Lessons Learned in Layoffs

Enterprises must cope with human, legal issues.

Last October, less than six months into her job, Meena Patel prepared to tell co-workers they were losing their jobs. As human resources director and associate counsel for Goinvest.com Inc., Patel had never dealt with a layoff before, but she knew she had to do it with speed and compassion.

"You have to be a hand-holder, and thats what I did," said Patel, who left Goinvest.com earlier this year. During the layoffs last fall, Patel and upper management at the Santa Monica, Calif., company made an effort to quickly conduct the layoffs, which affected 20 employees, or about 40 percent of the staff, Patel said. On Oct. 31, the morning after deciding who would be affected, managers met employees one-on-one. Patel handled many of those meetings. She also coached managers on how to explain the layoffs, such as making clear that they were caused by a lack of funding rather than poor performance.

Patels handling of the layoffs shows how to do them right, experts say, but no matter how managers handle them, layoffs are tough. For dot-coms and startups, its been unknown territory until the past year of financial floundering. Now these companies are discovering they need the correct layoff approach to minimize damage to employees and to avoid legal troubles.

Making the process as humane as possible is critical, experts say. Employees should be told in person and individually if theyre losing their jobs. Employers must also objectively decide on whom to lay off based on past performance or employees roles to avoid charges of unfairness. They also need to be sure they follow labor laws about notification and benefits.

"Former employees of your company are either your best goodwill ambassadors or your worst critics, and thats the reason why you need to spend the time and effort to do it right," said Nick Kalm, an executive vice president at Edelman Public Relations Worldwide, in Chicago.

Too often, dot-com and tech layoffs in recent months have fallen well short of good goodbyes. One example is Walker Digital Corp., a technology development company based in Stamford, Conn., and founded by Jay Walker, who also founded Priceline.com Inc. Walker Digital is being sued by the state of Connecticut for failing to provide sufficient notification of layoffs to employees and the states Department of Labor as required under the Worker Adjustment and Retraining Notification Act.

Individual states often toughen layoff requirements, said Brett Bloch, a partner at law firm Seiden, Alder, Rothman, Petosa & Matthewman P.A., in Boca Raton, Fla. Maine, for example, requires a certain amount of severance pay, while Connecticut requires health insurance to be continued for 90 days after termination, Bloch said.

Trained as a lawyer, Patel knew the legal considerations that would touch on the Goinvest.com layoffs. To guard against ramifications, she notified employees about rights such as the Consolidated Omnibus Budget Reconciliation Act, or COBRA, another federal requirement that lets terminated workers extend group health care coverage.

But as well-considered as the first round of layoffs was, a second round in December proved to be anything but. When the company laid off most of the remaining employees and asked some to volunteer time to the company, Patel disagreed with top management. She said she advised against asking for volunteers because having employees work without pay is illegal.

Employees must earn at least the minimum wage, and employers who ignore wage laws can be liable for back pay, according to Peter Gold, a partner in the labor and unemployment practice at the law firm Blank Rome Comisky & McCauley LLP, in Philadelphia. Their top managers could even face criminal charges.

Along with the law, employers need to consider when and where they plan to announce layoffs. Early in the day and the week is best, said Peter Berner, managing partner at career consultancy OI Partners Inc., in Pittsburgh. That gives rumors less time to fester, and it gives employees time to accept the news before a weekend alone.

Ideally, word of cutbacks should come directly from an affected employees manager and not from a mass e-mailing or companywide announcement, Berner said. "More lawsuits are initiated and contemplated—and more emotional damage is done—during that short moment when a manager lets [an employee] go."