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A global view of the key issues to consider when managing a redundancy procedure

29 September 2020
As the worldwide pandemic continues to take its toll, many employers are having to implement redundancies.  Our global employment experts consider the legal parameters when implementing a redundancy procedure.
Business continuity is a priority and as the pandemic continues we expect many more employers will have to make difficult decisions.  The redundancy procedure is governed by specific legal requirements which vary significantly across the world.   

Our employment experts across the globe answer the following key questions:

How can employers identify a redundancy situation? 
How are employees selected for redundancy? 
What consultation must take place when making redundancies? 
What pay is a redundant employee entitled to and what criteria must they meet? 
What are the key employment law challenges for an employer going through a redundancy procedure?

 
Please select a region below to see the legal parameters of the redundancy procedure in your global locations.

If you have any questions or would like advice on your global employment law strategy please get in touch >
 

Australia

 
Australia

Five Key Issues to Consider When Managing a Redundancy Process

In Australia, employers have been restructuring their businesses and making redundancies as a result of COVID. In some circumstances, restructures have been triggered by COVID and in other circumstances restructures have been delayed as a result of the implementation of the JobKeeper Scheme. Some employers, as a result of COVID, have been forced to make redundancies during the course of restructures in circumstances where, but for COVID, they would have been in a position to re-deploy employees.

How can employers identify a redundancy situation?

One of the key requirements of whether a redundancy satisfies the "genuine redundancy" exemption in s. 389 of the Fair Work Act 2009 is whether the employer no longer required the person's job to be performed by anyone because of changes in the operational requirements of the employer's enterprise. In order to assist in satisfying this limb of the definition, employers should draft a business case which demonstrates that the operational requirements of the business are such that the employee(s') position is no longer required to be performed. This can include a situation where an employee's duties are to be performed by a number of other employees as a result of a restructure.

How are employees selected for redundancy?

In circumstances where there are a number of employees who perform the same job and only some of their roles will be subject to redundancy, it is advisable for employers to apply fair and objective criteria to determine which employees will be made redundant. Fair and objective criteria can include matters such as skills and qualifications and should be recorded in a matrix whereby each affected employee is assessed against the criteria. Undertaking such a selection process will assist employers in defending allegations that employees were chosen for redundancy for improper reasons such as unlawful discrimination.

What consultation must take place when making redundancies?

The most common source of consultation obligations are in Modern awards and enterprise agreements, which generally must be followed when making redundancies.  Whether an employer has followed an obligation to consult in an enterprise agreement or award is one of the requirements of the "genuine redundancy" exemption. Often employers fail to properly consult when implementing redundancies, thereby exposing themselves to an unfair dismissal application. 
Genuine consultation involves an employer remaining open to considering alternatives to redundancies that might be suggested by employees during the course of consultation. This might include working part-time or taking a period of unpaid leave as an alternative to redundancies. Employers must also make themselves available to answer any questions employees (see - Rachael Freebairn v Dandiie Pty Ltd ATF the DM & IT Moore Family Trust, TJL Business Advisors Pty Ltd ATF the Lumtin Family Trust, and Profitwatch Pty Ltd ATF the Rosemark Trust T/A TJL Business Advisors and Accountants [2020] FWC 3915 (27 July 2020)).
Under many Modern awards, for the purposes of consultation discussions, employers have to give in writing to the affected employees and their representatives (if any) all relevant information about the changes including their nature, their expected effect on employees and any other matters likely to affect employees.

What pay is a redundant employee entitled to and what criteria must I meet?

Section 119 of the Fair Work Act sets out redundancy pay required to be paid to employees with at least one years' experience. The amount due to employees varies with the length of service, with the maximum payment is 16 weeks' pay for employees with at least nine years' but less than 10 years' service. Employees with at least 10 years' service are entitled to 12 weeks' pay on account of usually being entitled to long service leave after attaining 10 years' service. There are a number of exclusions from redundancy pay including that the employer is a "small business employer", the employee is employed for a specified period of time, for a specified task or for the duration of a specified season, or the employee is a casual employee.
Redundancy pay obligations may also reside in employment contracts, policies and industrial instruments. 

What are the key employment law challenges for an employer going through a redundancy procedure?

