Lay off employees or terminate consultant contracts? Responses to an external shock in three firms in the Norwegian petroleum industry

DOIhttps://doi.org/10.1108/ER-11-2016-0219
Date06 November 2017
Pages1083-1099
Published date06 November 2017
AuthorAnna Paula Fijalkowska,Karina Sofie Hjartåker,Torstein Nesheim
Subject MatterHR & organizational behaviour,Industrial/labour relations,Employment law
Lay off employees or terminate
consultant contracts? Responses to
an external shock in three firms in
the Norwegian petroleum industry
Anna Paula Fijalkowska and Karina Sofie Hjartåker
Norges Handelshoyskole, Bergen, Norway, and
Torstein Nesheim
Centre for Applied Research at NHH, Bergen, Norway
Abstract
Purpose Previous studies on non-standard employment relations have analyzed how firmsuse of non-
standard work arrangements are explained by variables related to numerical flexibility. Here, the purpose of
this paper is to explore how firms respond to changes in the external environment through reduction in
staffing. Since the firms combine employees and external consultants, they are confronted with a dilemma
between laying off employees or terminating consultant contracts.
Design/methodology/approach The empirical context is the petroleum sector in Norway. The data
consists of 11 interviews with managers at different levels in three firms.
Findings The authors found that firms terminated over 80 percent of the consultant contracts, while
around a forth of employees were downsized. A core-periphery strategy and union power are vital drivers of
the prioritization of employees. However, some consultants were retained due to their knowledge of unique
aspects of the firm and their role in development and innovation. The authors also found that the firms
differed in their emphasis on seniority vs competencies criteria in deciding survivalamong employees.
Research limitations/implications A main contribution of the study is thus the identif ication
of variables and mecha nisms that influence the two int errelated choices of downsi zing in such
multi-employment cont exts. The main limitatio n is the number of firms analy zed (three), which restr icts
statistical generali zation.
Practical implications Better understanding of circumstances and criteria of downsizing choices in
employees/external consultantsconstellations.
Originality/value This study is one of the first to analyze two interrelated issues of downsizing in such
constellations lying off employees vs terminating consulting contracts, and whether seniority or competence
criteria were prioritized when laying off employees. A main contribution of the study is the identification of
variables and mechanisms that influence the two interrelated choices of downsizing in such multi-
employment contexts.
Keywords Downsizing, Competence, Seniority, Core-periphery model, External consultants,
Non-standard employment
Paper type Research paper
1. Introduction
Research on downsizing, e.g. reducing the number of personnel who are engaged in doing work
for the firm, is almost exclusively targeted at the employees of the firm (cf. Cascio, 1993; Datta
et al., 2010). For example, Cascio (2012) states: Employment downsizing, the planned
elimination of positions or jobs, is a defining characteristic of modern life in organizations
(p. 2). However, this approach is challenged in those instances when teams and projects
combine employees of a focal firm with personnel in other employment categories, such as
leased personnel, freelancers, contractors and external consultants. In contemporary
organizations, such work constellations have become more common (Ashford et al., 2007;
Nesheim et al., 2007; Cappelli and Keller, 2013). In this paper, we study the reduction of
personnel in a setting (the Norwegian petroleum sector) where firms for decades have used
employeeswith standard open-ended two-party contractsworking side-by-sidewithexternal
Employee Relations
Vol. 39 No. 7, 2017
pp. 1083-1099
© Emerald PublishingLimited
0142-5455
DOI 10.1108/ER-11-2016-0219
Received 18 November 2016
Revised 6 April 2017
8 June 2017
Accepted 8 June 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0142-5455.htm
1083
Lay off
employees
consultants (Nesheim et al., 2014). When firms made labor adjustments after an external shock
in 2014 (sudden reduction in the oil price), they were confronted with a choice of whose
contracts should be terminated; those of the employees or those of the consultants.
A contribution of the paper is thus the analysis of labor adjustments that do not
exclusively concern the employees of the firm. In settings such as those studied here, the
research on downsizing has to be broadened to include the dilemma of employee layoffs vs
termination of consultant contracts. The paper also adds new knowledge to another
research area; firmsuse of non-standard work arrangements. Based on the model
of Atkinsons (1984) flexible firm and contributions with similar theoretical bases
(Davis-Blake and Uzzi, 1993; Nesheim, 2003; Kalleberg et al., 2003), the use of such
arrangements (short-term contracts, personnel from THAs, external consultants and
contractors) has been found to be associated with a firmsquest for numerical flexibility.
Empirical studies in this domain typically analyze how the use of these employment options
may be explained by variables such as market uncertainty, variability in demand and
seasonality (Davis-Blake and Uzzi, 1993; Abraham and Taylor, 1996; Kalleberg et al. 2003;
Nesheim, 2003). However, most of these studies are based on surveys at one point in time,
where the time dimension is neglected. Only a handful of empirical analyzes (Nesheim, 2013;
Svalund, 2015) have explored how firms respond to changes in the environment by
adjusting employment arrangements. Here, we study how firms adjusted such
arrangements after an external shock.
In 2014, the petroleumindustry experienced a shock in the form of a 50 percent reduction
in the price of oil that led to lower demand for its services, a pressure on costs, as well as a
higher level of market uncertainty for sub-contractors. In the paper, using retrospective
interviews withmanagers of three firms, we explorehow the firms responded to this external
shock by adjusting employment arrangements. Two interrelated issues are investigated:
RQ1. Were employees and external consultants affected in a similar manner, or were
consultant contracts terminated in order to protect employees?
RQ2. What instances were the consultants retained?
Turning the focus to employees: in the event of employee layoffs, were criteria of seniority or
competence most instrumental in the selection of survivors?
Thus, the paper analyzes firmslabor adjustments after an external shock in the
environment, rather than an association between characteristics of the market and the ratio
of external consultants at a given point in time. The contribution of the study to the research
domain of non-standard employment relations is the analysis of the outcomes of downsizing
choices (and especially the employee vs consultant decision), as well as mechanisms and
managerial considerations involved in these processes. In relation to downsizing research,
being one of the first studies done in a multi-employment context, it adds to the
understanding of the complexities involved in reducing manpower in a firm.
2. Research on non-standard employment relations
Previousresearch on non-standard employmentarrangements has covered a number of issues
such as the conceptualization of such relations (Pfeffer and Baron, 1988; Kalleberg, 2000;
Kalleberget al., 2003; C appellian dKel ler, 2013),h own on-standard employment arrangements
are embeddedin institutional environments (Gonos, 1997; Nesheim, 2002), the motives for
and antecedents of non-standard arrangements (Atkinson, 1984; Pfeffer and Baron, 1988;
Davis-Blake and Uzzi, 1993; Kalleberg et al., 2003; Olsen and Kalleberg, 2004), as well as the
consequences and challenges for organizations, manager and employees when standard
and non-standard arrangements are combined (Connelly and Gallagher, 2004; Barley and
Kunda, 2004; Ashford et al., 2007; Nesheim et al., 2014).
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