Global: Top 10 tips for implementing global reductions in force
Many global corporate transactions come with the desire to implement cost-saving initiatives, including workforce reorganizations and reductions in force (RIFs), in the US and internationally.
Outside the US, RIFs can be expensive and time-consuming. Managing a multi-country downsizing only adds to the complexity from a legal, HR and project management perspective as the legal frameworks, collective bodies, timeframes, cost, culture and even the terminology involved can vary significantly across borders. All of these challenges are manageable, however, with advance planning and a strategy that takes account of local legal, best practice and cultural requirements.
Below are key tips to help global employers avoid common HR, legal and project management pitfalls when implementing multi-jurisdictional RIFs.
(1) Determine limitations on global redundancies implemented in conjunction with a business transfer
In the EU, if a RIF is implemented in conjunction with a global transaction, rules on business transfers – so-called TUPE laws stemming from the EU Acquired Rights Directive (ARD) – might restrict when and how the RIF can be implemented.
Additionally, even outside the EU, certain jurisdictions (eg, Quebec) also have laws equivalent to the ARD prohibiting terminations because of the business transfer. In the EU, there are often carveouts for ETO (economic, technical, organizational) reasons unrelated to the business transfer, but it will be important to understand the structure of the deal at the local level to determine any restrictions on business transfers.
(2) Identify the business objectives and justification
While a redundancy or economic termination is a concept recognized in most jurisdictions, the standards required to justify a termination on those grounds differ across the world: in some jurisdictions it is fairly easy to justify a redundancy and limited evidence of business decline is required (eg, UK, US, Australia), but in others (eg, Japan, much of mainland Europe), the threshold is higher, requiring the company to be able to demonstrate ongoing serious financial difficulties.
(3) Gather and verify data
At the initial planning stages, it is important for the business to gather headcount (total employees and number impacted) per country and state or province; information on any works councils, employee representatives or collective bargaining agreements (CBAs); type of employees (eg, employees on fixed-term working arrangements, atypical workers); employment agreements; copies of policies and procedures; and information on prior practices.
Despite its challenges, a RIF can be successfully managed with careful planning, bearing in mind country-specific legal requirements and the details of the transaction. If the redundancy is a collective exercise, employers should determine the mass layoff threshold for each jurisdiction and then identify what obligations are triggered, as typically information and consultation exercises with employees or their representatives are required within certain timescales.
(4) Asses the “real” cost of a global redundancy
Outside of the US, employees generally will be entitled by law to notice of termination (either given or paid in lieu). They may also be entitled to receive severance based on local statutory formulas or company contractual entitlements. Other mandatory pay-outs may include non-compete payments, accrued vacation entitlement, commissions and bonuses.
Several mainland European countries require the company to negotiate a “social plan” with employee representatives where significant redundancies are proposed. As well as comprising measures intended to prevent or alleviate the economic consequences of the dismissals on the affected employees, the social plan may also include provisions relating to severance payments, paid leave of absence, training or other similar measures. In addition, employees may receive an “ex gratia” (non-mandatory) severance package in exchange for a release of claims. Ex gratia payments are relatively common for global RIFs (given the complications of implementing redundancies globally or as part of a negotiated social plan).
(5) Focus on project planning and timelines
Identifying roles of relevant stakeholders and a project management team are critical as implementation will take place against very different legal systems, collective structures and cultural backdrops.
In addition, based on the information gathered, employers are encouraged to prepare termination timelines and costing tools for each jurisdiction. As the requirements in one or more of the affected countries may be particularly time-consuming, preparing an overall timeline at an early stage is likely to be helpful in mitigating the extent to which any such outliers hold up the wider global project.
Businesses looking for a quick simultaneous day on which all impacted employees globally are notified of the RIF and no longer required to attend work (i.e., a universal “day 1”) should understand that, in global terms, a “day 1” step is often an initial invite to a consultation meeting to discuss the potential exit. Thus, outside the US, “day 1” is usually not the day when employees are actually terminated.
(6) Determine lawful employee selection criteria
In situations where the selection of employees is relevant, it is important to determine local statutory selection criteria (eg, social selection in France, Italy and Germany, last-in first-out in Sweden). If there is no local statutory selection criteria, employers should use fair, objective and consistent criteria. It is also important to confirm local rules and determine risks for protected employees. Employee representatives and employees on certain types of leave, including maternity and other types of family leave, are frequently afforded special protection from dismissal.
(7) Consider benefits and immigration issues
Relatedly, the termination may trigger the requirement to notify immigration authorities of the termination where the employee is employed with a visa or other temporary work permit. Companies often provide a longer working notice to employees on work permits or visas to give them more time to secure a new work permit from a new employer.
(8) Follow consultation requirements with collective groups
At an early stage, employers are encouraged to determine the triggers, scope and timing requirements for information and consultation exercises with each collective group or individual. When the threshold for a mass dismissal is triggered, as well as requiring collective consultation, many jurisdictions also require governmental filings or notifications.
Information and consultation with works councils and/or trade unions is a critical feature of any redundancy program across Europe. Where collective redundancies are planned (the thresholds differ from country to country but can be as low as 2 employees) the obligations increase, and the process can take anywhere from 30 days to many months. The obligation to inform and consult should never be taken lightly as in some jurisdictions, such as France and Germany, a failure to comply may lead to the courts stopping the implementation of the redundancies pending completion of the consultation procedure. Outside of Europe, while the process is generally less regulated, local rules, CBAs and company practice needs to be checked to understand what, if any, consultation obligations apply.
A coordinated plan for engagement is critical at the outset to address issues such as:
- Who do you need to talk to?
- How long do you realistically need?
- How do you manage the timing of announcements?
- How do you avoid jeopardizing local obligations?
- Do you adopt a country-by-country approach?
The varied information and consultation requirements need to be managed within the context of the overall project and built into the plan. Options will vary based on the scope of the RIF, but may include, eg, starting consultation in high-risk countries earlier (but being beware of the impact of legislation which may require consultation to begin as soon as proposals are formulated), or possibly carving out the high-risk jurisdictions from the wider plan and dealing with those separately.
(9) Prepare and deliver termination documents and releases
When a decision has been made, employers should determine when notice of termination and any releases can be issued, plus the required method for delivery.
Additional consideration will often be required to secure releases and it is also important to confirm jurisdiction specific rules on releases to ensure they are enforceable locally. For example, is the employee’s legal representative’s sign-off required (such as in the UK)? Is agency or court approval or a filing mandatory (such as in the Netherlands)? Are translations required (such as in Belgium and France)? By confirming local rules related to signatures, including whether e-signature or soft copies are sufficient, employers can minimize the risk of delays and ensure documents are enforceable.
(10) Determine post-termination obligations
Finally, employers should consider post-termination obligations, such as timing of payments and any filings with authorities. There may be specific time frames within which termination payments must be made and/or authorities notified (such as the tax or immigration authorities).
Despite its challenges, a RIF can be successfully managed with careful planning, bearing in mind country-specific legal requirements and the details of the transaction.
Welcome to Crossroads – ICR Insights
Crossroads – ICR Insights is our series of short-read articles designed to assist organizations considering an international corporate reorganization (ICR). Each country-specific, solutions-based brief will answer a key consideration during a global transaction such as carveouts, spinoffs, acquisitions and dispositions, pre- and post-acquisition integration, or legal entity rationalization. Visit Crossroads to see the collection or email to discuss further ICRCrossroads@dlapiper.com.