One of the most unpleasant tasks a business owner or manager must face is having to terminate one or more employees. No matter the cause for dismissal, telling a worker that his or her services are no longer required is a difficult statement to make. You may cushion the blow with praise, you may justify it with numbers, or you may cite the worker's poor performance as the reason, but no matter what you say to the fired employee and no matter how you explain it, the end result can be devastating to both parties involved.
For the worker, it means the end of regular income and probably the termination of company health benefits, a 401(k) and other perks of the job. For the owner, CEO, or whoever announces the dismissal, it could mean firing a trusted, well-performing worker (or several of them) in a desperate means to cut costs. It won't be easy, but there are best practices. What so many successful CEOs, human resources leaders and senior managers have advised when laying-off an employee is simple: be honest, be compassionate and be quick.
Wielding the "Ax"
Even if the cause for termination is based on an employee's poor work performance, or for some reason other than a need to cut personnel, firing a human being, telling them, in effect, that you no longer value them, is a psychological and financial trauma for the person let go and can be a psychological trauma for whoever swings the ax. There are ways, however, to make it easier for all concerned. Following these well-established general criteria for whom to dismiss, how to do it, and what - if anything - to provide to the person or persons dismissed will help ease the process.
Before we discuss how to lay someone off, deciding whom to lay offis equally important. It is also important to consider the circumstances of the economy, the company doing the dismissal and the financial condition of the company in question.
Assuming the economy is good and the company is profitable, there may be several reasons to terminate an employee.
- For poor performance, including lack of punctuality, absenteeism, or failure to produce desired results
- For resisting change
- For negativism
- For insubordination
- For not conforming to company values
- For questionable character or ethical lapses
- For criminal acts
However, in a poor economy, decisions about whom to fire and why may be decided using other criteria. The employees marked for termination may include the following:
- Higher salaried employees
- Newly-hired employees
- The lower 10% on the work performance scale, a group Jack Welch, former CEO of General Electric (NYSE:GE), often terminated - in both good times and bad. (For more on this great CEO, see You Don't Know Jack Welch.)
- Employees nearing retirement and/or older employees. Employers should note that terminating older employees may present a risk of age discrimination lawsuits, either individually or as part of a class action suit, so caution must be exercised in this category. It may be advisable to obtain legal advice before terminating employees in these two categories.
(Don't underestimate the impact of your willingness to go the extra mile when layoff notices are being decided on. Read Top 6 Ways To Recession-Proof Your Job to learn more.)
Layoff Best Practices
The "three be rule" is your best guide to the termination process when it comes time to tell the employee.
Be honest: Tell the employee why he or she is being laid off, even if it's for poor performance. You're not doing the employee or yourself any favors by concealing the reason. You may cushion the poor performance assessment in a variety of ways, but the truth must be told. For any layoffs due to poor performance, a recent record of poor performance reviews will support your decision and justify it to the employee. It may also be used as evidence if a wrongful dismissal suit is filed against the employer.
Be compassionate: Being laid off can be painful. Show the terminated employee some compassion and understanding. If your firm has the capability, provide outplacement services or job counseling to help cushion the blow. Keep the employee's ego in mind - it may need a hefty boost at this time, and you can provide it by praising previous accomplishments. (For more on layoff benefits, see The Layoff Payoff: A Severance Package.)
- Be quick: A quick, surgical dismissal, while keeping the above recommendations in mind, is the most humane way to handle a layoff. You may want the employee to clean out his or her desk that day and it may be a good idea to have security escort the employee to the door. Too many terminated employees have taken out their sense of injustice or lust for revenge by sabotaging their computers or attempting to hurt their managers and colleagues. Being escorted to the door can be a humiliating experience for the terminated worker but it can prevent destructive expressions of rage. Dismissing an employee on a Friday afternoon is also an effective means of allowing the terminated worker an entire weekend to recover from the shock of dismissal.
What Not to Do
The manager doing the firing should never express anger, express too much disappointment, or threaten to imperil the fired employee's chances. Depending on circumstances, you may want to tell terminated employees that they might work as outside consultants, as part-time employees without benefits, or that they may be hired back at a later date, when economic and financial conditions warrant it. That said, employers are urged neither to make promises of any kind, nor to make statements that can be interpreted as promises.
The Bottom Line
Laying off staff can be a painful experience for both the laid off worker and the employer who issues the pink slip. Beyond the loss of income and whatever other benefits the employer provided, the laid off worker often feels a loss of self-esteem. For the employer, the experience of laying off a worker may be equally uncomfortable, although in a different way.
Both of these painful consequences seem inevitable, but both can be reduced in intensity if the employer follows the "three be rule" cited above and determines judiciously who should be terminated. In the situation of a mass layoff, a standardized package may be offered, in which case an employer is less likely to deviate from the severance offered. But in many other cases, severance can be negotiated.
Investing BasicsUsing more than one financial advisor for money management has its pros and cons.
InsuranceTough times call for desperate measures, but is raiding your life insurance policy even worth considering?
Mutual Funds & ETFsLearn about some of the mutual funds in Vanguard's lineup that are popular among 401(k) investors, and find out why you should consider them.
Financial AdvisorsAdvising 401(k) plan sponsors is a great business model for financial advisors. Here's how advisors can help plan sponsors meet fiduciary obligations.
RetirementFind out what happens to your 401(k) after you leave your job. Learn about your five primary options, including cashing out and rolling over to a new plan.
RetirementFind out how employer matching of your 401(k) contributions works, including how employer contributions are calculated and annual contribution limits.
TaxesGetting organized well before the deadline will curb your frustration and your tax liability.
RetirementWhat does "nest egg" mean for your personal situation? Will you deplete it, or will you nurture it to generate income that lasts throughout retirement?
Financial AdvisorsWorking during retirement probably doesn’t sound appealing but there are options on how to go about it.
RetirementLearn the risks that come with rolling over a 401(k) in times of market volatility, and discover strategies that you can use to cope with these risks.
Environmental regulations typically have a negative effect on the profitability of the chemicals sector, because of the added ... Read Full Answer >>
Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
401(k) plans are one of the most common retirement plans available. A 401(k) plan must be offered by a business. These plans ... Read Full Answer >>
A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>