'LIFO' won’t save your bottom line

The tech industry continues to suffer a steep downturn and more HR leaders are facing the hard questions of who to let go and why.

Perhaps one of the most storied practices for deploying layoffs is the concept of “last in, first out,” but experts now say following this path could come with the risk of losing some of your most diverse hires and top performers. In fact, it could be downright discriminatory.

I spoke with several HR and industry leaders to learn more about the often unseen risks associated with the practice and some of the best alternatives and solutions in times of making cuts.

Why you might want to avoid jumping into a ‘LIFO’ mentality:

• Leaders lean on the practice because it appears to be a cut-and-dry (and perhaps even equitable) way to evaluate layoffs based on tenure and seniority, but it frequently discounts the performance and contributions of employees.
• Layoffs can disproportionately affect women and people of color when companies don’t have diversity spread throughout the organization, shared Star Carter, co-founder and chief operating officer at DEI tech company Kanarys. More inclusive representation can be concentrated in the entry level and in what are considered to be “nonessential” roles.
• “Companies also tend to recruit more aggressively and expand their talent pools when the labor market is particularly hot,” said Julia Pollak, chief economist at ZipRecruiter. “So company diversity often increases towards the end of an economic expansion. Those more diverse last-in hires are often the first out under a seniority-based system or even a performance-based system, because it can take time for new hires to learn the business and become fully productive.”

Are there any other risks associated with the practice of LIFO?

• “When looking specifically at a ‘last one hired, first one fired’ approach, remember this can haunt companies when they return to hiring. This creates skepticism with prospective employees — often for years afterward. That is a huge risk,” said Colleen McCreary, chief people, places & publicity officer at Credit Karma.
• Not to mention the financial loss and potential legal actions. “You risk keeping managers, supervisors and administrators, but losing the ‘worker bees’ who actually do the work and make money for the company. You risk disparate impact for a protected class — individuals who are members of a certain race, ethnicity, religion, gender, sexual orientation, gender identity or those with a disability — and a slew of wrongful termination lawsuits,” said Pollak.

Here’s what the experts say to consider instead:

• Redeploy your talent: Lars Schmidt, founder of HR executive search company Amplify, suggests mimicking what some of the most talked-about companies did at the start of the pandemic when layoffs first hit. He points to Airbnb’s decision to deploy its recruiters as an outplacement team to help laid-off workers find new jobs.
• Face the hard truths: “In theory, layoffs are about cutting roles, not people. However, from my experience, tenure is a popular criteria when considering who stays and who goes. That is because you often need a defensible set of criteria to help you narrow down who will be asked to leave the company, especially if you have many people in the same role,” said McCreary. “My recommendation is, when possible, instead of going person-by-person, which can damage morale even more, identify entire groups or teams that can be let go all at once. It is easier to completely shut down a location, for example.”
• Consider whether you need to make layoffs at all: “I would caution people leaders from having a knee-jerk reaction to a downturn in the business. Layoffs may be the quickest way to cut costs but they should be a last resort. Instead, identify alternative cost-cutting measures,” McCreary said.

— Amber Burton, reporter (email | twitter)