The economic slump of recent months has triggered ongoing rounds of layoffs--that unpleasant yet seemingly unavoidable cost-cutting measure. But what is avoidable, psychologists say, is the dehumanizing way some of these layoffs have been carried out, from notifying employees by memo to dismissing them curtly in front of co-workers to locking them out of their offices and computers.

While a layoff might hike a company's stock in the short term, a poorly handled one could do it more damage in the long term, according to psychological research. Studies indicate that the way management handles layoffs directly affects the way employees handle them: If employees believe they've been treated callously, there's more likely to be anger and retaliation among the "victims" as well as the "survivors," starting a downward spiral of negative publicity and poor market performance, says psychologist Batia Wiesenfeld, PhD, of New York University's Stern School of Business. "If employees aren't treated with common decency and respect in a layoff, the company's reputation is besmirched in many eyes," she says. "Not only does it hurt victims and survivors, but it affects customers and suppliers."

In particular, psychologists find, employees are angered by curtness, surprise announcements, perceived unfairness, dishonesty and public humiliation. Yet such elements have abounded in recent layoffs, particularly, says Wiesenfeld, among smaller companies that don't have the resources and experience to manage them well. She holds companies' fear of litigation the most responsible. Managers are often advised to keep layoff announcements brief, scripted and impersonal to avoid stirring emotions or admitting fault--supposedly fodder for lawsuits, says psychologist Robert Bies, PhD, a member of APA's Div. 14 (Society for Industrial and Organizational Psychology) and a professor at the Georgetown University School of Business.

Yet Bies's research has found that the very aloofness intended to prevent lawsuits "increases your chance of litigation." A growing number of psychologists are working to help corporations ward off lawsuits by coaching them on management sensitivity. But since the politics surrounding layoffs are complex, it takes solid business training and legal savvy to advise managers well, according to those involved.

Avoiding and alienating

One problem with a detached management approach is that it makes staff feel kept in the dark. If managers don't immediately notify staff of pending cuts--and communicate everything they know about every step of the process--"staff will suspect unfairness and sinister motivations," Bies says.

"Humans have amazing imaginations on limited data, so if you shroud these decisions in a great deal of secrecy, they'll imagine that this is arbitrary, malicious or personal," he says.

The worst is when employees feel that they've been lied to, says Bies, citing the recent Enron meltdown. When a company misleads investors, employees and others about its performance, sudden layoffs can infuriate those involved, he says. And it only fuels employees' ire when they lose savings in stock nosedives and otherwise feel a lack of financial and personal support.

Studies by Bies bear this out. The most recent of these is a survey of 435 employees filing complaints with the Equal Employment Opportunity Commission. In the study, Bies and a team of colleagues led by the University of Arizona's Markus Groth, PhD, found that the more people blamed their company or supervisor for a job loss, and the less supported they felt, the more inclined they were to pursue a lawsuit. The study is slated to be published in the Journal of Applied Psychology.

Psychologist Robert Folger, PhD, of Tulane University has heard the same sentiments among laid-off employees waiting to collect unemployment benefits. The less managers address employees with dignity, respect and appreciation in a layoff, the more likely ex-employees are to "express bad feelings about the company, tell their friends to boycott it or recommend that the government crack down on it," says Folger.

Yet all too often, Folger says, managers are themselves so upset by the layoff--whether because they blame themselves or upper management--that they avoid facing their employees, e-mailing them layoff notices or publicly dismissing them after reading short, scripted statements.

Guiding and communicating

Managers instead should handle layoffs with honesty, sensitivity and open communication, workplace researchers say. If they keep employees informed and show that they care about them, ex-employees more often stay loyal and sympathetic to the company, shows Folger's and Bies's research.

However, handling a layoff with composure can be difficult, which is where psychologists increasingly come in. Some are involved through companies' human resources departments; others consult with companies through outplacement and executive coaching firms. When called in to help, psychologists train managers, advise them throughout the process and offer post layoff and outplacement services to employees. They also refer employees to counselors for further support, as needed.

In particular, they help managers with employee communication--what to disclose, when and how, says psychologist Elliott Ross, EdD, of the outplacement firm, Manchester Inc. "We try to get managers to tell staff what they can, as soon as possible, and to stop the rumor mill," he says.

Another challenge for managers, says NYU's Wiesenfeld, is formulating what to say to laid-off employees. Her advice: "Be empathic and show emotion. Offer an explanation. Say this has nothing to do with [your staff] and that you're sorry they got caught in the crossfire."

Yet at the same time, Ross cautions that psychologists must also consider a company's legal restrictions on communication about layoffs--"a delicate balance," he says. That balance may become less delicate, however, if psychologists spread the message that better employee treatment wards off legal threats.

As psychologist and executive coach Karol Wasylyshyn, PsyD, puts it: "When people have made a commitment to a company and have good intentions to meet their responsibilities, the least the company can do is allow them to make a graceful exit."