Process of laying off which does not create panic or a sense of insecurity among other employees?

The Managing Director of my company wants to reduce the workforce. Specifically, he aims to lay off employees who are non-performers or under-utilized in order to cut costs due to the company's lack of significant profits. The management has tasked me with developing a strategy for this process and outlining the steps that need to be taken after identifying the employees to be laid off.

The layoff process must be executed in a manner that minimizes panic and prevents feelings of insecurity among the remaining employees. I invite everyone to share their input on this matter.

Are the non-performers from the Workman Category or other than the worker category? Specifically for worker category, you need to conduct a domestic inquiry before terminating any Workman. For other staff members, please follow the principles of natural justice so that there is no panic situation.

Dear Shweta,

Once confirmed, every employee gets protection of employment, which can either be statutory or under the contract of employment or by both depending upon his/her cadre. Therefore, no employer can simply send them out under the pretext of surplusage or under-performance at his sweet will.

There is no mention of the total number of employees in the organization with category-wise breakup. There are two lawful options before the management. One is retrenchment, and the other is voluntary separation.

In the case of retrenchment, if the average number of employees in the cadre of "workman" as defined under section 2(s) of the Industrial Disputes Act, 1947, in the preceding 12 months is 100 or more, the employer has to obtain prior permission from the appropriate Government under section 25N. Even if it is less than 100, one month's notice or one month's pay in lieu thereof, and retrenchment compensation at 15 days' wages last drawn for every completed year of service have to be paid by the employer. Moreover, the management cannot pick and choose the people for retrenchment. It should be strictly based on seniority only, i.e., the juniors should be sent out while the seniors are kept. Getting Government permission for retrenchment is a cumbersome quasi-judicial process because it involves the employees or their unions as well. That apart, no popular Government would grant permission for fear of adverse criticism.

Therefore, the better and easily workable option is voluntary separation provided your management is willing and affordable. But the possible inherent minus point in VRS is that the deadwood may stay back while some efficient lot may opt to move out. It depends on how you tolerate poor performance, document it, and reward efficient ones.

In the present environment where PhDs are applying for peon jobs, any layoff will be stressful and create panic.

Laying off or retrenching workers will fall under the Industrial Disputes Act. The provisions of the act need to be followed in letter and spirit.

A generous golden handshake can be considered as it will be a one-time expenditure. Identify non-performers and bad workers, and prepare a list.

See whether your golden handshake will tempt them. It is not easy to get rid of workers in bulk.

Consult a good labor law consultant available locally in confidence, and prepare a strategy.

Dear Shweta,

Two terms are important in your post. One is "lay off" and another is "under-performance". If you wish to remove the employees on account of under-performance then it would be incorrect to term it as "lay off". To refer to the definition of lay off, click the following link: [Special Provisions relating to lay-off, retrenchment and closure under Industrial Disputes Act](http://www.legalserviceindia.com/legal/article-137-special-provisions-relating-to-lay-off-retrenchment-and-closure-under-industrial-disputes-act.html)

Removal of the employees because of under-performance is common across the spectrum of the industries. However, what matters is whether you had issued warning letters once the under-performance was discovered. There should not be sudden termination. Employees need to be given sufficient chance to improve their performance.

Your concern is that employees may get overwhelmed because of the fear or anxiety. However, if you are following the principles of natural justice, then neither there is a need for you to worry nor for the employees. Panic could prevail provided employees feel that there is an environment of injustice in the company. To remove the misplaced fear or anxiety amongst the employees, organizational communication plays a big role. Communicate to them that the leadership of your company values performance and those who attain the standards of performance can have a smooth sail.

Going further, removal on account of under-performance should be an ongoing process. You should not wait for everyone's removal at a time. If the removal because of under-performance is a regular feature in the company, then also employees will overcome the fear.

Lastly, please use the correct HR terminology not just while raising the queries in the public forum but in regular work also.

Thanks,
Dinesh Divekar

Dear Colleague,

Your interchangeable use of lay-off for termination of services is improper. The ID Act defines lay off and retrenchment specifically, along with the conditions governing them. Lay off refers to the temporary suspension of an employment contract for legal and justified reasons, and it does not signify the end of the employer-employee relationship as in the case of termination, resignation, retirement, or retrenchment. Retrenchment involves the discharge of surplus labor and can only be carried out by complying with the provisions of the ID Act/Rules.

Termination due to underperformance requires following a disciplinary action procedure by adhering to the principles of natural justice. It appears that your MD may not be fully aware of his legal obligations and seems to believe he can hire and fire at his discretion.

Regards,
Vinayak Nagarkar
HR Consultant

Hey Shweta,

I recommend the following:

1. Never mix up non-performance, redundancy, lack of projects, making losses, and restructuring for profit while discussing this topic with management or employees.

2. If you trust your MD and have an excellent rapport, then only continue with this project. My honest suggestion is to act carefully and never become a scapegoat.

3. If you have people classified as 'workmen', a recommendation from your labor law advisor is a must before any further action.

