Recession or not, HR can take steps to prepare for a downturn
Experts recommend thorough planning on two fronts: culture and compliance.
Economists are divided on the question of whether the U.S. economy is headed for a period of contraction — a downturn, in other words. According to a The Wall Street Journal poll, only 4.3% predicted a recession will take place in 2019, though nearly half (45.7%) expect such an event to occur by 2020.
One prevailing theory is that global developments, including the U.S.-China trade negotiations, Brexit and other political problems, reflect poorly on future growth, even if a worldwide recession isn't necessarily in the cards, Nouriel Roubini, professor of economics at New York University's Stern School of Business, wrote Friday in an article for The Guardian.
But for employers reading between the lines, what can be done to prepare an organization for a recession? U.S. businesses may not be in that frame of mind at the moment, given a strong labor market that has left employers looking to unconventional sources of talent. Job openings have increased on a year-over-year basis, according to the U.S. Bureau of Labor Statistics (BLS), and though the unemployment rate increased to 4% in January, observers have stated HR is operating in a candidate's market.
Yet employers can still plan for a downturn, according to sources who spoke with HR Dive. Employers can prepare best practices and strategies on two fronts — culture and compliance — to ensure that, from a workforce management perspective, employers can weather approaching storms.
The right mindset for planning
When it comes to organizational operations, HR can take a page or two from how the rest of the organization approaches a fluctuating economy. To that end, employers should engage as many segments as possible when planning for downturns, Bhushan Sethi, partner and joint leader of the Financial Services People and Organization practice at PwC, told HR Dive in an interview.
One point of view is understanding the impact to the consumer-facing segment of business. What areas are impacted, and what will the impact to operations be if the organization decides to cut costs by shedding jobs, products or processes? Essentially, Sethi asks, what levers can you pull?
"There's the human side of this as well," Sethi said. "I can't overemphasize that anticipating that there is fear and anxiety around these topics is important."
Communication, important as ever in the HR world, becomes paramount when formulating a plan, but no organization will adopt the same approach: "if we suggest 100% transparency, some will have a different appetite," Sethi said. Still, being transparent is an important component regardless of degree, and Sethi said this is especially visible in the development of a "narrative" for how the employer plans to face external change, be it due to the stock market, automation or something else.
"Organizations, regulators, suppliers want to know these aspects," Sethi said. "But the old adage of treating people with respect, and engaging people early on with some humanity, I think that's a professional way of operating any business."
When worst comes to worst, layoffs — especially mass layoffs — are an obvious talking point. In a 2012 report examining economic data from the primary years of the Great Recession, the BLS counted 3,059 mass layoff actions (periods in which at least 50 initial claims for unemployment insurance are filed against an establishment during a consecutive five-week period) in 2009 alone, impacting 326,392 workers.
Bleak as these decisions may be, employers vary in their approach to conducting them, Daniel Schwartz, partner at Shipman & Goodwin, told HR Dive in an interview. At times layoffs primarily impact one department, or they may take the form of a percentage, say 10%, of all staff. But employers must be sure to have a clear, non-discriminatory reasoning in making those choices, according to Schwartz. He gave three questions for an employer to ask ahead of a layoff:
- What are the criteria the organization is using to make the decision, and can those criteria be fairly applied across the board?
- If the criteria are applied, will they have a disparate impact?
- Will the employer offer severance?
Schwartz advised employers to be wary of the potential for disparate impact, particularly actions that could disproportionately impact older workers. In the wake of the last recession, "we saw a number of age discrimination cases that were fought," Schwartz said. He advised employers to work with an outside lawyer and a statistical expert to determine if any such statistical correlations exist. "It's not something most HR people can eyeball," he said.
Employers with 100 or more employees must, in certain instances, issue a written Worker Adjustment and Retraining Notification Act (WARN) notice at least 60 calendar days in advance of a mass layoff or plant closing affecting 50 or more employees at a single site of employment. There are exceptions to this requirement, as spelled out by the U.S. Department of Labor, but Schwartz said the 60-day notice requirement isn't something easily waived. WARN should be done as early as possible, he added, and while the process of deciding whether to issue such a notice may be difficult, states governments usually have a rapid response unit with recommended language for WARNs.
Could a skills focus help?
Looking ahead at potential shifts in business needs could help employers during hard times, Sethi said, especially if HR can set expectations around which skills are must-haves. Accurate job descriptions can be helpful, too.
"Most job descriptions are not worth the paper they're written on," Sethi said. To make them more effective, Sethi suggested HR focus on business capabilities that will be needed regardless of anticipated technological changes.
And when capabilities don't match skillsets, that's when reskilling comes into play. It may be that not all employees are willing to take the initiative to invest in their own development, Sethi said, but employers should still seek exciting and engaging ways to enable workers to do so.
"I can't expect my team to fully invest in themselves if I can't guarantee I'll invest them," he said.
- US Department of Labor Plant Closings & Layoffs
- Connecticut Employment Law Blog RIFs, WARN, OWBPA, Disparate Impact – An Alphabet Soup for a Future Downturn
Follow Ryan Golden on Twitter