Mass Layoffs: A Case Study of Utilities Company, Australia

Mass Layoffs: A Case Study of Utilities Company, Australia

Introduction

In order to keep up with tough economic times and heightened competition, many organizations have been compelled to implement layoffs in the recent past (Gandolfi, 2005). Other than direct layoffs, companies have also restructured their operations in form of mergers, acquisitions and outsourcing all of which still result in indirect layoffs. From a human resource (HR) point of view, layoffs refer to the process of eliminating some positions and subsequently cutting down the number of employees in an organization (Thompson, 2011). When done in mass (massive layoffs), the results may be severe. “Tension in the air, uncertainty prevails, morale is in jeopardy and the threat of legal claims looms large,” (Droz, 2011, p.1). According to Droz, if affected employees are members of a trade union, the company has a legal obligation to give a notice to the union and offer a platform for bargaining over its intentions.

This paper is a case study of downsizing-related layoffs by the Utilities Company of Australia, a former state corporation that has since been privatized. We focus on the particular incidence where the company CEO was forced to announce impending layoffs of 120 staff members in order to survive tough economic times and high competition. The Layoffs were said to be targeting expensive and long-serving staff that were deemed to be underperforming and had limited potential for growth or improvement. According to the CEO, such staff members were an obstacle to the Utilities Company’s vision of becoming an efficient firm with a great capability to weather trying economic times. Through these layoffs, the CEO expected the company to come out stronger and with such a great competitive advantage as has never been in the history of the company.

The essay consists of four main segments. The first segment is a critical analysis of the Human Resource implications of the CEO’s announcement to lay off 120 staff. The second section of the essay discusses the Occupational Health and Safety (OHS) issues that arose within the company in response to the layoff announcement, how the company handled these issues and how best they could have alternatively been dealt with. This will be followed by a critical evaluation of the impacts of the industrial action that was witnessed in reaction to the layoffs. Finally, the essay considers the experience of Maree (the HR manager) which led to her resignation and suggests an ideal organization’s plan for communicating layoff decisions to employees and managers.

HR Implications of the Layoff Announcement

This section explores the implications of the CEO’s announcement to lay off 120 staff on the human resource of Utilities Company. Newspapers of the day reported the company’s intention to slash 120 jobs. Meanwhile, word was sent to the HR Manager, Maree, a week preceding the onset of the downsizing exercise. This means that for the whole period since the announcement was made, employees had to live with the anxiety of whether they would lose their jobs or survive the downsizing surgery. Maree, as the Human Resource manager, and other middle level managers, who were tasked with the responsibility to implement the layoffs, were also left in speculation. They were particularly concerned with the criteria they would use to fill the list of 120 employees who would face the layoff. This would obviously affect the organization’s performance from the pre-layoff period to well after executing the layoffs (Brockner, Davy, & Carter, 1985).

Human resources refer to the people/workers/employees of an organization. Every organization requires human resources as a key factor of production. Human Resource Management (HRM) is a department, within an organization, that is tasked with the responsibility of managing and developing the work force for the organization. It is also commonly referred to as Personnel/Talent Management (Hargis & Bradley, 2011). HRM functions include: identification and hiring of workers, training and growth of hired employees managing workers’ exit from the organization (Batt & Colvin, 2011). In addition, typical HR functions revolve around workers’ benefits and compensation, employer-employee relations and general organizational development. In short, HRM is all about assisting workers in an organization to be more effective and satisfactory in their work (Crook et al, 2011).

Its central role revolving around the workforce in the company, the HR department must have been the first to feel the implications of Utilities Company CEO’s announcement to lay off 120 staff. Maree, at the helm of the department, experienced the initial fear and shock of how she would go about the process of laying employees. Fulfilling her mandate, of ensuring employees welfare, she spent sleepless nights worrying about the announcement. This, most likely, affected all her other responsibilities, schedules and appointments as her attention shifted to this uphill task. Disrupting the normal operations of the HR department is likely to have an adverse impact on the company’s performance by jeopardizing its efforts to coordinate the human resource for general organizational development. Besides, many HR staff received abusive e-mails with Maree bearing the brunt of them. This couldn’t have been any good for their work, finally forcing her to bow to the pressure by resigning from the position.

According to John, Hui and Richard (2001), “A company that endures a layoff mercilessly bleeds critical personnel. It staggers from the loss of talent, knowledge and morale for months, even years, after a layoff. The loss of productivity after such a layoff is profound.” (p. 270). In the case of Utilities Company, it is very clear that by laying off 120 staff members, a great pool of talent would be lost. The situation was worsened by the fact that when calls were made for voluntary redundancy, most of the target staff did not express interest. This derailed the initial intentions of the CEO to lay off expensive and long serving staff members that were a liability to the company yet with very limited ability to improve or grow. Staff in business units that were not deemed as core and managerial staff who had not performed well in the past two years of annual performance evaluations were also targeted by the layoff.

