Debunking 5 Common Myths About Company Layoffs

by Srikant Chellappa May 27,2024

The People Strategy Leaders Podcast

with Srikant Chellappa, CEO

The pattern of company layoffs has followed a curved trajectory. In 2020, there was a sudden spike in layoffs, which decreased in 2021. However, 2023 experienced a significant rise in layoffs, particularly in the technology sector, due to ongoing economic uncertainties. In fact, companies like Alphabet, Meta, Microsoft, and Dell also implemented significant layoffs. Further trends in layoffs for 2024 project that 21% of companies are likely to lay off their employees. 

Such a tendency toward layoffs in 2024 has caused anxiety and uncertainty among employees, creating a great deal of myths concerning what layoffs truly entail. Despite the numerous myths surrounding company layoffs, it’s crucial for employees to understand the reality behind them, as layoffs can occur for reasons unrelated to individual performance. 

In this blog, we debunk five common myths about layoffs and provide clarity and guidance to those affected.

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5 Common Myths About Company Layoffs

It is often assumed that layoffs are purely based on individual performance, which is not always the case. Employees need to be aware of the broader economic factors and strategic decisions that may result in cutbacks. Knowing the actual reasons for layoffs will enable employees to navigate these challenging situations and plan for their future career paths. Let’s understand these company layoff myths thoroughly:

  • Layoffs Always Mean the Company is Failing

One of the most deeply seated common myths about layoffs is that they indicate the imminent failure of a company. While layoffs can indeed be a consequence of financial distress, they do not solely relate to a failing organization. Company layoffs can also be a measure used for strategic organizational restructuring to re-organize resources, improve efficiency, implement automation in order to facilitate smooth workflows, and react to a decline in the economy in order to trim costs. These steps are undertaken in order to adapt to market demand, become more competitive, and retain financial stability, but usually at the cost of employee jobs.

Layoffs are very common in a business organization as a tool to keep themselves agile and competitive in a fast-changing market. This is quite common, especially when we look at the tech layoffs of 2024. 

For example, in the past decade, multinational giants have made massive reductions not because of going out of business but because of adjusting their operations to new industry developments and gaining a competitive advantage. If one is informed about industry trends and company performance, it is easy to see the reasons behind layoff decisions and how they are likely to affect one personally.

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  • If You’re a High Performer, You’re Safe

Being a high performer can certainly provide some job security, but it doesn’t make you completely immune to layoffs. While companies often strive to retain their top talent during difficult times, broader economic challenges or strategic shifts can still lead to job cuts affecting even the best employees. 

High performers may be seen as valuable assets, but if an entire department is eliminated or the company undergoes significant restructuring, their positions may still be at risk. It’s important for all employees, regardless of performance level, to stay informed about their company’s financial health and industry trends.

Companies may be considering downsizing due to the following reasons: 

  • Business Strategy and Goals: Long-term objectives guide workforce restructuring, ensuring alignment with evolving business objectives. Companies adjust staff to align with new market trends. Hence,  adapting personnel to meet shifting industry demands becomes of the essence.
  • Market Conditions and Industry Trends: Economic shifts and technological advancements influence layoffs, thereby responding to external factors shaping the market landscape. Also, downsizing during recessions is common for cost-cutting, employing measures to mitigate financial strain during economic downturns.
  • Departmental Importance: Organizations sometimes put more focus on revenue generation by concentrating on core business functions that are significant to their success. Companies will therefore, from time to time, downsize non-core departments with the aim of streamlining their operations during economic uncertainty to increase efficiency. This strategic approach allows businesses to weather financial challenges and remain competitive in a changing market environment. 
  • Skills and Adaptability: Recognizing the importance of adaptable skill sets in dynamic industries, companies can lay off employees in non-essential departments to reallocate resources towards training and developing employees with skills that are more in demand. 
  • Cost Reduction and Efficiency: Company layoffs are a balancing act between reducing costs and maintaining efficiency. Most companies aim to optimize their workforce to align with current market demands while controlling expenses. 
  • Legal and Ethical Factors: Sometimes, executing staff reductions in accordance with regulatory frameworks and established protocols is crucial to avoid legal repercussions and maintain ethical standards.
  • Team Performance and Collaboration: Low or under-performing teams can be one reason behind layoffs. Companies sought to prioritize the retention of teams that contribute positively to organizational goals and lay off non-collaborative teams to streamline operations and improve overall organizational performance.