It may be tempting for employers who are considering implementing redundancies to form the view  that in the current environment, the risk of employees challenging a redundancy is low. That perception may result in some employers not properly documenting the redundancy process or failing to consult employees.  However, in an economy where unemployment is on the rise and where employees may have difficulty in finding alternative employment, employers can expect that affected employees will be more likely to challenge redundancies. Paying attention to detail is therefore just as important as ever.

France

 
France

Five key issues to consider when managing a redundancy procedure 

The health crisis has entailed the implementation of a very efficient short-term scheme, since March 2020. The efficiency of the scheme has postponed reorganisations as a result of the health crisis. But the health crisis has now become an economic crisis and the short-term scheme is not always sufficient to avoid restructurings. A major wave of restructuring is expected in the Fall and in the Winter in France.

How can employers identify a redundancy situation? 

In France, a dismissal for economic reasons is a dismissal carried out by an employer for one or more reasons not inherent to the person of the employee resulting from a termination or transformation of employment or from a modification, refused by the employee, of an essential element of the employment contract, following in particular economic difficulties, technological changes, a reorganization of the company necessary to safeguard its competitiveness or the cessation of activity of the company.

The role that is made redundant is not replaced. 

How are employees selected for redundancy? 

A fair redundancy programme involves: (1) identifying the economic grounds/ collect economic and financial data; (2) following a fair and objective selection process, (3) considering redeployment opportunities; (4) informing and consulting staff representatives (if applicable); (5) implementing the dismissal procedure; (6) applying external redeployment schemes and (7) involving the labour inspectorate throughout the process.  

Once the employer has established the type of roles which will be cut, then if there are several employees who are able to occupy the same role and who belong to the same professional category (professional category refers to all the employees within the company exercising similar duties and with the same professional training and studies), the company must use selection criteria to choose who will be made redundant among those employees.

The standard list of selection criteria include the family status of the employee (e.g. single parents), length of service, factors which could make it difficult for an employee to obtain another job (e.g. disability and age) and finally the professional qualities of each employee.

If the employee is the only one to be made redundant in his or her professional category, no selection criteria will apply. 

What consultation must take place when making redundancies? 

Consultation of staff representatives is a key step of the dismissal procedures in France. 

The dismissal for economic reasons does not require any consultation of the works council, but as from two dismissals for economic reasons, the works council must be consulted. 

The level of involvement of the works council depends on the number of employees to be made redundant: between two and nine, the consultation is straightforward, but beyond nine in a company with more than 50 employees, a social plan must be negotiated with unions and reviewed by the works council, which is involved throughout the full process. 

The works council is also consulted on the selection criteria and, in case of a social plan, on the financial measures that are put in place to accompany employees who are made redundant. 

Not consulting with the works council is a criminal offence leading to a fine of up to 37,500€ for the legal entity and/or 7,500€ for the legal representative of the company.

What pay is a redundant employee entitled to and what criteria must they meet? 

The employees who are made redundant must be paid the following:

  • an indemnity for their notice period (this payment is subject to social security contributions);
  • any other outstanding payments, such as salary, bonuses, etc. (also subject to social security contributions);
  • any holiday entitlement which had been accrued but not taken on termination (also subject to social security contributions);
  • severance pay resulting from the Collective Bargaining Agreement (“CBA”) or the French Labour Code. This usually applies to employees with at least one years’ service (this payment is not subject to social security contributions). The French labour Code minimum is of 25% of the average monthly salary per year of service for the first 10 years of length of service and 33% beyond – to be checked for each CBA;
  • compensation in return for the employee being bound by his or her non-compete clause after the termination of his or her contract (if such restrictive covenants is provided by the employment contracts). The Company can release the employee from such obligation. 

In case of a social plan, enhanced payments/indemnities must be offered. They are negotiated with unions/the works council in the framework of the social plan agreement. 

If the dismissal is considered as without cause by a Court, employees are entitled to damages, which amount depends on their length of service. 

What are the key employment law challenges for an employer going through a redundancy procedure? 

The redundancy procedure is straightforward when a limited number of employees are impacted; but it can be more complex and costly if more than nine employees are impacted.

