Downsizing: Legal, Ethical Insights

Downsizing - Complete Controller

A business may be forced to downsize to save on labor costs and resources. Sometimes, the downsizing is done by simply terminating employees or giving them early retirement. Downsizing is done with a good purpose for a business, but a company that has decided to downsize should consider if they could face legal challenges or liabilities.

Always do the right thing from the angle of your business, law, and human standpoint. Downsizing can reduce or eliminate business operations, but this term is mainly used to reduce the number of employees working in the business.  

Downsizing, reducing a company’s labor force, lessens the number of employees on the operating payroll. This is supposed to ease tough economic times and improve performance and efficiency. Although downsizing is common, it is also a dreaded situation involving the employees and the employers.LastPass – Family or Org Password Vault

Often, companies downsize, believing a few people can run the business better, but they don’t get the anticipated outcome. A company intending to downsize needs to reflect on different angles before deciding to move forward and should also consider the possibility of failing. Such failures leave a long-term mark on a business, requiring planning to avoid such risks.

Therefore, a company must consider all the obligations needed to help the business succeed. On the other hand, they should never forget the human perspective.

Making the Decision to Downsize

The first step is to analyze the situation and decide if downsizing is necessary and yield positive results. In addition, other temporary options should be evaluated before making the decision. For example, an employer can temporarily downsize and wait for time to pass before rehiring their employees.

Furthermore, this decision will change the company’s structure, and evaluating all possible outcomes becomes necessary. Aside from downsizing, companies can consider employee retraining, reduced hours, shorter workdays, or hiring freezes. Companies can also work with their bookkeeper to see if they can cut costs instead of letting go of employees.

These methods are not as drastic, and employees will understand that they must adjust to facing challenges ahead of them. However, the company should evaluate each possibility before choosing an alternative.

Once the organization has finalized the decision, it should consider legal practice and moral obligations towards employees and the organization itself. Proper planning and necessary fulfillment of obligations can eliminate risks and failures at a later stage. First, a company should evaluate its employees in the transition and final period.ADP. Payroll – HR – Benefits

Legal and Ethical Considerations

The transition stage is challenging as people have low morale and uncertainty. They remain under stress and psychologically disturbed throughout this transition time. Many knowledgeable people start exploring other options and leave. This ultimately affects those left behind with less expertise.

During this process, organizations must be aware of the legalities and liabilities. They should avoid activities that can bring charges upon them. One example of this is downsizing as an opportunity to eliminate every person they do not like or firing employees with an adverse history with the administration.

Usually, the cookie-cutter approach is safest legally, but it leaves heavy psychological marks on employees. Therefore, a scheme should be developed to keep the employees’ morale intact and safe legally. However, this approach requires organizations to have an up-to-date, indisputable record. This way, unwanted charges can be effectively avoided and handled.

Managing Employee Departures

The next step is to handle the employees who need to go. Usually, there is a form that departing employees sign. These release forms are designed to protect the company against liabilities. Consequently, companies must know what to put in such forms and how to handle this procedure.

For example, such a waiver must be in writing, understood by the employee, and voluntarily signed. In addition, employees must understand the company’s intent and what rights they are waiving. The company should know that when its procedure is straightforward, it will avoid litigation risk.Cubicle to Cloud virtual business

Companies should be aware of any acts or laws requiring them to notify all interested parties, including employees, unions, and local governments, about their downsizing. Communication should be the key at every possible level, which can help isolate situations that can lead to legal complications.

Some teams help managers and employees in the process. They assist specifically with the needs of the company. Such teams help in communicating with employees and offer them counseling. They also help employees in finding new jobs. These teams provide interview skills workshops, resume preparation, and information about education and job training opportunities.

Supportive Strategies for Companies

Companies can get help from such teams or have some internal arrangements to ease downsizing. They can offer outplacement services to employees who are leaving. This approach can help two-fold—one by avoiding litigation and second by assisting the employees leaving.

Ultimately, companies should ensure they are ready to face the employees who are still on their team. The remaining employees will have many questions that need satisfactory answers to keep their morale intact. As Barbara H. Patterson, the attorney with Advanced Healthcare, said at a recent National Employment Law Institute conference in Washington, “companies need to keep in mind the law and sound business principles, then communicate, communicate, communicate.”


Downsizing, reducing a company’s labor force, lessens the number of employees on the operating payroll. Before implementing the ‘downsizing’ decision in your company, give it thoughtful consideration. Seek legal advice as well. Sound business principles must be adapted when downsizing.

CorpNet. Start A New Business NowAbout Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.Complete Controller. America’s Bookkeeping Experts