Tech Layoffs: Isolated Incident or New HR Trend?

The tech industry seems to have taken a big hit lately, with more and more companies deciding to lay off hundreds or even thousands of employees and/or freeze hiring until next year.

When we see FAANG (Facebook, Amazon, Apple, Netflix, Alphabet) announcing such massive layoffs, it makes no sense to wonder if this will affect the entire tech industry. However, the question remains whether this will trigger a ripple effect in the market, or even if it is the start of a new trend of HR layoffs and how companies should address this situation.

Why is it happening?

Over the years, as everything in our lives has become more digitized, tech companies have thrived as a trusted source of high-paying jobs. Then the pandemic hit and people started working remotely, shopping from home or streaming movies; in short, life online became more of a necessity than a want. This triggered an even greater need for technology services. Technology companies definitely felt the pressure to ensure both quality and quantity in a short period of time by providing cloud-based infrastructure and web hosting services. So as tech companies’ revenues increased significantly, so did their need for a larger workforce.

Tech companies began a hiring spree, estimating that the online business would continue to grow at least as fast. The tech market became even more competitive, creating a war for talent. Tech companies had to offer great compensation packages to attract new hires. Microsoft employees, for example, left to join Facebook at double their previous salary.

However, in 2022, the internet boom has faded and life offline is beginning to pick up. With more employees returning to the office and people spending more money on services than goods, tech companies are seeing their revenues plummet and their employees’ salaries have suddenly become too expensive. Cost-cutting pressure and rising inflation, coupled with a looming bear market and rising interest rates, have forced tech companies to lay off large numbers of employees or freeze hiring in 2022.

The impact on non-tech companies

With tech companies being the pacemakers of the future, these job cuts can also set an alarming precedent and have a ripple effect across many industries.

Tech layoffs could hurt tech-reliant industries and their employees, and let’s be honest, everything around us is tech: from retail to construction, every industry has a tech component that they depend on. And in the current situation, it’s safe to say that the entire range of services and subscriptions provided by tech companies are feeling the pinch.

This situation could cause a domino effect in the market. If companies can no longer provide services at the same level and using the same IT infrastructure, investors will be more cautious when investing in companies. In addition, the entire business could be affected, which could lead to more layoffs or a hiring freeze.

However, there is a potential silver lining to layoffs. The hiring freeze could create an opportunity for companies to revamp the hiring process and develop and implement more appropriate and attractive human resources policies. This is an even bigger problem in the tech industry, where the hiring process has not taken gender criteria into account, for example.

What can companies do?

In our opinion, there are a few things companies need to remember in this wave of tech layoffs:

1. Technology-reliant companies could use this opportunity to consider outsourcing their technology services. If so, companies should pay attention to the package they intend to offer to candidates. On the one hand, candidates are likely to have to accept less attractive financial offers than those they have found in the heart of the technology sector so far; however, such individuals are less likely to have full confidence in an employer’s ability to keep them on the payroll during difficult times, so companies will need to convince them that they are a good fit for the future.
2. And this could mean getting more interested in HR and focusing on:

• Invest in the HR department. For example, better training for HR employees could ensure better hiring practices, and therefore HR employees will be able to find and hire the best candidates for the company’s needs. Also, since HR departments have an important role in determining the attrition rate, it is important to train HR employees to look at what is causing a high or low attrition rate and propose solutions.
• Drafting or modification of HR policies. From diversity, equality and inclusion policies to benefits policies, candidates are becoming more interested in whether a company has implemented such HR policies and how they are applied in practice within the company. Therefore, better HR policies mean better opportunities for a company to recruit more suitable candidates.

3. If the company is on the other side of the story and therefore might be considering layoffs, it’s important to remember that Romanian law is very strict regarding firing employees. Therefore, great care must be taken, firstly, to determine whether the company should carry out individual or collective dismissals and, secondly, to comply with the corresponding legal procedure.