Five Precautions for Multinational Employers Considering Global Reductions in Force

Sweeping layoffs are a common headline these days, but these reductions in force can have steep consequences for employers in many jurisdictions, particularly in Europe, if not properly planned and executed. Employers with a global workforce should exercise caution before leaping to action in this latest trend. Not only can a failure to assess the country-specific legal nuances result in employee claims, but it can have a significant effect on timing, budget, and achieving business objectives. Below are five important considerations for employers planning a global reduction in force.

1. Business Rationale and Selection Criteria Requirements

Unlike the US, where the default position is employment at-will, in most countries throughout the world, a valid justification for termination of employment is required. When an employer considers making certain roles redundant to reduce headcount, there are often strict requirements as to the business or economic justifications that must be established in order to lawfully proceed with a termination on such grounds.

Even if a solid business rationale can be established, that doesn’t mean an employer can necessarily choose just any employee to be impacted. Often times, there are specific selection criteria that must be examined and applied to employees in the same, similar, or interchangeable roles. Certain selection criteria can include age, length of service, and familial or social obligations, among others. Further complicating the analysis is that certain employees may be protected from dismissal due to circumstances such as recent sick or maternity leave, or status as a works council member.

Employers should exercise caution in establishing their business rationale and employee selection analysis to avoid invalidly dismissing employees, which can lead to claims and potential remedies including reinstatement, backpay, and damages. In contrast, an accurate analysis and understanding of the strength (or weakness) of the business rationale and employee selection not only helps prevent potential claims, but aids in preparing a strong execution strategy and accurately identifying whether an expanded budget for mutual agreements may be necessary.

2. Headcount and the Impact on Process

The number of positions proposed to be impacted can have a significant effect on the legally required termination process in a redundancy situation. The labor laws in many countries have collective or mass dismissal thresholds. This means that if an employer carries out a certain number of employment terminations within a specific period of time, additional—and typically more burdensome—obligations will apply to the process.

For example, triggering a mass or collective dismissal can result in obligations to notify labor authorities, engage in consultation process with works councils, unions or employees representatives, or can afford these employee representative bodies greater influence over the process. Careful consideration of headcount impact is important to developing an effective strategy, particularly if there have been recent employment terminations in close time proximity to the proposed reduction in force actions or if the proposed headcount impact is very close to the threshold trigger number.

3. Employee Representative Body Consultation Obligations

Consultation obligations with works councils, trade unions, or employee representatives can have a significant impact on termination process requirements and, in some cases, those employee representative bodies may have rights to challenge or even prevent the proposed actions.

Consultation obligations can also have a considerable influence on execution timeline, particularly if the collective or mass dismissal threshold is triggered, which generally requires longer consultation periods. Consultation obligations can range from a few weeks to several months depending on the country, so employers must be cognizant of how these requirements impact overall global planning, process timing and alignment across regions. Failing to properly prepare for and execute on consultation obligations can have meaningful consequences, including rendering terminations invalid.

4. Notice Periods, Pay in Lieu, and the Impact on Exit Timing

Most countries outside of the US require employers to provide employees with advance notice of their termination. In certain jurisdictions, an employer cannot unilaterally decide to pay out the value of the notice in lieu of having the employee remain on payroll for the duration of the notice period. And, even if pay in lieu of notice is permitted by consent—meaning that an employee must agree—there are many markets where it is very uncommon for an employee to do so because of its effect on certain state benefits such as unemployment.

The country-specific notice requirements and market practice can directly impact the timing of when a termination will actually take effect—meaning, when employees will be “off the books.” It is one thing to notify an employee of a termination, but if proper planning is not considered, that notification could be many months away from when the employee will actually have their last day of employment. When employers consider their reduction in force plans, there are often timing objectives for achieving cost savings, so failure to take notice periods into account can substantially influence whether those business objectives are met.

5. Considering Settlement Agreements and Market Practice

Even if an employer solidly checks all the boxes to legally proceed with redundancy terminations, there may be market practice in relation to separation or settlement agreements that employers still need to consider to mitigate risk. In certain countries, there is no statutorily mandated severance. This could lead an employer to believe that simply providing the statutory or contractual notice period is sufficient. However, in many termination scenarios, it is common for employers to offer a voluntarily severance amount, commensurate with market practice, pursuant to a settlement agreement. Failing to understand the market practices and norms can not only land an employer in court, but can also result in drastically underbudgeting the costs of any proposed reduction in force.

The Bottom Line: Global reductions in force are complex and require thoughtful analysis and planning.

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Caitlin Lane is part of Seyfarth’s leading International Employment Law practice. To find out more about global workforce layoffs, please contact Caitlin or anyone on our specialist team.