The first difficulty is to determine the scope of the redundancies and decide whether the company will implement a social plan or implement several "small redundancies" bearing in mind the following thresholds:

A company with at least 50 employees must implement a social plan if:

  • more than nine redundancies are conducted within 30 days;
  • more than nine redundancies are conducted over three months;
  • a redundancy is conducted within the three months following the civil year where more than 18 redundancies were conducted without implementing a social plan.
Another challenge is to determine a reasonable budget for the redundancy and a reasonable timeline. But both can be disrupted by the negotiations with staff representatives and the involvement of the labour inspectorate, so it may be difficult to ascertain a termination date.

The other challenge is to build a business rationale for the redundancy that meets the law requirements. It may take some time to collect all relevant information and build the economic reasons in light of French requirements. 

The key to a successful redundancy programme is to: plan carefully, especially for unexpected contingencies that might arise; to communicate clearly and effectively; and to take legal advice when the proposals are at the formative stage to ensure that all the legal, practical and logistical challenges are addressed. 

 

Germany

 
Germany

Five key issues to consider when managing a redundancy procedure 

The statistics show an increasing number of unemployed people in Germany because of pandemic-related redundancies: The unemployment rate has grown from about 5% (August 2019 - March 2020) up to 6.4% in August 2020. The decision to dismiss employees is certainly not easy for many employers, but it often remains the only way to keep the company going. 
Therefore, further redundancies are to be expected, especially since in some sectors, it is not quite clear when and how things will continue.

The following is limited to the case of termination for urgent business requirements in companies who employ more than 10 employees in an operational unit, where a termination must be "socially justified" (in smaller operational units, terminations are only subject to a few restrictions). Please keep in mind: also employees who have not been employed for 6 months are not subject to the following regulations.

How can employers identify a redundancy situation? 

Termination for urgent business requirements may be considered, if the following conditions are met:

  • The employer made an entrepreneurial decision based on internal causes (such as restructuring, rationalization, outsourcing (to contractors or foreign affiliated companies), shut-down of business units, performance concentration) or based on external causes (e.g. loss of orders; decrease of turnover/ profit). 
  • The actual implementation of the entrepreneurial decision leads to a permanent loss of employment needs (causality) which means a mathematical surplus of workplaces that directly or indirectly eliminates the need for the continued employment of one or more employees.
  • There is no company-wide possibility of continuing employment in a vacant position on equal or worse terms.
  • There are no other milder means (such as continuing employment after changing the terms of employment; continue to employ the employee after retraining or further training).
  • And the employer conducted a social selection among comparable employees that are on the same hierarchy level.
There are no special requirements for the entrepreneurial decision, as long as it was not made arbitrarily (i.e. not obviously subjective, unreasonable or random).

It should be noted, however, that the employer needs to be able to prove the underlying facts to the conditions listed above and that the hurdles set by the courts are quite high. It is therefore recommended to diligently prepare a termination for urgent business requirements and properly document the facts.

Lastly, employers often assume that they can terminate a particular employee for urgent business requirements. This is often not the case as only after a social selection (see below) it is clear which employee enjoys the least protection against terminations.

 

How are employees selected for redundancy? 

The employer has to demonstrate a sufficient “social election” amongst the employees prior to the termination. 

The social election is restricted only to those employees who are comparable and on the same hierarchy level within the affected establishment. The comparison is focused on the objective appearance of the workplace and the contractual occupation content. In this context, “social election” means to select for redundancy the employee who would be socially the least severely affected by the termination.

Exhaustive criteria for such selection are:

  • the employee’s years of service in the company, 
  • the age of the employee
  • maintenance obligations 
  • severe disabilities 
The social selection often leads to the termination of the last person hired (i.e., the practice of “last in, first out”). The employer may be able to exclude some employees from the “social selection” if this is justified due to legitimate operating reasons (such as special knowledge, skills and performance of a certain employee) or the maintenance of a balanced staff structure.

 

What consultation must take place when making redundancies? 

