How to lay off employees and remain an attractive workplace

When you think about the best parts of being a human resources manager, we bet that laying people off isn’t one of them.

In fact, it’s likely to be one of your least favorite parts of the job – right up there with mediating workplace conflict. You are not only forced to be the bearer of bad news but also responsible for uplifting your remaining workforce.

It’s a huge challenge – and not an uncommon one, either. Between January and early October 2022, more than 42,000 workers in the US tech sector alone have been laid off.[1]

So here are our tips on how to lay off employees while remaining an attractive workplace.

What is a layoff?

A layoff is when you terminate an employee’s contract for reasons unrelated to their performance, usually as a part of downsizing a business. There are many reasons you might do this, including:

• An economic downturn, such as the COVID-19 pandemic

• A merger or acquisition

• Relocating the company

• Automation 

• Outsourcing or offshoring

An example of successful mass layoffs can be seen in the case of the fashion house Burberry: When Angela Ahrendts became the company’s chief executive officer in 2006, she believed the brand had lost focus.

So she consolidated the design team under one director in London, relocating some of the US team and laying off the Hong Kong design team. Profits soared.

Layoffs can sometimes be necessary, but managing them while maintaining a positive workplace culture is a delicate process.

If you handle them badly, they might not only damage your reputation as an employer but also create big problems for your remaining workforce.

One 2020 study found that downsizing had an adverse effect on 9 out of 12 workplace conditions. Some negative consequences included increased supervisor aggression, lower levels of friendship formation, and fewer promotion opportunities.

What’s the difference between being laid off and being fired?

You probably know this already, but in such a litigious area, it’s important to know the definitions of even basic HR terms. As we’ve mentioned, layoffs are done for reasons unrelated to an employee’s performance or behavior.

In contrast, an employee is fired when they are underperforming or their behavior is not in line with the organization’s expectations.

This means there are limitations to how you can handle a layoff compared with firing an employee. For example, laying off an employee citing financial difficulties and then immediately filling the same role with someone younger could be grounds for a discrimination suit.

For this reason, it’s necessary to be clear in your HR meeting with your employee about whether they are being fired or laid off and the specific grounds for their dismissal. 

This is better for the employee’s well-being and helps protect your business from legal challenges, which can be eye-wateringly expensive for companies: Ex-employees who bring a wrongful termination lawsuit against their former employer can win anything between $5,000 and $100,000.

8 tips on how to lay people off with dignity

Now that you understand the basics, here are our tips for how to lay employees off with dignity and respect – and without torpedoing your remaining workforce’s morale.

1. Use skills testing to map your workforce

A respectful layoff decision accurately reflects the value that employees bring to the organization. After all, neither the employees you let go nor those left behind will appreciate it if you strip the business of essential skills and leave the rest of your workforce scrambling to handle their work with limited expertise.

One way to ensure you retain key capabilities is by assessing your employees’ skills using standardized testing.

In addition to revealing key players whose skills could get you through a rough patch, this method can also help you identify skills gaps contributing to poor performance.

For example, if you were working in a SaaS company, a skills analysis might reveal that you have a wealth of development capabilities but no project management expertise in your product team. You might then lay off some developers to make room for project managers.

Even if you’re not actively considering layoffs yet, it’s still a good idea to conduct a skills gap analysis. Given that 87% of companies worldwide are either already aware that they have a skills gap or expect to experience one in the next few years, identifying areas of weakness in your organization is critical.

Skills testing can also be a good way to remove bias from this process, protecting you against workplace discrimination cases.

Let’s say a company let go of its older and more experienced workers on the grounds that it needed more tech skills in its workforce, only to replace these employees with younger ones who had a similar level of tech savvy. The older workers might well have a case for ageist discrimination.

Skills testing would have revealed the discriminatory assumption that younger people are more valuable or “plugged in” to technology. 

Or, if the new recruits were more knowledgeable about tech than their predecessors, skills testing could provide an objective measure to refute the discrimination case in court.

2. Inform your workforce about layoffs to stop rumors

Being laid off can have an undeniably devastating impact on one’s mental health, but waiting to be laid off can often be just as bad.