However, out of the 52 expressions of interest received, many of them were from expert staff in project teams with high levels of education and excellent track records who could easily land jobs elsewhere. Now, this is surprising. One wonders why such workers would be willing to leave the organization in this way. In fact, Maree argued that “from skills point of view, it was unwise to let this staff go”. Instead, very few of the targeted middle-level managers and administrators volunteered to be laid off. As such, the Utilities Company lost a pool of desirable talents that any organization would want to have. This would likely impact negatively on the success, completion and continuity of projects these workers handled prior to their exit. Furthermore, the most of the remaining staff were already considered “expensive for nothing” and could not be trusted to accomplish such projects. No wonder this made Maree “sick”.

Equity Issues

One important issue of chief concern during layoffs is equity. In his statement, “CBO Testimony,” James L. Blum (1994) defines the equity issue as “the possibility that female and minority workers are more likely to be laid off and that the workforce will become less diverse.” (p. 14). Minority workers, here, could also refer to the old and long serving employees that according to the CEO of the Utilities Company were considered as a deadwood. Cutting off such people would alter the age diversity within an organization (Brockner et al, 1986). Human rights organizations as well as employees’ unions are concerned about these issues in any attempt by a company to lay off staff. The layoff must not appear to prejudice against any group of workers on the basis of gender, race or age. Some governments also have labor laws and regulations that check equity issues in companies’ downsizing attempts (Blum, 1994).

Furthermore, a demographic analysis of employees who had left the company on voluntary redundancies showed that a disproportionate number of younger staff and women had taken redundancies. This analysis, conducted four months after the layoff announcement, reported a surprising discovery that some women took voluntary redundancy on grounds that the company treated them with little respect, something they could no longer take. The issue of age also came up strongly in the attempt to implement the second phase of the layoff, which was targeted redundancy. Maree was concerned that most of the employees on the list were 50 or even older. According to her, mass layoff of such people would elicit trouble from the Human Rights Commission on grounds of age discrimination.

Occupational Health and Safety Concerns

Occupational Health and Safety (OHS) refers to the protection of employees’ safety, health and wellbeing at the workplace. Some OHS plans also cover a safety component for customers in cases where they may be affected by an organization’s working environment (Occupational Safety and Health Administration, 2013). Usually, workers safety may be influenced by diseases, illnesses and injuries that may be realized in the course of their work. The nature and impact of OHS issues differs from construction occupations, non-construction occupations as well as predominantly service occupations (Bennett, 1995). Whichever the line of operation of a company, or the causes of OHS concerns are, all organizations have a legal obligation to ensure OHS for all their employees and any other relevant parties who may be affected by the working environment. An OHS unit should be created within the HR department to deal with employees’ OHS-related welfare (Occupational Safety and Health Administration, 2013).

Other than physical injuries and diseases, OHS concerns may result from work-related stress, shock and psychiatric conditions (Latack, 1986). In the case of the Utilities Company, the OHS team was majorly impacted by the CEO’s layoff announcement and the associated events resulting from the announcement. There was an increase in stress-related claims well beyond the capacity of the company’s OHS consultants. Psychiatric illnesses (e.g. depression and anxiety disorders) were also reported among some employees. In fact, one severe case was reported in which an employee became physically violent against colleagues. Under this circumstance, it is obvious that it was no longer business-as-usual in the company. For optimum productivity of the human resource of an organization, the working environment should be friendly enough for the workers. These OHS concerns, however, particularly affected the physical and/or mental wellbeing of workers which are important recipes for workers’ productivity (Bennett, 1995).

In such a case of sudden mass layoff, the OHS related concerns that arose were justified. This is because of the anxiety and fear of losing jobs. As already stated earlier, the layoff targeted the old and long-serving staff that were now seen as a liability to the company. The CEO did not seem to mind nor appreciate the services that such people have perhaps rendered to the company over a long time and there possible contribution to the growth of the company to its state at the time. It is also important to note that these are people who may be having a lot of family responsibilities to attend to. Since they could not easily get jobs anywhere, they had all the reasons to worry about their future. Faced with difficulties in life, many old people would be vulnerable to stress-related as well as psychiatric illnesses. Therefore, in dealing with them, one should be particularly concern of the manner of breaking bad news to them (Bennett, 1995).

Even in the post-layoff period, the remaining employees often suffer stress for fear of job insecurity. This may elicit psychological trauma and related psychiatric illnesses. In his article, “Layoffs and Survivors’ Career Motivation,” Kevin G. Fowke (1998) states that “Layoff managers should expect survivors to experience a wide variety of psychological states which may lead to a change in employee behavior,” (p.5). The success of a company, at this stage, depends on the direction of change and its impacts on the workers’ productivity. Survivors may also take time to fully adjust to the restructured state of the company; numerous losses can be experienced during the transition period and the losses are likely to translate in poor performance of the organization.

