Are Workforce Reductions Coming to the Private Sector? And, if so, How Should Companies Handle Them?

Massive federal workforce reductions (once a rare event) have been featured prominently in the news lately, along with reports of criticism about the way they are occurring. Will private companies follow suit? Some economic signs, such as the continuing low unemployment rate, do not point in that direction. However, layoffs increased 28% in January as compared to the previous month, and WARN filings, as well as increasing company announcements of projected future layoffs, tell a different story.

Moreover, short-term causes, such as the impact of tariffs and cuts in government contracting, as well as slightly longer-term developments such as the effects of artificial intelligence, suggest more workforce reductions may be coming in the near future.

While no one likes a reductions-in-force (RIFs), there is a right way — and a wrong way — to conduct them. RIFs require meticulous planning and execution. While each job action must be analyzed according to its unique facts and circumstances, the following steps can promote fairness, minimize the disruption, stabilize morale, and reduce legal risks in conducting a RIF:

1. Continue to Employ Good Performance Management: This may reduce the number of necessary reductions and make the decisions easier or harder (e.g., if everyone is rated “excellent” on annual performance reviews, they do not function as useful tools in the RIF context).
2. Consider Other Options: Is a voluntary program an option? Can the company achieve the cost savings by other means, such as eliminating contractors rather than employees?
3. Once: Try to make the reductions occur at one time, rather than as a staggered series of actions. Among other things, doing so can help reduce uncertainty and anxiety among the remaining workforce.  
4. WARN: If you meet the federal Worker Adjustment and Retraining Notification (WARN) Act layoff thresholds, or the typically lower-threshold state law criteria if applicable, issue a WARN Act notice at least 60 days before the layoffs.
5. Process: Employ a consistent process with defined and fair reduction criteria that is aligned with the collective bargaining agreement (if unionized) and company policy.
6. Documentation: Memorialize decisions, using template documents that are easy for managers to complete, and retain those documents.
7. Avoid Discrimination: Make sure that your process is devoid of unlawful discrimination. Be especially careful about age discrimination, which is increasing statistically, and avoid using criteria that is likely to negatively impact older workers.
8. Legal Review: Work with legal to conduct a privileged disparate impact statistical analysis (to ensure that the layoffs do not inadvertently impact employees on the basis of protected characteristics) as well as a legal review to reduce risk.
9. Severance and Compliant Agreements: Pay severance whenever possible and obtain a release. It is worth it to eliminate risk and stabilize morale. Comply with the Older Workers’ Benefit Protection Act’s disclosure, review, and revocation requirements. Make sure to revise your standard agreements to account for recent state law changes (e.g., precluding non-disparagement and confidentiality clauses prohibiting discrimination-related communications).