Are Holiday Payouts to Laid Off Employees as Generous as They Seem?

Work-Around of Federal Law Gives Companies Opportunity to Soften Criticism of Year-End Job Cuts   

12/7/22 – – The list of companies making late-year announcements of major layoffs keeps getting longer. There was a time when it was a no-no to let people go between Thanksgiving and New Year’s. Such “heartless” cost cutting during the holidays was seen as desperation and risked turning off customers, communities, surviving employees, politicians and reporters lying in wait to write stories about corporate greed and human suffering.

So, what’s changed?

Much of corporate America’s willingness to display Scrooge-like behavior can be attributed, I believe, to the Worker Adjustment and Retraining Notification Act (WARN), legislation passed by Congress in 1988. This law requires companies to give employees and communities 60-days’ notice of major layoffs (language in the law defines what size companies and headcount reductions apply). While these requirements protect important stakeholders from the shock of sudden job losses, they also give employers an opportunity to appear a bit more generous and caring than they really are.    

In the recent round of tech-sector layoffs, managements were praised for the generosity of the termination pay and benefits packages they were giving departing employees. Meta paid 16 weeks’ salary, Twitter 16 weeks, Stripe 14 weeks, DoorDash 17 weeks. In addition, most covered the cost of healthcare insurance for up to six months and paid out any bonuses and other compensation due for 2022 performance.

Here’s where the WARN Act comes into play. Companies can take advantage of a work-around known as “pay in place of notice.” Courts have ruled that you don’t have to give the 60-days’ notice (in New York it’s 90-days’) if you pay departing employees, as you march them out the door, the same amount of salary and honor the benefits they would have received if they were coming to work over that period. That’s why companies do not refer to these payouts and benefits as “severance.” There’s nothing extra you’re giving the terminated employees. Honoring the spirit of the WARN Act, you’re giving them a 60- or 90-day soft landing, and in some cases a few extra weeks for good measure.

Is that worthy of praise? Or are these companies just making the minimum required by law seem charitable?

Media watch dogs have been very gentle with the companies announcing “right sizing,” “team size reductions” and “workforce reimagining” for the holidays. Sure, the argument goes, these workers lost their jobs, but they and their families will be celebrating through the New Year with the same income and benefits they would have enjoyed if their employers had required them to be at their desks or on the factory floor for the final weeks of 2022. Tis the season to be jolly. Right?

Maybe I’m being too cynical. Maybe “pay in place of notice” is a win-win for companies and their former employees. But I still think employers would be wise to think beyond WARN Act work-arounds when dealing with layoffs of any size.

In Chapter 18 of The Crisis Preparedness Quotient, I recommend three principles employers should follow to achieve the best outcome when dealing with terminations:

DIGNITY – There are few human needs more important than dignity. Strip someone of his or her dignity and you heighten the chances of litigation and send a very negative message to your surviving employees as well as your customers. Make every effort to treat people with as much respect as possible when you are sending them into unemployment. The whole world is watching.

DOLLARS – Losing a job is a jolting emotional and financial event. Providing no safety net creates a very unpredictable, desperate person. No company has an unending responsibility to pay former employees. But my experience is that a reasonable amount of money paid at separation goes a long way toward making things go smoothly, keeping things out of court and avoiding a crisis-triggering event.

DESTINY – It’s important to get everybody moving forward, looking ahead. You want a parting employee’s focus to be on his or her future. Providing such services as outplacement counseling is a good way to help individuals get about the business of finding a new job.

Consumers remember how companies behave under pressure, no matter what the season. How an organization treats its own employees in hard times tells you more about its values than any mission statement, marketing campaign or commitment to social activism. Let that be a “warning” for every company reimagining its workforce as we end the year.

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