4. As you know well, Layoff is the most difficult and painful exercise in India. Once done, the black mark stays forever, and unfortunately, HR will be at the receiving end. It is not ethical to suddenly say, "Hey, you guys are not performing, and I don't have money to pay. So fired."

5. Study the problems, gather all sorts of information to identify the real problem. No sales, no viability, no market, no cash to run the business, etc. Then what? winding up the business through the proper channel.

6. Restructuring by removing a fraction of employees is pretty tough in India. If it is the wish of the management, as an employee, you have no choice. However, prepare for it with due diligence.

6.1 Understand the expectations of management - what is the expected outcome. It could be resizing the firm, saving office space, reducing capital costs by 50%, and so on. Make a statement and start from there.

6.2 If your organization has no formal performance appraisal process, HR cannot announce that Mr. ABC is an underperformer. However, as per the appointment order terms, management can dismiss anybody from employment by giving notice and compensation.

6.3 The standard way of performance-related separation requires regular performance checks, placing underperformers in a periodical PIP (performance improvement program), PIP review, sending the case to a committee for the final decision, and then separation.

There are many rude and unethical practices (unnecessary transfers, blame game, keeping employees idle, not paying salaries on time, pushing for unrealistic targets, etc.) to coerce employees and expel them from the company. I recommend not to follow such unfair practices.

As rightly said by others, layoff and retrenchment are two different cases. Your case comes under termination through disciplinary action. Without the issuance of any showcase letter or warning letter, you cannot terminate the employee irrespective of their category.

You need to first understand why the management needs to take this action. Only then can you formulate a different strategy to terminate the employee.

Hello Shweta,

I will suggest the following options:

1. To go for the VRS, if any performing employee opts for the same, you or management can discuss the matter strategically to retain them.

2. Do not directly remove people. It will create panic among the employees, even though you try to take precautions. During performance appraisals, provide feedback to non-performing employees for performance improvement (PIP). Parameters should be clear for performance and non-performance. Just ensure there is no injustice in terms of favoritism or seniority.

Thanks,
SMJ

Dear Connections,

Thank you all for your valuable inputs. This was of great help to me.

Regards,
Shweta Gehlot

What is the industry you are in? How many employees are employed, age profile, how long your company exists, and turnover details are fundamentally required to give any advice on this subject. In a strict sense, a layoff is a temporary suspension from employment, and what you actually mean may be a permanent handshake. Reducing manpower is a different subject, and sending out people based on performance is also a different subject.

Sivasankaran

Hi,

To proceed with a slow layoff, the idea of removing employees based on poor performance is now yours. However, there are judgments and directions for removals. The last man to go first means that recently joined employees with lesser service should be at the top of the removals list, while older employees with more service should be retained in order of priority. Everything should be done while serving a notice and briefing the company's facts. Unless poor performance is addressed, it cannot be solely based on your wishes. No one can deny your company's financial status and the necessity for retrenchment. Please obtain permission from the labor department to legally carry out your company's layoff.

Another important point to consider is the saying, "If you want to kill a dog, call it a mad dog." It is advised not to follow such old, crude methods. The universally accepted legal procedure is to obtain permissions from the labor department for the layoff and to follow the last man first go procedure.

OK, all the best Swethaji

ID Act Central Rules 1957, Rule No. 77 states that a seniority list should be prepared before removal. "Last come, first go" is the principle of retrenchment. All layoffs will be pacified through retrenchment only.

Saddar workshop employees vs Employer (1980) 11 LLJ 124 (SC) CASE

Please let me know if you need further assistance with this case.

Dear Shweta,

Please refer to the appointment letters issued to each employee upon joining your organization. If there is a clause stating any notice period for termination, you may proceed with it. Alternatively, you may refer to the Standing Orders, if applicable to your establishment, for employees whom you would like to release from the company.

Please choose one of the above options to streamline the process for excess or underperforming employees. Undoubtedly, during the rationalization of manpower, there may be panic among all employees. However, as an HR professional, you should organize motivational training sessions, provide sufficient timelines, and then execute the process, which will yield positive results.

In addition, many of our colleagues in this forum have shared insights on the processes of retrenchment and layoffs. These processes can be complex and may result in delays in outcomes.

It is itself an alarm and is always a very difficult situation to handle for both employer and employees. The dismissal of employees on the grounds of non-performance is never an easy one to take, but you must follow the terms of employment/appointment letter agreed upon by both parties during proceedings.

Many seniors have provided you with the best solutions and suggestions for your concern above. You also have to follow the directions given by your management, so you may first consider the employment conditions and later speak to management for the best possible options as soon as possible.

Layoff is the clear management of profit and loss of any company. To stay within the budget and cut expenses and overheads, this is done. However, most major corporations do plan for this. (Not a pink slip move, other than that). You can add some benefits associated with their compensation and ask employees who would like to relocate themselves or re-shuffle through internal job postings. In the event that nothing works out, you always have the choice to decide whom you wish to keep on the payroll. Providing sufficient prior notice not only helps but also saves those who have worked for you and their families. Thanks.