News & Views

From Hero to Zero: Lessons to be learned from the dismissal of 400 employees

BY Kirstie Beattie
Employment law
BG Purple

Organisations benefit enormously from hiring employees as opposed to using independent contractors. Employees, particularly those who are treated fairly by their employer, often demonstrate a sense of loyalty to the organisation which can have a very positive impact on the quality and timeliness of their output.

Employers can negotiate with staff over their duties and training for example, but ultimately retain a substantial degree of control. 

Employees do, however, acquire a number of rights by virtue of their employment contract which can prove to be costly for businesses. One extreme example of this occurred at Zirtual, a Las Vegas based start-up virtual assistant company. On Monday the 10th of August, Zirtual employees awoke to begin their working week as usual. It was only then that they discovered an email sent by their employer some hours previously at 1.34AM, informing them that all operations had been ceased with immediate effect. A total of four hundred staff had been dismissed before they even had the chance to have their morning coffee. 

This news came as a complete shock to the Zirtual staff: the company had seemingly experienced phenomenal success, having generated over $5million in just 18 months. Zirtual had also grown exponentially, increasing its employee numbers from approximately 150 to 400 in the same period. It was this increase which ultimately led to Zirtual’s demise. In a statement from CEO Maren Kate Donovan, she explains that “After failing to secure more funds, the law required us to terminate everyone when it became clear to us that we wouldn’t be able to make next payroll’.  

Zirtual was, however, incredibly fortunate in the end, as an offer to buy the company’s assets and resume service was lodged within 24 hours of the company’s dissolution. The outcome for Zirtual and its employees was therefore far less catastrophic than it could have been. The decision to dismiss on such a huge scale appears not to have been made in bad faith – there had even been talks of increasing employee wages in the preceding weeks – but this would have brought little comfort to those whose employment was terminated without a hint of prior warning.  

Zirtual’s experience highlights the importance of an organisation operating within its means. Whilst the benefits which employees bring to business cannot be overlooked, employers must carefully consider the risks and associated costs prior to hiring staff.

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