Quiet Layoffs Sting Workers Without Notice
With the economy weakening, chief executives want Wall Street to see them as tough cost-cutters who are not afraid to lay off workers. But plenty of job cuts are not trumpeted in news releases.
Big companies also routinely carry out scattered layoffs that are small enough to stay under the radar, contributing to an unemployment rate that keeps climbing, as Friday’s monthly jobs report is likely to show.
IBM is one such company. It reported surprisingly strong quarterly profits in January, and in an e-mail message to employees, Samuel J. Palmisano, the chief executive, said that while other companies were cutting back, his would not. “Most importantly, we will invest in our people,” he wrote.
But the next day, more than 1,400 employees in IBM’s sales and distribution division in the United States and Canada were told their jobs would be eliminated in a month. More cuts followed, and over all, I.B.M. has told about 4,600 North American employees in recent weeks that their jobs are vanishing.
J. Randall MacDonald, IBM’s senior vice president for human resources, said it was routine for the company to lay off some employees while hiring elsewhere. “This business is in a constant state of transformation,” he said. “I think of this as business as usual for us.”
These unannounced cuts, labor experts say, raise issues of disclosure and the treatment of workers. They argue that the federal law requiring warning of certain kinds of layoffs should be overhauled to cover smaller job cuts. That would give people more time to seek new jobs, career counseling and retraining.
“The twin goals are transparency and decency,” said Harley Shaiken, a labor economist at the University of California, Berkeley. “The issue becomes all the more pressing in this downward economic spiral.”
The notification law, known as the WARN Act, is a legacy of an era when the economy was more dependent on manufacturers and legislators were concerned about blue-collar workers being locked out of their factory. That kind of shutdown is hard to hide, while white-collar layoffs spread across many locations are not.
The WARN Act requires 60 days’ notice, but the events that require notification are site-specific — a plant closing, a layoff of 500 or more people at one location, or a cut of at least one-third of the work force at a site.
If notification is not required, the standard practice at large companies is to give 30 days’ notice before a layoff. Some states have passed their own WARN Acts to cover more layoffs. California, for example, now requires a WARN notice when a company cuts 50 or more workers in one place. Last month, New York enacted a law requiring 90 days’ notice when laying off 250 or more workers at a site.
Companies sometimes have good reason for dismissing workers quietly. Depending on how the businesses want to portray themselves to investors and the public, layoffs might not fit the message.
Most companies today, of course, are not hesitating to make layoff announcements. Managers are straining to demonstrate that they are taking forceful action on expenses, the one front where they have some control amid economic turmoil and uncertainty.
Two days after IBM’s report, Microsoft said that its quarterly profits were disappointing. It declared it would cut annual operating expenses by $1.5 billion, lopping off up to 5,000 jobs over the next 18 months, including 1,400 immediately.
Labor experts advise taking near-term cuts seriously and being skeptical about intentions several months down the road. “The most effective job-cutting is done on a short timetable, clearly explained inside and outside the company, and grafted tightly to the business strategy,” said Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania. “Plans for cuts 12 and 18 months in the future are mostly irrelevant, even if the companies are sincere at the time.”
At IBM, the layoffs are coming swiftly, if with less disclosure. The estimate of 4,600 job cuts comes from adding up the itemized headcounts in information packages given to employees in each of the businesses. Some of them were supplied by Alliance@IBM, a small but active unit of the Communications Workers of America union, and some by IBM workers directly.
The cutbacks surfaced only because of their size and timing, with word spread through blogs, employee message boards and the union group.
In its financial statements, IBM does report the cost of severance payments and outplacement counseling for layoffs — about $400 million annually in the last five years — but not head counts.
IBM says it remains the largest high-tech employer in the nation, with 115,000 workers. The company is adding jobs as well as slicing, in a cycle that it says has helped make it increasingly global and successful as it shifts toward higher-profit software and technology services businesses.
In January, for example, it said it would open a call center in Dubuque, Iowa, for corporate customers. It is to employ up to 1,300 people. And Mr. MacDonald, the human resources executive, said IBM was hiring analysts and engineers to work on Internet software, health technology and smart electrical grids.
But I.B.M.’s American employment has declined steadily, down to 29 percent of its worldwide payroll of 398,445 at the end of 2008. The cuts have also come sooner and deeper in North America this year than in recent years.
As part of a government filing last week, IBM said its work force in Brazil, Russia, India and China had climbed to 113,000. These are markets with faster growth than the United States, and less expensive skilled labor.
In interviews, IBM workers whose jobs are being eliminated were mainly chagrined that the undisclosed cuts, and the timing, seemed to contradict the company’s public statements.
Rick Clark, 50, an engineer in East Fishkill, N.Y., had worked for IBM for 11 years. He said he was disappointed in IBM this time because the job cuts were deep and spread across so many businesses and came at a time when IBM has been proclaiming its success. “I do think I.B.M., like other companies, has used this recession as an excuse to lay people off,” he said.
IBM has had to issue two WARN Act notices recently under the tighter state laws of California and New York. The company is cutting 141 jobs in San Jose and 295 jobs in East Fishkill.
To strengthen the federal layoff-warning law, labor experts make a few suggestions. They include adopting the California threshold of 50 people let go at one site, or a national standard, requiring 60 days’ notice if a company lays off at least 1,000 workers nationally or at least 10 percent of its work force.
Some labor experts would also like to see a requirement for large corporations to report employment country by country annually.
“All our multinational companies are increasingly less American, except when they are asking for tax breaks and increased government spending in their industries,” said Ross Eisenbrey, a labor researcher at the Economic Policy Institute, a labor-oriented research organization in Washington. “Knowing where their employment really is would be useful information for policymaking.”