Navigating the Storm: How Companies Should Prepare for Workforce Reductions

The wave of workforce reductions that hit dozens of US companies toward the end of 2022 shows no sign of slowing down well into 2023.

Recent job cuts announced by companies including Niantic, Robinhood, Grubhub, and Spotify join many major corporations that have made significant staff reductions this year: Tech companies, including Meta and Google, and finance behemoths, like Goldman Sachs, announced massive layoffs in the first weeks of 2023 amid a continued economic downturn and stagnating sales.

As economic uncertainty persists, many employers are now facing tough cost reduction decisions, which include possible separation of employees. While workforce reduction can be unfortunate, companies need to create a plan with strategic and legal counsel that considers the effect on departing employees and the remaining workforce. Not being legally compliant when making layoffs or a reduction in force (RIFs) can have severe consequences on your reputation and the overall performance of your business and lead to costly litigation.

We’re hearing more and more from companies who are considering a RIF. In this article, we will explore how companies can best prepare and minimize negative impacts.

There are advantages and disadvantages to layoffs. The obvious ones include cost savings and strengthening your workforce by maintaining only the most vital employees. On the flip side, they can create a negative economic impact on the company or specific divisions operating with a reduced workforce. They can also impact employee morale and increase the risk of liability and potential productivity issues with a smaller workforce.

As part of your planning, it is paramount to keep legal compliance and other issues in mind, including adherence to applicable federal, state, and local laws; compliance with internal protocols/policies and any employment agreements; development of a clear communication plan to reduce stress and anxiety and to maintain current (and retained) employee performance and morale; preservation of good reputation in the community; and implementation of workplace counseling services to minimize the risk of confrontation, assist with transitions, and keep the separations as amicable a possible.

You also need to identify any possibility of discrimination claims and related liability risks, which include age-related claims, disparate treatment or disparate impact claims and retaliation claims (e.g., for taking protected leave close in time to the employee’s separation), and document the legitimate, nondiscriminatory business justifications for the reduction to best defend your business from lawsuits.

You should carefully analyze the selection considerations for the layoff group and confirm that the criteria objective is uniformly applied and that the decisions are consistent with business justifications and documentation. You should also conduct an adverse impact analysis and determine whether any affected employees have a possible retaliation or interference claim to evaluate legal risks.

It’s essential to review company employment policies and agreements for specifications regarding layoff procedures, provisions negating at-will employment, criteria regarding the order of groups to be affected, payouts of accrued but unused paid time off for separated employees, and mandated severance pay or packages.

Carefully consider how foreign nationals holding visas may be impacted and whether the layoff triggers reporting and notice requirements under the WARN Act or similar local laws.

Work with legal counsel to analyze severance considerations, including whether there is an express or implied policy requiring severance, whether severance will be conditioned on a release of claims, and whether there is sufficient consideration for a release. If so, are there objective criteria to support reasons for offering severance to selected employees, and will there be any continuing obligations related to the severance?

One of the most challenging parts of workforce reductions is communicating the news to affected employees and the entire workforce. An employer may also consider whether public announcements are necessary for the local community and the general public. How to deliver the message varies on a case-by-case basis, but it is crucial for leadership and the decision-making team to spend time weighing all the options to determine best practices.

Workforce reduction is a challenging and emotional process for both employers and employees. By following a well-thought-out decision-making process and implementing the mentioned strategies, companies can better defend against potential legal claims and, more importantly, support their workforce through the difficult transition. Preparing with empathy and strategic planning will be an essential factor in successfully navigating the storm of workforce reduction. Remember, an ounce of prevention is worth a pound of cure.

The team at Rooney Law has assisted numerous companies with the complexities of employment law and company restructuring. If you need help or have any questions, please call us at +1 212 545 8022 or click here to learn more about our capabilities.

Read more insights from the Rooney Law team here.


© 2023 Rooney Law. All rights reserved. Rooney Law PC is an international corporate law firm. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner or equivalent in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Nothing herein shall create an attorney-client relationship between the reader and Rooney Law PC.


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