| 2 June, 2020 | 4 Min Read

3 lessons from big companies dealing with downsizing

Discover the most thoughtful way to deal with downsizing during this difficult time. Learn from the steps and missteps of big companies downsizing to avoid a PR disaster, unhappy departing workers, and low workplace morale.

With the COVID-19 outbreak putting a stop to economic activities, sales and revenue of businesses have plunged worldwide. Consequently, mass layoffs have been conducted as SMBs and big companies struggle to stay afloat while navigating the new reality. According to a survey, 49% of companies may layoff employees due to the pandemic.

Downsizing is stressful under normal circumstances, but amidst the COVID-19 crisis, the task is even more daunting. As an employer, you have to look for the best way to execute it as your employees are likely grappling with other effects of the outbreak.

With many big companies already making the news for their downsizing method, SMBs can learn from their steps (and missteps). Here are three lessons SMBs should take away from big companies dealing with layoffs and downsizing.


Lesson 1: Communicate clearly

For Airbnb, the world’s foremost lodge-sharing startup, downsizing was inevitable due to frozen worldwide travel activities. Communicating this detail to the employees was vital to implementing the company’s layoff plan. To achieve this, the company leader personally sent a message to its employees announcing the layoff.

In the announcement, Brian Chesky - CEO of Airbnb, outlined the guiding principles behind the layoff. The letter explains how the company arrived at the layoff decision. It also stated the support the company will provide for departing employees. It ended with an apology and words of reassurance to the employees.

By learning to communicate with clarity, as Airbnb did, your company will eliminate any ambiguity concerning the layoff. You will be able to provide the needed details to everyone involved. While this is important in building trust with the departing employees, it is also vital to creating a high morale environment for the retained employees.

In contrast, at Uber, the ride-hailing company, 3,500 employees were fired via Zoom. This approach, also adopted by Bird, the scooter-sharing startup, sent departing employees into panic mode and leading to loss of morale for the retained employees. In the end, both companies actions led to severe PR disasters.


Lesson 2: Pay attention to the law

Hooters, a restaurant chain, is currently being sued by laid-off employees. The company is accused of not notifying its staff of the downsizing plan on time - a requirement under the federal law.

While the question of whether Hooters broke the law is up to the court to decide, this case serves to remind SMBs of one important lesson. They should pay attention to local and federal regulations when downsizing. In addition, regulations concerning age, race, and gender discrimination should be carefully checked before layoff decisions are made.

Aside from these laws and regulations, there are other obligations employers should take note of. For one, businesses that are recipients of government welfare packages may be under an obligation not to downsize for a certain period of time. Also, the agreements and policies employees signed on before joining the organization must be looked through.

Not paying attention to all these before downsizing could hurt business in many ways. The company may be dragged into a lengthy legal battle with employees. If found guilty, the company may be asked to pay a fine or issue an employee callback, thereby setting back the company’s goal to recover from the outbreak.


Lesson 3: Be fair

A model example of how not to conduct layoffs is Curefit. In a memo announcing it is letting go of 10 percent of its workforce, the fitness & food delivery startup stated it has donated about $660,000 to the PM CareFunds.

While the charity gesture may be laudable, the gaffe of communicating such detail in a layoff memo raised many eyebrows. This is because the company has only set aside about $264,000 for its severed employees. The unfairness of the severance pay, compared to the amount donated, seriously damaged Curefit’s brand reputation.

Another company that suffered brand damage due to perceived display of unfairness is Hertz, the car rental company. Shortly after laying off 14,300 employees, the company paid out $16 million in bonuses as retention fees to executives. As with Curefit, the public was quick to accuse Hertz of treating its departing employees unjustly.

The lesson SMBs can take from both situations is that the best PR for your company during a layoff is exhibiting fairness towards your employees. By providing worthy severance packages and support for your employees, you will earn their praise and the public’s goodwill.


Moving forward

Downsizing can be unpleasant, but getting it done may be vital to the survival of an organization. To properly layoff employees, SMBs have to learn from the big companies dealing with the situation now. SMB should learn to:

  • Communicate clearly

  • Pay attention to the law

  • Be fair

By taking these steps, businesses will be able to cushion the effects of the layoff, sustain the retained employees’ morale, and avoid reputation damage. Ultimately, it is the brands that do this that will come out from this situation stronger.

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