Hiring freezes sweep over tech as recession looms. That may do more harm than good
The hottest thing in tech is freezing cold.
Several formerly talent-hungry companies—Meta (Facebook’s parent), Twitter, Intel, Lyft, and Uber, to name a few—have abruptly imposed hiring freezes. The reason is no mystery. Their stocks have plunged as investors foresee punier profits than anticipated, leaving companies scrambling to cut costs. As often happens, companies in other sectors are emulating Big Tech. General Motors recently announced it won’t fill 3,000 open positions until at least next year.
The great question now for these companies, and likely others in coming months, is whether hiring freezes are the correct response.
Although forecasts of a recession are multiplying by the week, the reality is that it has yet to arrive—and some economists say the U.S. can avoid a full-on recession entirely. A hiring freeze is a cautious defense move in such periods of economic uncertainty. The upside is that it’s easy to start and stop, and it conserves cash in the meantime. But business leaders must balance those advantages with the potential problems that a hiring stall brings:
• “If someone quits on you, then what happens?” So asks Brian Formato, CEO of the HR consulting firm Groove Management. “Are you not allowed to backfill the role? In a number of instances, the company says no, you can’t.” Making matters worse, the employees most likely to leave are typically the best performers because they’re the ones who can most easily find employment elsewhere, even in today’s tightfisted environment.
• Competitors may come after your stars. Employees typically perceive a hiring freeze as the prelude to layoffs. Competitors can take advantage of that fear, knowing it’s easier to entice high-value workers amid internal unrest.
• Poor performers linger. Tough times offer an excellent opportunity to rid workplaces of staffers who should have been offloaded earlier. But if a company can’t hire a better replacement, managers may decide that in certain roles, a poor performer is better than an empty chair.
• A freeze tarnishes the employer brand. Hiring freezes can hurt the internal and external employer brand, leading to increased turnover and making it difficult to attract top talent later. “Think about how much companies invest in their employer brand today,” says Formato. “A hiring freeze erodes all that goodwill that’s been built up, which can take years to reestablish.”
• It creates legal risks. Some companies, including Twitter and Coinbase, have recently rescinded job offers. That’s generally legal, but jilted job applicants have still been able to collect damages, for example by showing they moved to a new town on the basis of a job offer.
Employers should also consider the loss in productivity, decreased engagement and morale, and potential burnout as employees take on a larger share of the workload that would have been assigned to new hires. Most companies can find better alternatives to a so-called hard freeze, such as imposing freezes only on certain parts of the business. Meta has frozen hiring for teams working on a children’s version of its Messenger app, a shopping project, and a Zoom competitor; perhaps tellingly, the company has also frozen hiring for recruiters. Similarly, companies can identify specific departments or jobs for which hiring is permitted. Or they can impose what Formato calls a headcount freeze—managers can hire for existing or new positions so long as total headcount doesn’t increase.
Ideally, a company wouldn’t resort to freezes at all, blunt instruments that they are, even in tough times. Instead, it would continually monitor how each role aligns with company goals, creating new positions or eliminating old ones as the business fluctuates.
That’s a tall order, but the rewards are similarly outsize. Companies that follow such a path are better able to face powerful financial headwinds and, better yet, will be poised to attract candidates that competitors shackled by hiring freezes can’t. For those agile companies, even today’s brink-of-recession economy would offer something every organization wants, but few find: opportunity.