There are several consultation procedures that need to be considered and followed, we would like to name the ones that are most practically relevant:

Works council:
 Most important to mention in this context is the consultation of the works council: If a works council is in place, its consultation is mandatory prior to every intended termination, even terminations within a probationary period. Any termination without such prior consultation is strictly invalid. There are no formal requirements for the hearing. However, it is advisable to document it in writing, which can serve as evidence at a later point if necessary. The notification of the intended termination must be made to the chairman of the works council and must contain e.g. the affected employee’s personal data, the type of termination, the notice period and the reasons for the termination. The relevant circumstances must be described in a manner that enables the works council to access the validity of the reasons, and to raise substantive objections without needing to conduct additional research of its own. However, in presenting the reasons for a termination, the employer need only impart those circumstances which, from its subjective point of view, are relevant to the termination. But, the employer cannot introduce any reasons in a court proceeding which it did not offer to the works council in the prior consulting, if such reasons already existed at the time of the hearing and had been known to the employers description at the time of the hearing. Therefore, it is advisable to mention every aspect of the case that might become relevant in a court hearing. The works council is granted the opportunity to vote upon the intended termination within in a period of one week.  Members of the works council can only be terminated if facts exist that justify a termination for cause and the works council approved the termination or the approval has been replaced by a court decision.

Mass dismissals: If multiple employees are to be terminated within a period of 30 days, the Federal Employment Agency must be informed prior to declaring the terminations, otherwise the termination is void. This applies to the following numbers of terminations:

  • in companies with  20 to 60 employees, if more than 5 employees (meaning at last 6) are dismissed
  • in companies with 60 to 500 employees, if 10% or more than 25 employees are dismissed
  • in companies with more than 500 employees, if at least 30 employees are dismissed
Special termination protection: Certain employees are subject to special dismissal protection regulations. In those cases (for example employees who are on parental leave or severely disabled employees) the employer needs to obtain prior approval of the responsible authorities prior to declaring the termination. If severely disabled employees are to be dismissed, the representative body for severely disabled employees must be consulted if existing (if an employer employs 5% severely disable employees a representative body for severely disabled employees needs to be elected in operational units with at least 100 employees).

 

What pay is a redundant employee entitled to and what criteria must they meet? 

Until the end of the notice period, the employees must be paid their regular remuneration. Apart from this, effectively terminated employees have no payment entitlements. 

However, in case of terminations for urgent business requirements employers are able to offer their employees a severance payment when giving them their notice. If the employee then refrains from filing a complaint, he or she will have a claim to the offered severance payment. This is conditional on the employer expressly basing the termination on operational reasons and expressly referring to such severance payment in the termination notice. Without such an agreement, most employees will sue their employers for termination protection before the labour courts. These processes often end with a settlement that includes a severance payment, as both parties usually aim for legal certainty.

What are the key employment law challenges for an employer going through a redundancy procedure? 

Apart from the emotional difficulty of dismissing employees, a proper outline and documentation of the entrepreneurial decisions, a correct social selection is usually difficult. Defining the pool for selection becomes the more difficult the larger the company is: Which employees are comparable? Which ones could be exchanged among each other? Whose competences are so specialized that they can be excluded from the pool? Since this will be reviewed in the event of a lawsuit against the termination, value should be placed on proper documentation in order to prove an adequate social selection. The weighing of the criteria mentioned above in order to determine the employee to be dismissed, should be as objective and comprehensible as possible and in line with the latest court decisions. Employers face the additional challenge of maintaining a good working atmosphere regarding the remaining employees and counteracting the fear of further redundancies. 

Ireland

 
Ireland

Five key issues to consider when managing a redundancy procedure 

Many employers will be forced to cut costs as they adapt to the new normal arising from the ongoing COVID-19 crisis.  Redundancies are on the increase across many sectors of the economy as Government support reduces over the coming months.  The redundancy process can be very emotional and stressful for all involved and in addition to legal risks, an employer’s reputation will be under scrutiny during this time. 

How can employers identify a redundancy situation? 

