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The restaurant industry continues to shed an unprecedented number of jobs in response to decreased customer traffic and lower check averages. Whether reducing the number of employees, cutting back on their hours, and/or reducing compensation, restaurant operators have many things to consider before making these difficult decisions. We spoke to three experts about the process and the pitfalls:
“Before deciding what measures to take, operators should step back and consider how cutting back on their workforce or their hours would impact customer service,” says Diane Pfadenhauer, pres., Employment Practices Advisors. “Are there creative ways to reduce labor expenses without reducing staff? Regardless, it’s important to think about what your organization is going to look like after any layoffs. It will help you be more objective.” Mark Spring, partner, Carlton DiSante & Freudenberger, LLP, also counsels restaurateurs to look at the big picture before making decisions about how to cut labor costs. “You want to be in a position, once your economic situation changes, of having kept your best employees. You have to evaluate your workforce – if you have 25 employees and think all of them are great, then maybe a shift or wage cut across the board would work. But ask yourself how they will feel about it; consider their willingness. You don’t want to drive any of your best employees elsewhere,” he cautions.
Regardless of what measures you take, Tiffanny Brosnan, partner, Snell & Wilmer, LLP, advises restaurateurs to focus first on employees’ performance. “I recommend getting rid of poor performers before you do anything else – they affect customer service and employee morale. Enforce your performance standards and take action on them.”
“Once you’ve made the decision to lay people off, the first step – and probably the most important – is to determine the criteria you will use,” says Mark. “You must consider if you will be able to defend the decision should there be a later claim by the employee. The problem occurs when you let someone go who is in a ‘protected class’ – a group of people who are protected from discrimination and harassment – those who are disabled, over 40, female, etc.,” he says. “You don’t want to be sued.” Diane echoes this caution. “There’s always a concern about various labor laws. You do not want to open yourself up to claims of discrimination. Nor do you do not want to appear to retaliate against those who have filed harassment and/or OSHA claims, or whistleblowers.”
Mark advises operators to do what they can to base their layoff decisions on objective vs. subjective factors. “If you use objective criteria, like last-one-in/first-one-out or part-time before full-time, you’re generally in a better position. What’s key is that you consider everyone.” Tiffanny advocates an approach that considers labor costs and job descriptions first – instead of individuals. “When you feel that you’ve done everything possible and layoffs are inevitable, don’t look at people, look at dollars,” she advises. “Once you have determined how much you can afford to pay, then decide who you want to keep – not who you want to lay off. Determine who are the most qualified people for the remaining work, and not necessarily in their existing jobs – working with a streamlined team, they are going to be asked to do things they aren’t necessarily doing now.” When you have an idea of what your workforce would look like after layoffs, Tiffanny recommends doing some kind of analysis to check for the appearance of discrimination. “In large companies,” she notes, “this can be a complex calculation, but even small businesses should go through the exercise. Look at the slate of the people you want to keep – would that remaining workforce be significantly different from your present one, primarily in the areas of age, sex, and/or race? For example, if the average age of your workforce would shift significantly downwards, it could look like you targeted older workers; if you were to lay off proportionally more females than males, it might look like you were targeting women. In cases like these, you might have to reconfigure your layoff plan.”
Another thing to consider, adds Diane, is who will be making these decisions – will you include managers, the chef? “You need their buy in. They are going to have to operate with fewer resources, and you’ll need them to be your cheerleaders, so do what you can to involve them.”
The next step is to decide how to do it,” says Mark. “Generally, most layoffs now occur with little notice. If the terminated employee stays for any length of time and if they are upset, they can act out and potentially do harm.” Diane adds, “My theory is that no one should be terminated without seeing the writing on the wall. Small restaurants probably aren’t running around doing performance appraisals, but there should at least have been a conversation, so it doesn’t come out of the blue for the employee.”
In terms of what is said, “It’s better not to apologize. Be firm,” advises Tiffanny. “Don’t blame others or express dissent, as if to say, ‘I’m just the messenger,’ or that you regret it. You can say that you wish that person the best in the future.” Mark adds that, above all, it is important to be as honest as possible while still being diplomatic. “For example, don’t say that the layoff is for economic reasons and then advertise the job two to three weeks later.”
“Another decision is whether or not to pay severance – which is not required in the U.S.,” explains Mark. “If you are in a position to do so, one of the very real benefits can be good will.” It can also indirectly provide legal protection for your business. “I firmly advise clients to get a comprehensive release in return for severance, which protects them against any further claims, known or unknown.”
“Think about if you want to provide references and/or letters of recommendation,” says Mark. “It’s important to be cautious about saying anything negative, so some employers will provide just factual information. In lieu of what would be a negative reference, an option is simply to say that the former employee would not be eligible for re-hire.” Diane addresses the special circumstances this economy creates. “From a legal perspective, a lawyer will say never to give references because if you give a negative one, you can be sued,” she says. “Typically, people protect themselves by not giving references to anyone. But we are in a recession, and that would mean you’re not helping people find work.” Tiffanny points out that, “If you’re talking about true layoffs – meaning terminations for economic reasons through no fault of an employee – you should be able to speak more positively. Volunteer to do what you can. From an employer’s perspective, the best thing that can happen is that a former employee gets re-employed as soon as possible.”
Another important consideration is not burning any bridges. “My advice to employers when letting people go is to be professional,” says Mark. “How former employees feel about your company is a bigger factor in them making a claim against you than the actual strength of a potential claim. You want those laid off employees to feel as good about you as possible.” Diane adds, “If you do a really bad job of firing people, it’s all over town – especially in smaller towns.”
Diane advises restaurateurs to think about how they are going to position and communicate their decisions to customers, vendors, and remaining employees. “Otherwise, they might think you are going out of business,” she says – a point that Mark underscores. “Once you have executed your layoffs, gather your remaining employees. Try to boost their confidence – don’t promise anything, but explain the rationale behind your actions, etc. If you have the financial evidence, be as transparent as possible. Maybe show year-to-year percentages – there are different ways to do it. Just being willing to share your plan with your people is important.”
Note: We’re grateful to these experienced employment attorneys for having been so generous with their expertise and opinions about things to consider when faced with trimming your workforce. However, neither their statements nor the information provided above should take the place of your own legal counsel.
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case in point
“We’ve had some restaurants close across the country. We walk in to discussions with employees in those locations knowing that hospitality applies to them too – that the respect and dignity with which we treat them is our first priority.
Regardless of the circumstances, we always invest in an all-team member meeting. We send someone from headquarters to discuss final pay, bonuses, etc. and answer any questions. It’s a significant spend for us, but we are committed to treating our employees well, even at the end of their employment cycle. We look at HR holistically; the full circle is how we select, train, and exit our people.
One of the things that we are most proud of is that we put significant emphasis on placing employees in other locations – and we have been fairly successful in doing so.”
– Kelli Valade, svp, brand PeopleWorks, Chili’s, On the Border, and Maggiano’s
