September 28, 2010

Think Before You Fire: Designing an Adverse Impact Analysis

In our tough economy, laying off employees has become a knee-jerk reaction when budgets get tight. But, what are the true effects of employee layoffs and how might choosing them wreak havoc later on? Losing a skilled, experienced and loyal employee can hurt your bottom line over time. In this post we’ll discuss how you can help your managers and the leadership at your company make smart choices about staffing so that the company stays healthy long term.

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You can slow down the employee lay-off process by asking for more consideration of short and long-term effects. You can get all of this accomplished by requiring that an impact analysis be written before an employee is let go. This analysis should include not just the cost benefits of eliminating this employee’s salary but an adverse impact analysis, as well.

In an impact analysis, a manager must think through the pros and cons of functioning without a particular employee. It can cover a variety of issues – effects on current projects, impact on other company divisions, eventual need to re-hire.

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It can also include an analysis of if you have more greatly impacted employees in any protected class (age, race, gender, etc). You can design an impact analysis to suit your company's short- and long-term goals, as well as minimize risks to the organization of being sued.

Examples of Impact Analysis Approaches

Start by looking at who will perform the duties and responsibilities of the individual who is leaving. Will you re-structure jobs within the organization to absorb these duties? Will you hire temporary workers or other less skilled workers? If so, it’s really important that you analyze all costs associated with this action including:

1. Will adding additional duties to an existing position change the market value for that position and will you need to pay that person more now or in the future?

2. What will be the costs (hard and soft) involved in hiring replacement workers including temporary salary, recruitment costs and agency fees, lost productivity and training costs?

3. What are the costs associated with employee layoffs such as vacation buy-out, severance or unemployment costs?

4. It’s important to remember that some of the costs associated with employee layoffs may be absorbed by other departments. If this person supports other areas or having this position creates efficiencies to cross-departmental processes, then you’ll want to make sure you’ve accounted for all of those costs.

5. Finally, it’s important to remember that if you let this employee go only to find out that you need their special expertise later, they are probably going to cost you more to hire later on. Employees are more willing and able to negotiate higher wages once they know you need them back. So, assuming that you can hire an experienced employee back at the same wage is problematic.

Once you have taken a look at the impact any one position will have on the organization you’ll want to do an impact analysis to make sure that your decisions about who will stay and who will go does not have any bias in regards to employees in a protected class. We all know that it is illegal to make decisions on the basis of membership in a protected class – but even inadvertent impact can cause legal trouble for the organization.

To prepare this type of impact analysis make sure you look at:

1. Percentages of employees affected by the layoff by membership in a protected class. Calculate the percentage of your workforce that is represented in each protected class and then do those same calculations for employees that will be laid off. For example, if you entire workforce is 35% female but 70% of the employees that are being laid off are female – there may be an issue. It’s time to ask questions.

2. Make sure any discrepancies that are legally defensible based on business reasons are well-documented. For example, if the company has decided to outsource the customer service operations to a third party and the majority of the employees that work in customer support are female – this may explain the discrepancy and could very well be justified for business reasons. But, it’s important to have clear documentation that supports these decisions.

3. Be very careful with employees that are on protected leave. While most attorneys would probably agree that it’s not out of the question that employees on protected leave would be selected for lay off – you will have to prove that the decision was made completely irrespective of their leave status (including missed work time). This is a really sensitive situation and you should consult with a labor attorney before making these decisions.

If you can help the organization find immediate relief (reducing costs) but also be mindful of long-term goals, then you will add value to the process and hopefully help the organization make good decisions. Careful planning that takes a little longer in the beginning will help your organization in the long run.

Regards,

Stacey Carroll
Director of Customer Service and Education
PayScale.com

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