Layoff Ethical or Not

Yes, I consider Layoff is ethical provided this is happening as the last option a company can resort to after carefully considering all other possible ways to stave off the impending bleak business prospects. This glamorous topic came to the fore front on the account of economic slowdown which we are witnessing after the financial market melt down in US especially the housing market bubble. The repercussions of the unprecedented financial turmoil are felt across the world.

US slipped into recession and many companies went bankrupt (Lehman brothers). Many others are on the verge of bankruptcy (Merrill Lynch). The financial sector has been hit particularly hard in this recession as bad investments and risky loans have gone bad. And the safest bet was cost cutting (Banking giant Citigroup had more layoffs than any other company in 2008, according to Challenger, Gray & Christmas, first with a 9,000-job cut announced in April and then another 50,000 jobs eliminated right before Thanksgiving; GM slashed 19,000 hourly workers; collapse of Lehman brothers had cut 16000 jobs; US has one of the worst unemployment rate of 7.2 with 2.6 million jobs lost). India too has been witnessing this slowdown.

The slowdown in the economy has made companies resort to layoff or downsizing as one of the cost cutting techniques. This unemployment created can be attributed to Cyclical or Keynesian unemployment, also known as demand deficient unemployment, occurs when there is not enough aggregate demand in the economy. This is caused by a business cycle recession.

Coming to ethical concern let’s look at a situation. Take, you have experienced technicians and your business is not doing well in the current economic situation. After all, firing your technician may be the right move, from a business standpoint. However, this may not be the right step to resort to. As we have discussed that slow down is cyclic and you may want his service once the business picks up. On a more personal basis, getting laid off could have a severe affect on your employee and his family. Not only did it affect the concerned employee but affects the morale of other employees as well. Employees feel little or no loyalty to the companies they work for.. Many of them want to feel connected to their companies on this difficult situation. But when they realize they are disposable cogs subject to the whims of management, they find it a hard feeling to nurture.

In India, we are not comfortable with the idea of firing people. Employers see this as a threat to the company image. The company is in an ethical dilemma and we know some desperate step is imminent in the above situation. What can be done to avoid layoff or for that matter the alternate ways to resort to?

·         Pay cut. There can be cut in salary across levels of organization. We should also pay attention to the high quality performers and the cut in salary should not reduce the value of these employees. The slash in compensation for the top level management can be considered.

·         Less Working hours. In the manufacturing sector where there are more contract workers on hourly basis, this option can be considered as it would mean lesser expenditure without losing employees. Ashok Leyland, TATA, Mahindra and other manufacturing companies are considering 3 working days a week rather 5 days a week previously.

·         Increase productivity. The employees can be addressed about the difficult times the company is passing through and about the initiatives that can be taken to increase productivity. Extended working hours and taking up additional work can be considered. IT companies resort to this option in the current economic situation.

·         Voluntary leave. The company can encourage employees to take a break (usually in years) without pay and they will be taken back after the stipulated period at the same designation and the last pay drawn.

·         The company can encourage employees to do higher studies and give them sabbatical after which they can join the company with a newer designation. This would add value to the employee and can contribute to the company once the business cycle restart again. There are companies which encourage employees to join NGO or any social organization with half the salary in the slowdown period.

·         When Layoff is absolutely needed as the company is not able to cope with the current situation, what can be done:

o    Outplacement assistance. A company wishing to layoff its men, partners with other firm/firms to absorb the employees thus laid off.

o    Unemployment insurance allowance. This allows the employee to receive some amount based on his previous salary. This would give some support until a new job is found.

o    Company should have appropriate communication to the employees and explain them the current downturn. Give them some cooling period to search for other jobs and good severance package at the time of leaving.

If these steps can be worked upon, I feel the layoff would be considered as an acceptable option rather than unethical. The company won’t break the bond with employees and the mutual trust would prevail.