professionals can play a particularly important role in the stra-
tegic planning and implementation of employee layoffs. HR professionals are
often tasked with the job of weighing the pros and cons of downsizing. Accord-
ing to experts, “the HRM function must ‘surgically’ reduce the workforce by
laying off the workers who are less valuable in their performance” (Noe et al.,
2018: p. 96).
The HR department plays a very prominent leadership and management role
when it comes to the layoff process. HR should be heavily included in the stra-
tegic planning, implementation and overall supervision of this process. HR staff
members have the responsibility of planning, executing and managing the
layoffs to align with the business needs and to avoid the negative consequences.
Every step of the way, HR should be involved in the pre-planning, initiations,
announcement, implementation, supervision, and the after effects. According to
the University of Washington (2018), human resources responsibilities can in-
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10.4236/jssm.2020.132014 220 Journal of Service Science
and Management
clude the following:
1) Evaluate the reasons for layoff to ensure that they are consistent with em-
ployment program or contract requirements.
2) Assist all managers with planning and managing complex layoffs.
3) Determine rehire list and/or bumping options for classified staff.
4) Ensure that the layoff notice is properly prepared and signed by the official
who has the delegated authority to do so (typically the president or equivalent
authorized official).
5) Ensure that the signed layoff notice is properly delivered to the employees.
6) Determine, for classified staff, that the employee’s layoff option selection is
properly recorded and acted on.
The human resources department is essentially the first to become aware of
any major companywide change. They are the company’s integral partners in
carrying out plans as major as a layoff. HR should work closely with the leaders
of the organization to bring structure and order to the anticipated operation.
Initially, one must identify specific problems that downsizing is expected to
solve. Once these issues have been identified, then one must assess the resources
that can be devoted to it. Although an organization may be motivated by the
immediate reduction of financial burden, HR professionals must consider the
long-term effects of downsizing along with its externalities. Part of the examina-
tion process involves exploring various viable alternatives. Immediate downsiz-
ing could potentially reduce the organization’s ability to maintain high levels of
productivity. Consequently, downsizing may prompt HR to outsource company
jobs to employees who are willing to work for lower wages to temporarily aid in
the transition process. However, these individuals are not always experienced
and may hinder the quality of service and products produced. Therefore, HR’s
most important role in layoffs includes oversight and supervision of the process.
Once an organization has decided to partake in the layoff process, HR should be
made responsible for determining specific individuals to be laid off. Additional-
ly, HR must review union provisions, collective bargaining agreements, and
other local laws, when applicable, to determine financial obligations (i.e. sever-
ance packages) and notice requirements. In most cases, companies may have fi-
nancial obligations to the workers who are being laid off, such as payment of ac-
crued vacation and employee transition benefits.
At the outset of a layoff, the HR department professionals must realize that it
is a painful process for all parties involved. By having this realization, they will
be able to approach the process and remain objective while keeping in mind that
specific positions are eliminated (not necessarily individuals). It is critical for HR
to have a well-thought out plan that can be executed fairly, quickly, and proper-
ly. Each affected employee should be treated with respect in the manner in
which the news is delivered. Preferably, a face-to-face conversation should take
place, affording each employee an opportunity to ask questions and be informed
of next steps. HR should consider if there are other roles within the organization
that the employee can transfer into immediately. HR can also prepare severance
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packages that include career transition support benefits (Varelas, 2010). The
communication should be clear and honest to avoid damaging rumors. HR must
create plans to move the business forward while managing retention and en-
gagement among the remaining employees. Managers should involve those that
remain in shaping the future of the company and inquire what they need in or-
der to do their jobs well, thus reassuring them of their role to avoid losing them
through voluntary resignations (Varelas, 2010).
Downsizing causes high levels of stress, poor morale, and even guilt amongst
surviving employees. Given the difficulty of the situation, HR should implement
measures to instill confidence in the company, assure employees of their value to
the organization, and communicate to all workers the company’s reason(s) and
rationale for the layoff. Most importantly, it is vital that the organization remain
honest and open for communication with all individuals who are impacted by
the reduction in force. Group dynamics and teamwork can be negatively altered
if employees are not able to trust their managers and employer. Thus, it is im-
portant for HR to anticipate remaining employees’ concerns and address them
proactively and regularly.
