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Coronavirus – Reduction of workforce planning – Global

  • Global
  • Coronavirus - Workforce issues
  • Employment law

28-05-2020

As the dust starts to settle from an abrupt lockdown working model to implementing a return to the workplace and the “new norm”, firms are re-assessing their new business needs and resources. For many, that will mean contemplating reductions in their workforce.

Managing change is always difficult, even if the change is restricted to one country or even one site. For multinational employers, planning a workforce reduction across a number of jurisdictions has the added complexity of different laws and practices. Combine that with nuances between different industry sectors and issues relating specifically to COVID-19, and the effective planning of such an exercise takes on a new dimension.

Key questions for global workforce planning

  • what key considerations apply to multinational reduction of workforce exercises?
  • how can employers reduce any associated risk to ensure that cost savings can be effectively realized?
  • how can the different timescales imposed by local laws for workforce reductions be managed with a standard employee message?
  • can a truly globally-consistent process ever be achieved?

Reason for termination – the devil is in the details

Whilst the terminology and legal requirements differ between jurisdictions, there are common themes and basic requirements that will apply to any process that results in the dismissal of staff due to a reduction or cessation in requirements. In the majority of jurisdictions, a particular reason will be required to justify the dismissal, although the specifics will vary across locations.

The fact that there has been a downturn in business as a result of COVID-19 might seem at first an obvious justification for a workforce reduction. However, the particulars of each case will not only influence whether dismissals can lawfully be made but can also directly impact the options available. Understanding the reason for termination in the particular jurisdiction is therefore an important initial first step.

In some jurisdictions, the termination of employment for reasons other than narrow exceptions has been directly restricted under emergency legislation enacted as a result of COVID-19. For example, in Italy, employers are prohibited from terminating employment contracts on economic grounds until 15 August 2020.

In other jurisdictions, there is an indirect restriction on effecting dismissals because of the impact on any government support. For example, in Denmark the state support scheme restricts terminations due to financial reasons for the duration of the period the company receives compensation under the scheme. In Luxembourg, the coronavirus short-time working scheme requires employers to agree not to dismiss any employees for economic reasons during the period for which short-time working is granted. In the Netherlands, one of the requirements of applying under the temporary ‘NOW’ scheme is that employers should refrain from requesting permission to dismiss employees from 18 March to 31 May 2020 on economic grounds. Indeed, if employees are dismissed, the employer must repay 150% of the compensation received per employee.

Coronavirus - justifying dismissals

The short and medium term impact of COVID-19 on businesses and the wider economy is clear, but with the longer term impact still uncertain, can employers rely on COVID-19 as a reason to justify dismissals?

The Spanish government has clarified that any economic, technical, organizational or productive causes arising from COVID-19 may not be sufficient to justify an objective dismissal and therefore any dismissals invoking COVID-19 as a cause will risk being deemed unfair. This is because the government considers that the effects of COVID-19 are circumstantial and temporary; therefore, the correct response to the loss of activity arising from COVID-19 should be the temporary suspension or reduction of working time, rather than dismissals. In order to justify dismissals an employer would therefore have to be able to demonstrate that it is a longer term change in business requirements that prompts the need for terminations.

If a particular reason justifying termination is required, how far must an employer go to prove that reason in the event of any challenge? Again, the answer varies significantly across jurisdictions. In the UK, Singapore and Germany, for example, the courts and tribunals will not generally interfere with the commercial decision of the employer on how it chooses to run its business; any challenge to the rationale is based on whether the reason is arbitrary or a sham. Similarly, in the US, there is no requirement for any business case or justification, although in all jurisdictions employers must be careful not to unlawfully discriminate.

However, a higher threshold applies in other jurisdictions. In Spain and France detailed economic information is required to evidence the business rationale supporting the redundancy, and in China economic redundancy is subject to additional scrutiny by the relevant local labor bureau.

Detailed consideration and planning will therefore often be necessary to ensure that justification acceptable under the relevant local law exists. The effects of COVID-19 will have different impacts on local business activities but often significant overall global impact. Consideration should therefore be given to whether justification is satisfied by demonstrating a global downturn or whether the authorities and courts will require a local test. In particular, it may be harder to justify dismissals on economic grounds where the organization’s group accounts do not reflect any negative impact locally; for example, where dividends have been paid and senior executive remuneration is high.

It is therefore essential to ensure that justification and supporting evidence is available as a precursor to the planning exercise, although this can significantly impact the costs and timeline of the process. It is therefore important to factor these into the overall project plan.

Information and consultation – timing is key

Time lines and formalities for consultation in different countries will vary. Usually, such consultation must be carried out before a decision to dismiss is taken. Formal notifications may require original “wet signatures” and specific signatories or powers of attorney, which can impact the timing if not properly planned in advance. Further, the constitution of works councils or other employee representative bodies will often dictate triggers for information and consultation obligations. The interaction between any European works council, local works councils, unions or other employee representative bodies must be considered and planned for.

Any statutory timescales for collective consultation must also be understood and built into the planning stage. In some jurisdictions, including in the US, there will be no such requirement, although any notice requirements, including, for example, requirements under the US WARN Act and comparable US state legislation, will impact how quickly the process can be completed.

In those jurisdictions where timing is prescribed, the timing of the collective consultation stage can range from a few weeks to a number of months. In Germany and the Netherlands, for example, there are no specific time scales, which makes the timing of the process less predictable.