There are numerous ways of dealing with OHS cases, ranging from executing the layoff in a manner that would minimize/prevent OHS cases to specific means of handling OHS cases when they arise (Susan, 2013). Before I recommend some methods for better layoffs, lets us consider how the Utilities Company handled OHS concerns. To begin with, the company had an OHS unit within its HR department. This unit is tasked with taking care of employees’ welfare in terms of OHS. However, in this particular case, the company experienced overwhelming cases of OHS that the both the OHS unit and the employee relations division could not handle. Since it is a legal obligation of a company to protect its workers against OHS cases, the Utilities Company must have spent a lot of time and resources trying to cure the employees of OHS issues of stress and psychiatric illnesses. Also noted is the fact that the CEO insists that the 2 phases of the layoff should be fully executed immediately by the HR department. This could be aimed at clearing the issues once and for all then embarking on healing the company from the aftermath of the redundancy. While this may be a good strategy, in my opinion, I think that at times the impacts of a sudden mass layoff may be so severe that by the time the company heals, the costs may far much outweigh the benefits.

In addition, I think preventive measures to mass layoffs as well as proper methods of executing layoffs could work better for minimizing and mitigating OHS cases. For instance, in order to avoid layoffs and associated OHS cases, Henry Hornstein (2009) suggests that a company can “adopt a compensation system similar to that used by many large Japanese firms. A base salary is coupled with a bonus based on profitability and exceeding performance standards. If the bonus in the most profitable year is 20-25% of base salary, then in years in which the firm is not profitable, a major cost saving can be achieved without layoff,” (p.6). This would have saved the company not only the difficulty of handling layoff-related OHS issue, but also the loss of talents. Henry further suggests that instead of firing 126 staff, the Utilities Company could have shared the cuts across the company in terms of working hours as well as pay. This could also prevent layoffs and the associated OHS concerns.

For the survivors, the company should have embarked on a quick plan to enhance their perception of the plan used to execute the layoffs and plans to heal the organization. The organization should also have a systematic plan of disseminating layoff intentions in order for the workforce to understand them and psychologically prepare for them. According to Fowke, “organizations must learn to reduce the negative effects of job insecurity through fair layoff execution, dissemination of planning information and respect for the myriad ways in which psychological success can be achieved in one’s life work,” (Fowke, 1998, p.16).

Impact of Industrial Action

For employees who are members of a representative workers’ union, their companies have a legal obligation to formally notify their respective unions of any intended layoffs and their effects on such employees. This provides a platform for the union to bargain on the decision and/or impacts of a layoff decision (Marie, 2003). Concerning its intentions to lay off 120 staff, the Utilities Company did not send a formal notification to the Fair Work Australia (FWA), the trade union that represents its workers. As a result, the workers successfully lodged an application for protected industrial action. This was complicated by the looming expiry of the existing Enterprise Bargaining Agreement (EBA). According to the union, the layoffs could be associated to the impending negotiations of a fresh agreement. The Industrial action kicked off the following week and the consequences were tremendous both on the company’s performance as well as reputation.

First, the Industrial action elicited increased media attention and heightened interest from the political circles. This was accelerated by the fact that the Utilities’ Company was previously a state owned company. The situation, therefore, was a big blow to the long reputation of the company, as people would guess why such a reputable company would attempt to execute mass layoffs without following due legal and professional procedure. Secondly, the industrial action extremely disrupted service delivery in the organization. Even though the HR manager had identified some of her staff to keep business as usual in the organization, while the others bargained with the workers’ union, this was not to be. Both the negotiations for the new EBA and the layoffs were overshadowed by the ongoing industrial action. In essence, the services of the company were almost completely paralyzed by the Industrial action.

As if that was not enough, soon, the company started receiving complaints from its clients. As the industrial action advanced, the negative impression of the company, given by the media, was a major blow to acquisition of new customers at the time. Soon, many of the HR officers of the company started receiving abusive e-mails from the general public. Of them all, Maree bore the brunt, the ‘fan posts’ that she later confessed made her “sick”. From this, no one can deny that the industrial action significantly ruined the reputation of Utilities Company. Moreover, the situation was worsened by the indefinite suspension of the EBA negotiations. What this meant was that there was no agreement as to how to end the stalemate immediately. If at all the Industrial action proceeded indefinitely, then the implications would be very adverse on the performance of the company during that period.

