What is a reduction in force? How it differs from layoffs

Change is a constant in business. At times, it means growth: launching new products, scaling teams, and chasing ambitious goals. Other times, it requires difficult pivots, such as restructuring or shifting focus, which may lead to a reduction in force (RIF).

Explore what an RIF is and how to navigate the process compliantly and compassionately. 

What does RIF stand for?

In business, RIF stands for “reduction in force,” a process in which a company restructures or downsizes its organization by eliminating certain roles and reducing headcount. The RIF process typically involves letting employees go because their positions are no longer required. 

Since affected employees don’t choose to leave, this is often referred to as an involuntary RIF. By contrast, voluntary exits, such as resignations or incentivized departures with severance packages, are when employees decide to depart on their own terms. 

Reduction in force vs. layoffs and furloughs

An RIF differs from layoffs and furloughs in that it involves the permanent elimination of roles, not just the temporary removal of employees. Here’s an overview:

• Layoffs are often cost-cutting measures tied to financial pressures. They don’t always mean a role is gone for good—companies may rehire laid-off employees if conditions improve. 
• Furloughs are temporary work stoppages. Employees remain on staff but take an unpaid leave of absence, returning to their positions once the furlough period ends. 
• RIF is a strategic decision to discontinue specific roles altogether. 

Key reasons for a reduction in force

Carrying out an RIF is never an easy decision for leadership to make. It means parting with skilled employees who may feel unsettled or stressed by the change. Still, certain circumstances can make it unavoidable. Common reasons for RIF include:

• Financial challenges: When revenue or market demand weakens, companies may reduce staff to focus on essential roles and preserve long-term stability. 
• Organizational restructuring: A shift in vision, products, or services can render some positions redundant. 
• Mergers and acquisitions: Combining two organizations often creates overlapping roles, which companies consolidate to streamline operations.
• Technological changes: The rise of AI and automation can decrease the need for specific roles, prompting reductions.
• Location closures: Shutting down a branch, plant, or franchise site also eliminates the jobs tied to that location.

Legal and compliance considerations for RIFs

Reducing a workforce carries significant legal responsibilities. Organizations must carefully follow compliance requirements to avoid penalties, disputes, and reputational damage. When planning an RIF, consider the following.

WARN Act notice requirements

Under the federal Worker Adjustment and Retraining Notification (WARN) Act, U.S. employers with more than 100 employees must provide advance notice before eliminating a large number of jobs. Employers should notify impacted workers, their representatives, and local government officials in writing at least 60 days before the effective date. Some states, like California and New York, also have their own “mini-WARN” laws with stricter definitions of what qualifies as a mass job loss. That means even smaller-scale RIFs may trigger notice obligations, depending on where your organization operates. 

COBRA continuation of health benefits

The Consolidated Omnibus Budget Reconciliation Act allows eligible workers to continue group health insurance after termination or reduction in hours. Employers must notify the insurer of the change within 30 days, after which the provider informs employees of their right to extend coverage (typically at their own expense). 

Anti-discrimination obligations

RIFS must comply with anti-discrimination laws. The Equal Employment Opportunity Commission prohibits employment actions based on protected characteristics such as race, gender, religion, sexual orientation, and pregnancy status. The Age Discrimination in Employment Act specifically safeguards employee rights for workers over 40. While an RIF is not inherently discriminatory, organizations should document decision-making criteria and ensure offboarding is handled fairly and consistently to reduce risk of claims.

Steps to plan for a reduction in force

A poorly managed RIF process can result in lawsuits, fines, and long-term damage to company morale. Follow these best practices to stay compliant and ensure a smooth offboarding.

1. Gather the right stakeholders

An RIF affects multiple business areas, so involve department leaders in HR, legal, and communications from the start. Work together to draft a consistent, compassionate plan including conducting exit interviews and issuing final paychecks. 

2. Establish clear, objective selection criteria

Use fair, documented standards to decide which roles to eliminate, such as outdated skillsets or sustained underperformance. Avoid subjective judgments and be ready to support decisions with data to mitigate the risk of wrongful termination claims. 

3. Analyze for legal compliance and potential adverse impact

Review local, state, and federal requirements carefully, documenting each step. Analyze termination data for potential discrimination risks—for example, if a disproportionate number of older workers are affected.

4. Deliver communications to affected personnel 

Create a timeline that covers every audience, from impacted employees to the broader community. Make sure that all involved departments know when you’ll communicate the information and how. Messaging will look different for each group, so tailor communications accordingly:

• Impacted employees: Provide personalized separation notices explaining reasons for the change. Train managers to deliver termination letters with empathy and to answer questions accurately. 
• Remaining employees: Share an internal memo explaining the reasons for the change and how it affects future operations.
• External stakeholders: Notify investors, suppliers, and partners about the shift and its impact. 
• Community and customers: If relevant, publish a public statement that explains the change and highlights the positives, such as new focus areas.
  
  

5. Offer severance packages and outplacement support

While not always legally required, providing severance packages and career support services demonstrates goodwill and helps former employees transition. This approach can also protect your company’s reputation and maintain long-term relationships.

Navigate workforce restructuring confidently with Oyster

A reduction in force is a complex, cross-functional process with serious compliance implications. Avoid setbacks and errors by working with an EOR like Oyster. We provide guidance and support throughout all steps of the onboarding, payroll, and offboarding process for global operations. 

Let the Oyster team help you navigate any transition while protecting your business.