The starting point is to consider the statutory basis for redundancy, which includes:

  1. The fact that the employer has ceased, or intends to cease, to carry on business, or has ceased or intends to cease, to carry on business in the place where the employee was so employed; or
  2. The fact that the requirements of that business for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish; or
  3. The fact that the employer has decided to carry on the business with fewer or no employees, whether by requiring the work for which the employee has been employed (or had been doing before his dismissal)— to be done by other employees or otherwise; or
  4. The fact that the employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done in a different manner for which the employee is not sufficiently qualified or trained; or
  5. The fact that the employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done by a person who is also capable of doing other work for which the employee is not sufficiently qualified or trained.
All of the five redundancy grounds envisage change in the workplace. Employers will need to consider carefully whether their proposed changes amount to a redundancy situation.  In the context of the current COVID-19 pandemic with business closures and cutbacks many employers will be ceasing business altogether or will carry on business with fewer employees.

 

How are employees selected for redundancy? 

Selection for redundancy can be a challenge where there are a number of employees performing the same or similar role. If a role is a stand-alone position, there is no requirement to have a selection process.

When identifying the selection pool, employers should consider the type of work which is ceasing or diminishing and which employees perform that kind of work.  Once the pool has been identified, it is important that the selection criteria used by the employer is fair, reasonable and non-discriminatory. 

Potentially fair selection criteria include records on performance, attendance and disciplinary matters. Selection criteria may also include relevant skills, knowledge, experience and qualifications. Using performance or disciplinary records as part of the selection procedure could backfire if there was not a robust process in place at the time of addressing relevant performance or disciplinary issue.  Last in first out (LIFO) should also be used with caution at it may present a risk of an age discrimination claims as younger workers are more likely to be selected using LIFO.

What consultation must take place when making redundancies? 

A meaningful consultation is fundamental to the fairness of any dismissal for redundancy.  Employers should consult employees at risk of redundancy before making any decision to dismiss.  Employers should provide adequate information about the reasons for the redundancy situation, the selection process (including details of the reasons for selecting the particular employee) and any alternatives to redundancy. 

In addition to individual redundancy consultation, there are mandatory collective consultation requirements if the redundancies fall within the scope of collective redundancy legislation. A collective redundancy involves making a specified number of employees redundant within a 30 day consecutive period. The number of employees an employer may make redundant depends on the size of the workforce, and the thresholds are:
 
Total Workforce                           Number of redundancies 
21-49                                                     5 or more
50-99                                                    10 or more
100-299                                               10% or more
300 or more                                          30 or more

Where collective redundancy applies, employers have specific statutory notification obligations and must consult with employee representatives. Employers could easily and unwittingly breach collective redundancy rules during the COVID-19 crisis and be exposed to claims and fines up to Eur250, 000.

What pay is a redundant employee entitled to and what criteria must they meet? 

Regardless of length of service, employees are entitled to notice of dismissal in accordance with their contract of employment or, if longer, statutory minimum notice. 

Employees with at least two years' continuous employment are also entitled to a statutory redundancy lump sum payment.  

The statutory redundancy lump sum is two weeks' pay per year of service (and pay is capped at Eur600) plus a bonus week.

It is relatively common practice for some employers to offer enhanced redundancy pay over and above the statutory minimum.  

What are the key employment law challenges for an employer going through a redundancy procedure? 

Many employers make the mistake of planning the redundancy process in detail behind closed doors and afterwards engage in a superficial consultation process the outcome of which is predetermined. Employer have to engage in a genuine redundancy and have an open mind as to the outcome of the process. Employers should embrace the consultation process and listen carefully to any suggestions made by employees, which may include pay cuts, part-time working, job sharing or career breaks.  

It is essential that there is a genuine redundancy situation in line with the statutory requirements. It is not good enough if an employer wants to make roles redundant because it wants "new blood" or move the business in a different direction.  An employer should not use redundancy as a cloak to dismiss a poor performing employee. 

We expect many unfair dismissal claims against employers on the basis that the redundancy is not genuine or if genuine that there was not a fair consultation process.
  
The key to a successful redundancy programme is to plan carefully, especially for unexpected contingencies that might arise; to communicate clearly and effectively; and to take legal advice when the proposals are at the formative stage to ensure that all the legal, practical and logistical challenges are addressed. 

Finally, and some good news for employers is that it is now very difficult for an employee to challenge a redundancy by recourse to the High Court seeking an injunction to prevent a redundancy taking place in breach of fair procedures.  High Court injunctions are a common feature of employment law in Ireland and the injunction risk should not be ruled out, especially where a senior executive director is being made redundant. 