Alternative to Industrial Action

Industrial action is “any measure taken by trade unions or other organized labor groups to reduce productivity in a workplace,” (Sanyal & Menon, 2005, p. 825). Generally, industrial actions aim at solving a given labor dispute or effecting social/political changes. There are various forms of Industrial action namely: workers strikes, factory occupation, work-to-rule, Go-slows and overtime bans. Whichever the form of Industrial action used, the case study of Utilities Company has pointed out that it will have adverse impacts on the organization’s reputation and productivity. These affect general performance and may give competitors a competitive advantage alongside risking the jobs of striking workers and/or their pay for the affected period (Blanchflower, 2010). Employers, employees and workers’ unions should therefore seek to use other alternatives to prevent or solve industrial disputes other than taking to the streets (Ray, 2010).

Firstly, industrial disputes can be prevented, well before they occur, by constant communication, consultation and staff involvement in decision making. The company can also adopt a proper grievance procedure and no-strike agreements with workers’ and/or their unions (Ray, 2010). Besides, some companies have also used impartial advisory organizations to prevent industrial conflicts (Sanyal & Menon, 2005). However, in the event that industrial conflicts occur, the methods of Arbitration and Conciliation can be used to peacefully settle the conflicts without action. Arbitration is the method that employs a third party in order to solve a conflict. The arbitrator listens to both parties and then decides the case. Often, the conflicting parties may agree that the arbitrator’s decision will be binding. In some cases, the arbitrator may seek to engage both the conflicting parties to reconcile their disputes. This is Conciliation and the conciliator encourages frequent discussions to in order to reach a compromised solution (Ray, 2010).

Maree’s Experience

In the case study of Utilities Company, Maree, the then HR manager resigned from her job. Her resignation was forced by the challenging situation in which she found herself. First, she was given a notice of one week to begin implementing the 120 staff slash. According to her, a longer time could have been necessary to prepare her team for impending challenges as well as comprehensively analyze the organization’s cost structure and skills profile. Besides, she was only one year old in the company and had already noticed cases of understaffing in some areas in the company. This made it difficult for her to identify 120 staff for the redundancy. The human resource of the company, which is solely under her docket, was already adversely affected by shocks, fears and associated OHS concerns. Virtually nothing meaningful was taking place in the company.

Besides, she had already lost the most talented human resources who opted to go on voluntary redundancy. This left her with the old and long serving employees who were already deemed less productive with very little capacity for improvement. To make it even worse, her CEO insisted she had to implement the second phase of targeted layoffs. Meanwhile, a successful industrial action had been lodged through the workers’ union and the negotiations for the new EBA suspended indefinitely. This meant that there was no significant return-to-work formula that was reached and the situation was bound to worsen. Furthermore, the ongoing industrial action heightened press attention as well as political interests in the company. The CEO’s attempts to defend their position further ruined the reputation of the company and arisen public interest.

Based on this fix and the associated pressure and stress, Maree rendered her resignation. I think Maree’s resignation is justified and if I were in her position, I would resign too. A company is a separate legal entity and no one should deliberately expose jeopardize his/her OHS for it, especially when your efforts do not seem appreciated. I say this because if the boss, the CEO was a good leader, he could have engaged the HR manager and all other relevant management staff in the process from the onset. To me, there is nothing as intimidating as working in a position where your central role is always bypassed by your leaders. Although one may argue that she should have withstood the pressure to express her worth and leadership, it should not be forgotten that later, it is likely that performance appraisals would associate with any poor performance of the company’s HR.

In their plans, organizations should have an organized procedure of communicating important decisions. It should be based on consultation, discussion and constant communication among all relevant departments. It should also observe the legal requirements for any such decision making in order to take care of all stakeholders’ interests and to avoid conflicts. It should also be based on mutual respect and recognition of each person’s position and role in the organization without bypassing anybody. Above all, employees have the right to be prepared psychologically, and otherwise, of any decisions that affect them directly/indirectly (Larry & Marie, 1994).

Conclusion

In order cope with tough economic times and heightened competition, many organizations have been compelled to implement layoffs in the recent past. This is the process of eliminating some positions and subsequently cutting down the number of employees in an organization with an aim of minimizing labor costs or increasing efficiency. In the case study of the Utilities Company of Australia, 120 staff had to be cut off. The CEO’s announcement elicited mixed reactions within and without the organizations. The employees were met with shock, fear and subsequently numerous OHS issues. The first phase of the layoff was voluntary targeting the expensive long serving staff. However, when it was unveiled, the company lost a great pool of qualified and talented young workers who they had rather retained. Meanwhile, the employees successfully lodged an industrial action with their workers’ union.

This crisis had adverse effects on the company’s performance as it disrupted virtually every operation, including the new EBA negotiations which were suspended indefinitely. In the ensuing trouble, the CEO was still adamant that the second phase of targeted redundancy had to follow immediately, despite equity and legal issues raised. This sent the HR manager parking as she could not bear the pressure. From the case study, it is clear that downsizing by layoffs may be a good strategy for labor cost reductions. However, its impacts on the company and the workers can be very adverse.

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