The Role of Length of Service in a Reduction in Force
Organizations participating in a reduction in force (RIF) are typically reacting to an economic reason. A poorly designed and executed RIF procedure is fraught with potential litigation possibilities. Using “length of service with the company or in a job classification is the most common, easiest, and most objective standard” (Wildman-Harrold).
Any RIF is subject to potential lawsuits. Considering the number of employees involved, the amount of potential damages can easily escalate. Consequently, RIF decisions need to be consistent, uniformly applied, and based on objective measures.
Using seniority has several advantages. It is a quantifiable measurement that is readily understood and appreciated by employees. Using Seniority can also aid in the positive perception that employees have in their organization by valuing loyalty. Seniority can also reduce the liability that comes with age discrimination. One survey indicated that age discrimination claims are twice as frequent as any other claim in a RIF. (Wildman-Harrold)
While using seniority as a RIF measurement tool has distinct advantages, companies that use seniority as the sole measurement tool for a RIF put themselves at a disadvantage. These companies are potentially at risk for not retaining productive and high performing, less senior employees. Companies that create a hybrid of measurements that include skill set analysis and performance based measurements, along with seniority will be better served.
Considerations of Gender, Race, Age, and Other “Protected Class” Designations
State and Federal laws protect employees from unlawful termination based on gender, race, and age. It is estimated from the “Displaced Worker Survey” that over 2.4% of all employees displaced in the mid 1990’s filed a discrimination claim with the EEOC (Harriet Zellner, 1998, p.1). Understanding this large potential risk, employers must be cognizant of the effect that any RIF will have as it relates to this protected class.
To understand the potential implication of a RIF on the employer’s protected class, the employer should conduct “statistical pre-testing of RIF lists” (Harriet Zellner, 1998, p.1). In this process the employer would conduct a mock RIF to develop lists of employees both before and after the RIF. These lists would provide the statistical data for the workforce composition, from which a statistical analysis of patterns in the data are completed.
From this data, the organization must make an assessment whether the statistics represent a disparate impact on a protected class. If a disparate impact exists, the organization needs to determine if the impact is statistically significant, is the RIF process fair, impartial, and caused by a business need?
Even if an organization can document that its RIF procedure is fair, impartial, and statistically relevant, the organization must also review the practicality of defending itself against lawsuits. As an alternative, organizations can consider revising their process to include such items as workforce diversity.
The Role of Ethics and Values
Organizations have codified and implied ethics and values. These ethics and values create a system of beliefs, which defines what is right and wrong. From these beliefs, the organization makes decisions and conducts their business. The issue then becomes, what beliefs are used in decision-making processes?
Arguably, the most important beliefs for an organization are survival and increasing profits. These beliefs show a social responsibility to both the community and its stakeholders. (James Gebhart, 1997, p.3)
Although, making decisions based solely on survival and profits, without regard to employee welfare can have hidden and long term costs. Gebhart (1997) showed that in a five-year study of 17 leading organizations that downsized, “their relative performance not only did not improve, but generally deteriorated further”. Additional hidden costs include; stress-related illnesses and accidents, coupled with long-term disability claims, and employee sabotage and theft.
Organizations use their belief system to make decisions every day. When deciding to reduce the workforce, organizations are making an economic decision that has long lasting hidden costs. The economic costs are identifiable and measurable. By making decisions without regard to what is fair, impartial, and for the common good of the employees, the organization can affect the glue that binds the company, which is the loss of employee trust.