Italy

 
Italy

Five key issues to consider when managing a redundancy procedure 

Due to specific provisions limiting the employer's right to terminate employment relationships for redundancy, issued by the Italian Parliament since March 2020 due to the COVID-19 health emergency, many companies across Italy were obliged to postpone the implementation of redundancies procedures. At the same time, companies have been supported by State allowances granted to those employees partially or totally suspended from work due to the lockdown measures and/or reduction of businesses.

Starting from August 2020, a new piece of legislation has authorised certain employers to implement redundancies, to the extent certain requirements (protecting the workforce) are met.

Even if it is not possible to have an estimate on redundancy procedures actually implemented starting from August 2020, recent statistics on unemployment, issued by Italian authority called ISTAT, have showed that, after four months of continuous decreases, occupational levels are growing while, at the same time, the number of persons looking for an employment continues its increase.

The employment increase recorded on a monthly basis (+0.4%, corresponding to +85,000 units) relates to women (+0.8%), subordinate employees (+0.8%) and it involves all ages with the exclusion of young people (25/34 years old).  Persons looking for an employment are increased (+10.4%), as well as the number of persons between 15 and 64 years of age not working (+0.3%).

How can employers identify a redundancy situation? 

In Italy, a redundancy falls within the definition of "dismissal for objective justified reason", where the employer is requested to terminate an open-term employment contract for economic organizational and production-related needs.

Depending on the re-organisation implemented by the employer, its overall business, the number of employees involved and dismissal timing, the redundancy situation shall be managed as a "collective dismissal".

In any case, a redundancy situation requires that the employer is not in the position to assign the (redundant) employee to a different position or implement alternative solutions for the purpose of safeguarding the employment relationship and avoiding relevant termination.

How are employees selected for redundancy? 

According to prevailing court decisions, the dismissal for "objective justified reason" would be considered fair and justified only if the employer is able to demonstrate the following circumstances: (i)  the actual need to eliminate the employee's position, on the basis of objective elements or data; (ii) the existence of a causal link between the re-organization process and the suppression of the employee's position; (iii) in the event that other employees are actually performing the same or similar job activity, that the employer has selected the employee to dismiss by applying the good faith principle, (iv) the effective suppression of the position and (v) the impossibility to offer an alternative position in the company.

There is not specific criteria set out by the law for the identification of employee(s) to be made redundant in the case of individual dismissal: however according to some court decisions, guidance can be found in the three criteria that would apply in cases of collective redundancies, i.e., family burdens-dependants, length of service within the company, and objective needs of the employer.

The criteria which apply in the case a collective redundancies must be implemented, unless there is an agreement with unions in this regard (indeed, during the consultation phase with unions, it is possible to agree the application of different criteria / some of them only).

Collective bargaining agreements and practice could grant more favourable conditions to the employees.

What consultation must take place when making redundancies? 

In Italy the employer is required to comply with specific information (and consultation) obligations depending on the type of redundancies to be implemented (individual vs collective). 

Furthermore, in the case an individual redundancy, the employer could be subject to information and consultation steps depending on the employee's length of service and contractual level.

In both cases, the information and consultation steps must be carried out before the implementation of any redundancy (i.e., before delivering the dismissal letter to the involved employee).

Depending on the specific circumstances of the case, the information and consultation steps involve local authorities, unions and/or the (redundant) employee.

Italian legislation provides specific rules on the communication (and information to be included) that the employer must share with the identified addressees, relevant timing of delivery, timing for the consultation phase and sanctions in the case of relevant breach.

Collective bargaining agreements and practice could grant more favourable conditions to the employees.

What pay is a redundant employee entitled to and what criteria must they meet? 

Regardless of length of service, employees are entitled to notice of dismissal in accordance with the provisions of the collective bargaining agreements applied to the employment contract.
The notice period usually varies depending on the employee's contractual level and length of service. 

If the employer decides to exempt the employee, totally or partially, from working during the notice period, the employer shall pay the employee a corresponding indemnity in lieu of notice, which is subject to social security contributions. When calculating the indemnity in lieu of notice, the employee's total gross salary to be taken into account includes the incidence of average variable amounts (e.g., bonuses, awards, incentives, retribution in kind, stock, etc.) paid during the 36 months preceding the termination.

