Under-layoffs in French family businesses

A wave of restructuring plans has resurfaced in France, with some family-owned businesses opting for under-layoffs instead of mass layoffs. Under-layoffs involve keeping more employees than the economic situation would justify, aiming to preserve the family's reputation.

Definition of under-layoffs

Under-layoffs occur when a company reduces its workforce but not enough to match its economic decline. For example, if a company expects to cut 100 jobs but only lays off 30, it retains 70 more employees than its situation would suggest. This is distinct from not laying off at all.

Family-owned businesses and under-layoffs

Research on French companies listed on the SBF 120 index between 2005 and 2021 shows that under-layoffs are more common in family-owned businesses. These companies often prioritize preserving their reputation and identity over strict financial efficiency.

Reasons behind under-layoffs

Maintaining a larger workforce than the economic situation requires can be paradoxical. It means continuing to pay salaries that are not fully justified by the company's activity. However, for family-owned businesses, the company often represents more than just an investment—it also embodies the family's identity, history, and reputation.

Reputational costs of layoffs

Layoffs can harm a company's image, especially when the family's reputation is closely tied to the business. By retaining employees, the family can protect its standing and prestige. This is particularly true when the family has more decision-making power than shareholding.

Shared costs of under-layoffs

While the family benefits from preserving its reputation, the financial burden of retaining more employees is shared with other shareholders. The more the family's influence exceeds its share of the company, the more likely under-layoffs are to occur.

Economic consequences of under-layoffs

Under-layoffs are neither inherently good nor bad. In the short term, they help preserve jobs and company reputation. But in the long term, maintaining a workforce that exceeds the company's needs can hurt profitability and weaken its ability to sustain employment. This creates a paradox: protecting an intangible asset like reputation may risk the company's economic future.