Fired business man reads the notice of job termination
A business may be forced to downsize to save on labor costs and resources. Sometimes, the downsizing is done by simply terminating employees or giving them early retirement. Downsizing is done with a good purpose for a business, but a company that has made the decision to downsize should consider if they could face legal challenges or liabilities. Always go for doing the right thing from the angle of your business, law, and human standpoint. Downsizing can be done in the reduction or elimination of business operations but mostly this term is used for a reduction in the number of employees working in the business.  

Downsizing, the reduction of a company’s labor force, lessens the number of employees on the operating payroll. This is supposed to ease tough economic times and improve performance and efficiency. Although downsizing is common, it is also a dreaded situation involving the employees and the employers. Often companies downsize believing a few people can run the business better, but they actually don’t get the anticipated outcome. A company intending to downsize needs to reflect on different angles before deciding to move forward and should also consider the possibility of failing. Such failures leave a long-term mark on a business and it requires planning to avoid such risks. Therefore, on one hand, a company must consider all of the obligations needed to help the business succeed. On the other hand, they should never forget the human perspective.

Making the Decision to Downsize

The first step is to analyze the situation and decide if downsizing is necessary and will yield positive results. In addition, other temporary options should be evaluated before making the decision. For example, an employer can temporarily downsize and wait for time to pass before rehiring their employees. Furthermore, this decision will change the structure of the company and evaluation of all possible outcomes becomes necessary. Aside from downsizing, companies can also consider employee retraining, reductions in hours, shorter work days, or hiring freezes. Companies can also work with their bookkeeper to see if there are costs they can cut down on instead of letting go employees. These methods are not as drastic and employees will understand that the company needs to adjust to face challenges ahead of them. However, the company should evaluate each possibility before choosing an alternative.

Once the organization has finalized the decision, they should start considering legal practice and moral obligations towards employees and the organization itself. Proper planning and fulfilling necessary obligations can eliminate risks and failures at a later stage. First, a company should evaluate its employees in the transition and final period. The transition stage is hard as people have low morale and uncertainty. They remain under stress and psychologically disturbed throughout this transition time. Many knowledgeable people start exploring other options and leave. This ultimately affects those left behind with less expertise.

During this process, organizations must be aware of the legalities and liabilities. They should avoid activities that can bring charges upon them. One example of this is seeing downsizing as an opportunity to get rid of every person they do not like or firing employees that have a negative history with the administration.

Usually, the cookie-cutter approach is safest legally, but it leaves heavy psychological marks on employees. Therefore, a scheme should be developed that is fair in keeping the employees’ morale intact and safe from the legal standpoint. However, this approach requires organizations have an up-to-date indisputable record. This way, unwanted charges can be effectively avoided and handled.

The next step is how to handle the employees that need to go. Usually, there is a form that departing employees sign. These release forms are designed to protect the company against liabilities. Consequently, it is very important that companies know what to put in such forms and how to handle this procedure. For example, it is important that such a waiver must be in writing, understood by the employee, and voluntarily signed. In addition, that employee must understand the intent of the company and what rights they are waiving. The company should understand that when it’s procedure is straightforward, it will avoid a lot of litigation risk.

Companies should be aware of any acts or laws requiring them to notify all interested parties, including employees, unions and local governments about their downsizing. Communication should be the key at every possible level, which can help isolate situations that can lead to legal complications. There are also teams that help managers and employees in the process. They provide assistance specifically to need of the company. Such teams help in communicating with employees and offer them counseling. They also help employees in finding new jobs. These teams provide services such as interview skills workshops, resume preparation, and giving information about education and job training opportunities. Companies can get help from such teams or they can have some internal arrangement to ease the downsizing process. They can offer outplacement services to employees who are leaving. This approach can help two-folds. One by avoiding litigation and secondly, assist the employees who are leaving.

In the end, companies should make sure they are ready to face the employees who are still on their team. The remaining employees will have many questions that need satisfactory answers to keep their morale intact. As Barbara H. Patterson, the attorney with Advanced Healthcare said at a recent National Employment Law Institute conference in Washington, “companies need to keep in mind the law and sound business principles, then communicate, communicate, communicate”.


Downsizing, the reduction of a company’s labor force, lessens the number of employees on the operating payroll. Before implementing the ‘downsizing’ decision in your company, give it thoughtful consideration. Seek legal advice as well. Sound business principles must be adapted when downsizing.

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