Layoff Policy

By Rabbi Jay Kelman

The recently announced massive layoffs at General Motors have employees at the many industries connected to the auto industry fearful for their own job security. Especially troubling to many in Ontario is the fact that one of the plants scheduled for shut down is one of the most efficient on the continent. What are the halachic considerations regarding layoffs. The first premise of Jewish law is that an employee has no inherent right to employment. Notwithstanding the fact that employers may be making large sums of money due to the efforts of their employees, providing employment for others is the highest form of tzedaka. It is a governmental obligation to provide economic incentives for job creation; there is no obligation for any individual to open a business in order to provide employment to others. Even an existing business may legally wind down its operations despite the negative impact on the many stakeholders involved. However, such drastic action should only be taken if alternate plans such as selling the business are not feasible. If those affected are in need, all members of society should bear the costs.

Initiating layoffs when executives continue to draw seven (and eight) figure salaries may create if not a technical violation of halacha, a moral issue. In many a firm if the top 10 executives would take a 20 percent cut in salary, they could still earn millions and perhaps 200-300 jobs could be spared. It appears that a proper approach to this dilemma is one based on replacement cost. Whatever compensation package would be needed to attract other executives to the firm would be appropriate compensation for current executives notwithstanding the fact that paying such amounts will lead to layoffs. When it is determined that layoffs are necessary employees should be told immediately thus giving them as much time as possible to find other employment. While employee morale and perhaps even productivity will suffer once layoffs are announced, to withhold such information would be a violation of ethical expectations. Jewish law asserts that one must do the utmost not to stand idly by when another is being negatively impacted. Waiting to give notice until it best suits the employer would violate this principal and cause undue hardship on employees. Furthermore affected employees would be entitled to appropriate i.e. generous severance pay. Biblical law insisted that even a slave be granted severance pay “from your flocks, from your threshing floor and from your wine vat”. How much more so must an employee “have a share of all the things through which G-d your Lord has blessed you” (Devarim 15:14).

Probably the most difficult issue is determining whom to lay off. Rav Moshe Feinstein in a lengthy responsum seemingly rejects the idea of seniority as the guiding principal unless explicitly made clear to all new employees. Rather he says the affected workers are like partners and thus should equally split the work available. If such an approach is not feasible Rav Moshe recommends a “shotgun” approach where one worker can demand to “buy or be bought”. While Rav Moshe is talking about a case of two employees the concept could apply to a larger firm. The optimal approach would be to cut everyone’s work load so that all can remain employed. Thus those hated (Bob) “Rae days” where all provincial workers were forced to take off a number of unpaid days each year seems to be in keeping with Jewish values. What is most fascinating is his contention that it is the workers, not management who decides. This is quite logical considering it is economic circumstances, not worker incompetence that are the cause of the layoffs.

This article originally appeared in the Money Matters column of the Canadian Jewish News in December 2005.

Rabbi Jay Kelman is a founding director of Torah in Motion, an educational institute dedicated to inspire Jews to engage with the challenges and opportunities of the modern world through the prism of Jewish law, values and traditions. Rabbi Jay teaches ethics and Rabbinics at the Community Hebrew Academy of Toronto. Rabbi Kelman served for nine years as Rabbi at Beth Jacob V’Anshei Drildz and was a practicing accountant, earning both his Chartered Accountancy (Canada) and CPA (USA) designations; working in the International tax Department of a large international firm.