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Put Down That Ax: Alternatives to Layoffs

By Pearl Smith/Updated by Mark Murphy

NOTE: This article is also available as a handout in PDF format.

After a couple years of reprieve, the home foreclosure crisis and a looming recession are again creating serious budget problems for states and local governments. Some politicians are proposing lay offs, and lawmakers across the country have less money to meet greater needs. Our top priority — and the only real solution to this problem — must always be to adequately fund needed services. Any other option can mean hardship for workers and harm to public services. For information on state revenue solutions, and "hidden" spending", see AFSCME's State Legislative Agenda. For local finance issues, see Finance and Budget Resources - Finding the Money.

But where layoffs are a serious possibility, AFSCME also must be ready to propose alternatives.

Some strategies that have been employed as alternatives to layoffs include:

  • Avoiding Cuts in the Bargaining Unit
    1. Travel and capital purchases
    2. Excess capacity
    3. Non-General funds
    4. Contracted services

  • Changing Working Conditions
    1. Hiring freezes and attrition
    2. Restricting overtime
    3. Transferring / retraining workers
    4. Payroll lag or banked leave
    5. Early retirements
    6. Voluntary furloughs and reduced workweeks

  • Redesigning Work
    1. Flattening government hierarchies
    2. Contracting in
    3. Formalizing partnerships

THE CHALLENGE

State budgets are deteriorating rapidly because of the declining economy. By last count, more than half the states faced shortfalls totaling about $39 billion in the next fiscal year, and those numbers are going up. Local governments usually ride out economic cycles better than states. But this time, property tax revenues are in freefall from the housing crisis. Local governments also face tax 'revolts' that can lead to unwise property tax limits that benefit mostly the wealthy. And finally, state fiscal stress inevitably means cuts in aid to cities, counties and schools.

As a result, several states, and local governments across the country, have proposed layoffs affecting thousands of workers. Layoffs leave behind a cynical workforce, and create administrative headaches for employers. They destroy institutional memory, and foster worker distrust. By avoiding layoffs, quality services can be sustained, and normal operations can more easily resume when revenues rebound. Layoffs may be prevented in some situations by cutting other costs or - better yet - by engaging workers in changing how work gets done.

Avoiding Cuts in the Bargaining Unit

1. Travel and Capital Purchases

Restricting travel and postponing capital purchases were common strategies during the last fiscal downturn. More recently, Kansas has reduced its fleet of state vehicles by 20 percent in the past four years.

2. Excess Capacity

"Excess capacity," like underutilized buildings or equipment, is an expense, but can be a source of revenue. Instead of selling those assets, employers may be able to generate income by renting out public spaces or equipment.

3. Non-General Funds

Special revenue funds for transportation, utilities and schools, for example, may be well-funded, while general funds often pay the salaries of employees doing that work. Where permitted, paying those employees out of special funds or with federal dollars can free up general fund resources.

4. Contracted Services

Another place to look for savings is contracted services. Employers often spend a lot on contracting out, with very little to show for it. Restricting contracting out is another way to save money while preserving services and bargaining unit jobs.

STRATEGIES AFFECTING WORKING CONDITIONS

These measures may not completely address deep budget problems, leaving public employers to seek more ways to cut costs. Union involvement in this process is critical, since many options affect conditions of employment. Among possible strategies are:

5. Hiring Freezes and Attrition

Hiring freezes are a common step lawmakers take to stem budget deficits. A hiring freeze policy can be absolute — allowing no new hires; or flexible — allowing replacement only for essential services.

Dozens of states imposed full or partial hiring freezes in previous downturns. Connecticut, Illinois, New Mexico and Washington, for example, generated savings through attrition rather than layoffs. The City of Albuquerque froze hiring and eliminated vacant positions, avoiding 400 layoffs.

There are pitfalls to hiring freezes, however. Michigan state workers saw a hiring freeze reduce their ranks while managers continued to be hired. To prevent employers from augmenting a downsized workforce with temps, consultants, interns, welfare-to-work employees, prison labor or other workers, collective bargaining agreements need to protect bargaining unit work and ensure that vacant positions are filled with bargaining unit employees once the fiscal situation improves.

6. Restricting Overtime

Overtime restrictions can save a lot of money — in some places, overtime represents more than 10 percent of payroll. While many members depend on overtime pay, temporarily cutting back on it may generate enough savings to keep all members working.

There are other drawbacks to restricting overtime. Where overtime is high, it is often because of short staffing, so restricting overtime can create workload issues. Restricting overtime in 24-hour institutions can be especially problematic.

7. Transferring/Retraining Workers

Moving workers from jobs slated for downsizing to other positions can mitigate the need for layoffs and also tap the experience of the existing workforce. Several AFSCME agreements provide for worker transfers and retraining. In Oregon, the contract between Multnomah County and AFSCME Local 88 (Council 75), allows workers, in lieu of layoffs, to try three-month placements to demonstrate their ability to handle a new job.

