Downsizing in Europe: Anticipating the HR Issues in Cross-border Reorganizations
Aug 13, 2009 QuickCounsel Download PDF
A major challenge of managing downsizing in Europe is the sheer variety of legal issues that must be addressed, country-by-country. Despite the fact that the twenty-seven European Union (EU) member states (representing most of Europe with the exception of Switzerland and Norway) have sought to harmonise key employment laws, real differences still remain. On top of that, there are cross-border cultural differences which need to be taken into account.
Successful downsizing in Europe happens where top management recognises, and plans for, these cultural and legal complexities, including building in sufficient time to manage risk. A common problem is persuading managers that local and EU laws often require much earlier information and consultation with worker representatives, often about proposals for consultation as opposed to decisions for implementation. In addition, be aware of managing cross-border tensions if workers in one country fear they are being sacrificed to save jobs in more favoured countries.
EU Employment Laws
The majority of EU employment law is derived from more than twenty employment directives. A directive is a legislative act which requires EU member states to meet certain minimum standards of employment protection by a given deadline. It is therefore up to each member state to take steps to implement a directive in their country before the deadline, usually by introducing or revising local employment laws or through national or industry collective agreements. This indirect method of EU lawmaking contributes to differences between countries as to how they have implemented EU laws. The following directives may apply to cross-border reorganizations (and may overlap):
A requirement to inform and consult worker representatives is triggered where there are larger scale lay-offs or reductions in force (for example, twenty or more in a 90-day period). The nature of the information to be provided, the timing, and the scope of the consultation are all prescribed in the directive. There is also an obligation to inform the relevant government authorities. However, there are differences between countries in the way the directive has been implemented, including: when the requirement to inform and consult is triggered, the procedure and timescales, who the employer must consult with (works council, trade union, other representative), and sanctions for non-compliance (including injunctions, void terminations and reinstatement, damages, and criminal penalties). There are also additional country by country legal requirements (see below).
If requested by employees, this directive requires the establishment of EWCs in EU-scale organisations (specifically, those with at least 1,000 employees within the member states and at least 150 employees in each of at least two member states) for the purposes of informing and consulting employees on matters which affect the EU-scale organisation as a whole, or at least two of its undertakings situated in two different member states. As a result, downsizing which impacts on at least two EU countries will trigger the duty to inform and consult any EWC. In theory, employers must inform and consult the EWC before engaging in consultation with local representatives of those affected. However, due to differing laws in each country, the interaction between European and national information and consultation can be confusing and, more importantly, can result in legal challenges which stop international restructuring in its tracks (such as has happened in France).
A revised EWC directive has been agreed upon in 2009, to be implemented by member states by 2011. Amongst other changes, the revised directive contains more prescriptive information and consultation duties which may introduce delays into international downsizing plans. As a result, all employers with EWCs, including those with so-called "Article 13" agreements (made before the directive was implemented in the member states), should consider the need to revise their agreements to reduce the impact of the directive before it is implemented.
The directive sets out a general requirement for employers (those with over fifty employees or establishments with at least twenty employees in a member state) to inform and consult at a national level; for example, by setting up works councils to provide information to their workers about organisational and contractual changes, including downsizing. Given that many EU countries already had national frameworks providing for national works councils and other worker representation, there are huge country by country differences in what employers must do in this respect (see below).
Also known as "TUPE", this directive safeguards employee rights in the event that their employment is transferred on the sale or outsourcing of an organisation or part of an organisation. Upon a transfer, employees' terms and conditions are protected from change, their employment transfers to the new employer, there is an obligation to inform and consult worker representatives and there is protection from termination arising from the transfer. Occupational pension schemes are, in the main, excluded from the directive's protection. Practically, its impact has so far been limited to transfers within the EU. Again, there are differences between countries in the way the directive has been implemented.
Finally, be aware of EU laws protecting employees from discrimination on the grounds of age, disability, sex, race, sexual orientation and religion. For example, review selection criteria for discriminatory effects.
National Employment Laws
The full range of additional national employment laws is beyond the scope of this article, and legal advice should be sought in specific instances. Below is a small selection of some potentially applicable national laws:
Where trade unions are recognised in the workplace, they must be informed and consulted where there are reductions in force involving twenty or more terminations in one place within 90 days. Employees with more than two years of service qualify for severance pay. Employees with more than one year of service qualify for unfair termination protection, which entitles them to compensation where the employer fails to follow a fair termination procedure.
Two agreements must be negotiated where there are larger-scale reductions in force; a social plan and an equalisation of interests agreement. Both can take three to four months to negotiate before any terminations take place. These agreements include selection criteria, the process, compensation payments and more. The works council is integral to this process. Terminations in breach of social plan selection rules are void.
Downsizing involving more than ten terminations triggers information and consultation duties with works councils, with specific timescales which can take up to a year (or more) to fulfil. The purpose is to obtain an opinion (but not necessarily to reach an agreement) from the works council on the employer's plans, including social measures, and a delay in providing the opinion can in turn delay the employer's plan. Penalties for non-compliance include unfair or void terminations, reinstatement, fines and damages.
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