Red Hat layoffs spark calls to unionize, CEO wades in

'Reject this capitalist logic' urges French legion within Linux slinger

Exclusive Red Hat's decision to lay off around 800 people, or four percent of the company, has not only upset employees, it's fueled calls to unionize.

A message earlier this week on Red Hat's internal mailing list, known as memo-list, challenges public statements about the layoffs by CEO Matt Hicks and other executives.

"Red Hat has been a profitable company for years," the message begins. "The 'tough decision' made by Matt and Red Hat executives to lay off 4 percent begs the following questions to be answered with no PR sugar."

The message asks: whether executives have taken a pay cut; what steps the company took to fix its finances "before deciding to leave 4 percent of us jobless;" and to explain "why a company as profitable as Red Hat is following other tech companies in meritless layoffs."

In IBM's recent Q1 2023 results [PDF], revenue for Red Hat – acquired by Big Blue in 2019 for $34 billion – grew 8 percent (11 percent in constant currency) as part of the broader Software category that brought in $5.9 billion (2.6 percent growth overall, year on year).

The enterprise Linux subsidiary had been averaging about 15 percent revenue growth since its acquisition. IBM's revenue overall for the quarter, $14.252 billion, fell short of the consensus revenue estimate of $14.274 billion, but exceeded the earnings estimate.

'Liberté! Egalité! Chapeau Rouge!'

The message goes on to urge employees to join a union if an appropriate organization exists in their country.

"Layoffs are a personal, direct decision by those making a much higher salary than you – and who could afford to reduce their pay to protect and align the company to goals they value so much, but choose instead to leave workers needlessly jobless, destroy existing workers' morale, pin additional work on other employees without providing appropriate compensation, and destroy any remaining trust leadership has enjoyed," the mailing list post says.

On Friday, French union organization Solidaires Informatique issued a statement in response to the layoffs.

"Red Hat will lay off 4 percent of its workforce by the end of April, and maybe more despite an insolent growth and profits (+12 percent in constant currency)," said the organization a statement to The Register. "As Red Hat employees and Solidaires Informatique union members, we reject this capitalist logic chasing an infinite growth, done at the expense of workers."

Right now, many are joining unions and creating union sections around the world

The Solidaires Informatique declaration goes to argue that executives could have taken pay cuts instead of cutting jobs, and urges workers outside of France to create a union.

The union representative for Solidaires Informatique at Red Hat France, who asked to be identified as Haikel, told us that the labor group has been operating within Red Hat since 2018.

"Many Red Hatters were already in a union, but they had no official existence within the company," explained Haikel. "Right now, many are joining unions and creating union sections around the world. Considering Red Hat's efforts in union busting, we will keep quiet about it until they feel safe to disclose their existence.

"In France, we are represented by Solidaires Informatique, a Tech/Games workers union. Our Game workers branch is affiliated to Game Workers United (GWU). We are part of the progressive trade union group 'Union Syndicale Solidaires.'

"In Ireland, Red Hatters are primarily organized under the Financial Services Union. They are the largest union in Ireland representing workers in the tech sector, including IBM, Google, Salesforce, and Slack. And more are coming."

Haikel added "Red Hat is making tremendous profits …There is no economic rationale in these layoffs.

"We wanted to believe in the Open Organization, that we were a People Company. In the end, executives treated us as disposable. They just blow up the good reputation our company took years to build. We will stand with every Red Hatter threatened/bullied by top management."

The Red Hat employee who told us about the memo-list post said that there is at least one more unionization campaign in another country.

"I have never felt so much worry and frustration in the company as I've felt in the past two days," the Red Hat worker said.

I have never felt so much worry and frustration in the company as I've felt in the past two days

The Register understands that a prominent member of the Fedora community was laid off, to the dismay of the Fedora and RHEL teams. And our source complained, "A lot of the so-called 'values' of the company aren't being held by management, on many levels, certainly senior. There's a complete lack of transparency."

A second Red Hat employee who also spoke with The Register on condition of anonymity offered a different take on the situation and downplayed the notion that the call to unionize has much support, at least in the US.

This employee characterized those laid off as casualties of organizational politics, and said to look at who was not let go and how that relates to IBM's recent earnings. Cloud was not touched by the layoffs, our second source claimed.

Red Hat hits back

On Wednesday evening, Hicks responded to the employee challenge on memo-list, copying his reply to announce-list, which reaches a broader set of employees.

The second Red Hat employee told The Register, it was believed that you could slam the CEO on memo-list and not get fired, and based on Hicks' response that still seems to be the case. Hicks said he appreciated that the individual posting the message raised these issues.

"First, I understand the reaction and frustration," he said. "I don't think there is anything I can say to make this decision easier, but I'm trying my best to explain it."

Hicks said Red Hat has been trying to improve its financial situation and warned as much almost 18 months ago. "That was when we paused hiring in our major groups, including limiting backfills," he said.

"We implemented as many cost-saving programs as possible, from travel limitations to expense policies to reducing vendor spend. While that brought our spending growth below our revenue growth, it didn't correct the quarters of prior growth or account for the continued new economic environment we must operate in."

Hicks challenged the proposition that this is just a spreadsheet exercise for the executive team by pointing to his direct staffs' length of tenure and insisting that management believes in Red Hat and its people.

In environments like this, improving our profitability is even more critical to invest in our future

He said the company has not asked anyone staying to reduce their pay, executives or otherwise. And he defended the company's executive pay structure, about half of which is paid out in three-year intervals to incentivize commitment to long-term performance.

Finally, he offered an explanation for conducting this round of layoffs despite the company's profitability.

"Our profitability rates today wouldn't let us invest the same way we have in the past through hiring, acquisitions and other areas to be competitive," he said.

"This is complicated by high interest rates, making other investment options (eg, borrowing money) too expensive to be practical. Things like our stock price are based on the probability of our continued and future success, not our success in the moment, so in environments like this, improving our profitability is even more critical to invest in our future."

Red Hat did not respond to a request for comment. ®

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