Lay-offs in the EU: Do as the locals do

The scope and scale of the economic difficulties faced by major international businesses are unprecedented. All of the developed economies have experienced turbulence caused by declining demand and difficult credit markets, and corporations have had to look at restructuring businesses, including workforces, and reducing cost bases on a large scale.

There’s no doubt that undertaking these exercises in European Union member countries can be challenging. For example, communications and consultation with employees are fraught with difficulty – particularly when key decision-makers operate outside the EU.

In all major EU jurisdictions, there is an obligation to consult unions or other employee representatives about substantial employee restructuring. In many countries, this will amount to an obligation to negotiate and reach agreement with representatives – a process often called co-determination rights.

Difficulties can arise where central management makes a statement or announcement which suggests that decisions have already been taken prior to the conclusion of formal consultation. Sometimes a desire to make a statement to the market and investors will conflict with the demands of employment law.

In the UK, for example, there are instances where unions have successfully challenged before the courts the integrity of consultation exercises where it is clear that an irreversible decision (eg, to close a site) has been made before consultation has taken place. Where an employer is in default in the UK, the penalty it faces is up to 13 weeks’ pay for each employee in the affected business – effectively one-quarter of the annual payroll bill.

But in France, the consequences extend beyond civil law – executives can be guilty of a criminal offence for failing to comply with requirements to involve works councils before final decisions are taken. French and German law also require an employer to meet the costs of experts to assist works councils in deciding their response to an employer’s proposal. The experts could, for example, analyse an employer’s accounts to form a view as to whether the employer’s economic rationale for proposed redundancies stacks up.

Most international corporations are now aware of the demands placed on them by diverse consultation obligations across Europe. The timing, content and nature of such obligations vary significantly. In France, collective consultation obligations are triggered when two people are to be made redundant, whereas in the UK, the threshold is 20.

The time required for consultation can vary significantly. In some jurisdictions, a redundancy consultation process can take several months, and can require careful negotiation with worker representatives to reach agreement on a way forward. Indeed, in Germany, there is no maximum period set down for consultation since an agreement, or reconciliation of interests, must be reached before the dismissals can proceed. By contrast, elsewhere the process can be wrapped up in one month, regardless of whether the union/employee representatives are satisfied with the outcome.

In some countries, the union or works council will have full co-determination rights in determining the redundancy process and on negotiating a ‘social plan’ to alleviate the effects on employees. Without agreement, in jurisdictions such as France and Belgium, dismissals cannot be effective. The law effectively renders dismissals void and makes the employer start the process again.

In Germany, the courts have sometimes granted injunctions that prevent the employer effecting dismissals until the negotiation process has been completed. In Spain, although the law does not render the dismissals void, the labour authorities have to validate a collective dismissal process and will not do so as a matter of practice unless an agreement has been reached between the employer and worker representatives. Elsewhere (eg, the UK and Ireland) the obligation is merely to discuss the implications in good faith with a view to seeking agreement on areas of conflict.

International corporations are generally aware of their obligations on timing when it comes to consultation. Practically, the key date is when consultation has to start in the jurisdiction requiring the longest consultation period. This can mean that, where agreement with employee representatives is not a statutory requirement, employees are often consulted earlier than necessary as employers recognise they cannot start consultation in one country without starting the rumour-mill throughout the organisation.

Selection and scoring

In those European countries where the means of selecting those to be made redundant are neither set out in law nor are matters which legally have to be agreed with worker representatives, it is common for employers to take too narrow an approach to selection. For example, it is not necessarily correct simply to compare employees doing exactly the same job – often it would be necessary to include in the pool all employees whose roles are broadly comparable and where there are common skills required. A failure to define the pool properly can itself make a redundancy dismissal unfair by law.

In relation to ‘scoring’ those in a selection pool against criteria (when these are not set out in law), some employers apply criteria which are too subjective. A redundancy dismissal can be unfair simply because the process allowed too much subjectivity – eg, an assessment of ‘performance’ by a manager at the time of the redundancy exercise rather than relying on past appraisals could make a dismissal unfair. Where a redundancy dismissal is successfully challenged, compensation can be significant and remedies can include reinstatement.

Redeployment

Many employers have excellent systems for notifying potentially redundant employees of vacancies elsewhere in the business or group. However, some fail in their legal duty by leaving it to the employee to deal with, for example, by looking at intranet message boards. It is the employer’s obligation to consider whether there are roles available and then whether the employee may be suitable. Being proactive in this regard can diminish the risk of a challenge to the fairness of a dismissal.

Some EU countries encourage alternatives to redundancy. In Belgium and Italy, for example, subject to certain conditions being met, it may be possible to ‘suspend’ the employment relationship. The employee remains technically employed but receives benefits from the state. As and when economic conditions improve, they re-commence duties with length of service intact.

In France, larger entities may need to undertake steps such as searching for a buyer or a strategic partner before being able to make redundancies. Regional authorities may also require the payment of compensation by the employer to the authorities to alleviate the cost of paying benefits and re-training.

In the current climate, many employers are also looking at shorter working hours, sabbaticals and pay freezes or cuts as alternatives to redundancy. Any measure to alleviate the number of compulsory dismissals is generally actively encouraged and supported by local labour laws and practice, but issues such as basic contractual rights need to be taken into account – such matters cannot simply be imposed, even with broad consensus.

Mark Taylor, employment partner, Jones Day

“Sometimes a desire to make a statement to investors will conflict with the demands of employment law”

More at XpertHR

Country-by-country knowledge of employment law in EU countries is essential for HR directors involved in workplace issues in other European jurisdictions. XpertHR provides guides to national employment law in European countries, covering issues from the law on hours of work, redundancy, holiday and maternity leave, to trade union recognition rights. For more information, go to: personneltoday.com/xperthr3

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Differences between member states

In many EU jurisdictions, industry sector-wide bargaining agreements supplement national laws and specify, for example, how to calculate enhanced termination payments and which redundancy selection criteria must be applied.

In France, a works council may appoint – at the employer’s expense – an external accountant to review and report on the employer’s redundancy proposals, so that the council can form an informed view on the economic merits of the proposal. This will help form its view on whether to give a positive or negative opinion.

In Germany, France and Italy, one of the key criteria in redundancy selection is whether an individual has responsibility for dependants – the more family responsibilities, the greater the protection for the individual.

In many EU countries, local labour authorities play a substantial role, having the right to review an employer’s proposals to make redundancies and intervene if they are not satisfied with explanation.

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