Downsizing

Meaning & Definition

An organization makes a decision to downsize in order to reduce the number of employees and to save money, be more efficient or to deal with problems that affect the business. This can happen through restructuring, the use of automated equipment, by merging with another company, experiencing an economic downturn, or having less demand for their goods and services and can take the form of either terminating, eliminating or offering the option for individuals to resign their positions.

Important Aspects of Downsizing

• Facilitates cost management in times of financial pressure.
• Supports in the restructuring and enhancing operational effectiveness.
• Aligns the size of the workforce to business requirements.
• Affects the employer’s reputation and employee engagement.
• Demands thorough pre-planning to limit legal and PR risk.

Compliance & Policy Considerations

In India, there is a legal framework for employee downsizing, or layoffs, that falls under the Industrial Disputes (Act of 1947), with specific sections regulating layoffs, notice periods, severance payments; these could include an employer complying with Shops & Establishments Acts, Standing Order laws, etc., as well as obtaining all necessary government permits for mass layoffs.