Back in October 2008, CEO Tony Hsieh and his management team were forced to make the gut-wrenching decision to lay off 8 percent of the company's employees in order to cut costs in the wake of the recession. Of course, many companies were also conducting layoffs around the same time, but it's how Hsieh went about announcing his decision to cut 135 jobs that set he and his company apart.

Specifically, Hsieh took a very transparent approach to his unfortunate duty, tweeting and blogging about why the layoff was needed and how the company was doing its best to compensate each laid off employee with severance pay and health insurance coverage as best it could. He also encouraged employees to use their own judgment in how they communicated the news via their own social networking connections.

The end result was that Hsieh, by taking a transparent and, by most accounts, compassionate approach to the layoff, actually generated more good will than bad. Compare the Zappos story with any of the disaster stories that seem all too common these days–where employees are surprised when they are met at the door by armed guards or prohibited from returning to their desks–and you begin to realize that if you're forced to go through a layoff, there is a better way to do it.

Obviously, most business owners–especially entrepreneurs–never want to let anyone go, especially in a mass layoff. But the reality is that your job is to keep your company going, to survive, and a layoff might be your last stand in that mission.

And even if you aren't the most touchy-feely person around, consider that it also makes good business sense to treat your exiting employees well, says Bruce Hurwitz of Hurwitz Strategic Staffing, an executive recruiting and career counseling firm in New York City. "What a lot of business owners don't realize is that their laid off employees, since they are going to primarily be looking for jobs in their own industry, will be visiting the competition," he says. "A bitter employee reveals information that they would not do under normal circumstances. It's not criminal or unethical– it's just human. A non-bitter employee may be just as angry at having lost their job, but when they meet with the competitor there will be no bitterness, and they'll speak well of the employer (or at least not critically)."

With that goal in mind, consider the following tips about how, if you face this doomsday scenario, you can go about it the right way.

1. Choose the Right People

Every business should take a lesson from Zappos about how being open with not just employees but also with customers and other social media fans can make a layoff less painful for everyone involved. But don't stop there says Laura George, a human resource consultant and president of LHG Consulting in Akron, Ohio, who suggests taking the extra step to make it clear why people are selected for the layoff. "Be fair, not creative, when determining who to layoff," says George. "Use measurable criteria such as length of service or productivity. This helps the morale of the remaining employees and can reduce the risk of wrongful termination lawsuits. Look closely over all of the reviews of employees being considered for layoff. Close examination of a few years of reviews can ferret out favoritism. You want to keep the most productive employees, not the favorites."

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2. Time It Well

While your focus might be just on getting the layoff over, it's important to pause and consider the timing, says Richard Deems, head of WorkLife Design, a workplace consultancy in Scottsdale, Ariz., who suggests that the best time is early in the week. "We often suggest Tuesday mornings," says Deems, who authored a book called How to Fire Your Friends. "Why? Because you stay in control of the remaining employees' reactions. If there are people who are upset over the downsizing, you can deal with it at the time. If you tell people Friday afternoon, you can bet your employees will be on the phone all weekend. They may be angry come Monday morning. You then lose control."

Just as importantly, consider the timing of when not to tell someone he or she has just lost their job, says Barbara Safani, owner of Career Solvers in New York City. "Avoid delivering the news on a Monday morning after their 90-minute killer commute or on a Friday afternoon at 5 p.m.," she says. "Giving the news before a holiday weekend is another bad idea."

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3. Do It Face-to-Face

While Hsieh of Zappos showed how powerful social media can be to keep those inside and outside the company posted on a layoff, that doesn't mean the affected employees should find out by email or a posting on the company's Facebook wall that they have lost their job. You need to talk to each employee face-to-face, says Deems, before you begin Tweeting or sending out press releases to the media. In other words, tell your employees first, then you can begin more general announcements via social media – where your customers can learn about the changes – and finally issue a press release, if needed. 

"Usually the employee's immediate supervisor (plus one more person) tells the employee of the job elimination," he says. "And then executives should be visible and take extra time to walk around and listen and be ready to answer questions any remaining employees have. If after a downsizing employees see the top leaders still in their offices, with the doors open, and out walking around, they come to the conclusion: Hey, everything must be going to be okay or they would have ducked out the back door by now."

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4. Be Compassionate

There is one certain outcome resulting from any layoff: people will be upset and vulnerable, particularly when the person has done their job well but is just a victim of the numbers game. That means that when it comes to telling someone they have lost their job, you'll need to act with compassion and compliment them on the good work they did on the job, says. Safani, of Career Solvers. "I've counseled hundreds of employees moments after they were laid off and sometimes the companies miss the mark by ignoring small details that help the employee get through the ordeal more smoothly and with dignity," she says, while offering the following tips for making the bad news a bit easier to manage:

  • Have tissues and bottled water in the room.
  • Pre-arrange for transportation. Have a car service available for someone who came to work by public transportation but is exceptionally distraught upon hearing the news.
  • Make arrangements for the person to come back to clear out their desk while their co-workers are not around, but give the person the opportunity to say goodbye to co-workers at another time if they would like to.

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5. Lay Out the Facts

You can be sure that anyone who is losing his or her job will be confused and overwhelmed. Since the exiting person doesn't hear much after you say, "Your position has been eliminated in this downsizing," it's important to prepare a letter for each exiting employee in advance that clarifies what will happen next, says Deems. The letter should state their position has been eliminated and then outlines important information such: Their last day, the amount of severance and how it will be paid, how any unused vacation will be compensated, the kind of job-transition assistance to be provided, and information on health insurance.

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6. Provide Career Counseling

A great way to help soften the blow of a layoff is to do your best to find those leaving your company a new job. That could mean calling around within your network to see if anyone is hiring, providing great job recommendations or even, gasp, calling up your competitors to see if they have any openings. You could also foot the bill for some career counseling, says Lori Rider, an employee performance advisor in New York City. "One of the most sincere and humane ways of conducting a layoff is to offer career counseling to employees," she says. "I don't mean giving employees a package to use at an outplacement agency once they're gone. That can get extremely expensive for a company. Instead, do what one of my clients did. They had me provide on-site training around resume writing and how to ace an interview for all employees. They then had three weeks set aside for one-on-one career counseling, again on site, offered to all employees. The result was fierce loyalty from all employees, even the ones being laid off. To this day, employees talk about the company and how it was the best place they ever worked at."

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