Risks Associated With RIF
From OrgChart.net
Reductions in Force (RIF) can be a very difficult process owing to the inherent nature of the process itself and because of the objectives that are sought to be achieved through it. Organizations resorting to RIF may be inspired towards a more cost efficient and productive functioning or may be pushed into it because of financial constraints. In either scenario, the organization exposes itself to several risks.
Legal Issues
The biggest risk is that of legal issues arising out of violation and non-compliance of laws in the process of employee termination. Without a doubt, it could have grave financial bearings for the organization in terms of compensation to be handed out, costs of litigation, loss of reputation and loss of business to name a few. Of these, many are damages that cannot be reversed easily. Therefore it is best for an employer to be aware of and incorporate safeguards against any provisions that could invite a potential lawsuit.
In this situation, it pays to have written documentation stored properly, and every bit of decision making and implementation done step by step. The entire process must be tailored objectively and administered uniformly across the organization without fault or favor to anyone. Employers must be aware of laws that require them to serve a written notice before their termination (Worker Adjustment and Retraining Notification Act, WARN), laws that are in place to safeguard interest of workers against discrimination (Age Discrimination and Employment Act, ADEA), laws that safeguard their employment rights during justified absence (Family and Medical Leave Act, FMLA and Uniformed Services Employment and Re-employment Rights Act, USERRA) etc.
Problems can arise due to equal employment opportunity claims (EEOC), whistle-blower laws and due to hurriedly and mindlessly drafted severance agreements. Employers face a threat in the form of retaliation claims as well. Adverse action against the complainant after his/her having filed a complaint for discrimination or unfair treatment sets up the employer for a retaliation lawsuit.
These can be avoided if the process is initiated with organizing an overseeing committee with a healthy composition that assures non-partisan planning and execution. Organizations need to be accurate in forecasting the business downturn duration which is essential to determine how much time would be required to reduce operational costs. The organization needs to know where it is poised along the cost cutting phase.
Productivity Matters
Another financial ramification for an organization engaging in RIF is gaining inefficiencies and incurring costs as a result of productivity taking a hit. Although some setback is anticipated, errors could lead to a regressive cycle. RIF implies functioning with less and therefore it may initially make the employees feel weighed down by additional responsibilities. Studies have also found that if restructuring and integrations are not done well, employees have a low work-team identification which eventually leads to performance at work being affected.
Talent Retention
Once a RIF is set in motion, the organization’s best talent takes flight at the first available opportunity, and with the exit of people comes loss of critical institutional knowledge. Experts have estimated that employee turnover can cost an organization three to five times the annual salary of the individual. Also, there are hidden costs and intangible losses that cannot be estimated exactly.
Managing the organization’s reputation at such a critical time becomes vital. It must be communicated clearly that it is the positions that are going and not the individuals. It also helps an organization to adopt a sensitive approach and engage in outplacement i.e. in helping the exiting individuals find alternative jobs. At all times during the process, communication must run clear and uninterrupted.
