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How Businesses Can Best Manage Layoffs and Furloughs

BoF talked to lawyers, experts and executives to understand how companies can properly — and respectfully — handle the situation.
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By
  • Tamison O'Connor

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New York, United States — Women's contemporary brand Tibi made it through the 9/11 terrorist attacks and the 2008 financial crisis without laying off a single employee.

But when the Covid-19 pandemic forced many of the label’s top stockists to close their doors last month, along with the brand’s own New York flagship, founder and creative director Amy Smilovic faced the inevitable: she had to let go of half of her 80-strong team, the first layoffs in the company’s 23-year history.

“Payrolls are, after [cost of goods sold], our biggest expense. And how do you pay people with no revenue coming in?” Smilovic said. “We’re praying that when things turn around that they all come back to their desk and that they want to come back to their desk.”

Tibi is in the same situation as thousands of other companies, from tiny independent brands to direct-to-consumer start-ups to international chains.

In the US, a record 6.6 million Americans filed for unemployment benefits last week, and 3.3 million the week before that. In fashion, a BoF community survey found one third of senior executives said their company had planned for layoffs. Salespeople who work in now-closed stores have been hit particularly hard, but design teams and executives aren't immune.

More rounds of firings are almost certainly on the way. Many brands that have kept store employees on staff have only promised to do so for a few weeks. If social distancing remains in effect for longer than that, those workers could be out of jobs as well.

If a business has made the decision to let some of its workforce go, there are good and bad ways to manage the situation. BoF talked to experts about what companies need to know.

Furloughs or Layoffs?

Gap and Urban Outfitters are among the brands that have furloughed employees, offering the prospect that they can return to their old positions once business ramps up. In the US, workers furloughed as a result of the coronavirus can claim unemployment benefits and federal aid, just as if they were laid off permanently.

Furloughs can be tailored to individual employees, with some staff told to come back on a set date and others only given the possibility of returning at some undefined point in the future. Furloughed employees are still tethered to the company and more likely to keep their health insurance and other benefits. However, employees shouldn’t be given false hope if there is little chance they’ll be needed again.

“A furlough is a term of art more recently used during the coronavirus, rather than a legal term,” said Jeff Mokotoff, partner at FordHarrison, an Ius Laboris-partner law firm that works with employers on labour issues.

The Rules Are Changing — Fast. Study Up.

Governments around the world are rolling out aid packages for businesses to help them continue paying workers. Some regulations are making it harder to fire employees.

In Italy, employers are not allowed to fire workers on a permanent contract during the lockdown period. Instead, businesses are expected to rely on government aid packages to continue to make payroll.

“At the moment, there is this idea of striv[ing] to keep people on board, try to keep people paid as much as possible,” said Lea Rossi, partner at Milan-based law firm Toffoletto De Luca.

In the UK, businesses can claim for 80 percent of a furloughed employees’ salary up to £2,500 a month. In France, companies can apply for government aid to pay workers affected by lockdown measures.

It's really important employers try to make well thought out decisions.

In the US, Congress passed a $2 trillion coronavirus stimulus package. Among other aid for companies and individuals, small businesses will have access to cheap loans, the bulk of which can be forgiven if they retain at least 90 percent of their employees through September.

“It’s really important employers try to make well thought out decisions,” said Edgar Ndjatou, a former employment attorney and executive director at Workplace Fairness, a non-profit organisation advocating for employee rights. “When people take time to really evaluate their options, you might find clear solutions right in front of you that will allow you to maintain some sort of workforce.”

LoveShackFancy founder Rebecca Cohen, who has 45 employees, said the stimulus package will help her avoid laying off staff at her headquarters, though store employees have been furloughed.

American businesses can also repurpose staff. Some retailers have asked store employees to help with e-commerce orders.  Elsewhere, restaurants have converted wait staff into delivery workers.

“Even if you’re working part time you can still in many cases get unemployment to bridge the gap between your loss of income,” Ndjatou said.

Really understand the new legislation. There are a lot of programmes that can help you keep your staff.

