February 12, 2009
- Overview
- Cost Cutting and Compensation Freezes
- Reassignments and Transfers
- Four-Day Workweeks
- Furloughs
- Layoffs – Measure of Last Resort
- For More Information
- Disclosure
Overview
The picture is not getting better for the U.S. economy. The recession is now in its second year and prospects for 2009 look dim. The down economy has employers and employees on edge. Employers are asking themselves how they will survive 2009 if they continue to see sharp declines in sales and profitability. Employees, in turn, are worried about job security.
The poor economy brings layoffs to the forefront of the minds of employers and employees. For proof, just look at recent headlines or type the word "layoffs" into an Internet search engine. Layoffs, however, are not always the best way for employers to reduce their operating costs. There are effective alternatives that will allow employers to maintain consistency in their workforce and maintain employee morale.
Cost Cutting and Compensation Freezes
Before layoffs are even discussed, employers should explore cost-cutting opportunities that will not directly affect employees' work hours or compensation. Employers may consider reducing or eliminating budgets for travel, education and/or professional memberships; delaying capital expenditures; or decreasing 401(k) matching. Cutting costs in these areas first signifies to employees that they are a valuable commodity that the company is committed to retaining.
If these cost-cutting measures are not enough, employers may consider reducing or eliminating bonuses, prohibiting overtime work, freezing compensation or postponing pay increases. These measures will likely save on long-term labor costs and are likely to be accepted by employees as an alternative to layoffs. Most employees are willing to forego extra compensation if they understand that it is an alternative to layoff.
Reassignments and Transfers
Other alternatives to layoffs include temporarily reassigning employees and/or transferring employees to available positions where they will be fully utilized. Care must be taken when selecting employees for reassignment or transfer, however, to avoid any potential liability for employment discrimination or retaliation. Neutral, performance-based selection criteria should always be used for determining who will be reassigned or transferred.
Four-Day Workweeks
Many manufacturing-based employers find that four-day workweeks provide valuable cost savings. Not only are these employers saving on hourly labor costs, they save on their utility bills as well. In some instances, four-day workweeks actually help decrease absenteeism and increase worker productivity.
Furloughs
Furloughs effectively reduce labor costs without resorting to layoffs. A furlough is best described as a temporary layoff, during which employees do not receive their regular pay but keep their benefits. Furloughs typically last anywhere from a week to six months. Where furloughs last longer than six months, many employers chose to convert the furlough into a layoff.
In planning a furlough, an employer should, among other things, determine the furlough's expected length; determine whether it must provide furloughed employees with notice of any right to apply for unemployment benefits; arrange for furloughed employees' continued payments of premiums for benefits; determine how vacation, seniority or other entitlements will be calculated during the furlough; and determine how employees may be recalled from the furlough.
Layoffs – Measure of Last Resort
Of course, sometimes a layoff is the best way to manage costs and is unavoidable. In these situations, it is always important to carefully plan the layoff. What will the timing be? How many employees will be involved? How will employees be selected? How much notice should employees receive? Will severance packages be available? Do we need waivers and releases? Will there be a possibility for rehire? Thinking through these questions will help ensure compliance with employment discrimination and plant closing/layoff laws, such as the Age Discrimination in Employment Act and the Worker Adjustment and Retraining Notification (WARN) Act.
In the end, you as an employer have to determine the best way to reduce your operating costs. But, when making this determination, keep in mind that layoffs may not be the best solution for achieving cost reductions in your organization.
For More Information
Please contact Adam D. Fuller or any member of our Labor & Employment practice group for more information.
Disclosure
This advisory may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions. Some of the design images and photographs in this document may be of actors depicting fictional scenes.
Last modified: February 12, 2009
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