On top of the notice period (or the indemnity in lieu of the notice period), the employee is entitled to the mandatory termination payments: salaries accrued until the last day of employment, portion of supplementary month of salary accrued, indemnities for accrued holidays and paid leaves and, if accrued at the employer's balance, the severance payment called "trattamento di fine rapporto". Additional amounts would be due on a case-by-case basis (e.g., payment of compensation for post-contractual non-compete covenants, bonuses, etc).

It is common practice that the employer offers to the redundant employee(s) an incentive package for the purpose of avoiding future claims arising from the employment relationship and its termination. The amount of the incentive package is usually evaluated in light of the possible economic consequences that the employer would face in the case the dismissal is deemed unjustified in the event of claim or, if a collective redundancy procedure has been started, is evaluated with unions. 

What are the key employment law challenges for an employer going through a redundancy procedure? 

There are a number of challenges for the employer in the case of redundancies.

With specific reference to individual redundancy, the dismissal would be considered fair and justified only if the employer is able to demonstrate inter alia the impossibility to offer an alternative position within the company (according to some case law this applies only in the Italian territory, while it is a matter of interpretation whether this obligation is extended to other companies of the same group of the employer), and the effective suppression of the employee's position. 

Therefore, before dismissing an employee, the employer is required to offer to the redundant employee a job position – if any – as an alternative measure to the dismissal.  

Furthermore, a connected key point is the hiring of employees for similar duties and tasks assigned to the dismissed employee.  In this regard, the Employment Courts especially consider as a circumstance against the employer if new hirings have been made for similar position/s after the dismissal: there is no finding set out by the law, however – generally speaking – a period of 6-12 months could be considered.

With reference to the collective redundancies and in the case the employer is requested to terminate some employees (without falling within a collective redundancies procedure, as defined by law), challenges come from the identification of the employees to be made redundant and applicable criteria, and especially in the case where unions are not involved or an agreement on these topics is not reached.

Although no employee is immune to redundancy, it is key for employers to ensure employees are not discriminated against when selecting individuals for redundancy. Employers should ensure that any selection criteria used can be objectively justified and that the criteria are applied in a fair, consistent and reasonable manner.      

The key to a successful redundancy programme is to: plan carefully, especially for unexpected contingencies that might arise; to communicate clearly and effectively; and to take legal advice when the proposals are at the formative stage to ensure that all the legal, practical and logistical challenges are addressed. 

Poland

 
Poland

Five key issues to consider when managing a redundancy procedure 

In the beginning of the period of the pandemic employers were looking for possibilities of cost reduction without the necessity of reducing the number of employees. After a couple of months of restrictions related to the pandemic, for certain enterprises redundancies were unavoidable. There are many issues which must be considered by employers in order to avoid legal risks connected thereto. 

How can employers identify a redundancy situation? 

Redundancy takes place where the employer decides to terminate employment contracts due to the reasons which are not attributable to the employees. The employer may decide at its own discretion when to conduct redundancies. If the employee appeals to the labour court about the redundancy the court does not verify the background of redundancies, i.e. if the redundancies took place because of the reorganization of work plant, the court does not analyse whether there was a need for such reorganization, only the fact whether the reorganization really took place is verified by the court. The court checks also whether the redundancies were conducted in accordance with the rules provided by law. 

If there are at least 20 employees in the work plant special rules stipulated in the act of 13 March 2003 on special rules of termination of employment relationships for reasons not attributable to employees (J.o.L of 2018 item 1969 with amend.) ("Act") apply.

The "collective redundancy" takes place where the employer who employs at least 20 employees terminates employment relationships for reasons not related to the individual employees concerned, with notice or with the mutual consent of the parties, and where, over a period not longer than 30 days, the redundancy includes at least

  • 10 employees if the employer employs fewer than 100 employees;
  • 10 per cent of the employees if the employer employs between 100 and 300 employees;
  • 30 employees if the employer employs 300 employees or more
The numbers of employees referred to above include employees with whom the terminations of employment relationships occur at the employer’s initiative but by mutual consent of the parties as part of a collective redundancy, if the terminations include at least five individual employees concerned.

