Despite significant layoffs in 2022 and 2023, layoffs will still be prevalent in the tech industry as 2024 ends. The layoffs range from large employers to small startups focused on profitability and efficiency as they ramp up hiring during the pandemic. It is important for technology employers to develop a strategic plan to assess potential force reductions (RIFs) and their impact on future initiatives. This insight provides employers with five key considerations to keep in mind when managing and evaluating RIFs in the technology industry.
1. What do the recent labor data show?
According to Forbes, the tech industry has laid off more than 124,000 employees by 2024. Meanwhile, the U.S. Bureau of Labor Statistics predicts that the number of employees at high-tech companies will grow twice as fast as the overall U.S. workforce over the next decade. In the long term, we are in a healthy position for the long term, but the next year could be a period of further disruption until the industry fully recovers.
2. What are the significant legal issues regarding RIF?
Before proceeding, it is important to understand the definitions of some important terms.
It is important to understand that a RIF is a widespread and systematic reduction in the workforce and can include permanent job reductions and separations. In contrast, layoffs can include temporary or permanent layoffs and do not necessarily occur on the same scale as a large RIF. Similarly, furloughing may involve reducing an employee’s hours or requiring the employee to take unpaid leave while continuing to be employed.
These characteristics are important because RIFs are subject to specific regulations under federal, state, and local law. You should consider this before proceeding. These include the North American Free Trade Act (NAFTA), the Worker Adjustment and Retraining Notification (WARN) Act, and more. Requirements under these laws impact timing, decision-making, notification responsibilities, and other aspects of actions and considerations.
3. What is the impact of RIF on employee benefits?
RIFs, layoffs, and furloughs can all significantly impact your rights and obligations with respect to benefit plans. Consider benefit obligations in advance, including retirement plan triggers, COBRA triggers for furlough coverage and group health plans, and potential 401(k) implications related to partial layoffs as a result of the event. is important. Additionally, communications regarding RIFs, layoffs, and furloughs must be evaluated in light of fiduciary duties as they relate to employee rights under ERISA plans.
4. What are the key RIF resources?
Our Technology Industry Group offers several resources covering best practices for handling RIFs to help you make difficult decisions related to workforce reductions and how to handle them.
5. What RIF issues should the technology industry pay special attention to?
Additionally, be aware of RIF issues specific to the technology industry. for example:
Knowledge loss and skills gap. When you reduce your staff, you risk losing important in-house knowledge and key talent, which can hinder your long-term growth. Retrenchments, particularly in research and development departments, can have a long-term impact on innovation and the development of new products and services. The transition must be carefully managed to retain employers with knowledge and critical skills within the organization. Re-skilling and up-skilling. You may want to assess whether attrition can be managed by redeploying employees to future initiatives. As technology rapidly evolves, retraining employees into other roles can reduce the need for layoffs and retain valuable employees. lack of skilled labor; Skilled labor is often in short supply in the technology industry. If you plan to implement a RIF, consider the long-term impact of losing skilled workers who will be difficult to replace when demand increases again. You may also consider alternatives such as temporary layoffs or furloughing skilled positions to retain talent and prepare for future projects. Intellectual Property and Confidentiality Risks. In the technology industry, employees often have access to confidential information, trade secrets, and intellectual property. When conducting a RIF, be sure to follow appropriate exit procedures, including retrieving company devices, disabling access to sensitive data, and notifying employees of ongoing confidentiality obligations. If legally permissible, consider using a severance agreement to reaffirm confidentiality and non-compete clauses. Customer support and product continuity. Reducing headcount in customer support, product development, and engineering roles could lead to service interruptions and negatively impact customer satisfaction. Consider whether you can minimize the impact of RIFs by reallocating resources or delaying the launch of certain products. Maintaining continuity in the critical customer-facing role is critical to maintaining customer relationships and avoiding reputational damage. Stocks and Stock Options. Many technology employees receive a portion of their compensation through stocks and stock options. RIFs may create a need to address vesting schedules, stock repurchase agreements, and the treatment of unvested options. Make sure your RIF plan includes communication with affected employees about stock compensation and stock option exercise deadlines. Morale and public perception in a closely knit industry. High-tech companies are often in the spotlight from competitors, investors, and the public. Large-scale layoffs can not only affect morale but also damage a company’s reputation within the industry. To maintain investor and market confidence, consider an internal communications strategy that focuses on transparency and support for remaining employees, while emphasizing the company’s long-term vision and stability externally.