One of the purposes of HR is to protect a business’s finances, along with their
employees so it can effectively serve all stakeholders as per the stated policies
(Senathip, Mujtaba, & Cavico, 2017; Wolf & Mujtaba, 2011). While employees
are usually laid off as a means to reduce costs, it should be noted that employers
are still legally and ethically responsible for paying some unemployment benefits
to the employees that are laid off (Cavico & Mujtaba, 2013). According to re-
search, laid off employees are usually without work for about 26 weeks (5 - 6
months) (SmartTalk HR, 2019). In addition, even while laid off workers are no
longer employed by the company, social media has given way to promote posi-
tive relationships with former employees. Employees are the most significant as-
set and investment of any company, not only when they are employees but even
afterwards. Building a positive relationship with employees from the moment
they are candidates for the job through when they are no longer employed by the
company will allow for positive brand recognition. Previous employees and can-
didates will always be potential rehires, referrals, and future opportunities for
customer/partner relationships.
As evidenced thus far, the HR department can play a vital leadership role in
various functions of an organization, especially in layoffs. Therefore, according
to experts (Uhlig, 2017), it is HR’s responsibility to:
1)
Review the downsizing decision
: HR’s first responsibility should be to iden-
tify the specific problems that downsizing is to solve, and then assess the re-
sources that can be devoted to it. In addition, HR must consider how downsizing
will affect the company in the longer term.
2)
Explore alternatives
: It is HR’s responsibility to explore all the available al-
ternatives so that decision makers have all the facts needed to make the best
possible judgement.
3)
Present those alternatives to decision makers
: It is HR’s responsibility to
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provide decision makers with a detailed report highlighting their recommenda-
tions as well as the applicable benefits and implications of the decision.
4)
Plan the downsizing process
: Professionals should work with executives
and managers to establish and document the criteria for deciding which em-
ployees should be laid off based on a fair and legal process consider critical skills
as well as job performance.
5)
Manage the process
: HR professional must have supervision responsibilities
for the layoff process and should keep employees in the loop. HR must explain
the reasons and the anticipated effects of the restructuring and keep employees
up to date on progress, while maintaining law and order.
6)
Develop various strategies that will help remaining employees to cope after
the downsizing process is complete
, Downsizing causes poor morale, high levels
of stress and even guilt among the remaining employees. HR professional should
implement measures to instill confidence that the company and its employees
will ultimately benefit from the changes (Uhlig, 2017).
Research indicates that surviving employees suffer the negative effects of
downsizing just as profoundly as those who are laid off (Baruch & Hind, 2000).
Survivor syndrome is the emotional and attitudinal characteristics of those em-
ployees who have survived a downsizing (Mossholder et al., 2000). Research has
shown that survivors exhibit a plethora of problems, such as de-motivation, cy-
nicism, insecurity, demoralization, and a significant decline in organizational
commitment (Baruch & Hind, 2000). The emotional after-effects of fear, anger,
frustration, anxiety, and mistrust on the part of the layoff survivors pose a real
threat to performance and productivity as a smaller workforce is expected to
perform an increasing number of responsibilities.
Overall, conducting a layoff is a difficult process under most circumstances
and human resources department needs to have an active leadership role in
managing it. Once the organization has strategically determined to layoff a part
of its workforce to improve their financial situation, HR must plan and organize
to carefully assess which employees will be laid off in accordance with the goal
and relevant laws. Here it is important to make sure that no disparate impact can
happen for happen for employees who are part of a protected class. Following
this, employers need to determine if any of the labor union contract agreements
or even local, state or federal laws will apply, in which case they need to follow
the legal directives and provide relevant notice to affected employees. HR de-
partment might work on the establishment of a fair severance package for those
who are laid off. This may not be a legal obligation, but many organizations offer
severance packages to the impacted individuals to help them along this transi-
tion. Some of these packages may contain salary continuation, vacation pay,
continued employer paid period of benefits coverage, employer paid health pre-
miums, counseling, retraining, resume building, interviewing skills, and more.
Another important step is regularly meeting with the remaining workforce to
transmit a sense of trust and to keep up the morale of the company. Layoffs are a
very traumatic experience for the individuals affected directly, as well as for the
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ones that continue in the organization, and for the management. Therefore, it is
crucial to have the HR department carefully orchestrate this process to minimize
the negative consequences and position the company for a successful financial
journey throughout the layoff process.
5. VSO1 in Practice
After watching and observing the early retirement of 21 experienced faculty col-
leagues from the college of business in South Florida during May-June of 2018, I
can especially emphasize that regular and transparent communication with
those who remain in the organization is extremely important for their morale,
commitment, and motivation. These faculty members retired as part of a volun-
teer separation option (VSO) package offered by the university in order to bring
the college’s fiscal budget into alignment. From a legal perspective, it is first in-
teresting to note that the VSO package was not phrased as an offer to certain fa-
culty to accept, but rather as an “invitation” to make an offer by the university,
which the university could then accept or reject, thereby giving the university
control as to who exactly would have the separation agreement. Secondly, the
university made it very clear, as well it should, that if not enough faculty mem-
bers took the separation package there might be layoffs. However, the layoffs
would not be premised on age and/or seniority (for the obvious reason of not
contravening the age discrimination act or ADEA) but rather on such “neutral”
factors as course, class, and subject matter needs as well as publications.
