How to legally protect your business during layoffs

I’ve asked attorney and law professor Melanie Calvert to give us some pointers about legal considerations to protect your business during layoffs. Hopefully your business is thriving and there’s no need for this!

Keep in mind these laws are specific to the state of California. Though some labor laws overlap in various states, it’s highly recommended that you consult a labor attorney in your state for specific laws applicable to your business.

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In the coming year, companies may have to continue down-sizing to stay in business, to maintain sufficient operating capital, or to obtain necessary bank funding. There are few considerations you should keep in mind prior to and during layoffs:

The employees’ job function. Employees should update their job descriptions and the time allocated to functional tasks. This will permit assessment of essential duties, duties which may be combined with duties of others and those duties which are marginal to business operations. Employers may achieve cost savings by consolidating employees’ duties.

Talent pool and experience. Employers should value seniority, job performance and special skills and job knowledge which employees have acquired from the job. If the economy improves, and employers need to hire again, it is expensive to train new employees and bring them up to speed.

Selection criteria. Employers should select employees for layoff based on objective criteria such as job functions, responsibility, seniority, performance, skills and knowledge. There are good reasons not to include an employee in a layoff. Since these reasons are too varied to enumerate, you should consult an employment attorney. Generally, employers should not lay off employees who have filed recent discrimination complaints. On the other hand, employers may (in certain circumstances) layoff employees who are on pregnancy-disability leave. Generally, employers should not immediately hire new employees to replace the laid-off employees. This undermines the economic reason for the layoff. For the same reason, it is probably unwise to give pay increases to the remaining work force. Again, each situation is factually specific and requires the advice of employment counsel.

Heads-up. California WARN law applies to certain layoffs, business relocations and/or business cessations at companies that employ, or have employed within the preceding twelve months, 75 or more persons. Generally, this law requires sixty days notice to affected employees and to designated governmental entities and has a maximum penalty of sixty days pay (unless an exemption applies). While federal WARN law is different, it also requires notice or pay.

Health insurance. If your company provides health insurance, promptly notify your health insurance administrator to send out required notices including HIPPA and COBRA health insurance continuation.

Last pay check. Pay employees all wages which are due at the time of termination including, but not limited to, all accrued vacation, bonuses and commissions. Promptly reimburse employees for company expenses when submitted. Obtain employees’ acknowledgment of receipt for wages and expenses.

Unemployment insurance. Provide employees with Notice of Change in Relationship and a copy of the Employment Development Department bulletin. Unless the employee has committed intentional misconduct which harms the company’s business or has voluntarily left employment without good cause, do not fight unemployment benefits. Your experience rating will go up but you will obtain employees’ good-will and help company morale.

Company property and information. Have your employees acknowledge return of all company property and information. As a general company practice, change all computer pass codes and keys (if employees had keys to company offices).

Neutral job reference. Give dates of employment and last position (unless employee poses a documented threat to the safety of others).

Separation pay, outplacement assistance, and a release. To assist employees in transition, consider offering outplacement assistance, and additional separation pay, if employees sign a release and agreement not to sue.

Older workers (40 or over). If you pay older workers for a release (agreement not to sue), you must comply with each requirement in the Older Workers’ Benefit Protection Act.

Exit interview. Consider a feedback form for employees to comment on their work experiences.


Bio: Attorney, Melanie Calvert, has practiced labor and employment law since 1985. She was nominated as one of the best labor and employment attorneys in The Pasadena Magazine (November 2009). Melanie is also an adjunct faculty professor at the University of La Verne Law School, Ontario, California. More at: www.calvertlaborlaw.com.

Eleven money allocation tips for small and medium business (SMB) during the recession

In my last blog I discussed ten growth factors for small and medium businesses (SMBs) during the recession, and as promised, this blog discusses money allocation tips during the recession, i.e., where to cut back and where to allocate funds for best results. It will probably help if you read the last blog before you read this one.

Get the best finance VP (CFO) your money can buy. Many finance VPs are glorified accountants, but you can’t afford this when times are hard. Your finance VP is a key executive and a huge factor in the health of your business, and needs to be strategic, creative, and an expert in cash flow management. Penny pinching isn’t necessarily a success factor during tough times. Your finance VP needs to know when to strategically invest in your business, when to shut the purse, and how to allocate your funds for best results.

Shed low performing business & product lines. Perform detailed analysis on your business lines and product lines, and either sell or shut down the ones with low ROI. You have better things to do with your money. This doesn’t apply to new operations that require more time to show returns.

Evaluate marketing and advertising costs. Marketing and advertising are major cost centers, so take a step back and reconsider the ROI on each aspect of your marketing efforts including print, email campaigns, trade shows, online programs, advertising (both online and traditional). Move funds into higher ROI activities and eliminate or reduce your lower ROI activities. Definitely look into social media. It’s here to stay, and as I mentioned in my last blog, it will turn your marketing department upside down.

Evaluate your customer service processes. Customer service is one of the main cost centers in service oriented companies. Take a serious look at your customer service processes and see how you can reduce the need for “contact”. Can you improve your product documentation? Better yet, can you move all your documentation and “help line” online (including videos, flash presentations, photos, diagrams, etc.)? The cost of developing online help is minimal compared to the cost and headache of maintaining a customer service department, but you have to do it right otherwise it will backfire on you.

Consider outsourcing. If you can let go of the control a little, you can save a lot of money by outsourcing, as long as you don’t outsource your core competencies. It’s a fine line and it’s easy to lose track of your core competencies in your quest to cut costs.

Boost R&D. I mentioned this before, but it bears mentioning again. Times will improve at some point, and you need your competitive edge when that happens. See my last blog for more details.

Re-negotiate your building’s lease. Yes you can. At least you can ask.

Evaluate the cost of ownership of all office equipment. Unearth the hidden costs of maintenance and lease agreements for: PCs, laptops, hardcopy products (printers, copiers, etc), network equipment, and other hard assets. Get rid of the unused equipment especially those with maintenance agreements. Re-negotiate the lease and maintenance agreements for the equipment you plan to keep. For new purchases, consolidate your hardware vendors and negotiate a hard deal with one of the top three in the field. Businesses spend up to 3% of revenues annually on hardcopy costs, most of which is unnecessary. Simply replacing copiers with networked scanners will save a lot of money in equipment and consumables costs (paper, toner, etc), save space, and make your data more accessible. (I know far too much about the hardcopy industry – ask me and I’ll tell you more.)

Remove the bottom 10% of your workforce. All companies carry dead weight in good times, but if you haven’t already cleaned up, this is a good time to do so. Getting rid of low performing employees doesn’t necessarily erode morale (counterintuitive, but true).

Pay cuts, forced vacations, bonus cuts. If you haven’t already done this, this is a better alternative to layoffs. Make sure everyone understands this is temporary and stand by your word, otherwise, the minute the market turns around, your best performers will take off. One day every two weeks forced day off, and/or 5-10% pay cuts seems to be the norm these days. Pay cuts for higher paid personnel and executives should be more than others. In tough times, bonuses only go to those who directly increase the top-line or bottom-line. You’re not Goldman Sachs, and you don’t have to act like them.

Travel costs. Another one that you’ve probably already considered. Make sure to invest in technologies such as web conferencing to simulate face to face meetings with clients and partners. Consolidate all your travel bookings with one agent to get better deals. Mileage points stay with the company not the employees.

I hope you find these tips helpful. Feel free to let me know if you have other helpful fund allocation tips.