In those jurisdictions where there are potentially long consultation obligations, are there any practical options to speed up the process? This often depends on the reason for moving things forward and the funds being available to do so. Reaching an early agreement on collective consultation matters is often a result of employers having the resources to finance a deal leading to a speedier conclusion of the process.

What about the timing of consultation across a global enterprise - should it start in all countries simultaneously, even if they are then likely to conclude at different times, or should consultations take place at different times in different countries? Often, the difficulty with the latter option is the risk of starting consultation too late in some countries and/or creating uncertainty in local organizations where consultation has not yet started.

Failing to comply with information and consultation obligations can have a significant impact on a redundancy process. Aside from the timing, penalty costs and employee relations aspects, injunctive relief may be available in some jurisdictions to stop the process altogether and/or there may even be criminal sanctions.

Selection – a global approach?

Given the variations in legal requirements across jurisdictions, an entirely globally-consistent approach on every aspect of a workforce reduction exercise is not achievable. Requirements and processes in some countries may not apply in others. Selection is a good example of this. In many jurisdictions, the law dictates the permissible selection criteria. For example in Germany, the criteria of age, length of service, family maintenance obligations and disability must be applied to the exclusion of any others. In the Netherlands, the so-called proportionality principle, which is a last in first out principle applied by age groups, is prescribed. In the UK, on the other hand, such criteria would be hugely problematic from a discrimination law perspective.

Other jurisdictions have less prescriptive requirements, but nonetheless have underlying principles that must be adhered to. In Singapore, for example, selection of employees for dismissal by reason of redundancy or reorganization (‘retrenchment’) should be conducted fairly and based on objective criteria such as the ability of the employee to contribute to the company’s future business needs.

Different selection criteria across different jurisdictions may be justified on the basis of legal requirements and differences in legal entitles. However, for employers operating globally - and especially in businesses which operate a functional organization with teams made up of staff from different jurisdictions - how can an employer ensure employees feel fairly treated when varying criteria and processes are applied? Effective and open communication is likely to be the key, although many employers additionally explore other avenues, such as seeking volunteers for redundancy at the outset.

In many countries there may be legal requirements regarding the process of selection, including in relation to selection pools. In some jurisdictions, employers will have free rein to determine pools as long as they do not act in an arbitrary or capricious manner. In others, the choice of pool is more prescribed. In France for example, the pool of employees must include employees with similar skills and educational background, even if they have a different job and/or belong to different departments/business units. Understanding and complying with such requirements is important, as failing to do so can potentially result in both the social plan and the redundancies being deemed null and void.

It is also important to consider whether any categories of staff should be excluded from or treated differently for the purpose of the selection exercise. In the Netherlands for example, certain categories of employees, including sick employees within the first two years of illness, cannot be dismissed unless they agree in writing. In the Czech Republic, a redundancy notice may not be served during the protected period in relation to certain protected categories of employees. Many jurisdictions have such categories of employees with special protection which might also include pregnant employees, employees on maternity or other family-related leave, employee representatives or similar.

Workforce reduction planning - summary

The time, cost and difficulty involved in carrying out workforce reduction processes will vary from country to country, although it is fair to say that each jurisdiction will present hurdles for the employer. The reason for the planned reductions in staff, timing constraints and consultation and selection requirements can all impact on the plan. Thorough planning in good time is essential to ensuring a smooth process. Without a detailed plan and fall back options, there is a significant risk that the process in each country will become unwieldly and more time consuming and costly than anticipated.

Legal advice should be sought on the key issues in each affected jurisdiction to enable a plan to be developed that incorporates the steps that should be taken in each country, how long these are likely to take, what costs are likely to be incurred and where the key risks lie, as well as mitigation factors to manage those risks.

There is often pressure to ensure consistency in a workforce reduction exercise across jurisdictions. An entirely globally consistent approach on all matters is not achievable due to varied legal and practical requirements; however effective planning can ensure that a consistent element of fairness can be realized globally.

Practical tips for planning a global workforce reduction

The following points should be considered when planning a multi-jurisdictional change project:

  • early planning – set up a senior cross-jurisdictional team who are able to devote the necessary time and management commitment to the project, co-ordinate processes in different jurisdictions and share relevant information
  • engage global and local legal, human resources and communications teams to ensure a holistic approach and messaging
  • determine the business case underlying the proposal and its likely impact in each country
  • information gathering – this is essential to ensure that the plan is based on accurate and complete information. Information should include not only the basics such as the number of employees at the affected site in each country and their positions and contractual terms but also the protected status of any individuals and details of any express or implied redundancy terms
  • determine the existence of any works council or recognized trade union at any affected site and the terms of any collective bargaining agreements
  • understand the legal and practical issues in each jurisdiction and reassess the general plan in light of that information
  • develop a detailed project plan per country, with required steps and documents, allocated responsibilities, proposed dates for action and costs
  • prepare and retain relevant documentation country by country
  • pay careful attention to external and internal communications from the start of the process

Please contact the following partners if you require advice and assistance:

Global:

Diane Gilhooley
Hannah Wilkins
Elizabeth Graves
Constanze Moorhouse

US:

Scott McLaughlin
Michael Woodson
Michael Hepburn
Marlene Williams

Asia:

Jennifer Van Dale
Jack Cai

Europe:

Frank Achilles
Deborah Attali
Valentina Pomares
Ingrid van Berkel
Wijnand Blom

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