Reducio ad adsurdum only works if the two extremes you outline are the only options, and suggests that there is no middle ground wherein a less extreme bottomline includes the retention of employees. When layoffs are built into a business plan, it is no longer a matter of risk but rather as an inevitability. I reject your premise, conclusions, and sentiments as highly
begrudgable.
Your right there is a few other options.
Contractors. Simple contract, 9 months. No layoff needed. Contactor only works for 9 months. As it's a contact position, no need to have unemployment/health benefits, etc. Heck if it's a complete 1099, the company just has it as an expense no payroll taxes to process either. That is all left on the individual.
At least in the case of present business policy the employee would be eligible for benefits, where as on the contract side of the house they wouldn't. Trust me on that one, been there done that.
You also have the option of pay cuts. Are you willing to take a pay cut to keep Bob the Game Designer employed? Yeah didn't think so. I'd have you working for pennies on the dollar in a few years if that became the practice.
Lets see other options:
Raise the prices of the products.
Tom, Dick, & Harry won't mind us raising DDI to by $2/month to keep Bob the Game Designer employed.
Jane, Mary, & Sally won't mind the book price going up 10% to keep Bob the Game Designer employed either.
It's a business policy just the same as a Game Store offering floor space to paying gamers to play their games.
Your running CMG, if you had to choose Bob the Game Designer's job or raising your prices what would you do? What if Bob's salary is what stands between you being in the Red and being in the Black?
Sorry business isn't a place for personal feelings. As much as you would hate to admit it yourself, you would be starting a conversation much like this "Sorry to have to do this Bob".
Gone are the days when someone would literally work for the same place for 30 plus years and the gold watch retirement.
In a 100+ employee company, I'm 5th in seniority outside the CEO and VP side, and I've only been here 4 years. That's the way companies work nowadays.
I've been on both sides of the desk that "Bob" would be at during this time.
Neither is a comfortable spot for either party.
But tough decisions have to be made, and if the company wants to stay in business they have to make sound ones even if they aren't popular.
The business model of regular layoff's sounds like an evil thing. But you have to remember this is/has been a regular thing at WotC, even at TSR prior to them.
Example:
The decision is no worse than me hiring a caretakeer 9 months out of the year to watch a cabin I use 3 months of the year. I don't need him those three months, should I pay him for work he isn't doing? What if in that three months I find someone better and hire them instead and this caretakeer is a master carpenter as well. In that next 9 months he adds me on a beautiful deck. I don't need him that 3 months, I look around again. This time a caretakeer and a plumber. He installs the hottub on the awesome deck caretakeer number two made for me.
Now change Caretakeer to Game Designer; change cabin to DnD; change porch to 4E; change hottub to Darksun. See where I'm going with this.
The policy works in this industry at WotC's level. Smaller companies no it doesn't work, because honestly WotC is the epitome of our industry. That's why we refer to them as the 800lbs gorilla.