The Downturn Is Coming – So Monitor These Factors That Predict Upcoming Layoffs (A checklist for predicting when layoffs will occur at your company)

Minimize your own “employment insecurity issues by predicting when your company will lay off. A smart employee knows what to look for and, with little effort, identifies the many warning signs that reveal when a layoff plan is receiving serious consideration. And with early warning, the employee will have enough time to take the necessary actions to help minimize any damage that a layoff would have on their career. 

It’s Time To Stop Being Constantly Surprised 

If, in the past, you were surprised by Covid, remote work, and dramatic labor shortages. It’s now time to commit to being prepared for “the next big surprise,” which will likely be hiring freezes and employee layoffs. Of course, some economists are currently arguing that it’s too early to begin worrying about an economic downturn or even a recession. However, it’s a huge mistake not to prepare for this coming downturn (and its accompanying layoffs) for these three basic reasons. 

  • Layoffs are already happening – over the last few weeks, several major firms have already announced reductions in their current workforce (Salesforce, Meta, Netflix, CNN+, Robinhood, and Uber). Concerned employees should be monitoring the layoff actions of the leading firms in their industry as an indicator of what will eventually happen at your firm. A concerned employee can learn about industry layoff activity by reading a sampling of analysts that focus on your industry. And there is even a website where all major layoff notices across all industries are posted.
  • Layoffs are inevitable… the only question is when layoffs will eventually come in the cyclical world of employment. It’s just a matter of when. Fortunately, no major negative consequences fall on an employee who develops a plan and prepares “too early” for an upcoming layoff.
  • Early awareness lets an employee insulate themselves from the pain of layoffs – with enough advanced warning, an individual employee can minimize the probability of getting put on a Reduction In Force (RIF) list. That time allows them to take proactive actions, including upscaling, upskilling, and cross-training. Alternatively, they can get hired into a new external job before most hiring firms dramatically reduce their hiring efforts.

Part I – Checklist Of The Early Layoff Warning Signs… From Within Your Industry

Whenever tough times are forecasted, the first action of an employee should be to monitor what is happening throughout their industry. Including the specific factors that create the need for layoffs.

  • Realize that changes in revenue and workforce costs drive layoffs – a rise in workforce costs relative to revenue is the primary driver of hiring freezes and layoffs. So, identify and then read the quarterly analysis provided by several financial analysts who cover your industry’s costs and revenues.
  • Identify first-mover companies that reduce their workforces – historically, there are several “first-mover” companies in every industry who are first to reduce their workforces proactively. Therefore, if you assume that past patterns will remain unchanged, monitoring the announced layoffs at first-mover companies in your industry makes sense. Then use that information to estimate the number of months that your firm will lag behind those industry leaders.

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Part II – Checklist Of Early Layoff Warning Signs… Within Your Own Organization

After simultaneously monitoring layoff activity in your industry, the next major step is to monitor what is happening in your company in areas that often predict upcoming layoffs. Below are the 16 indicators to monitor. They are listed in the chronological order in which they are likely to occur prior to a layoff.

