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Employers ‘cautious’ in hiring, firing

Attorney: Cuts affecting workers can carry legal risks

Laura Brown//May 26, 2023//

A piece of paper with "TERMINATION OF EMPLOYMENT" printed at the top on top of a desk or table image

Employers ‘cautious’ in hiring, firing

Attorney: Cuts affecting workers can carry legal risks

Laura Brown//May 26, 2023//

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An uncertain economy has left businesses “cautious,” according to Dan Prokott, a partner at Faegre Drinker. Prokott, who advises businesses of all sizes regarding complex matters, shared some insight into this cautious attitude and what it means for workers.

Dan Prokott
Dan Prokott

Prokott says that employers are aware of murmurings about the debt ceiling and the specter of a recession. “Employers are just being very cautious about growth and being very thoughtful about what they are projecting for the balance of this year into next year,” Prokott says.

That has translated into some firings.

“On the exit side of things, we have seen at least a modest increase in workforce reductions for different employers,” Prokott notes. “Obviously, it’s impacted different industries somewhat differently.”

The latest job report showed that many of those cuts impacted individuals such as recruiters and human resources professionals. Other industries that got more significant hits included transit and ground passenger services and building construction. The tech industry also has been hit hard. Nearly 200,000 in the tech industry have been let go so far this year, with Meta announcing another layoff of 6,000 individuals on May 24, 2023.

“We are also seeing more modest workforce restructurings or reductions across a variety of industries where, from my perspective, employers are looking at current demand for products and services are within their industry and seeing that there may be a leveling-off perhaps in some areas,” Prokott asserts. “There may be some decline that causes them to right-size their organization going forward.”

Things appeared to be a bit grimmer at the beginning of the year, where the majority of employers anticipated 2023 layoffs. A report showed that the unemployment rate fell to 3.4% and 253,000 jobs were added in April. Most of those gains came from professional and business services, leisure and hospitality, and health care. This includes lawyers.

But Prokott suggests that businesses will maintain a cautious approach to hiring and workforce size. “I think there will continue to be workforce restructurings and reductions that will happen throughout this year,” Prokott surmises. “I am not saying that they will affect all industries in the same way, but there does not seem to be something on the horizon that’s going to necessarily be a major increase in demand for products or services.”

Prokott notes that the cautious approach may not necessarily translate into firings. “Alternatives can be looking at reductions in hours, either on a temporary or longer-term basis,” Prokott says. “Are there opportunities or a willingness for people to work less hours? This would decrease pay but would also decrease benefits costs. Work-sharing—opportunities for multiple people to fill a position or role—would also be an alternative.”

However, Prokott notes that he is not seeing as much of this, though he says that there are some companies looking at temporary layoffs instead of full terminations.

Businesses are also looking at other avenues for cost-savings. “The non-personnel cost-savings is something that employers look at too, whether it is technology costs or investment costs in the business,” Prokott says. “Those are things that employers are looking at as well, asking, ‘Should we be doing things to reduce our expenses on non-personnel matters as well to hopefully limit the number of personnel that we may need to cut?’ This is something that companies are certainly looking at.”

Ultimately, some businesses will have to terminate workers. This can open employers up to legal claims. “The risks are facing claims that someone, or more than one person, claims that they were selected for an impermissible reason, based on being a member of a protected class or retaliation for something they had said or done in the workplace,” Prokott says.

Prokott advises companies to have protocols in place to avoid these claims. “Have multiple decision-makers involved so that there are different voices that can both come to a common understanding of why the action is being undertaken but then also check the decisions that are ultimately made of, ‘OK, why are we selecting these individuals among the group of employees being considered?’” Prokott says. “And then, when selecting those individuals, have designed criteria, whether that is performance, skillset, location, ability to transfer work to someone else. All those objective factors may have some element of a subjective view for certain factors, but having a designed process the employer is doing everything they can to ensure the right people are selected to stay or go based on legitimate business criteria.”

“The way to guard against those claims are to ensure that there is a designed process from the beginning where the employer is identifying ‘why are we doing this workforce reduction’ and ‘what are the legitimate business reasons that we need to reduce headcount.’ Be thoughtful about that,” Prokott insists.

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