The professors did not have to leave the institution; a severance package was
offered to all eligible individuals and these faculty members “volunteered” to
take it (even though, in terms of age, many were not ready for retirement yet).
Nonetheless, losing so many experienced and respected colleagues (about 20% of
the college’s professors) during the same two-month period was a very difficult
process for most of the remaining faculty. Despite the fact that the institution’s
chief executive officer and human resources department professionals regularly
communicated with all the staff and faculty members, a few individuals felt dis-
mayed, confused, and shocked, while some felt angry and uncertain about their
future in the college. Consequently, in the months and year to follow, seven oth-
er young and bright faculty members voluntarily resigned from the college after
they secured prominent teaching positions at other institutions. Two years later
in early 2020, some of those terminated positions are being filled through na-
tional recruitments, interviews and campus visits of new candidates.
During the VSO period, in order to try to ameliorate any negative feelings as
well as recoup some of that lost professorial talent, the university provided that
the faculty members who took the separation agreement could come back to the
university and teach as adjunct professors. Moreover, since there was now office
space available to those professors coming back as adjuncts, though in many
1
Special thanks go to all my graduate HR students during 2018 for their insights and research on
layoffs and to Professor Frank J. Cavico, Nova Southeastern University, for sharing his thoughts and
experiences regarding voluntary separation options.
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and Management
cases having to give up their own original offices, were given other separate (and
not shared offices) with their nameplates on the door, thus symbolizing their
continued presence and service to the university. As adjuncts, they also kept
their university emails. Most importantly, and very commendably on the univer-
sity’s part, several faculty members with long-time service to the university were
accorded Professor Emeritus status at a very nice luncheon and award ceremony
at the university. Professor Emeritus status, of course, allowed those faculty
members, even if they decided not to continue teaching as adjuncts, to have a
substantial relationship with the university in all the academic, social, commu-
nity, and athletic activities. Moreover, the separation agreement allowed the per-
tinent faculty members to choose whether to receive the monetary benefits from
the separation package in one lump sum or spread out over four payments over
a three-year period, thereby affording the faculty members some flexibility in tax
planning.
Having gone through this VSO experience, one can say with one-hundred
percent certainty that effective communication is very important for those who
are leaving the organization, and even more critical for those who remain. Since
the entire college or department’s culture is changing and people’s teaching re-
sponsibilities and assignments are impacted, it is very important that all faculty
members and staff be informed of and engaged in the transition process. Equally
important was the meritorious effort by the university to make the faculty af-
fected by the separation agreement feels that they were still part of the depart-
ment, college, school, and university community. For psychological, practical,
ethical, as well as legal reasons that was the “right” and the “smart” thing for the
university to do.
6. Summary
Most “People don’t mind change; but they mind being changed.” Consequently,
ownership of the change is more difficult to create for a layoff, especially if em-
ployees are not involved in the decision-making process from the outset. There-
fore, the lesson is to involve and engage both managers and employees as early
in the layoff process as possible. Layoffs and downsizing can provide senior
managers and human resources professionals with options that can significantly
improve the company’s competitive position in the industry.
Downsizing allows the company to clear up the organization for restructuring
as well as for bringing fresh and innovative new ideas. Many times, layoffs can
be beneficial to purge the entire organization of excessive, redundant, disen-
gaged, and/or underperforming employees in order to establish some form of
control and stability moving forward. Layoffs and downsizing may be most ne-
cessary or useful for organizations that have experienced scandals or are not
competitive. Finally, through effective management, leadership, and implemen-
tation of layoff policies, human resources professionals can demonstrate how
valuable they can be to the overall strategic direction of the company moving
forward.
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and Management
Overall, human resources professionals can and must play a vital leadership
role in structuring and implementing an organization’s layoff process and
downsizing policies. As mentioned before, sometimes it is crucial for managers
to make necessary cuts in the workplace while keeping in mind the needs of the
organization in order to remain competitive in the market. Human resources
and organizational managers should also be responsible for meeting with re-
maining employees that are having a difficult time adjusting to the new culture
and provide relevant support that those individuals may need. An important job
of human resources professionals is to boost the morale and commitment of
employees who remain after the reduction.
Conflicts of Interest
The authors declare no conflicts of interest regarding the publication of this
paper.
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