Thus, although high performers may have a lesser chance of being laid off, they are not completely safe, especially when the skill set they bring becomes redundant or their department faces restructuring. Employees need to be proactive in seeking feedback and developing new skills to increase their chances of retention. Moreover, strong relationships with colleagues and managers will also help in navigating potential layoffs and a position within the company.

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  • Layoffs Mean You’ll Never Get Another Job

The trauma of being laid off is often followed by a general perception that one’s career is irreparably damaged. Far from that, today’s job market indeed offers a number of opportunities for competent professionals. Some industries are, in fact, reeling under a shortage of talent, making things look good for job seekers.

Bouncing back after some troubled years, the tech industry seems ready to make a comeback. The continuous increase in enterprise spending for software and IT services, mainly in such areas as AI, cloud computing, and cybersecurity, will drive growth in this sector. Tech companies are focused on innovation and resilience by streamlining business processes and modernizing their legacy architecture through migration to cloud resources and XaaS

Laid off employees are encouraged to take advantage of these opportunities by leveraging their acquired skills, networking, and scouting retraining programs that will bring them in line with emerging job trends.

  • There’s No Warning Before Layoffs

The lack of warning signs and the suddenness of job losses make layoffs particularly frightening. However, many organizations do exhibit subtle indicators of impending layoffs. These signs include reduced project funding, heightened budget scrutiny, and an increased emphasis on efficiency and cost-cutting. Other common precursors to layoffs include hiring freezes, budget cuts, and declining company performance. 

Changes in leadership or restructuring announcements and increased scrutiny of expenses also act as a red flag. By being able to recognize these signs, employees may be better able to take appropriate measures to protect their future job prospects. 

It is important for employees to stay informed and be aware of their organization’s financial health and strategic direction in order to anticipate and navigate potential layoffs effectively. Also, by staying informed, keeping open communication lines with management, and networking within the industry, employees can anticipate and navigate potential company layoffs.

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  • Getting Severance Means You Don’t Need to Worry

While receiving a severance package may be considered a temporary comfort, it does not remove the need to be concerned or proactive in planning. Severance packages provide financial support to employees during their reemployment process following a layoff, helping them sustain themselves while they search for a new job. However, it is important to be aware of the limitations of severance packages and plan properly. Depending on the policies of the company and the situation of an employee, severance benefits may be shorter or longer, or more or less complete. 

In addition, severance alone may not be enough to sustain long-term financial stability; it involves prudent financial management and strategic career planning when one gets laid off. It is very important for the person to account for their financial situation and look into other sources of income or support. Guidance from financial consultants or career counselors can help navigate the challenges of unemployment and secure a stable future.

To Sum Up

Dispelling the common myths surrounding company layoffs is crucial for fostering a more informed and empathetic workplace culture. By acknowledging the complexities of such decisions and challenging misconceptions, we can create a more supportive environment for employees facing these challenges. It’s essential to remember that layoffs are not a reflection of individual worth but often a strategic business decision in response to various factors. By promoting transparency, open communication, and empathy, organizations can navigate these difficult situations with greater understanding and resilience, ultimately paving the way for a more sustainable and compassionate work environment.

Talent Management

Frequently Asked Questions

  • Why do companies resort to layoffs?

Companies may resort to layoffs for various reasons, including financial challenges, restructuring initiatives, changes in market conditions, or mergers and acquisitions. These decisions are typically made to streamline operations, cut costs, or reallocate resources to more profitable areas of the business.

  • How can organizations support employees during layoffs?

Organizations can support employees during layoffs by providing clear communication about the reasons for the layoffs, offering outplacement services such as career coaching and job search assistance, providing severance packages or benefits, and maintaining a supportive and empathetic environment for remaining employees.

  • What are the long-term effects of layoffs on both employees and companies?

The long-term effects of layoffs can vary. For employees, layoffs can lead to financial instability, stress, and uncertainty about the future. However, they can also spur personal growth, career redirection, and new opportunities. For companies, layoffs can result in short-term cost savings but may also impact morale, productivity, and employer branding in the long run. 

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Srikant Chellappa
CEO & Co-Founder of Engagedly

Srikant Chellappa is the Co-Founder and CEO at Engagedly and is a passionate entrepreneur and people leader. He is an author, producer/director of 6 feature films, a music album with his band Manchester Underground, and is the host of The People Strategy Leaders Podcast. He is currently working on his next book, Ikigai at the Workplace, which is slated for release in the fall of 2024.

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