In some states, some low-wage workers could technically receive more money from state unemployment benefits and federal aid than they did on the job. However, that aid is temporary, and employers should not assume employees would prefer a few weeks of government assistance to a permanent job.

“Really understand the new legislation,” Ndjatou said. “There are a lot of programmes that can help you keep your staff, so the most important thing right now is educating yourself.”

Don’t Forget About Benefits

In the US, where individuals often rely on their employers for health insurance, access to health care needs to be considered when laying people off, especially in the middle of a pandemic.

“Our main recommendation to executives right now is: people first, then cash,” said Sarah Willersdorf, global head of luxury at Boston Consulting Group. “Everyone is going to be managing cash more carefully, we believe it has to be done also thinking about the best case you can possibly do for your employees.”

Our main recommendation to executives right now is: people first, then cash.

Eileen Fisher furloughed or reduced the job scope of over half of its employees, while its remaining full time staff had salaries reduced. However, the brand is continuing to pay for health insurance for all employees, whether they are still on the job or not.

“Now more than ever, access to health care is essential and we made our decisions so that all of our employees will have continued access,” the company said in a statement to BoF.

Employers should also consider how layoffs will affect foreign workers, who may depend on their jobs to stay in the country. Every employee’s status is different: some may maintain their status while furloughed; others could be forced to leave the country even if they are working full time but at reduced pay.

“The onus is really on employers and HR to ensure that their foreign workers on visas stay safe and stay in status,” said Wendi Lazar, partner and co-head at Outten and Golden, a law firm that represents employees and individuals.

Communication Needs to Be Upfront and Transparent.

There’s no way to fire people and have them feel good about it. But there are ways to reduce the pain. With so many fashion companies hoping to hire workers back once the pandemic subsides, staying on laid-off employees’ good side is essential.

“Try to make sure you still have a connection with your employees, that they still trust you, so that if and when you’re able to be back up and running, it’s not hard to reach out,” said Kate Bischoff, employment attorney and HR Consultant at tHRive Law & Consulting LLC.

In a crisis like this, when nobody really knows when this is going to end. It's important that you as a leader are transparent.

Bad news is best delivered via video conference or phone, rather than email. Soon after, outline in writing employees’ severance benefits, if any, as well as potential outside aid they might be eligible for.

“I really wish they’d had paperwork,” said one employee of an American womenswear clothing brand, who was furloughed after 18 years with the company. “I wish they would say here, ‘This is what we have to do, we’re giving you unpaid leave, and, hopefully, we’ll be able to bring you back when business improves’ ... basically something where I felt like they had our interests at heart.”

Think Beyond HQ

Try to be as uniform as possible in how layoffs are conveyed. For global companies, this can be hard, especially as laws, worker contracts and government relief packages are likely to vary across different regions.

Global Fashion Group operates in 17 countries across Asia, Latin America and Europe. The company has set up a global taskforce and four regional task forces. Their job is to make sure that employees everywhere understand the company’s actions and feel they were treated equally.

The company hasn’t had to resort to layoffs yet. Employees were told the company is currently not making any cuts, but as the crisis evolves this may have to be revisited.

“In a crisis like this, when nobody really knows when this is going to end ... it’s important that you as a leader are transparent,” said Patrick Schmidt, co-chief executive officer of the group.

“There are a lot of possibilities on the job side that we’re trying to avoid, but there ... [may] come a point where we have to let go of people.”

Senior executives at some companies are taking pay cuts in a show of solidarity with their workforce. Macy’s CEO Jeff Gennette, for example, told employees in an email that during the pandemic he would forego his salary to conserve cash. All company directors and more senior employees would also see a reduction in pay. Macy’s has furloughed a majority of its 125,000 workers.

Additional reporting by MC Nanda.

Editor's Note: This article was revised on 14 April, 2020. A previous version of this article credited Edgar Ndjatou as a lawyer and executive director at Workplace Fairness. This has been updated to former employment attorney and executive director at Workplace Fairness.

We’re tracking the latest on the coronavirus outbreak and its impact on the global fashion business. Visit our live blog for everything you need to know.

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