What is Downsizing?

Group of professionals leaving office after layoff or being fired
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Downsizing is when companies terminate multiple employees at the same time, often to save money. As opposed to termination for cause, downsizing is typically not due to any conduct on the part of the employee.

Other words for downsizing include: layoffs/laying off, reduction in force, making redundant.

Why Do Employers Downsize?

Downsizing can occur for many possible reasons:

  • Corporate downsizing is often the result of poor economic conditions. Typically, the company has to cut jobs in order to lower costs or maintain profitability.
  • Downsizing may also occur during a merger between two companies, or an acquisition of the company by another. If the merger or acquisition has not yet happened, a company might downsize to look like a more viable candidate.
  • Other times, a company downsizes when a product or service is cut, or the economy falters.

Downsizing also occurs when employers want to “streamline” a company – this refers to corporate restructuring in order to increase profit and maximize efficiency.

What Happens When a Company Downsizes?

Downsizing results in layoffs of employees. Sometimes, these are permanent layoffs; but other times, employees may be rehired after a restructuring period.

Layoffs are often followed by other restructuring changes, such as branch closings, departmental consolidation, and other forms of cutting pay expenses.

In some cases, employees are not fired, but instead become part-time or temporary workers (to trim costs). Sometimes employers offer job sharing for some employees, cut back on employee benefits, or shorten the work week to retain employees.

There are also often changes in the day-to-day work of employees after a company downsizes. Because there are fewer employees, many workers have to take up new responsibilities. There can also be a loss of morale within the company due to the loss of staff.

How Do You Handle a Layoff?

There are a number of things you can do to prepare for or survive a layoff. First of all, keep an eye out for warning signs that your company might downsize. These include hiring freezes, numerous closed-door meetings, and rumors about downsizing.

If you think your company might downsize soon, prepare for the possibility of a layoff. Update your resume, and be sure to network with contacts at other companies. You might begin a passive job search to keep an eye out for possible jobs. You can also consider saving money now in case of a layoff in the near future.

Once you receive a layoff notice, you should check with your company’s HR department to see what benefits you might receive. You should also file for unemployment benefits as you start your job search. The federal government funds dislocated worker programs that provide job search and training support.

Can You Tell If Your Employer Is About to Downsize?

The federal government requires companies with 100 or more employees to provide at least 60 days’ notice of plant closings or mass layoffs (50 or more employees at a given site). The Worker Adjustment and Retraining Notification Act (WARN) covers hourly and salaried workers, as well as managers and supervisors.

If your situation isn’t covered under the WARN Act because your employer isn’t large enough or the layoff doesn’t involve 50 or more workers, you probably won’t receive much notice. However, there are still ways to tell that a layoff might be coming.

  • Economic woes. The economy at large doesn’t need to be in a downturn for individual employers to feel a pinch. If your company has suffered financial reversals lately, such as a decline in sales, it’s a good idea to have your resume ready, just in case.
  • A new corporate structure/new management. Change isn’t always for the worse, but when companies merge or new executives take the helm, there are often staff shakeups.
  • No new work. If you find yourself without much to do at work, you might want to consider starting your job search. Often, managers will stop delegating work to employees who won’t be with the organization for much longer.

How Do You Tell an Employer About a Layoff?

If you are a dislocated worker who has been fired during a company’s downsizing, you should explain this when applying for jobs. Being laid off is very different from being fired because it is due to circumstances beyond your control. Employers should be aware of this distinction when you apply for jobs.

Include a clear statement somewhere in your application process (in your cover letter, application, or during your interview) that explains why you were displaced. For example, you might explain that your position was eliminated when the company outsourced an entire department.

You also want to emphasize the quality of your work while you were employed there. For example, you might mention in an interview your positive performance evaluations, or include in your application a recommendation from your former employer.

Mentioning these things during the job application process will dispel any worries that you were fired due to issues with your performance.