April 3, 2023
The art of ethical layoffs: How to keep a company’s integrity despite cutbacks #
COVID-19, the global crisis, the Russian war against Ukraine; all these events affect business in each country. Many executives face difficult decisions about how to protect their organisation’s finances.
Flexibility is one of the main business skills in the 21st century. Businesses must adapt to the new realities of the world, pass through all stages of crises, and come out even stronger with a new experience. Unfortunately, at this time, it is necessary to optimise resources and financial indicators and concentrate on numbers and clients to survive. Difficult decisions about layoffs must be made.
If your company is facing such a challenge and wants to make it right, here are some points I’d recommend considering during preparation for layoffs.
“Hows” are important #
A little example would be useful. In November 2022, Twitter laid off a large number of contract workers without informing the full-time employees who worked alongside them.
Since the purchase of the company by Elon Musk on October 28, the social network has already dismissed about half of its employees. The layoffs affected 4400 out of 5500 Twitter contractors. Employees said that Twitter did not provide prior notice that their fellow contractors would be laid off or when it would happen.
Musk wrote about the dismissal on Twitter that regarding downsizing Twitter, there is no other option since the business is losing over $4 million a day. He also mentioned that those who left the firm received three months of severance pay, which is two months longer than the legal minimum. Musk warned Twitter employees that bankruptcy is not out of the question as backers have stopped or deferred spending on the platform during its rough takeover.
You can hardly call that an ethical layoff. Later, employee rights attorney Shannon Liss Riordan and others filed a proposed class action lawsuit against Twitter, saying former employees did not receive sufficient notice of their termination under federal and California law. This is a serious problem that could happen to any company not practising ethical layoffs.
Layoffs have shaken Europe and the UK #
In 2022, Europe faced cuts in the IT sector. With the global economy slowing down, some of Europe’s best-known corporations have drastically cut staff to save money.
Private company valuations have deteriorated as a result of the collapse of technology stocks on the public market. Investors are writing checks more cautiously and encouraging companies in their portfolios to cut budgets. B2C companies are particularly vulnerable as their customers are more cost-sensitive.
Many well-known internet companies, including fintech company Klarna, fast food sector exemplar Gorillas, online events platform Hopin, and digital healthcare provider Kry, have recently announced staff cuts. This trend can be seen in many industries.
Some notable layoffs in Europe fintech domain: #
- Pleo, which provides services such as expense management and corporate credit cards, planned to lay off up to 15% of its employees in 2022, affecting up to 150 people.
- Wayflyer, the financial platform for e-commerce businesses that has just been dubbed a unicorn, has laid off 40% of its staff. This affected seventy employees at the firm’s Irish headquarters in Dublin.
- Klarna, the world leader in “buy now, pay later”, announced its intention to lay off 10% of its staff in May. Most of the cut positions are in Stockholm, with the talent acquisition and engineering teams being the hardest hit.
- Juni, Sweden’s new e-commerce bank, laid off about 10% of its staff in late September.
- The founders of Clearco, a financial services company based in Canada with the largest venture capital investment in Europe, said that 25% of the company’s staff around the world will be laid off.
- Zego, which sells insurance for commercial vehicles, said it will let go of 17% of its workers.
- Nuri, a German bank, announced that it would lay off 20% of its staff.
- Freetrade, a trading platform based in London, laid off 15% of its workforce.
- Curve, a digital wallet aggregator based in London, laid off 60 to 70 employees.
- Bitpanda, a cryptocurrency exchange, has cut its staff by about a third to have some breathing room during the cryptocurrency winter. The company says it has laid off 34% of its employees, reducing the total number to 730 from around 1100.
- Uncapped, a finance company that is based on making money, let go of 29 employees, which is 26% of its total staff.
Take your time #
So how do you keep a company’s integrity despite cutbacks? Try to take your time to review everything first.
Take measures to reduce costs and search for alternatives. Your financial analysis should give you an idea of what reduction you have to make, but here are some other questions to answer:
- Which roles will be most impacted based on your goal-setting?
- Do you examine your own roles in the same way you examine others'?
- Will these results help or hurt your efforts to build a diverse, fair, and inclusive company?
- Is there a talent or a skill that can be leveraged in new ways?
And if, after analysing and answering all these questions, you make the final decision to dismiss, you must be confident in how you will do it.
When layoff is an only option #
When all other options are exhausted and layoffs are inevitable, senior management must understand why the cuts are happening. Now is the time to create a company vision that is focused on the future, not a time capsule.
