DLA Piper’s employment guide to global reductions in force: Coronavirus edition

Overview

The coronavirus 2019 disease (COVID-19) outbreak has created significant disruption and volatility in global markets and, in turn, financial uncertainties for businesses around the world. As the economic impact continues to unfold, employers globally have had to consider immediate remedial steps such as reduced working hours and pay, furloughs, and short-term closures and layoffs. For most businesses, the hope is that these will be temporary, rather than permanent, measures. However, given the fluidity of the pandemic, it remains unclear how longstanding such solutions will need to be and there is a risk that workforce reorganisations and reductions in force may become necessary in the longer term.

In any single jurisdiction, reductions in force 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. Downsizing in the current climate – when many governments have issued emergency legislation and measures to mitigate the impact of the pandemic on businesses – presents additional challenges both in terms of the process (e.g. consulting with employees working remotely) and the legal analysis (e.g. whether the termination is permissible under any new emergency rules).

Added to all of that, global business strategy – especially in times of crisis – often runs at odds with local implementation requirements when it comes to reductions in force and what can be achieved in a short time period in some countries can take many months, and be much more costly, when rolled out globally.

The implications of non-compliance with local rules can also vary – financial penalties and litigation are the most common risks, but in some countries injunctions and criminal sanctions are also possible. Employee relations considerations and reputational risk should be factored in as well.

All of these challenges are manageable, however, where there is full and advance planning and a strategy that takes account of local legal, best practice and cultural requirements.

Business 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 (e.g. UK, US, Australia), but in others (e.g. Japan, much of mainland Europe), the threshold is high, requiring the company to be able to demonstrate ongoing serious financial difficulties (e.g. in Spain this could require evidence of a reduction in revenue or sales figures for 3 consecutive quarters in comparison with the same quarters in the previous year).

While many businesses have been seriously impacted by the pandemic, the duration of the impact is not yet clear, so whether the redundancy threshold would be met – yet – in all countries, remains to be seen. Where it is difficult to establish sufficient grounds for lawful redundancy terminations, other termination methods, including resignation with severance, can often be used instead.

While the financial impact of the pandemic on businesses may, under normal rules, justify a downsizing, before proceeding it is essential to check whether there are any temporary or other government measures in place restricting redundancies. Many of the emergency measures and subsidies that have been introduced around the world to support employers during the crisis were aimed at limiting employee terminations, and in some countries, including China, Italy, Portugal and Spain certain terminations have been completely prohibited for a period of time.

Information gathering

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 (for example, level of employees in jurisdictions with CBAs); employment agreements; copies of policies and procedures; and information on prior practices.

If the redundancy is a collective exercise, employers should determine the mass layoff threshold for each jurisdiction and identify what obligations are triggered, as typically information and consultation exercises with employees or their representative are required within certain timescales. Note, however, that some governments are issuing provisional orders to suspend some formalities to give flexibility during the state of uncertainty caused by the COVID-19 pandemic, so keeping abreast of developments is crucial.

Realistic timeline and costing tool

Based on the information gathered, employers should 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, or the start may be delayed due to COVID-19 emergency measures, 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.

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. Where employees are currently subject to a pay reduction due to COVID-19, careful analysis of the appropriate payments to be made to them will need to be carried out.

Several mainland European countries (including France and Germany) 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. Although ex gratia payments are in normal circumstances relatively common for global reductions in force (given the complications of implementing redundancies globally or as part of a negotiated social plan), it remains to be seen if companies will be in a position to offer additional payments in this unique pandemic situation. Added to that, employees who are unlikely to be able to secure alternative employment in the current circumstances are less likely to voluntarily agree a termination package.

Lawful selection of employees

In situations where the selection of employees is relevant, it is important to determine local statutory selection criteria (for example, social selection in France, Italy and Germany, last-in first-out in Sweden). If there is no local statutory selection criteria, employers are reminded to 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. Disability discrimination protection could apply to individuals on sick leave or whose ill-health means they are unable to work due to the virus. Associative discrimination protection may apply where an employee is caring for someone who qualifies as disabled and there may also be specific restrictions on dismissing individuals who have or are suspected to have the virus, such as those in force in China.

Government and collective group notification and consultation requirements

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 an absolutely 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 anything 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 on occasion 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, collective bargaining agreements and company practice needs to be checked to understand what, if any, consultation obligations apply.

During the COVID-19 outbreak, an important issue for employers to consider will be how best to communicate with employee representatives and employees who may be working from home or on furlough, including whether consultations may be held remotely, whether documents may be e-signed, etc. As well as communicating with employees who are at risk of redundancy, it is also important for employers to communicate with those who are not affected to maintain good employee relations and avoid unnecessary concerns.

Country-specific termination documentation 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. This generally may be by post or e-mail (where permissible) if the individual is working from home or furloughed.

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), and is that feasible to obtain during this pandemic? Is agency or court approval or a filing mandatory (such as in the Netherlands), and are the courts open during the pandemic? Are translations required (such as in Belgium and France)?

Post-termination obligations

Finally, employers should consider post-termination obligations, such as timing of payments and any filings with authorities such as those required in, for example, Denmark, Italy, China and Singapore. There may be specific time frames within which termination payments must be made and/or authorities notified (such as the tax or immigration authorities). During this health crisis, such authorities may have limited hours, so it will be important to check that any such requirements logistically can be met.

Access to country guides

We hope that this commentary provides useful information on the themes which arise in global redundancy exercises. It is important to note, however, that local laws on reductions in force vary greatly. In addition, what may be suitable for each business will vary depending on the employer’s unique circumstances. As such, implementing a global redundancy programme will require both global guidance and local advice, as well as careful planning and implementation, bearing in mind that the position may change during this rapidly evolving public health event.

We have a wealth of information on global employment law matters across over 60 countries available through our online business tool GENIE. To register for full access to our GENIE subscription service, email GENIE subscriptions.

For support globally or in any of the countries in which you operate, contact your DLA Piper relationship attorney or email us at CoronavirusEmployment@dlapiper.com.