Layoff criteria - the different methods

If a company finds itself in an emergency and needs to start laying off its workers, it is a difficult situation for everyone involved. Management has to part with valued employees and the employees may be worried for their career and what happens next. The layoff law specifies the order in which employees must be laid off to make it fairer for all involved. It is intended to ensure that the selection of employees to be dismissed is based on social criteria.

Why is layoff criteria important?

Hopefully you will never need to use your layoff criteria, but sometimes things don’t go the way you planned and maybe your company needs to let go of some employees. The criteria is used to help compare employees who are eligible for termination on the basis of their job profile.

Laying employees off is never an easy task, but there are some methods to help employers make the best choice. These are:

  • Seniority based selection
  • Employee status based selection
  • Skills based selection
  • Merit based selection
  • Multiple criteria ranking

Seniority based selection

This method is often the first one that springs to mind and follows the principle of: last in, first out. If the employee has only been working for your company for a couple of weeks or months then they probably haven’t settled properly yet or made much of an impact. By filtering out workers in this way, you also avoid age discrimination since older employees who have been there for numerous years don’t have to worry about getting a pink slip.

A disadvantage of this selection criteria is that the new person you just laid off could have brought so much to the company, but you’ll never know since they never got a chance to prove themselves.

Employee status based selection

This option gives more protection to your full-time employees by laying off those who work on a part-time basis or are freelancers. This method isn’t as difficult to implement since contingent workers aren’t protected under the same laws as full-time workers. The downside to this method is that just because someone is a full-time worker, it doesn’t mean they have more loyalty to the company or works harder than a contractor. So make sure you’re not making any mistakes and letting good workers go. In recent years, businesses have become more and more reliant on contract workers so if your business employs many freelancers, it doesn’t make sense to choose this method as layoff criteria.

Skills based selection

This selection criteria focuses on the skills that employees bring to the table. By knowing which department is your company’s strongest, you can work out which skills are most sought after and are more likely to help your business thrive. You can work out how important a skill is by imagining what would happen if the department were halved or didn’t even exist. If the result doesn’t bear thinking about, you know this is a highly-valued skill.

A disadvantage of this method is that younger workers may have joined the company after studying for the job and therefore have more skills than older workers, who will then be the first to go. This could be perceived as age discrimination.

Merit based selection

This methodology entails letting go of employees that aren’t pulling their weight. This way the company doesn’t lose any valuable workers. In order to work out who the best employees are, your company needs to have an evaluation system in place to decide as fairly as possible. The problem here is that performance evaluations aren’t always objective so it’s hard to pit two departments against each other, for example. Plus, what happens if the poorer workers are all in the same team? You can’t just get rid of a whole team at once, which makes this method quite difficult to implement fairly.

Multiple criteria ranking

The most effective way of deciding who to lay off is also the most difficult to implement. You first create a list of factors and give each one points depending on how important you think it is. This formula is then used for each employee so they end up with a certain number of points. Those with the lowest number of points are the ones should then be laid off in that order.

If the length of time an employee has been at the company is an important factor for you, then the tenure points model could look something like this:

Amount of time working at the company Number of points
<1 year 0
1-5 years 1
6-10 years 2
10+ years 3

Summary: Finding company-specific solutions

What works for one company, may not work for another, so choose the layoff guidelines that make the most sense for your business. There are advantages and disadvantages for each layoff selection criteria and you have to be careful since errors made during the layoff process could have serious consequences for an already weakened company.

It’s recommended to decide on the layoff criteria and have the final version written in the company agreement in order to be able to act quickly in the event of an emergency. Another option is to include the layoff rules in each employee’s contract or to implement the necessary job cuts with individual termination agreements.

Is there any protection for employees about to be laid off?

The federal Worker Adjustment and Retraining Notification Act (WARN) helps to protect employees and their families by making it mandatory for employers to give at least 60 days’ notice when it comes to mass layoffs. However, WARN only covers companies with at least 100 employees. These 100 employees don’t include those who have worked less than 6 months in the last year, nor those who work less than 20 hours in a given week. Regular federal, state, and local government entities providing public services are also not covered.

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