Performance-Based Layoffs Blur Firings, Increase Company Risk

Microsoft Corp. and Meta Platforms Inc. are among companies targeting underperforming workers through layoffs, a practice that could obscure the line between legitimate workforce reductions and traditional firings.

The wave of job cuts over the past few years—largely at high-growth tech companies that significantly expanded their workforce during the Covid-19 pandemic—and workers increasingly sharing intimate details about their terminations online are bringing renewed attention to an increasingly common layoff tactic used by some employers.

This month, Meta CEO Mark Zuckerberg recently told the company in an internal memo that he “decided to raise the bar on performance management and move out low-performers faster,” taking aim at roughly 5% of its staff for cuts. His decision followed a similar announcement by Microsoft regarding job cuts aimed at underperforming employees.

While the practice is often framed as necessary for reducing staffing expenses and streamlining operations, it’s also considered a less confrontational way to let someone go. Basing mass terminations on performance, however, oversimplifies the issues by shifting the responsibility for potentially poor workplace management onto the employee and concealing the true nature of the action, employment law attorneys said.

Companies conducting performance-based mass layoffs forego “legal hoops” typically associated with workforce reductions unrelated to performance, said J. Thomas Spiggle, founder of the Spiggle Law Firm.

For example, employers laying off workers could run into legal trouble under the Worker Adjustment and Retraining Notification Act. This federal law requires employers with 100 or more workers to give a 60-day notice before firing more than 50 employees at a single work site. Exceptions to the notice requirement include job cuts due to performance issues.

Still, mass performance-based cuts “always run the risk of sweeping in people with legitimate claims against the company, along with people who just aren’t performing, who companies are perfectly entitled to let go,” resulting in lawsuits, Spiggle said.

At-Will Employment

The at-will employment doctrine allows private employers to terminate virtually all workers for any or no reason, a default in every state except Montana. But exceptions to the doctrine exist, such as safeguards against terminations that violate public policy or anti-discrimination protections based on age, gender, race, and other characteristics.

Workers can bring bias claims if they’re members of a protected class disparately impacted by the layoff and believe they were targeted for reasons other than their performance.

Such lawsuits can fall under Title VII of the 1964 Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act. Comparable state versions of these laws often provide greater worker protections and carry more expensive liability risks.

A bia claims stemming from a performance-based mass layoff would nonetheless be much more difficult to prove in court, said Jennifer Shaw, founder of boutique employment law firm Shaw Law Group.

Multiple employees would be impacted simultaneously, making it “very difficult” for a claimant to establish that they were singled out for discriminatory reasons, she said.

Common Practice

Performance-based layoffs could be more common than workers realize. Companies across the US admitted to disguising performance-based terminations as layoffs to avoid conflict, a July 2024 survey of 600 business leaders by career platform Resume Builder found.

Half of its respondents reported that 75% of layoffs their companies conducted in the past year were unrelated to cost-cutting; 80% chose layoffs over terminations; and 31% said performance was always considered in layoff decisions.

But employment law attorneys warn this can open the door to consequential internal rifts.

There are legal business reasons for sacking workers who don’t meet performance expectations. But employers must be transparent, accurately characterize their determinations, and ensure they’re supported by legitimate, nondiscriminatory business reasons, they said.

Conducting sweeping layoffs under the guise of low performance isn’t helpful to those laid off because they automatically assume they’re low performers when there could be deeper, unaddressed workplace issues out of their reach, said Shaw, who advises employers on workplace issues.

“And that doesn’t help the current employees,” she said. “They’d get suspicious of the employers’ intentions,” potentially affecting workplace morale.

Performance Evaluation

Measuring someone’s performance can be a sensitive workplace issue and perceived as subjective, causing workers to feel they’re judged unfairly, Spiggle said.

“You’re basically saying they’re a bad worker and not doing a good job,” he said. “It’s different from a reduction in force where you’re saying, ‘Hey look, we’re cutting a certain number of our employees for business reasons.’”

The ongoing layoffs across various sectors dovetail with corporate executives’ push for more integration of artificial intelligence into business operations, raising concerns about the technology replacing some jobs traditionally viewed as needing a human touch.

Meanwhile, more companies are enforcing full return-to-office mandates based on the belief that productivity and collaboration improve when employees work together in person. Some are tracking office attendance using badge swipes and have threatened to fire or decline promotion opportunities for those who don’t comply.

In a performance-based termination case, plaintiffs’ counsel will examine records like performance evaluations for evidence to counter the company’s claim that its action was legitimate, said Robert Baldwin III, founder and managing attorney of worker-side firm Virtue Law Group.

They will also assess whether there’s a broader pattern of unfair treatment, bias, or stereotyping, he said.

“We will also look at any promise or guarantee that the company made to the employees to ascertain whether the company owes some benefit or interfered with the employees’ opportunity to duly earn a benefit with continued employment,” Baldwin said. “Sometimes this looks like a company cutting an employee weeks before they are set to earn a bonus or before their equity in the company vests.”