Overview: "Downsizing" is a term for reducing the size of the employment force to reduce costs. If implemented and managed correctly, employers can be successful in shrinking the size of the employment force while also reducing costs. However, HR has a crucial role in ensuring that the remaining workforce maintains its level of productivity and morale.
The decision to downsize typically involves the HR from the inception. HR has intimate knowledge of employee performance and capabilities which they can relate to senior level employees along with their recommendation as to whether certain employees should be retained or if their job responsibilities can be replicated by remaining employees.
Alternatively, HR may work closely with in-house or external counsel in cultivating performance-related measurements to determine which employees should be retained. When these objective measures are used to identify employees for downsizing, HR professionals must then ensure these individuals have a smooth exit from the company, that they are not members of a class of employees disproportionately affected by the action, and that they do not leave the employer with any pending grievances.
Trends: Downsizing is typically intended as a cost-saving measure; however, it may not always be successful. Remaining employees may be forced to work overtime and outgoing employees may pursue grievances against the employer, undermining the employer's goal in reducing the size of its workforce. Thus, the trend is to treat downsizing or layoffs as an absolute last resort, particularly where other types of cost-saving measures are available like reducing employee hours, work-sharing programs, employee education and employee relocation.
If downsizing absolutely cannot be avoided, HR's objective should be to maintain productivity and morale following downsizing and use alternative dispute resolution measures to address outgoing employee grievances before they get out of hand.
Author: Michael Jacobson, JD, Legal Editor
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HR guidance on risks associated with downsizing programs, methods to implement a safe program and cost-saving considerations for employers who choose to downsize.