Alternatives to Firing an Employee

Almost every employer will tell you that the worst part of their job is firing an employee. Unfortunately, economic slowdowns, employee underperformance, and overstaffing makes firing employees an inevitable part of running a business. However, there are ways that employers can transition employees without having to fire them. Using the alternatives listed below may avoid litigation, preserve employee morale and prevent the employer from the awkward conversation that results from terminating an employee.

1. Early Retirement

If an employer needs to cut positions, offering early retirement packages may be the best way to do this. Older workers generally cost more to employ, so giving them an incentive to retire may lead to real savings. Also, providing severance packages to early retirees in exchange for signing an agreement not to sue the employer will decrease the risk of litigation. Employees who choose to retire early are less likely to file an employment discrimination lawsuit as an employee who is fired, as the early retiree will have chosen to retire voluntarily. Be cautious to avoid age discrimination claims. Do not target certain older  employees that you want to leave with offers of early retirement. An early retirement offer should be made to everyone with, for example, 20 or more years of service. Be prepared to follow through with the offer, even if it nets employees that you are less interested in leaving, or does not net the ones that you feel should leave. It’s best to work with your employment lawyer when offering an early retirement incentive.

2. Reducing Hours and/or Pay

An alternative approach to the problem of overstaffing is to cut the hours and/or pay of workers. This can allow the employer to keep its entire workforce without needing to let anyone go. This alternative, however, may lead to decreased employee morale, especially if you cut pay. Employees are rarely happy to do their same job for the same amount of time, but for less money. As a result, the employer risks losing the best employees, who might otherwise be retained if an underperforming employee is let go instead of an across-the-board hours and pay reduction. Sometimes employees who have their hours reduced, eventually resign. The only problem is that it’s usually your better performing employees who will leave first.

3. Transfers

If an employer needs to reduce staff in one department, but add workers in another, it should consider transferring employees from the overstaffed to the understaffed department, even if this means a little employer provided re-training. Not only will this reduce the awkwardness and legal risks involved with firing an employee, but it will reduce the costs of hiring a new employee.

4. Demotions

Like a transfer, a demotion may be a way to reduce employees in a redundant area and add them to an area in need, or to address the underperformance of an employee. When employers seek to reduce costs, they often focus on getting rid of middle managers. Demoting a middle manager to an open, lower-level position may be an efficient way to fill a new position. However, this also may reduce the demoted employee’s morale, and create workplace problems if that demoted employee is working alongside employees he used to supervise. Similar morale problems may arise with the demotion of an underperforming employee. Rarely are employees able to fully acknowledge their own performance problems and instead blame the employer, co-workers or outside forces for their performance problems. While demotion may seem like a kind alternative to discharge to the employee who is over his or her head, closely consider the effects of an unhappy employee on the remainder of your workforce.

As with all workplace decisions, an employer taking the above actions must not do so, or make it appear that it is doing so, for illegal reasons. Ultimately, consulting an attorney before making significant employment decisions may reduce the risk that an employer will face an expensive lawsuit.