Layoffs Explained: Criteria, Legal Checks, and Your Options

Here’s how companies actually build layoff lists—and what that means for you.

There really aren’t any winners when it comes to mass layoffs. While posed as a cost saving and financial “bottom line” measure… they don’t actually save companies money in the long run.[1] But the long run is not the point! Typically companies are trying to balance in year or in quarter finances so their future finances look better. Regardless of future costs like recruitment, training, lawsuits from impacted employees etc.

Last week, I wrote a Linkedin post inspired by a friend waiting to hear about their role and whether or not they would be impacted as part of Target’s widely publicized layoffs. Target Employees waited over a weekend to learn if they still had jobs or not. The same week saw large reductions in force at companies including Amazon, Microsoft and UPS.

The post blew up, and I promised a follow up on how companies may create the list of chosen employees to get laid off. How are these tough choices made?

I put my research hat on to expand beyond my own specific experience as an ex-exec in corporate. Here’s what I learned. Buckle up, brevity is not a strength of mine and I want to share as much information and resources as possible.

The mandate: legal and business constraints

Firstly, companies gotta do things in ways that protect them from future legal action including wrongful termination or discrimination lawsuits. There must be a business or restructuring reasons. Many layoffs come alongside a company restructuring for this reason.

The criteria: how lists are generated

A consistent criteria must be decided upon and followed company wide.[1] This could include tracked things like annual performance review scores, tenure, business unit staffing percentages, growth or shrinkage in parts of the business model etc.

Both of these things are likely decided VERY high up in the company and handed down, perhaps with some discretion at the dept level. For example an Engineering team may use a scorecard on platforms/codebases that isn’t relevant to the Customer Contact team. The Customer Contact team may use things like call satisfaction scores. As long as these are CONSISTENTLY applied to the employee pool.

Another decision will be who (or what “level” of manager) will be involved in this process. The goal here is two fold – maintaining confidentiality as long as possible and getting accurate information gathered. If your manager reports to multiple layers of management above them, it’s possible they are not in the loop.

Finally, a target reduction will be established. Are we talking about a % reduction in annual salary $? Does this include compensation like bonus and health care expenses? Or is it less about money and more about staffing count? Whatever decision is made, it’s likely that very senior management is given a target to meet as they build their first draft list.

The criteria: how lists are generated

It’s highly unlikely any one person has control on a list. With their initial target, very senior management will work alongside HR and legal partners to apply the consistent filters to their employee pool. For example only, this could be employees in the lower thrid of the past two years annual performance scoring, or maybe the employees with tenure over 5 years who are high earners in their payband. Maybe it’s folks with no experience in a certain codebase, or customer call satisfaction in the lower third.

We have draft 1 of the list.

Now HR and Legal will analyze that list to look for possible discrimination – what % of the list is over 40? female? non white? has a disclosed disability?

“If certain groups of employees are affected more than other groups, determine if you can adjust your layoff/RIF selection criteria to limit the impact on those groups, while still meeting your business’s needs.” – US Equal Employment Opportunity Commission[1]

For example, if 30% of your total employee base is female, but 85% of your list is female… thats a big red flag and the list will be adjusted.

The money: severance and cost math

If the purpose of the reduction is monetary, these teams will also work with finance to calculate the potential cost savings and expense of the list of employees. For example, a fairly junior employee with a low salary may meet criteria but when let go will not offer much in cost savings – their salary and potential severance (when based upon tenure) won’t be high. Conversely, sometimes very tenured employees would receive larger severance packages and may not offer any cost savings when laid off.

The reason a severance package is put together is to exchange payment for the employee waiving certain legal claims arising before the layoff.[1] This could include discrimination (sexual, age, racial, etc etc) or wrongful termination for other reasons. When calculating the individual severance offer, the legal risk of the employee suing the company and the potential liability is taken into account.

The severance package is a reasonable bet that this is the $ amount to make you go away quietly, and remove the potential $ amount a law suit would cost – in both attorney costs and settlement payments.

The script: communications and PR

Another side of how companies manage something like a layoff is all about coordinating timing, messaging and the PR fallout. It will be decided who tells you. It may not be your actual line manager. Whoever it is will have a script they have been given to read that covers the companies butt and ensures they are able to say all the things that need said and no more. I’ve been handed these scripts before and they are very legal, not super human and it takes a certain amount of experience to bring some empathy and humanity into the room for each individual you are having to share this unfortunate news with.

It’s unlikely companies will share WHO was impacted, especially not in writing, and so the chaos that occurs following layoff notifications is very real. There will be formal press releases. There will be very legal sounding emails with word salad about putting the whole company first, refocusing on objectives etc. It is a herculean effort to coordinate all of this, truly. I don’t envy any of the individuals who have these responsibilities within their roles.

Your options: documentation and legal choices

Here’s the deal that isn’t said often outloud. If you watch Slow Horses, you may have heard of “London Rules”. London rules are to “cover your a$$”. In order to sue someone (at least in the US) you and your lawyer need to have confidence that you can prove in a court of law with admissible evidence that a law has been broken. Likely lawsuits following a layoff include wrongful termination based on the ADA anti-discrimination laws.

If it can’t be proven in court, it simply doesn’t matter in this context.

But if you have documentation, for example inappropriate emails, texts or zoom recordings of discriminatory behavior from your boss and after years of solid performance reviews find yourself being laid off and the PR says it was about “performance”… I would highly encourage you to have a chat with a local to you employment lawyer. Many will take a 15m call to hear you out and work based upon your outcome vs hourly.

Consider what is best for you. If you have the mental and emotional energy to expend going through the game of chess that is lawyers, legal departments and long lags in communication. Your lawyer can help you weigh up the potential monetary difference of the severance being offered and the potential outcome of a law suit (or threat to sue) in both money and time.

Wrap‑up and resources

This is a really tough topic. For everyone involved! By talking about this stuff, I’ve been accused of being everything from “overly dramatic” to “having a white savior complex”. Le sigh. My aim is to raise awareness for everyone of their rights as employees even in at-will states. The more you know, the more you can make informed choices, focus on your emotional needs and your next steps.

Through the end of 2025 I’m also making my Career Compass Workbook free of charge (typically $40). The workbook helps you realign to your values and career goals while releasing the should’s of careers.

Sending you a big hug through the internet, cos I’m a hugger. 🤓

Resources

• EEOC guidance on reductions in force and disparate impact standards.[1]
• U.S. Department of Labor resources on severance, COBRA, and worker rights.[2]
• Employer‑side legal checklists and comms considerations for RIFs (useful to understand how companies structure criteria and scripts).[3]
• Research and management perspectives on layoffs’ long‑term effects and organizational impact.[4]

Not legal advice

This content is for informational purposes only and is not legal advice. Laws vary by jurisdiction and situation. Consult a licensed attorney in your state for guidance on your specific circumstances.[1][2]

Glossary

• RIF: Reduction in force. A headcount reduction using defined selection criteria.
• Disparate impact: Neutral‑seeming criteria that disproportionately affect protected groups.[1]
• Protected class: Groups shielded by anti‑discrimination laws, such as age 40+, race, sex, disability, etc.[1]
• Severance agreement: Payment and terms offered in exchange for legal waivers and other conditions.[2]
• COBRA: Option to continue health coverage after job loss if eligible.[2]
• Non‑disparagement: Clause restricting negative statements about the company post‑employment.
• Restrictive covenant: Contract terms like non‑compete or non‑solicitation that limit post‑employment activity.