HR in an Economic Downturn
Economies go up and down, and the consensus is that ours is heading into a downturn. “Obviously, we’re going into some kind of economic downturn; how deep it is or the duration of it, we don’t know, but it will definitely be a slower economy in 2023,” says Jock Finlayson, Senior Policy Advisor with the Business Council of British Columbia. “We’ll see some loosening of what has been a very tight labour market, unemployment will go up and we’ll see a lot less job creation. Layoffs will start to sweep across some industries in B.C. — not all of them, but we’re already seeing it in technology and forestry.
“But in my view, there won’t be a dramatic rise in unemployment rates, maybe from 5 to 6%, but not up to 9 or 10% like in some past downturns. I don’t expect mass job losses because of just how tight the job market has become here through job-force aging and retirements. We’ve had a huge exodus through the Baby Boomer retirement wave, and it’s accelerating.”
Still Jobs to Do
“For most of the economy, we still need people to show up to work. Health care, social services, accommodation, retail, food services, personal services and tourism; they’re all big in B.C. There’s no shortage of demand for labour.”
Employers’ post-lockdown experience will affect their reactions to a downturn as well, Finlayson says. “Employers realize that if you lay off a significant portion of your workforce, they may find them hard to call back or replace. They’ll have gone to other industries or jurisdictions. My caution to employers would be to think carefully before laying people off completely. In 6 to 12 months, they might have moved on to something else.”
Joey Brar, Human Resources Director at the City of Surrey, has a concrete example of that phenomenon. “A big thing for us was losing lifeguards, who are typically people in university or high school. When we had to shut down the rec centres for a few months, these people just moved on to other employment. We faced a major shortage of lifeguards when we re-opened the pools. And there was no new supply, because lessons and training stopped during lockdown, too.”
Sia Adjudani, Director, Total Rewards, for Vantage Airport Group and a 17-year veteran of HR, agrees that employers should be cautious about laying off staff. “Although fear of recessions tends to bring layoffs, in many sectors the battle for talent continues. The latest unemployment rate was at 5%, which is historically low.”
“There will likely be a potential redistribution of the labour force for those who can be redistributed to other sectors. Travel and tourism have in most cases come back to pre-pandemic levels and some places exceeded that, so we continue to seek talent in our sector.”
Good Time for Overall Assessment
“The fear of a possible recession can lead to layoffs, cuts in specific sectors, budget cuts and later market changes, but it can also lead to positive changes — having a more effective and efficient organizational design on the other side of it,” Adjudani adds.
“It’s important to look at the efficiency of the overall organizational structure. What’s required to deliver business results during the downturn? Based on that, an organization needs to make decisions that may or may not impact people. We’re all here because the business makes money, so focus on increasing productivity, be flexible and allow employees flexibility whenever possible.
“It’s definitely worth it to train existing high-performing employees in new streams. It absolutely makes more sense than having to re-hire, as long as the employee is willing.”
Brar has spent most of his 18-year HR career in the public sector, where layoffs aren’t as likely to happen, but economic variables still have an effect. “People see the public sector as more stable, so we’re getting more applications for jobs compared to pre-COVID. On a more practical level, budgets usually tighten. It makes it more important than ever to be sure your budget is allocated to the right places.”
With 1,000 new people moving into Surrey every month, all requiring municipal services, the city won’t be considering layoffs, he adds, but may slow down its hiring. During pandemic lockdowns, they had to lay off only a few hundred of their 5,000 employees, due to recreation centre closures.
Working With Worried Employees
When layoffs were required, Brar adds, and knowing that the city would want to rehire those employees when health regulations allowed it, the city made an effort maintain regular communication with them, providing updates on return timelines. They started a newsletter specifically for laid-off employees and let them maintain system access. “Keeping them involved and feeling part of the organization is important for that group of people. We got really positive feedback.”
There are ways to make an economic downturn less stressful for all employees, he says. “It’s important to take a wholistic view of employees while recognizing your fiscal restraints. Stress and issues from outside do come to work, so doubling down on supports such as EFAP, seminars on finances or dealing with tough economic times can have a positive impact.
“It’s important, knowing these stresses exist, to ensure a positive work environment. Lot of benefits aren’t monetary; you may consider allowing employees to take non-monetary benefit as cash for a short time, such as getting paid out for part of their vacation time. It might be a creative way of getting more cash in their jeans in the short-term.”
“HR pros have many tools in their toolkit,” Adjudani says. One of those is allowing employees to continue or begin hybrid or flexible work arrangements, which cuts their personal expenses for transit or commuting, buying lunches and other on-site work expenses as well as saving them commuting time.
Like Brar, he also recommends using existing EFAP tools including teaching financial skills. It helps to communicate to employees the importance of understanding market volatility, things like dollar cost averaging and individual risk tolerance, to prevent them from making drastic decisions. Knowledge and understanding can help prevent panic, he adds.
