As economic uncertainty swirls, many employers have begun whispering one of the most dreaded words in the HR lexicon: layoffs. Even if you don’t believe you will have to eliminate jobs any time soon, it’s probably a good idea to start formulating preliminary layoff plans now so you can move quickly if the need arises.
According to Mark Zandi, chief economist at Moody’s Analytics, the Trump administration’s tariffs on goods from other countries will raise prices and lead to fewer jobs and a weaker economy during 2025.
While a recession isn’t certain, planning as if one could happen will make any eventual layoff go more smoothly. For example, if your company finds itself having to conduct a mass layoff, preparing now will help you comply with the federal Worker Adjustment and Retraining Notification Act and state mini-WARN laws. The laws require employers to give advance notice of any significant layoffs; some even require you to make severance payments.
The first step in preparing for a layoff is building a list of people and positions to be terminated. Here’s how to create a layoff list:
Base it on performance reviews. Whether you need to lay off 10 employees or hundreds, you will need a layoff list. Prepare it in a way that doesn’t discriminate. The best way to avoid bias is by basing job cuts on recent and up-to-date performance reviews that score each employee on a competitive scale based on objective, measurable performance metrics. Employees who scored lowest on your scale should be the first to be laid off.
Exclude illegal considerations. Check your list for employees who have taken any form of protected leave, such as FMLA leave, or time off as an ADA reasonable accommodation. It is illegal to base any adverse employment action on job-protected leave. Don’t count that time off against employees when arriving at their performance-review scores. For example, if you mark down an employee’s score because they missed their yearly sales quotas, you must have adjusted the goal to account for time missed for taking FMLA or disability-related leave.
Check your list for disparate impact. Depending on how you structure the layoff, it may have a disparate impact on members of a protected group. That could amount to illegal discrimination under Title VII of the Civil Rights Act and other federal and state laws. For example, if your layoff significantly or disproportionately causes job losses for employees over age 40, that disparate impact may trigger an age-discrimination lawsuit.
