Why learning how to “change horses midstream” could keep you from going under

When sales stopped and revenues declined at the start of the pandemic, it wasn’t the ideal time for small business owners to change horses — but many had no choice.

Sadly, it was at this juncture that some of my clients learned the hard way that policies they’d created regarding severance packages and position elimination (particularly those that favored seniority) slowed them down as they struggled to keep their businesses afloat.

Here’s what two clients learned while navigating the first year of the pandemic.

Lesson One: Don’t Make Unnecessary Severance Promises

One of my clients urgently needed to reduce headcount in order to make the next payroll. Unfortunately, this cash-poor employer had established a written severance pay plan that promised big cash payouts based on factors such as length of service.

Despite the fact that there is no California law requiring employers to pay severance, those payments were mandatory because of their internally created formula — and my client didn’t have enough cash on hand to reduce and restructure the workforce to a sustainable level.

That’s why I advise employers to avoid creating lay-off policies that are written in stone. 

Lesson Two: Don’t Undercut At-Will Flexibility

Do you have a written policy that requires you to give all employees yearly salary and performances reviews?

I have a client that skipped that step during the early days of the pandemic. When an employee was terminated soon after, she made a claim of breach of contract. My client decided to pay damages to avoid the cost and loss of productivity that go along with litigation at a time when the

I recommend that small business owners take a deep dive into their employment practices to see if they have made other non-legally required written promises that undercut or add unnecessary costs to at-will termination.  (For example, do you have a very high cap on the amount of vacation an employee can accrue? Would non-recurring cash bonuses coupled with unpaid leaves of absence make better sense?)

Lesson Three: Legal Advice Can Save You Money

The pandemic has been hard on small businesses — and the California Legislature hasn’t made it any easier. Spending a little time reviewing how your past and current practices align with new laws can save you money and spare you litigation down the road.