Look at how different companies do it. In some of them, the HR department creates mass emails about layoffs. Sometimes managers call a general meeting and announce the layoff of a team or department. Finally, some managers find time to talk with everyone in 1-on-1 meetings about the reasons and plan for further actions.
How you handle layoffs will have a lasting impact on the employees who stay, so you need to consider how they will view the process. Every business faces this process, but how can ethical ones do it?
When you do a staff downsizing in a fair and as open as possible way, you’ll keep the remaining team together and put your company in a better position for the future.
Key questions to align on as a leadership team:
- Is it possible that you may have to rethink your company’s strategy and/or model? Is it possible that there may be commitments you will need in the future but are neglecting now?
- Is it possible that certain units are already outdated?
- Is the ratio between the number of managers and subordinates adequate?
- What will be the end result in light of everything you have discussed so far?
Making tough decisions #
Your financial analysis can tell you how much you need to cut staff, but here are some other things to think about.
Always check your measurements before making any cuts #
The effects of laying off employees on morale and production should not be underestimated. Make sure that your cuts are severe enough that you only have to go through it once; otherwise, the remaining employees will be on edge and worried that the next wave will come and they will be next.
Take care of the employees #
The last days of work are one of the most important parts of an employee’s experience. After a layoff, a person’s ability to take care of themselves and their loved ones can suffer due to a loss of value, confidence, and independence. Your plan should allow you to provide competitive severance benefits to departing employees. It all depends on how much help you can give them in recovering and starting a new life.
Expect some people to leave on their own #
Recognize that some attrition is normal after a layoff. While you may have done everything possible to keep your employees happy, some of them may feel the need to start over elsewhere. The extent of your losses will be determined by elements such as your culture, the circumstances leading up to the departure, and your response to the situation.
What you need to do, step-by-step #
- Make a list of people and include the end date and conditions for terminating cooperation.
- Prepare your talking points ahead of time.
- Write down what you will say to each of them.
- Schedule time for each person and give them the time they need to understand difficult information.
- Tell them about the decision to end the cooperation. Describe the situation and what led to it.
- Clearly state how the partnership will end, when the last day of work will be, when the last payment will be made, and any other terms your company has.
- Allow the employee to choose how fast or slowly they process information.
- Share what you can. Employees will value different information at this time, but it’s common to ask who else has been impacted.
- Provide a knowledgeable contact person who can answer questions when they are ready. Usually, it’s the HR manager.
- Offer assistance if it’s possible. It may be a recommendation letter, etc.
In remote work cases, the same points are valid for ethical layoff, but it will be in an online meeting. Another but not the best way is to tell about layoff through group meetings, email, or recorded videos.
Sometimes this is unavoidable; the volume of impacted employees might make it impossible to notify people individually. In those cases, ask yourself:
- How can you do this in a way that respects and values each person?
- In what way can you honour their different needs and circumstances?
- How can you lead with our values?
What to avoid #
- Don’t rush a dismissed person, showing that you have little time to talk with them.
- Don’t fill up space with nervous chatter, and don’t make excuses.
- Don’t be overly sentimental.
- Don’t make this about you or about the time you went through this.
- Don’t leave a person with unanswered questions. If you don’t know the answers, find someone in the company who does.
Communication with remaining employees #
Managers should not abdicate their responsibility to inform affected employees of bad news, even if it is one of the most traumatic events in their lives. Managers and HR professionals should work together on these talks, but in the end, it’s up to the people who make the decisions.
By the time you are ready to talk to the rest of the staff, you will have come a long way. Keep in mind that the journey to understanding with the rest of your organisation is just beginning.
For days, if not weeks, some or all of your employees will undoubtedly be wondering what is going on, as well as feeling anxious and stressed by the uncertainty. One possible emotion is relief that they are still “in the know” and working. A second wave of emotions such as remorse, fear, criticism, and even terror can quickly follow.
- Prepare your words and what you can share. Employees will want to know not only who, what, and why, but they also will want to know that people were taken care of and how decisions were made.
- Efforts to shut down communication are rarely successful and can lead to mistrust. Instead, provide easy and unfiltered access to leaders and encourage difficult and direct questions. Additionally, don’t try to restrict communication with departed employees.
- Give people an opportunity to grieve. Lower productivity expectations during this time and allow time for teams to process.
In times of crisis, it is important to act quickly in the interests of the company. But in our desire to do everything possible, we should not forget about the people who helped the company become what it is today. Now is the time to stop, reflect, and think about how words and actions can affect others.
Your decisions today will have an impact on your staff, culture, and brand. Take risks, but before you act, analyse, and treat people with dignity.