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This chapter is from the book

Organizational Exit

Objective: Gain an Understanding of Organizational Exit

It is up to the SPHR to strategically manage organizational exit so that it is, to the extent possible, controllable, involuntary, and functional. Organizational exit is controllable when it is the employer that determines when employees leave the organization. It is involuntary when employees leave the organization because of organizational mandates, not the employees’ desire to do so. Voluntary organizational exit (also called turnover) is frequently a significant problem in organizations, and often it is the best employees that leave. Involuntary organization exit involves termination for poor performance or layoffs or termination of excess employees when they are no longer needed by the organization. Functional organizational exit means that the organization is more efficient and/or effective after the exit occurs. Dysfunctional organizational exit results in a decrease in the human capital of the organization and decreased organizational capacity.

Organizational exit is the process of managing the conditions under which employees leave the organization and is often referred to as decruitment. An employee might be required to leave the organization because of his or her own actions, or the exit might be mandated based on organizational strategy that is beyond the control of the individual. Layoffs are discussed in the first section, along with strategies that can be employed to either avert the layoff or lessen its impact on the employee. After that, discussion moves on to involuntary terminations based on employee performance or conduct. If organizational exit is to be controllable, involuntary, and functional, the organization must know why exit occurs, particularly voluntary exit. One of the ways of determining this is by conducting exit interviews. Strategies and practices associated with exit interviews are discussed. Finally, this section addresses the issue of wrongful terminations.

Layoffs

There are a number of reasons why an employer might desire to reduce the total number of employees. Some of the more common reasons include the following:

  • Downturns in overall operations caused by economic conditions or drop in product or service demand; commonly referred to as downsizing
  • Concentrating on core competencies; commonly referred to as rightsizing
  • Mergers or acquisitions that create redundant or duplicate positions
  • Increases in production or introduction of new technology requiring fewer employees
  • Competitive decisions, such as movement of plants to lower cost labor areas domestically or internationally (offshoring)
  • Competitive decisions to outsource work currently being done internally

Any of these reasons might result in a decruitment situation in which the employer has a surplus of employees and must reduce the overall size of its workforce or must change the composition of its workforce in terms of employee capabilities.

Decisions to terminate or lay off employees have significant organizational implications. First the organization should evaluate the impact of layoffs on its diversity programs and the potential for creating adverse impact. Although seniority is generally considered to be a defense in adverse impact situations, the organization might be able to craft a layoff scenario that avoids adverse impact. Next the organization must consider the impact of layoffs on its important stakeholders. Layoffs send a mixed message to customers and investors. Even though the process might be perceived by these constituencies as prudent business decision-making, there is equal likelihood that it could be considered a sign of organizational, product, or service weakness, impacting demand and access to capital. The organization must consider the impact that such activities might have on the communities in which it operates, balancing business goals with social responsibilities. Finally, and most importantly, organizations should consider the impact of layoffs both on those employees directly affected and those who remain.

Because of these factors, the SPHR must be able to lead the organization in the development of programs that might permit the organization to avoid layoffs entirely or reduce the total number of employees that are laid off and programs that lessen the impact personal impact if an employee is in fact laid off. They are discussed the following sections.

Strategies to Avoid Layoffs

Even though the organization has decided to reduce the total size of the workforce, there are many strategies for accomplishing this goal without involuntarily laying off or terminating employees. These strategies frequently take some time to have impact; consequently, they might not be feasible if the immediacy of action is critical. However, in other situations the strategies discussed in the following section might avoid it totally or reduce the number of layoffs required.

Early Retirement Incentives

Many workers are willing to retire early if provided with the right incentives. Early retirement options that provide added benefits and that do not violate the Older Workers Benefit Protection Act, discussed in Chapter 5, can facilitate reductions in workforce levels. However, a major concern with this strategy is that it is often the best workers that are attracted by the offer. They are those who have additional options, such as second careers.

Part-time Work and Job Sharing

Many employees are interested in reducing the total number of hours worked, either through part-time work or job-sharing arrangements. This strategy can often accommodate family lifestyle needs and reduce total compensation costs.