8. Payroll Lag or Banked Leave

Employers can gain savings by extending payroll cycles over a specific period of time. AFSCME Council 25 and MSEA Local 5 in Michigan avoided layoffs with a "banked leave" program in 2003. Four hours of an 80-hour pay period were banked as paid leave for employees to schedule as they choose. Departing employees got the full value of banked leave in their deferred comp plans. CSEA/AFSCME Local 1000 agreed to a "lag payroll" with Nassau County, New York. Workers received 10 days pay for each 11-day work period and got their deferred pay upon leaving county service. If the county initiated layoffs or furloughs during the agreement, deferred monies were payable immediately.

9. Early Retirements

Early retirement programs relax pension service requirements or offer incentives to encourage retirement. Like hiring freezes, they may apply to all workers or to particular jobs.

Contrary to a common assumption, early retirement programs do not save money if all vacant positions are filled right away. Public employers can save money when positions are kept open for one to two years, as the State of Delaware has practiced, for example, or when only a fraction of positions are filled immediately, such as one new hire for every two retirements.

Many "early out" packages subsidize the cost of health benefits. Others include lump sum bonuses or other inducements. The State of Iowa and AFSCME Council 61, for example, agreed to pay early retirees 100 percent of their accrued sick leave from 2001 to 2004, instead of the normal $2,000 cap.

Early retirement plans can also backfire. When Illinois offered a generous buyout, a flood of employees retired early, raising the cost to the retirement system. And AFSCME members who work in mental health and corrections facilities there and in Michigan face serious understaffing in the wake of early retirements. Any buyout plan should be fashioned so it reaches the desired number of participants and necessary positions are refilled.

10. Voluntary Furloughs and Reduced Workweeks

Furloughs are temporary periods of non-work/non-pay status, such as one furlough day per month or per pay period. Reduced work schedules substitute a 32-hour workweek for a 40-hour week, for example, with a corresponding cut in pay. Several public employers have instituted furloughs and reduced work schedules in recent years, and furloughs were common among private sector employers earlier this decade.

Furloughs can be mandatory, or optional based on seniority. The employer can maintain health benefits and agree not to contest Unemployment Insurance claims filed by employees on furlough.

The union must ensure that seniority, leave accrual and benefits are protected for employees on furlough or reduced hours. Contract language can also prevent non-bargaining unit members from performing work regularly done by those on reduced schedules.

A variation on the reduced workweek is a shared work or short-time compensation program. Instead of being laid off, employees' work schedules are reduced and they collect Unemployment Insurance to make up some of their lost salary. Seventeen states allow such programs, each with their own rules and regulations. State unemployment offices have details.

WORK REDESIGN

Redesigning how work gets done, to improve quality and reduce costs, is a long-term solution to fiscal problems and can also decrease the risk of privatization. AFSCME Council 31 in Illinois prevented privatization and job cuts in the Glen Ellyn School District by reengineering custodial and maintenance work. While this reengineering required "leaner" work groups, it saved jobs by making costs competitive with contractor bids.

11. Flattening Government Hierarchies

Front-line workers know that layers of middle management often add little to the bottom line. "Flattening" of the management structure is a common result of work redesign.

When AFSCME members in the Indianapolis Department of Transportation pointed out that the ratio of managers to workers was 3 to 1, the department cut the number of supervisors, resulting in union-led work units. The smaller work crews were more efficient, as more effort was spent on maintaining highways and less on controlling the work.

12. Contracting In

In addition to scrutinizing new proposals to privatize work, AFSCME affiliates have worked to "contract in" work that is currently outsourced. The Ohio Department of Job and Family Services found it could save $100,000 for each state employee it hired to replace an information technology contractor. And the City of Portland, Maine and AFSCME Local 481 (Council 93) have a labor-management partnership that identifies privatized work that can be done more cost-effectively in-house.

13. Formalizing Partnerships

Labor-management partnerships have been formalized in many places, so that the creativity and changes they generate are ongoing.

The State of Ohio and OCSEA/AFSCME Local 11 have re-established a cooperative effort to improve state services. State departments have Agency Review Teams to review employee suggestions for improving work processes and to implement innovations. This initiative reprises an earlier, award-winning quality program that saved state taxpayers hundreds of millions of dollars, while preserving union jobs.

EFFECTIVE CONTRACT LANGUAGE

In spite of the array of alternatives, many AFSCME locals may still face layoffs. The following contract provisions can give the union some flexibility:

  • Notification - Prior to any layoff action, the employer should give advance notice to the union. Ninety days is preferable, with 30 days a minimum.

  • Counter-proposal - The union should have the opportunity to discuss the situation with the employer prior to a layoff notification, and offer alternative ways to save money.

  • Seniority - Layoffs should proceed in inverse order of seniority with all temporary, provisional and seasonal employees laid off first. The last laid off should be the first recalled, with no new hires until all employees have been recalled. Performance evaluations should not be a factor in layoffs.

  • Grievances - The union should have the right to grieve layoffs.

MEETING THE CHALLENGE

Adequately funding state and local services is a continuing challenge. AFSCME members have been through previous fiscal downturns and devised ways to make the best out of a bad situation. Those strategies may be needed again. To minimize the chances of future layoffs, this may also be the time to create effective partnerships to permanently change how work gets done.

To learn more about fighting layoffs, contact the Department of Research and Collective Bargaining Services at (202) 429-1215 or research@afscme.org.

For more information on state and local policy issues, see www.afscme.org/budgetandtaxes.

February 2008

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