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David (Ricky Gervais) fires the same forklift operator (Neil Fitzmaurice) he hired at the beginning of the first episode, which somehow leads to a discussion of the difference between midgets and dwarves. Malcolm (Robin Hooper) wonders why David has hired an assistant, Karen (Nicola Cotter), when the company is laying people off. David decides to try to make Tim (Martin Freeman) "feel good about himself," so he'll stay on, but Tim's reasoning ends up making Karen question her decision to join the company. Tim and Dawn (Lucy Davis) are still painfully awkward around each other. Dawn tells the documentary crew she secretly hopes she'll get laid off because she feels like she's "treading water." Jennifer (Stirling Gallacher) comes down from the head office with some surprising news for David. She's being promoted to partner, and the board of directors wants David to replace her. If he decides to take the job, his branch will be downsized. After their meeting, the staff, fearful of losing their jobs, demands to know what's going on. David decides to tell them that there's bad news, and good news. After telling them that their office is being downsized, and that those who aren't sacked will be transferred to another branch, he's surprised to find that they aren't especially happy about his promotion. Malcolm has to point out that instead of bad news and good news, he really gave them "bad news and irrelevant news." But at a glum office party that night, David tells them all something that will alter everyone's future plans.