Downsizing: Can Be ‘Painful Experience'

(from Maine Townsman, July 2008)
Douglas Rooks, Freelance Writer

Few moments in the workplace are as difficult as the dreaded delivery of the pink slip – telling an employee, who might have worked well at a job for many years – that his or her services are no longer required. If it's hard on the employee, it may be even harder on the employer, who may feel responsible for a situation gone awry.

“It’s an admission that things didn't go the way you'd hoped, that the plan didn’t work,” said Clare Payne, a labor law attorney from Eaton Peabody in Bangor, who frequently represents towns, counties and utility districts. In addition to nearly three decades as a lawyer, she also served 12 years as a selectman and town councilor.

“It’s a painful experience at best,” said Payne. “There just isn’t any good way to do it.”

In public employment, layoffs are generally less common than in private sector jobs, since government agencies are relatively immune from the business cycle. But not entirely.

This year, faced with a perfect storm of stagnant revenues and unexpected expenses, Portland conducted one of the largest workforce reductions in Maine local government history, cutting 93 positions, or nearly 7 percent of its 1,425-member workforce.

So far, such reductions have been far more the exception than the rule, and most towns and cities have adopted budgets this year that reduce expenses but do not eliminate significant numbers of employees. Whether that remains true next year may depend largely on the length and scope of the current economic downturn. But it’s probably a good time for municipal officials to get out their personnel policies to determine how they might handle a workforce downsizing, should that be necessary.

Union or Non-union?

The most basic distinction in town and city offices is whether a union contract is in effect. Virtually all such contracts spell out procedures that must be followed before any employees can be laid off or transferred, said David Barrett, director of Personnel Services and Labor Relations for MMA, who also represents several dozen towns in contract negotiations.

“You are bound by the contract whenever any personnel reductions are being made,” Barrett said. “It’s important to understand all the procedures that need to be followed” in order to avoid aggravating an already difficult situation.

Where non-union employees are involved, municipal managers “have more discretion,” he said, but the leeway is not unlimited. “There's usually a personnel policy that offers guidance, but in practice it may not be all that helpful.” While even small towns have policy handbooks spelling out paid holidays and rules for taking vacation, layoffs are rare enough so they are often overlooked, he said.

Employers, public or private, must be sure that in implementing layoffs they do not discriminate against a protected class – which legislation and the courts have defined to include age, gender, race, religion and ethnicity.

“If you’re targeting a particular department, and all of the employees are over 40, you may run into a problem” Barrett said. This can occur despite fairly compelling reasons, he added. “If your highest priority is computer skills, you might want to have a very young workforce.”

Even aside from legal concerns, employers should try to create criteria for downsizing that can be seen as fair, both by employees and by taxpayers and community members.

This can be easier said than done. Clare Payne observes that the smaller the town, the more likely that layoffs can disrupt services and the functioning of the municipal office.

“If you have a large police force, it isn't that difficult to figure out how to make a selection,” she said. “But if there’s a single administrative assistant, and two workers in the highway department, it can be tough.”

While she agrees that union contracts limit managers’ discretion and also provide guidance for layoffs, she points out that most municipalities will still be dealing with uncertainty. “Even in communities with union contracts, there will usually be non-union employees as well,” she said.

Ultimately, managers must trust their judgment about what cuts make the most sense – and which can be justified to the selectmen or council.

“You may place a high value on a particular skill, or that an employee has had cross training,” Payne said. Figuring out how the office will function after the layoff, she said, is at least as important as making the right decision about current personnel.

Looking for Alternatives

Both Payne and Barrett caution that layoffs shouldn’t be the first resort when it’s determined that personnel costs must be reduced, even when a union contract is in force.

“If hourly employees are involved, there’s the possibility of reducing hours,” Payne said, although that approach wouldn’t help where salaried employees are concerned. Another option could be a wage freeze.

While neither option is likely to be welcomed, they may be preferable to permanent job losses – particularly when there’s a possibility that the forces causing the revenue shortfall may be short-term, she said.

Barrett said that there are times when employers can simply approach union representatives and say that a certain dollar value in reductions must be achieved, while attempting to enlist their cooperation. “If there are other things that might work, you might as well consider everything,” he said.

Payne said that going to the union can be a good move, in that employees like to be consulted whenever important decisions have to be made. But in the end, the employer will have to make the final call, and bear the responsibility for the consequences, she said.

Cutting benefits is not a popular alternative, Payne said, even though most municipalities offer more generous coverage for health insurance than the private sector. Few businesses offer full health coverage for employees any more, and even fewer pay even part of premiums for dependents. “In some case, [municipal] contracts have been negotiated that have employees paying 10 or 20 percent of premiums,” she said. “It’s a possibility.”