Leaves of Absence

Organizations have had surprising success with offering unpaid leaves of absence. If the conditions requiring reductions in workforce levels are projected to be temporary, offering leaves of absence might assist in avoiding the need to involuntarily lay off employees.

Attrition and Hiring Freezes

Attrition is the reduction of workforce levels caused by the normal processes of retirement, resignation, termination, and so forth. Hiring freezes prohibit the hiring of new and additional employees and the replacement of current employees that leave the organization.

Voluntary Resignation Programs

Employers might offer bonuses for employees that want to leave the organization voluntarily. Many employees might have other options available to them, but are not eligible for early retirement. Some sort of bonus might be sufficient to motivate them to leave the organization voluntarily. As with early retirements, these types of programs must be crafted to avoid the loss of critical individuals and serious impact on critical departments.

Strategies to Minimize the Impact of Layoffs on Individuals

Two common strategies that can be used to minimize the impact of layoffs on individuals are severance pay and outplacement services. They are discussed in the following sections.

Severance Pay

There is no federal legal requirement for severance pay. However, many organizations offer this benefit to provide former employees with income continuation in the event of involuntary termination. Severance pay is either a one-time lump sum payment or a temporary continuation of salary provided by the employer to terminated workers. Calculations of the total amount to be received are typically based on length of service, and frequently involve one week’s pay for every year of service. Severance pay often makes good business sense because it serves both a humanitarian and public relations purpose.

Outplacement Services

Outplacement services are provided to assist terminated individuals in obtaining new employment. Services provided frequently include employment counseling, assistance with resume preparation, training in job search skills, training to improve interviewing skills, and job referral assistance. Generally, these services are outsourced to vendors that specialize in this area. As discussed earlier in this chapter, outsourcing vendors are often good sources of external recruits.

Exit Interviews

Many, in fact most, employers use exit interviews, which are conducted in an attempt to determine why individuals are leaving the organization. The objective is to determine what is good and what is bad about the organization in order to provide management with information that assists in developing or modifying programs to improve organizational performance.

These interviews are typically conducted by the HR function. There is an assumption that the individual has no reasons to guard his or her remarks and is forthright in observations about the organization when leaving. However, recent research has revealed that changes in the psychological contract may be modifying that paradigm. In today’s environment, employees often do not consider their termination of the employment relationship to be permanent and might want to retain their option to return at some future date. In these situations they are not likely to be totally forthright in evaluating the organization and its programs. To overcome this reluctance current exit interview practice often involves delaying the interview for about 30 days after termination and conducting it via phone, guaranteeing anonymity.

Wrongful Termination

The subject of wrongful termination is also discussed in Chapter 6. Wrongful termination occurs when the termination violates statutory or common law. Wrongful termination actions can be pursued as tort actions in court or under the provisions of the applicable employment law, but generally not both. Three types of wrongful terminations are discussed in this section: terminations that violate law, constructive discharge, and retaliatory discharge.

Terminations That Violate Law

The concept of employment-at-will is discussed in Chapter 6 along with exceptions to the concept. Terminations that violate public policy and implied contracts (both discussed in Chapter 6) and those that violate contract law could be wrongful terminations. Disagreements of this type are tort actions under common law and the former employee can sue for damages of various types.

Constructive Discharge

Constructive discharge occurs when employer actions make the employment relationship so untenable that a reasonable person would have no obligation but to resign. In this case, the resignation is coerced and the employee might have recourse under either common law or certain employment laws. Recourse under common law is typically limited to situations in which the individual gives up a legal property interest in the employment relationship, such as when the individual has an employment contract. Constructive discharge might be another form of illegal discrimination under various employment laws.

Retaliatory Discharge

Retaliatory discharge occurs when the employer terminates the employee for exercising right or obligations under the law. This typically occurs under one of two scenarios:

  • The employee is terminated for filing a complaint or otherwise exercising rights guaranteed under employment legislation. Examples are filing an EEO complaint, reporting OSHA violations, and so forth.
  • The employee is terminated for fulfilling obligations under the law, such as testifying against the employer when summoned to do so in a court of law or reporting employer violations of law.
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