One researcher interviewed dozens of workers about their experience with downsizing and the huge toll of stress it took on them. These employees recalled watching their businesses: 

• Announce that everyone would know before the year was out what their status would be but not who was at the most risk

• Lay people off slowly – one at a time over many months

• Let rumors about layoffs circulate for weeks without confirming or denying any details

You can easily avoid these mistakes with good communication from senior leadership. Here’s how to do it.

Once you’re aware that layoffs are on the horizon, start making a communication plan to announce to your whole workforce what is going on. You might do this in a “town hall-style” meeting or, in the right circumstances, via a mass email. Let them know:

• The reasons for the layoffs – include hard data if you can

• Which functions or departments will be affected

• When those affected will find out their status (ideally, as soon as possible)

• What support is available and whom employees can talk to about the process

Make sure you brief all key managers and leaders on how to communicate about layoffs and listen for any rumblings from employees. Don’t just turn away from problems: If your workers are unhappy, deal with any issues before they get out of control.

3. Give employees a chance to improve their performance

If layoffs are unrelated to performance, why do we need to talk about it here? Well, although individual performance isn’t the basis for a layoff decision, team performance might be. 

For instance, let’s say you decided to set up a branch of your business in a new region, but the team is failing to penetrate this new market. It’s not necessarily a case of individuals slacking off at their jobs. Perhaps it’s just an indication that the market isn’t a good fit.

This situation could call for layoffs, but before you make your decision, you need to run through a few steps:

1. Give the team honest feedback about what’s not working and the gravity of the situation

2. Set basic achievement requirements regularly from the time you become aware of the performance issues

3. Clearly communicate the timeline necessary for them to get their performance back on track

This gives your staff a fair chance to improve before you cut their jobs and limits their legal recourse for unfair dismissal.

Giving timely feedback could alleviate your financial worries and provide your employees with a fair shot at improving their prospects. 

Research shows that weekly feedback from managers drastically improves employee engagement. This is crucial to know since companies that score in the top quartile for employee engagement are 23% more profitable than those in the bottom quartile.

4. Be direct with the employees you’re laying off

Although directness isn’t always a quality associated with compassion, it’s closely aligned in a layoff notification meeting.

Let’s say you give your employees all the fair warning and feedback they need, but you still need to make cuts. Joshua Margolis, a professor at Harvard Business School, recommends that you communicate clearly, concisely, and unequivocally during a layoff notification meeting.

Avoid dancing around the topic; instead, simply state that the employee is being laid off and the time frame in which it will happen. For example, you can tell them, “I’m sorry, but we’re terminating your employment at the end of the month.”

If you’re laying off multiple people at once, such as a whole team, it’s probably best to do this with everyone present rather than drawing out the process with individual meetings.

However, there are limits to this direct approach. Vishal Garg, the chief executive officer of Better.com, was heavily criticized for abruptly laying off 900 employees on one Zoom webinar just before the holidays. Garg’s approach lacked:

• A personal touch. There is no way to adequately connect with nearly 1,000 people in one Zoom call.

• Depth. The call was described as “short and emotionless,” with little opportunity for employees to ask questions.

Wherever possible, conduct face-to-face notification meetings, giving employees the opportunity to ask questions and receive a personal, compassionate response.

5. Don’t make it about you – instead, offer meaningful support

It’s tricky to know what to say in a notification meeting. You have to go against a lot of your usual instincts when delivering bad news.

If you were talking to a friend, you might try to empathize, telling them that it hurts you to see them upset. Although you might feel the same way in a conversation about layoffs, it won’t be helpful to your employee if you put the focus on yourself in the conversation.

Instead, simply say that you’re sorry.

Side note: If you won’t be handling notification meetings directly but are managing those who do, make sure you provide your managers with proper support. By giving HR managers the support of trained counselors or other HR professionals, you’ll reduce their need to seek reassurance from the people they’re laying off.

Remember, it’s not just about what you say in the meeting. You should also give employees privacy to process the bad news. Here are some things you can do:

• Hold conversations in a meeting room away from the rest of the workforce so that the employee doesn’t have to do a “walk of shame” back to their desk

• Give them the rest of the day off to process the news

• When possible, avoid scheduling the meeting directly before annual leave and on important dates for the employee, like their birthday

Be especially mindful of when you schedule meetings. You’ll see conflicting advice on this point, with some sources recommending that you never lay employees off on a Friday and others saying you should only do it at the end of the week so that they can absorb the news over the weekend.

