Two women having intense conversation at work

More security for new staff during layoffs

How the last in, first out approach is no longer practical in the modern workplace

Written by Professor Gary Martin FAIM
4 minute read
Two women having intense conversation at work

With some economists falling over themselves to tell us we will enter into recession later this year, there is growing concern among those who have recently switched jobs that they will end up at the top of any layoff list.

Their disquiet is based on bosses’ traditional deployment of the last in, first out (LIFO) principle to decide which employees should face the harsh reality of the corporate chopping block.

The need for such concern might be in itself redundant because LIFO appears to be fast falling out of corporate favour.

Even if Australia does not fall into recession, an economic downturn at some point this year is expected to see some employers shed staff.

When that time arrives, employers have traditionally turned to LIFO as a method of selecting which jobs will be made redundant.

The option of LIFO in the workplace

LIFO involves selecting employees on the basis of the length of their tenure.

Those with the shortest length of service are the first candidates for any required layoffs while those who have been around the longest will typically be the last to go.

It is hardly surprising that leaders lean in on LIFO when faced with the often difficult task of reducing their headcount.

Hanging on to long-term employees means organisations can retain vital corporate knowledge and memory.

LIFO is also considered a relatively straightforward and judgement-free way to assess who should be made redundant.

Important factors to consider

Despite those advantages, many employers in the modern workplace have discovered that the risks associated with LIFO can make it more of a liability than a liberator.

At the heart of LIFO’s downfall is the fact it ignores the case of the recently appointed stellar performer who adds great value to the future of a business – only to be sacrificed to retain a longer-serving yet perhaps underperforming employee.

The reputation of a business in the employment market also has to be considered.

Employers who have become accustomed to competing for workers in a tight labour market have recognised that a cut-throat approach specifically targeting new hires might damage their employment brand and make re-hiring a challenge when business conditions improve.

Hiring new staff and letting them go a few months later is never a good look – and that is before considering the impact on workplace diversity.

Companies have taken great strides to diversify their workforce, which has meant many new hires have been women, those from culturally and linguistically diverse (CALD) communities, Indigenous Australians, people with a disability and LGBTQIA+ employees.

A LIFO approach to downsizing is therefore likely to disproportionately impact people from those groups at the same time as sabotaging the progress made towards an organisation’s diversity goals.

On top of those issues, there are potential allegations of age discrimination.

In some instances, an approach to redundancy based purely on LIFO could discriminate against young workers on the basis of their age.

This is because younger employees tend to have shorter periods of service and would therefore be disproportionately affected by a LIFO approach to shedding staff.

To avoid such claims, an organisation would have to demonstrate that the age profile of those selected for redundancy was not significantly different from the age profile of those in the wider workforce.

Some suggest FIFO – or a first in, first out approach – is more appropriate because it prioritises workers with the longest service for the layoff list rather than those with the shortest tenure.

But FIFO brings with it its own set of legal challenges. It is likely to adversely affect older workers just because they have been with the organisation for a long period of time.

Just like LIFO, FIFO will come with accusations of indirect age discrimination.

Making the right choice

Many employers have come to the view a LIFO strategy is an overly blunt cost-cutting tool that might hinder an organisation for the foreseeable future.

Organisations make employees redundant because they need to reshape for a more sustainable future.

Reshaping requires leaders to ensure their workforce has the best skills and abilities to meet future challenges.

More often than not, LIFO alone will lead to many important skills being lost.

The modern organisation will increasingly look to reshape a workforce beyond the length of service and instead focus on measures like experience, skills, qualifications and overall employee performance.

The bottom line is that while there are never any guarantees of job security, being new to an organisation should not make you any more vulnerable to being laid off.