The term “layoff” refers to a temporary or permanent termination of an employment contract for reasons that are not related to performance. When a company or business is experiencing financial challenges, it can resort to laying off its workers resort to layoffs to cut costs. Layoffs and firing of employees are two different things.
While the firing of employees may be caused by the actions of an employee, such as poor performance, malfeasance, and breach of conduct/duty, layoffs are not related to any of these issues. That said, you should consult an Employment Lawyer in Southern California if you’ve been fired or terminated.
The term “layoff” was used to describe a temporal loss of work but the definition evolved to include permanent loss of work/employment thanks to economic reasons. Layoffs are also common when businesses close or relocate but they’re (layoffs) commonly experienced during a recession. Also, this situation can be caused by corporate restructuring. So, how does a layoff affect an organization and the terminated workers?
Consequences of a layoff
Termination of one employee can easily go unnoticed but the ripple effect will undoubtedly be felt, particularly in organizations or companies where people depend on each other to succeed. In simpler terms, layoffs create a void in teams that depend on each other to achieve a common goal.
A layoff must be done with care because failure to follow certain has legal implications. However well a layoff is planned, there are certain costs that the affected company cannot avoid. Besides financial implications, the following are the consequences of a layoff to businesses.
1. Increased Employee Turnover
Companies that execute layoffs frequently have high rates of employee turnover. A layoff can reduce the morale of top talent in an organization forcing employees to search for greener pastures. Also, watching being laid off due to various reasons is enough reason for their colleagues to start considering new employment opportunities.
2. Decreased Customer Loyalty
Research shows that a layoff can significantly affect customer retention. That said, businesses should find ways to retain customers because a business cannot survive without customers. When an organization lays off its employees frequently, its customers interpret that to mean that the company is experiencing a crisis. For instance, having fewer employees at your disposal may cause delays during peak hours, impacting customer experience and loyally negatively.
3. Emotional Distress
Although the laid-off employee suffers emotional distress the most, the retained employees also suffer emotionally. A layoff means added responsibilities to other employees and the employees will have to forge new work relationships with people they’re not used to.
The productivity of employees who think that they’re likely to be terminated automatically goes down. The situation can be worse if the laid-off employees have to stick around until their contract expires.
4. Financial Implications
Most employers consider a layoff as an ideal way of cutting costs and boosting the bottom line. However, that’s not always true. That said, employers should understand that layoffs come with financial costs. For instance, a company must incur the costs of severance benefits. Additionally, the company will incur other costs (directly and indirectly). A company should consider the financial implication of a layoff before terminating the services of an employee.
When to Fire or Lay off an Employee
Firing or laying off your employees depends on many factors, meaning it can vary by case. So when can you lay off your employees? If your company is experiencing financial difficulties or it wants to pursue a different strategic path, laying off your employees are recommended, but not firing them. The law requires employers to communicate a layoff decision to the affected employee at least 60 days before the end of their contract.
The laid-off employees should be offered severance benefits to sustain them as they look for employment. The employer should also provide positive references to help the laid-off employees find work more easily. Firing becomes involuntary termination if the decision is based on poor performance or gross misconduct that contravenes the policy of the company. When laying off or firing employees, you should act with compassion.
Downsizing without Employee Lay Offs
The following are some strategies that companies can use to downsize without laying off their employees:
A furlough refers to time off without pay. Companies experiencing financial challenges implement furloughs on their workforce as a short-term strategy of saving the company financially.
This is where employees are given the option to resign voluntarily but with their severance package intact.
This occurs when a worker wants to leave employment for an agreed time to pursue personal interests, such as education that would help in career growth, or work on a personal project.
Voluntary sabbaticals allow employees to have a sense of control over their future. When employees have a hand in decision-making, they typically feel better about the company and they’re likely to work in that company for long.
Employees are typically laid off when their employers are experiencing financial challenges. A legal professional specializing in employment law can help you understand more about this subject.