Is layoff a necessary evil? How should SMEs handle it?

Layoffs can be tricky to navigate, especially for SMEs.

Over the last few years, many small and medium enterprises (SMEs) across industries have laid off employees. More so, in the technology and e-commerce sectors. Flipkart laid off 1,500 employees, saying the layoffs were necessary to align their resources with business priorities. Snapdeal laid off 600 as part of a restructuring exercise to make the company more efficient. Grofers laid off 300 as a way to streamline operations.

Clearly, layoffs seem to be a necessary evil but not an easy option. It can be especially difficult for SMEs. When an SME lays off employees, it can have a ripple effect throughout the company, affecting morale, productivity, and even customer service, not to mention society.

During periods of economic uncertainty or organisational restructuring, as we have seen in the past, this is unavoidable. Handling such situations with sensitivity and fairness is crucial to minimising the impact on employees and maintaining positive relationships with stakeholders.

How can SMEs handle this smoothly?

Plan ahead: Don't wait until the last minute to decide who will be laid off. Start by creating a list of all employees who are at risk of being laid off. Then, carefully consider the factors that will be used to determine who will be laid off.

Legal compliance and ethical considerations: SMEs must ensure compliance with applicable labour laws and regulations when conducting layoffs. In India, the Industrial Disputes Act, 1947, and other relevant laws outline the procedures and requirements for retrenchment. It is essential to consult legal experts to navigate the legal framework and ensure adherence to ethical principles throughout the process.

Transparent and compassionate communication: Effective and empathetic communication is crucial during the layoff process. You should provide advance notice whenever possible. Provide affected employees with proper notice to help them prepare for the transition and explore alternative opportunities. Take steps to explain the reasoning. Clearly communicate the reasons for the workforce reduction, highlighting the business challenges and the impact on the organisation.

Transparency helps employees understand its necessity and reduces uncertainty. Also, while at it, show empathy and display compassion during the communication process. Provide a platform for employees to express their concerns, answer their questions honestly, and offer support and resources.

Fair selection criteria and assistance programmes: Implement fair and objective criteria for selecting employees to be laid off. This may include factors such as performance, skills, and role redundancy. SMEs should also consider offering assistance programmes, including severance packages and outplacement services. Provide fair and competitive severance packages to support affected employees during their transition. These packages can include financial compensation, extended healthcare benefits, or career transition support. Offer outplacement services such as resume writing, job search assistance, and networking opportunities to help affected employees find new employment opportunities.

Retaining and engaging talent: SMEs should focus on retaining and engaging the remaining workforce amidst layoffs. This can be achieved through:

• Realigning roles and responsibilities: Clearly define revised roles and responsibilities for existing employees affected by the layoffs. This clarity will help them understand their value and contribution to the organisation.
• Upskilling and training: Invest in upskilling and training programmes to equip employees with new skills and competencies, enhancing their value and job security.

SMEs can learn from companies that have done layoffs the right way. During its restructuring in 2019, IT services firm Mindtree implemented a voluntary separation programme that allowed employees to choose to exit the organisation in exchange for a generous severance package. The company also provided assistance in finding new job opportunities, such as access to its network and job portals.

Infosys, a multinational IT company, implemented a redeployment programme to help affected employees find suitable roles within the organisation or explore opportunities in the broader job market. The company provided training and support to enhance their employability and offered severance packages to those who could not be redeployed.

It is important to remember that layoffs are a difficult decision for any business owner. However, by handling layoffs in a thoughtful and compassionate manner, you can help ensure that the process is as smooth as possible for everyone involved. By adhering to legal requirements, adopting transparent and compassionate communication, implementing fair selection criteria, offering assistance programmes, and focussing on retaining and engaging remaining employees, SMEs in India can navigate layoffs while maintaining positive relationships with employees, customers, and the broader community that they operate in. By demonstrating empathy, providing support, and offering avenues for career transition, SMEs can mitigate the adverse impact too.