  • Be aware that CEO announcements will be subtle – it is extremely unusual for executives to actually use the term “layoff” in any of their presentations leading up to the actual event. Avoiding the mention of that word serves to minimize employee and investor panic. So instead, proxy phrases like workforce rebalancing, streamlining, RIF, or strategic restructuring are used. 
  • Track internal business and financial problems – monitor increases in workforce costs and reductions in your corporate revenue. Also, identify other major catastrophic business events that directly contributed to your company’s decision to have a layoff in the past. Those additional significant business events often include a sharp drop in your stock price, a low revenue per employee number, or a poorly performing new product. 
  • Spot churn among your leadership – because managing during and after a layoff can be less than fun. Some executives will leave for greener pastures. So, employees should use any significant executive turnover as an indicator that bad things and layoffs may be on the horizon. And if you have new CEO, CFO, or COO. Realize that they will likely restructure their organization, which often results in layoffs. Also, during tight times, realize that any strategic business unit leader, new to their job, will be more likely to conduct layoffs to show their good faith contribution to cost-cutting.
  • Keep an ear open for these cost reduction phrases –before any actual layoffs occur. Most astute employees will frequently begin to hear various terms and phrases that reflect the essential elements that lead to layoffs. I called them “layoff proxy phrases .” They often include deep budget-cutting, restructuring, productivity, reorganization, realignment, redundancies, mergers, pivoting, canceling projects, doing more with less, and business unit sell-offs. When you begin hearing these “layoff-like terms” frequently, you will need to accelerate your monitoring process. These are indicators that the case for layoffs is already slowly being built. 
  • Realize that someone always knows – because humans are highly involved in any layoff planning process. Be assured that at least one employee always knows what will actually happen. So obviously, it also makes sense for an individual employee to utilize their informal internal networks for tips covering who knows, what is being planned, and when.
  • Notice when these mini-freezes begin appearing – long before any major layoff actually occurs. Your executives will try to reduce workforce costs using a wide variety of what I call “talent freezes .” And if the freezes are not applied across the board, you should know that they are most likely to start in your administrative and overhead units. The first freeze is usually the “don’t buy anything memo,” which restricts a wide range of common office and employee purchases. Next, look for restrictions on employee training and travel. After a few weeks, are then supplemented with a reduction in both work and overtime hours for your nonexempt employees. Finally, look for restrictions to be added to salary increases and promotions.
  • Take note when internal job postings are taken down – because recent internal movements will complicate layoff plans. Many companies’ take down all internal job postings for several weeks prior to a planned layoff. So, I would assume that this rare internal job posting removal action is also a precursor to layoffs.
  • Note when contingency workers are let go – in a last-ditch effort to save regular employees. The next step will be where most current contingent workers won’t have their contracts renewed.
  • Be aware when early retirements are offered – because senior employees are generally more costly. Expect the next step to be an attractive early retirement offer to workers over 50.
  • Realize that employee buyouts may be offered next – and because many companies find it difficult actually to select which employees will make the layoff list. Some organizations, during this step, will offer buyouts to employees in certain redundant jobs. Under this buyout approach, employees who agree to leave are paid a lump sum to resign. The amount is based on their years of experience at the company (unfortunately, your best workers may be the most likely to agree to take the money and then seek a job at your competitor).
  • Next, expect reductions in the recruiting budget – before an actual hiring freeze is implemented, the recruiting budget will be cut. Then as part of the step, contract recruiters will be let go, and there will be a freeze on hiring permanent recruiters. There may even be discussions about recruitment process outsourcing (RPO). After a hiring freeze is finally instituted, some permanent recruiters will be laid off.
  • Added requisition approvals are also an indicator – prior to actually instituting a hiring freeze. Many companies will take the next step. Which is to increase the number of approvals before a new hiring requisition can be approved.
  • Take special notice when a general hiring freeze is announced – often, the last step before large-scale layoffs is an across-the-board “hiring freeze .”Unfortunately, an across-the-board approach can mean that growth will actually be limited. Because critical “growth impact positions” will go unfilled for months. This hiring freeze announcement often means that large-scale layoffs are only a few months away.
  • Managers interview all teammates – often before the final employee layoff list is created. The manager will often be required to hold a one-on-one with each team member to ask them about their current skills and interests. When you see that this “interview everyone approach” is being implemented across the company, take this practice as an indicator that layoffs are extremely close.
  • Intense, coordinated HR activity is an indicator – preparing for and actually executing a large number of individual layoffs requires a great deal of HR work. So, use your best HR contacts to get an informal “heads up periodically.” Then immediately before any predicted layoff. Look at the companywide conference room schedule to see if there are any Mondays or Fridays where HR has booked a significant percentage of available conference rooms for all-day (rooms used for one-on-one exit interviews).
  • It’s official when a WARN act layoff notice is posted – companies with more than 100 employees are, in most cases, required to post a notice covering details on their layoff with the Department of Labor. However, most will be reluctant to speak. Be aware that both the HR and the PR departments will know about this notice at least a week before it’s officially posted.
If you can only do one thing© – if you’re looking for the best single indicator that your company is seriously considering a large layoff. I recommend that you focus on noting whenever a major hiring freeze is instituted. And if the freeze actually stops hiring across all jobs and if it lasts longer than one month. I would begin to monitor the remaining layoff warning signs more closely.

Final Thoughts

Historically, the need for mass layoffs was primarily an indication that an organization’s workforce had been poorly managed over a period of time. However, in today’s volatile VUCA world, there are so many dramatic economic, environmental, technological, and business changes. A workforce can now become completely misaligned in as little as a single year. As a result, layoffs will need to be much more frequent, and some would argue that they should be continuous now. Workers need to protect themselves from these much more common layoffs. They now simply have to be much more proactive in finding and using the most accurate warning signs or precursors that can accurately reveal each time layoffs are being seriously considered.

Author’s Note

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About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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