Posted By:

Trish Barnes on March 8, 2016

How to Downsize the Right Way

Downsizing — it can be difficult, unpleasant and downright ugly at times. Nonetheless, it’s a reality that many businesses will face at some point. If you find yourself in the position where you need to lay off a considerable number of your employees, it’s important to downsize the right way and be responsible with your actions. Doing so not only streamlines the process and makes it less painful for those being terminated, it can reduce your legal risks as well.


Common Reasons for Downsizing

  • The need to cut costs
  • Reduced workload
  • Relocation
  • Mergers or buy-outs
  • Job outsourcing to increase profitability
  • Jobs are being replaced by technology

Whatever the specific reason may be, layoffs create inherent challenges for employers who are responsible for terminating employees and overseeing the process. If not handled correctly, it can lead to a lot of animosity for individuals losing their jobs and drive a wedge between a company and the employees who retain their jobs.


Legal Issues to Be Aware Of

Although running a business tends to come with a lot of legal risks in general, these risks are amplified dramatically when downsizing. That’s why you need to take adequate steps to cover your company and its assets. Some of the biggest concerns you’ll face include:

  • Lawsuits for wrongful termination
  • Worker Adjustment and Retraining Notification Act (WARN Act), which mandates that companies with 100 or more employees give employees advanced notice of at least 60 days prior to downsizing
  • You may be required to continue former employees’ health coverage for up to 18 months
  • Employees on family or medical leave may be protected from losing their jobs
  • Workers’ compensation claims


How to Ensure Compliance

Staying in the clear from a legal standpoint involves following three main steps. First, you’ll want to be transparent about why layoffs are taking place and be truthful with your employees. Keep them in the know about the process, and give them as much time as possible to seek new employment.

Second, it’s crucial that you adhere to all applicable laws along the way. This means that no discrimination should ever take place based on race, gender, age, disability, etc. For larger companies with over 100 employees, it’s essential to remain compliant with the WARN Act. You may also be impacted by COBRA and need to extend medical coverage as well. Due to the potential for litigation, it’s smart to seek professional legal counsel to prevent any backlash.

Third, you’ll want to maintain thorough documentation throughout the entire process. This includes making records of decision making, information you shared with employees, your company’s financial predicament and so on. Doing so will put you in the best possible position if you happen to encounter any legal trouble later on.


Layoffs are never a fun part of running a business and can put a lot of stress on employers. By downsizing the right way, you can minimize a lot of complications, maintain harmony with remaining employees and keep your company’s reputation intact.