The fact is that there’s no such thing as a good day to be laid off. But if you can avoid trespassing on significant dates and make sure your employees have time to process the news, you’re on the right track.

6. Offer incentives for staff to stay for the full transition period

During the notification meeting, make sure to communicate the transition period to the employee – in other words, the period in which their employment will still be in effect.

Most employees elect not to work during this period for obvious reasons. However, offering incentives for your employees to keep working until the end of their contract is a good idea for your business.

This can help you put handover plans in place and ease the cultural transition for your remaining employees.

One important incentive you can offer is giving greater flexibility to staff on their notice period, such as by allowing them to go to interviews for a new job. You might also extend their severance package the longer they stay during the transition period – for instance, paying three months’ severance to those who stay a full month.

In addition, you can offer outplacement services to help your employees find their next employment opportunity. These services might include:

• Information packets

• Reference letters

• Unemployment insurance

• Support in finding a new position

We realize this might be a hard sell to your higher-ups, particularly if this round of layoffs results from financial issues and belt-tightening.

But although this might seem hard to believe, it’s a good investment for the future. Four out of five Americans say receiving outplacement support would reduce the likelihood of them badmouthing an organization after being laid off. 

The same research also found that providing outplacement services improved public perception of a company’s employer brand, preserving its attractiveness to future hires.

7. Communicate clearly with remaining employees

Your laid-off employees are not the only ones you need to communicate clearly with. Your remaining workers should also be a key priority.

First, make sure to clear any doubts about their status at the business or their value to your senior leadership. We know that from inside the war room, it seems obvious that you’re keeping only the best people on board. But from the outside looking in, even your strongest employees may wonder whether they’re next on the chopping block. 

This uncertainty can have detrimental effects on their productivity, on the quality of their work, and certainly on their mental health. 

Some strategies for eliminating this uncertainty could include:

• Communicating to retained employees throughout the layoff process that they are not in danger of being laid off

• Letting them know when the current round of layoffs is complete

• Being up front with them about when the situation will be up for review and what metrics you’ll be using to make further layoff decisions

• Outlining a clear vision for the company’s future, including the remaining employees’ teams and roles

8. Support remaining employees to boost morale after layoffs

According to a study by Leadership IQ, 74% of employees say that their productivity declines after layoffs, and 69% say the quality of the organization’s product or service declines too. This is part of the phenomenon known as “survivor’s guilt” – when the negative impact of stress and guilt adversely affects a company’s output.

The solution is to engage your existing workforce to boost morale after the layoffs using a holistic HR approach, which basically means addressing their needs in and out of the workplace.

You can do this by: 

• Bringing in trained counselors to talk through employees’ anxieties with them

• Scheduling additional one-to-ones between employees and managers in affected teams to discuss the layoffs

• Making employees aware of mental health support available through your organization’s insurance package

• Arranging team-building activities to reaffirm bonds between remaining workers

This will show your remaining employees that you value their work and the people they are, giving real weight to your assurances that their jobs are safe and alleviating the anxiety they’ll feel after their colleagues have left.

How to lay people off with dignity: summary table

Pushed for time? Here’s a quick summary of our tips for how to lay off employees with dignity.

Maintain your organizational health with objective insights

Badly handled layoffs can feel like a wildfire: chaotic, unpredictable, and painful for everyone involved.

Using the right tools won’t make them painless, but they can make them more precise, effective, and respectful of your employees.

Start by clearly understanding your employees’ value with skills testing, and follow up with clear communication across your entire workforce.

Learn more about maintaining organizational health, or get started with skills testing by assessing your workforce’s problem-solving skills.

Source

1. Vedantam, Keerthi. (October 7, 2022). “Tech Layoffs In 2022: The U.S. Companies That Have Cut Jobs”. Crunchbase. Retrieved October 10, 2022. https://news.crunchbase.com/startups/tech-layoffs-2022/