What Happens When a Company Downsizes?

Woman leaving her job
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Downsizing occurs when a company permanently reduces its workforce. Read below for information on why a company might downsize, what happens during downsizing, and how you can survive a layoff during downsizing.

Why Do Companies Downsize?

Downsizing can occur for many possible reasons. Corporate downsizing is often the result of poor economic conditions. Typically, the company has to cut jobs in order to lower costs or maintain profitability.

Downsizing may also occur during a merger between two companies, or an acquisition of the company by another. If the merger or acquisition has not yet happened, a company might downsize to look like a more viable candidate.

Other times, a company downsizes when a product or service is cut, or the economy falters.

Downsizing also occurs when employers want to “streamline” a company – this refers to corporate restructuring in order to increase profit and maximize efficiency.

What Happens When a Company Downsizes?

Downsizing results in layoffs of employees. Sometimes, these are permanent layoffs; but other times, employees may be rehired after a restructuring period.

Layoffs are are often followed by other restructuring changes, such as branch closings, departmental consolidation, and other forms of cutting pay expenses.

In some cases, employers are not fired, but instead become part-time or temporary workers (to trim costs).

Sometimes employers offer job sharing for some employees, cut back on employee benefits, or shorten the work week to retain employees.

There are also often changes in the day-to-day work of employees after a company downsizes. Because there are fewer employees, many workers have to take up new responsibilities.

There can also be a loss of morale within the company due to the loss of staff.

How Do You Handle a Layoff?

There are a number of things you can do to prepare for or survive a layoff. First of all, keep an eye out for warning signs that your company might downsize. These include hiring freezes, numerous closed-door meetings, and rumors about downsizing.

If you think your company might downsize soon, prepare for the possibility of a layoff. Update your resume, and be sure to network with contacts at other companies. You might begin a passive job search to keep any eye out for possible jobs. You can also consider saving money now in case of a layoff in the near future.

Once you receive a layoff notice, you should check with your company’s HR department to see what benefits you might receive. You should also file for unemployment benefits as you start your job search. The federal government funds dislocated worker programs that provide job search and training support.

How Do You Tell an Employer About a Downsizing Layoff?

If you are a displaced worker who has been fired during a company’s downsizing, you should explain this when applying for jobs. Being laid off is very different from being fired, because it is due to circumstances beyond your control.

Employers should be aware of this distinction when you apply for jobs

Include a clear statement somewhere in your application process (in your cover letter, application, or during your interview) that explains why you were displaced. For example, you might explain that your position was eliminated when the company outsourced an entire department.

You also want to emphasize the quality of your performance while you were employed there. For example, you might mention in an interview the quality of your evaluations, or include in your application a recommendation from your former employer.

Mentioning these things during the job application process will dispel any worries that you were fired due to issues with your performance.

Related Articles: Dislocated Workers | Fired vs. Laid-Off | FAQs About Termination From Employment | Receiving a Layoff Notice