Barrett cautioned that, while union contracts generally allow employers to lay off employees without reopening collective bargaining agreements, that may not be the whole story: “It’s not necessarily a one-stop decision,” he said.

For example, if a municipality has an eight-person police department, and decides to lay off two officers, the schedule previously devised to cover each week may no longer work. “In that case, you might have to bargain to create a new schedule, adjust hours, and make other changes,” he said.

The Perfect Storm Arrives

While there were ominous signs of trouble for Portland’s 2008 budget months in advance, city officials initially had no idea how bad things would be. While problems on the school budget side attracted a huge amount of news media attention, in the end it was the municipal side that ended up taking a bigger hit, in part because Portland actually received a significant boost in General Purpose Aid to education from the state.

The municipal side of the budget ended up with a loss of 93 positions, a significant number of which were vacant. Still, 38 employees lost their jobs, something “that hadn’t happened in the 24 years I’ve worked for the city,” said Human Resources Director Ed Anderson.

As Finance Director Ellen Sanborn explains it, the budget took a number of hits from different directions, none of which in itself seemed major, but which collectively created a big dent.

“There were flat revenues in a whole number of areas” – including vehicle excise taxes, building and planning fees, interest earnings – “plus the Scotia Prince settlement.” In the latter case, the city paid the owners of the cruise vessel $1.2 million in a dispute over termination of docking rights at a city pier.

When the city council determined to hold the line on property taxes – and the overall rate for municipal and school expenses went up 3.7 percent – layoffs became inevitable.

The reduction in positions is expected to save $2.9 million in wages, and perhaps another $400,000 in benefits, though the latter figure is somewhat speculative. “Since we self-insure, we really don’t know what our costs are going to be until someone files a claim,” Sanborn said.

The extent of the belt-tightening might have been a tough sell, but Sanborn is convinced it was essential. Since the budget was prepared, “We’ve already eaten up half the savings in gasoline and other energy expenses," she said. “Salt is up by $10 a ton already.”

She’s cautiously optimistic that there will not be a need for further personnel cuts next year. “From the planning perspective, we think we’ve bottomed out,” though she noted that the new fiscal year has just started. The remaining uncertainty, she said, is tax collections. “We should know by the time the first payment is due, in September, how people’s personal budgets are holding up,” she said.

The payroll cutbacks attracted a lot of press coverage when they were being negotiated, but much less attention while they were being carried out.

‘Helpful and Cooperative’

That may have been because there was a relatively harmonious approach to the task, Ed Anderson said. “The unions were really helpful and cooperative,” he said. “That certainly made it a lot easier than it could have been.”

For example, the union contract sets forth an extensive system of “bumping” rights. In addition to the usual seniority provisions, the contracts allow employees of a certain classification to transfer to jobs in other departments, including some where they may not have worked before.

Nevertheless, Anderson said the process went relatively smoothly. “Some employees had several choices” of where they could go, and the unions agreed to allow them to meet with potential supervisors and, in effect, see how things might work in a new job situation. He said that there should be a good fit for workers with new assignments, saying that, "the square pegs are in the square holes, and the round pegs in the round holes."

With that said, though, it did take time – at least six weeks – for the process to run its course. In addition to lateral transfers between departments, union employees also had the right to reclaim any position they had previously held, as long as they could meet the current qualifications, "as defined by the city," Anderson said.

In some cases, an employee might have a college degree, but lack a required professional license. Figuring out the relevant qualifications was a challenging assignment, but all the personnel changes, which were voted by the city council in late April, were completed by the time the budget took effect on July 1.

Sanborn said that along with the layoffs there were administrative consolidations that created efficiencies. The Parks and Public Works departments have been merged, as well as the Recreation and Facilities departments. "Hopefully, we'll see some positive things come out of it," she said.

The extent of the hit on the municipal budget can be seen in the tax impact. While Portland's municipal budget was up only 0.6 percent,  it required a 6.2 percent greater commitment from property taxes. Without the increase in state school funding, Sanborn said, it would have been even tougher.

Anderson agreed that things were less traumatic than might have been predicted. "We saw some anger, for sure, but we expected more than we saw," he said.

Still, however well prepared a manager might try to be, there's no doubt that this is a tough, tough job.

"Sitting across the table from your employee and delivering the news is where it becomes real," he said. "They're expecting it, they know why they're there, so it isn't that it's surprising. But it's a difficult process, and it's not something you ever want to have to do."