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Reduction in Force Best Practices

Instructor
Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Expert Contributor
Christianlly Cena

Christianlly has taught college physics and facilitated laboratory courses. He has a master's degree in Physics and is pursuing his doctorate study.

A reduction in force may be necessary for budget or restructuring reasons, but all bases should be covered to protect employee and business. In this lesson, you'll learn some best practices for a reduction in force. Updated: 05/26/2020

Navigating a Workforce Reduction

Most employers work to offer a stable and secure environment for their employees, but sometimes circumstances present themselves that make it necessary to eliminate certain jobs. A reduction in workforce can happen as the result of a floundering budget, restructuring or reorganization, changes in a market, poor management or a host of other reasons. A reduction in force, or RIF for short, is when a separation from employment happens due to some of the reasons previously listed. Typically, an employee who is let go during a reduction in force is not likely to be re-hired because his or her job has been eliminated, unlike a layoff where an employee may be recalled in the future.

A reduction in force is not a pleasant situation for anyone. It creates tension, fear and feelings of uncertainty. For employers, there are special considerations that should be taken in handling this type of occurrence carefully and effectively. This lesson will talk more about some best practices employers should consider when planning for a reduction in force.

Best Practices

Handling a reduction in force requires careful handling and consideration from long before the process begins to well after it's over. It starts with a downsizing plan, complete with a business purpose and budget, and continues through to looking for risks and communicating with employees. These tips can help you navigate the reduction in force process.

1. Before a reduction ever happens, a business should have a downsizing plan in place. This document can help you measure business locations, departments and personnel who might be affected by a potential reduction. A downsizing plan can help you assess how deep the RIF needs to go based on certain numbers, such as budget requirements or number of locations closed. It can also protect a business from claims of discrimination and wrongful termination further down the road.

2. Set your business purpose and write it down. Why are you resorting to a reduction in force? What events precipitated it and what will it take to fix it? Document your specific purpose for a reduction. For example, if a department is responsible for a particular product that is not performing well in the market, the purpose for the downsize may be related to the poor sales figures of that product. Eliminating the product may eliminate the need for that department and its employees. This can also help you more accurately determine the individuals who may be affected.

3. As odd as it sounds when you're trying to cut costs, build an RIF budget. Downsizing will cost you some money, both in terms of employees (offering severance packages and administrative costs) as well as reduction in work productivity due to fewer employees and remaining employees struggling with poor morale and stress.

4. Determine a timeline. Early planning is crucial in the RIF process, giving you time to consult with an attorney, evaluate how you'll make reduction decisions, create a selection process, conduct a comprehensive assessment of every employee and department and analyze potential risks and liabilities.

5. Look for liabilities, sometimes called an adverse impact analysis. Protected classes of employees, including those over a certain age, individuals with disabilities, minorities and others should be carefully considered for potential complications arising from perceived discrimination. Lawsuits can be a costly addition during and after a reduction in force.

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Additional Activities

Workforce Reduction: A Case Study


Case

A multinational telecommunications and electronics company had almost a 5-year increase in profits. Yet, a group of low-cost Asian competitors caused its goods and services to drop by 40% over just a few years. Meanwhile, labor costs in one of their foreign manufacturing plants had risen by 30%. Their current workforce at that plant is primarily composed of young but well-educated individuals with a large fraction of professional employees supporting the highly-automated production operations. With the recession in the electronics industry and the low-cost competitors, management had only one choice in mind: close the manufacturing plant. Their abrupt decision caused anger to spread, and a week later, 8,000 employees protested at the plant. Government officials launched an investigation and demanded that the company pay back subsidies it had received for the plant. Unions called for a boycott of the companies products. And the news was filled with pictures of crying employees and protesters.

  1. Is the decision of closing their foreign manufacturing branch justifiable? Why or why not?
  2. Would a lay-off be much better compared to RIF? Why do you say so?
  3. How did the closure of this branch affect the company? The employees?
  4. For this scenario, give three approaches that the management could have taken instead.


Sample Answers

  1. Management decided to close their foreign manufacturing branch due to changes in the market. It would've been justifiable if they had handled the matter correctly.
  2. A lay-off would be much better than a RIF. Why? An employee who is let go during a RIF is not likely to be re-hired, unlike a layoff where an employee may be recalled to work in the future.
  3. Although it saved them from possible bankruptcy, having the RIF caused a reduction in work productivity and drew negative views from the public. From the employee perspective, the abrupt decision from management caused the employees to feel anger and uncertainty.
  4. First, the company should've created a downsizing plan before making abrupt decisions. It helps assess the number of individuals and budget requirements. Secondly, they should communicate with the employees who are affected and propose severance packages and voluntary separation offers. Lastly, legal counsel is necessary to ensure that things are handled properly and that the company is protected from unforeseen problems.

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