Reasons for Company Layoffs

Reviewed by Senior Certified HR Professional Mary Gormandy White

Layoffs Abound

Layoffs happen even in the best economic climates, and for a wide variety of reasons. While it may seem like companies recklessly fire people without much regard for human decency, the fact is that most companies have very legitimate reasons for needing to let people go - and often, it's done as a last resort.

A lay-off differs from a firing in the sense that the people being let go are leaving because the work simply isn't there for them anymore.

Downsizing

Companies that have more employees than they need may turn to downsizing to trim their employee roster. This can sometimes be the result of a company trying to grow too quickly and not experiencing the increase in business they anticipated.

Plant or Branch Closings

When a company closes a plant, branch office, or other worksite, employees who are not able to transfer to other locations are laid off.

The Worker Adjustment and Retraining Notification (WARN) Act requires covered employers to give 60 days notice to employees of an impending plant closure or sizable layoff. The Act pertains to layoffs that will affect 50 or more employees, or smaller layoffs that will affect more than 1/3 of a company's workforce.

Financial Issues

When companies need to cut costs to keep operating, the cost of employee salaries are oftentimes the first expense to get scrutinized since it's typically the largest expense the company has. Leaders hope that they can trim the staffing while still maintaining productivity. While this is sometimes true, it isn't always an effective strategy.

Offshoring

American companies move their operations overseas for a variety of reasons, including cheaper labor, manufacturing costs, and corporate tax breaks. Though moving a company overseas is a big venture, some companies find the long-term results are worth the move.

While in some instances, existing employees follow the company overseas, often the result of offshoring is layoffs.

Outsourcing

If an organization decides to utilize independent contractors to handle tasks that employees have been taking care of, the end result will often be staff layoffs.

Outsourcing can be cheaper for employers since the contractors are responsible for their own taxes and are rarely eligible for company benefits.

Automation

Some automation and AI can help companies produce goods at a faster, more consistent rate than with human workers. When a company adopts automation - and can't find another role for employees who previously did the work replaced by machines - layoffs happen.

Going Out of Business

One of the most common reasons from company layoffs is the unemployment that results when a company goes out of business or declares bankruptcy.

In the case of bankruptcy, the type of bankruptcy declared will dictate whether employee layoffs are needed or not.

Mergers

Mergers continue to rise among companies. When companies merge, some roles become redundant. Unless the acquiring company can find a role for everyone, layoffs can happen. Not all mergers result in layoffs. Some companies expand their staffing needs as the result of a merger.

"Without Cause"

In a state where employment is "at-will," companies don't have to give cause for layoffs. In these instances, companies can simply terminate employment and give no explanation.

Laid-off employees can file a wrongful termination suit if they feel they were let go for complaining about harassment or illegal practices in the workplace, or for taking time to vote or serve jury duty.

Seasonality

Some industries thrive in specific seasons (like tourism or construction in warmer months). While the off-season can be a tricky time financially, most companies account for this when crafting a budget.

When an off-season is particularly brutal or when the on-season doesn't yield the expected results, companies may turn to layoffs to stay afloat.

Recovering From Layoffs

Managers remaining after a layoff will need to turn their efforts toward motivating the people remaining at work, who may feel betrayed or scared for their future employment. On a grander scale, companies should examine how to avoid future layoffs by not making the same mistakes.

Layoffs Are Not Personal

Those laid off should realize that their selection probably had less to do about them personally and more about the department to which they belonged. Layoffs are rarely personal. Take time to process, if you must, and then come up with a plan to find a new job so you can put the layoff behind you.

Reviewed by Senior Certified HR Professional Mary Gormandy White
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Reasons for Company Layoffs