Communication is Key
“Economics rule decision making, but it would be smart for employers to cut labour costs in a more nuanced way. The goal is to try to keep the connection with your current workers, even if they go from full-time to part-time or job sharing, so they don’t leave the company, industry or jurisdiction. And let them know you want to hire them back when economics allow you to,” Finlayson says.
“Be authentic, open and honest in your communication,” says Adjudani. “Meeting with employees regularly as their manager or senior leadership. Listen and be aware of their feelings.” He also recommends keeping everyone focused on important short-term goals to give them a sense of purpose and keep them focused on work.
“A lot of the hurt that comes along with the layoffs is because of how it was done,” Brar says. “Some employers may not treat it very sensitively. Be honest and transparent, let employees know what the situation is. Treat them with respect, and show empathy and a personal touch when dealing with impacted employees. To the extent possible, allow staff input into changes that will affect them. Providing a bit of control will go a long way in helping employees feel better about it.”
Along with increased leadership visibility, he also recommends “anchoring communications to things that will remain constant — your organization’s values, vision and long-term strategic plans.
When layoffs are necessary, be as supportive of departing employees as possible. “Back in the 2008 market crash, I was in a role at a high-tech company facing significant layoffs globally, including 400 here,” Adjudani recalls. “So as an HR team, we all decided to reach out on our LinkedIn networks to help place as many of them as possible, and successfully placed quite a few of them with other organizations.
“We held inhouse classes on résumé writing and how to do interviews. Quite a few employees took part in them; it provided a glimmer of hope in a dark situation. We used the last few weeks of our time together to make sure impacted employees were okay.”
Is HR at Risk?
When cuts are needed, businesses often look first at departments that don’t produce revenue. That can include Human Resources.
“Because of the environment of labour scarcity we’ve been living in — and it will come back in mid-decade — and investments in talent development and retention, HR has become a bigger priority for leaders in organizations, I think,” says Finlayson. “People and talent are critical ingredients to success, more so now than ever. HR might be more shielded than some support areas in this round compared to previous recessions.”
“Companies with the most engaged and strongest corporate culture typically see HR as an integral business partner, so it may be affected not as deeply as some support departments,” Adjudani says.
“It depends on how the organization views HR,” Brar adds. “If HR is only seen as overhead, then for sure it’s at risk for layoffs, but if the organization sees HR as a critical component of business, the likelihood of layoffs would go down.”
One way HR can demonstrate its value to the organization is by providing alternative suggestions for cost cutting before resorting to layoffs.
Cutting Costs, Not Employees
Suggestions include enabling remote or work-from-home situations wherever possible, which also may allow the organization to save money by renting less office space or subletting part of its current space if it’s tied into a long-term lease.
“More than half of the jobs in our economy can’t be done remotely,” Finlayson points out. “Maybe 40% can. Before COVID, we had 3 to 5% of jobs in Canada done remotely on any given day; today it’s four or five times more, closer to a quarter of them. But there are lots of frontline jobs in economy, especially in the service economy, that can’t be done remotely.”
Other options could include a hiring freeze, forecasting your natural attrition rate with upcoming retirements, or reducing or eliminating non-corporate travel, Adjudani adds. “Also deferring or cancelling any large or non-essential projects, and reviewing all your third-party contracts for potential savings.”
HR is also needed to support workers who remain after others are laid off. Adjudani says factors to consider include fostering work/life balance, by considering hybrid or remote work arrangements when the job allows it. Emphasize physical and mental health by using EFAP and encouraging employees to make use of existing benefits, such as group fitness classes.
“Encourage HR and leadership to listen and empathize with these employees. Allow them space and time to work through their feelings of guilt, stress, uncertainty; give them some leeway. Start to rebuild the trust within the organization. If you handle people with dignity and open communications, you’re going to have more trust.”
“Continue to invest in high performers’ development and growth. The recession or hard times will end at some point, and you want to be sure you retain your top talent in the organization,” he adds.
“You could work with a union, explain the situation and be transparent,” Brar says, “and perhaps reach an agreement to delay scheduled salary adjustments. Frame them as necessary steps to maintain the health of the employer, which in turn means long-term employment stability for staff. Providing necessary information is so important to gaining staff acceptance.”
“I think you have to recognize your workforce has a finite capacity and there are only so many hours in day,” he adds. “You can’t reduce capacity and expect more outcome. Focus on things that are more critical to your business, and reintroduce other activities later when you’re bringing people back.”
Everyone agrees that the economy is cyclical, but not every downtown is the same, Finlayson says. “This cycle is not like other ones — first, we went through the COVID shock, which was a unique, bumpy ride; second, we’ve had this structural tightening of the labour market, so this is not going to be a replication of the 2008-9 recession or the early 1980s or 1991-92. I don’t think that’s going to happen this time — there will be some layoffs and rise in the unemployment rate, but it will be small potatoes compared to previous cycles.
“We’re going to come out of this and end up back in a tight labour market quickly, by mid-decade. By 2025, the unemployment rate will be back down to that of the past 12 months or so.”
“We tend to come out of depressions stronger. It’s a cycle, and we will experience another economic downturn at some point, so plan now for the next one,” Brar concludes.