Reduction in Force vs. Layoffs

Eric Mochnacz
January 29, 2024

Although the term reduction in force (RIF)  and layoff can be used interchangeably, there are slight differences between the two.  Although they both result in employee terminations, the volume of people impacted tends to be the key difference.  The context and implications of the two scenarios vary.  We will do a brief review of each situation and the HR considerations when managing employee terminations.   

What is a Reduction in Force? 

Generally, a reduction in force starts with organizational restructuring and will impact a greater number of people.  RIFs tend to focus on cutting costs as a result of the organization’s restructure, so it may mean reducing the amount of contractors and external vendors the company uses, elimination of entire departments, or termination of employees for cost efficiency or to address individual employees’ underperformance towards business objectives.  Typically, the end goal is for the business to reduce operational costs while still remaining viable.  

What is a Layoff? 

From my perspective, a layoff, although it is part of a larger reduction in force, also applies to the decision to terminate an employee.  Generally, the focus of a layoff is an individual employee or a smaller group of employees who are not meeting performance expectations.  A decision to layoff an employee is often related to significant performance issues, misalignment of their behavior with company standards, or outright negligence.  Cost is not as much of a factor when instituting single layoffs, as the impact on the bottom line is immaterial.  Individual layoffs are generally not an indicator of a company disruption or the company undergoing a restructuring.  

The Key Differences Between Reduction in Force and Layoffs 

First, I will always advise companies to work with HR (or an outsourced HR consulting firm if you don’t have an internal human resources team) and employment counsel when deciding to terminate employees, whether it be a larger RIF or an individual layoff.  Each one presents its share of risks for an organization, and working closely with the experts in employment practice and law is a guaranteed way to mitigate risk.  So, although the amount of people impacted is different, both scenarios should be done with expert guidance. 

As stated, a RIF often will impact a larger amount of your workforce.  So, the due diligence a company completes prior to a reduction in force will take longer and is more complex.  If the focus of a reduction in force is operational efficiency and cost savings through restructuring, HR needs to evaluate the most effective way to meet these goals.  They consider business goals, the related cost, and the overall impact on the business of their decision.  Employers often go through a number of iterations of a restructuring plan before settling on a final decision because of the numerous factors that can influence the final outcome.  Furthermore, a larger reduction in force often requires employment counsel to do their own analysis to ensure workers in protected classes aren’t adversely impacted by the employment action.  Reductions in force may also trigger WARN notices (both on the federal and state level), which require further administration and communication on behalf of the company to employees and the government in advance of the force reduction. 

And although you still want your HR consulting partner and legal counsel involved in individual layoffs, the pre-work may not be as involved, as layoffs tend to be one off.  The business case for termination in a layoff is often specific to the employee and their performance.  If you’ve reached the point where you are considering laying off an employee, HR’s responsibility is to ensure you have appropriate documentation which supports the business case for termination.  The majority of the United States maintains at-will employment relationships with employees, but we always suggest you have cause for termination and materials to support your decision.  It’s still critical to ensure compliance with employment law, but the implications of terminating one or two employees are not as far-reaching as that of a RIF.  

In both cases, HR engages with leadership to discuss severance philosophy.  As a general practice, we also work hand in hand with employment counsel on separation and general releases for all impacted employees.  These documents clearly outline what employees are entitled to due to their separation and mitigate risk for the employer.  Depending on the impacted population, separation, and general releases need to include certain criteria, so no employer, whether conducting a RIF or a one off layoff, should attempt to manage this process without HR and legal expertise weighing in.  

When a Reduction in Force is Necessary 

If we are operating under the assumption that a reduction in force is the outcome of organizational restructuring, an RIF becomes necessary as a cost reduction or efficiency measure.  Restructurings are often a reaction to changing market conditions, shifting consumer activity, or the need for a business to streamline operations.  Having to eliminate a large number of employees or entire business units is generally considered a common outcome because a company’s largest expense is payroll.  If there are underperforming departments or there are business units no longer aligned with business goals or their service offering, those business functions may be the focus of the reduction in force.  

When Layoffs are Necessary

Laying off an employee is necessary when the individual isn’t meeting the goals of their position.  This may be due to ongoing performance issues, and despite the company’s attempts to offer support and guidance, the employee isn’t improving.  Sometimes, an employee may engage in behavior that is so egregious, it’s an immediate decision.  Other times, it is evident during an employee’s introductory period (typically a 90-day onboarding) that they aren’t a fit for the role or organization.   

Does Your Small Business Need Help Navigating Organizational Change? 

Layoffs suck.  They are difficult for the employer, but ten times more difficult for the impacted employee.  And as much as they suck, at times, they are necessary for a business.  So, the focus for an effective RIF or layoff is ensuring the employees on the receiving end of the difficult message are treated with dignity and respect.  The company also wants to remain legally compliant through every step of the planning process and in the execution of the RIF or layoff.  In the past year or so, we’ve seen the results of what happens when companies don’t know how to handle layoffs appropriately.  You don’t want to be that company.

The way you avoid being that company?  Work with skilled HR consultants who help you navigate every step of the RIF/layoff process, and do so with a human-centered approach.  Red Clover supports employers in due diligence, relationship management with employment counsel, organizational restructuring, and developing business cases for reductions in force and layoffs.  We are also the resource in the room with leaders during the conversations and we always script these discussions and train managers in message delivery.  We develop and execute communication plans for the day of as well as messaging to the retained workforce and any post-activity response.  

We have the company’s back during RIFs and layoffs.  Reach out if you find yourself in need of a reduction in force or layoff support.

Photo by Alex McCarthy on Unsplash

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