 

How are employees selected for redundancy? 

There are no statutory provisions regarding the criteria of selection for redundancy. They should however be objective and of no discriminatory character. The acceptable criteria of selection are e.g. the following:

  • professional experience
  • length of service
  • professional qualifications
  • education
  • the quality of work
  • employee availability vs frequent absences from work
  • the amount of employee's remuneration (in connection with other criteria).
The employer should bear in mind that there are certain categories of employees who are protected from redundancies. 

 

What consultation must take place when making redundancies? 

In the case of redundancy of an individual employee, a trade union representing the employee's interests should be consulted. 

An employer planning to carry out a collective redundancy must enter into consultations with enterprise trade unions operating in the work plant. The consultation concerns in particular the ways and means of avoiding or reducing the scale of the collective redundancy and employment matters connected with this redundancy, and in particular the ways and means for the redundant employees to requalify or retrain vocationally, as well as to obtain other employment. The employer is obliged to notify enterprise trade unions, in writing, about the reasons for the proposed collective redundancy, the number of employees normally employed and occupational categories to which they belong, the occupational categories of employees covered by the proposed collective redundancy, the time period over which the collective redundancy is to be carried out, the criteria proposed for selecting employees for the collective redundancy, the order of carrying out collective redundancies, and suggestions on resolving employment matters connected with the proposed collective redundancy; if these suggestions include cash benefits, the employer must additionally present the method for calculating the amount. In the course of the consultations, the employer will also be obliged to convey to the enterprise trade unions any information, other than that specified above if the information may affect the course of consultations and the contents of the agreement with the trade unions.

The employer shall provide the relevant district employment office, in writing, with the information referred to above, except for the information concerning the method for calculating the amount of cash benefits due to employees.

If no enterprise trade unions operate at the work plant, the rights of the trade unions will be vested in the employee representatives appointed in the manner adopted at a given employer.

Within a time period not longer than 20 days from the date of the notification of trade unions the employer and the enterprise trade unions shall conclude an agreement. The agreement sets out the principles of action in matters concerning the employees covered by the proposed collective redundancy, as well as the obligations of the employer necessary to resolve other employee matters connected with the planned collective redundancy. If it is not possible to agree upon the contents of the agreement with all the enterprise trade unions, the employer should reach an agreement at least with the representative trade union. 

If it is not possible to conclude the agreement with the trade unions, the principles of action in matters concerning employees covered by the proposed collective redundancy will be set out by the employer in regulations, having considered, as far as possible, the proposals raised by the enterprise trade unions in the course of the consultations. If no enterprise trade unions operate at the employer, the principles of action in matters concerning employees covered by the proposed collective redundancy will be set out in the regulations issued by the employer, after consultation with the employee representatives appointed in the manner adopted at a given employer.

The employer - after concluding an agreement, or if no agreement was concluded, will notify the relevant district employment office, in writing, about the adopted arrangements concerning the collective redundancy. The employer provides a copy of the notification to the enterprise trade unions. The trade unions may present their opinion on the collective redundancy to the relevant district employment office. If no enterprise trade unions operate in the work plant, it applies accordingly to the employee representatives appointed in the manner adopted by a given employer.

In case the employer intends to make redundant no less than 50 employees within the 3 month period, the employer must agree with a district labour office the forms and scope of outplacement services.

Additionally, in case of work plants with at least 50 employees – if there is a works council, the employer is obliged to consult collective redundancies with the works council. 

What pay is a redundant employee entitled to and what criteria must they meet? 

An employee who is made redundant is entitled to remuneration for the period of notice, cash equivalent for outstanding holiday leave (if applicable) and a severance allowance amounting to the equivalent of:

  • one month’s remuneration if an employee has been employed with a given employer for less than 2 years,
  • two months’ remuneration if an employee has been employed with a given employer for 2 to 8 years, 
  • three months’ remuneration if an employee has been employed with a given employer for over 8 years.
The amount of the severance allowance may not exceed the amount of 15 times the minimum remuneration for work, calculated under separate provisions, applicable on the day the employment relationship is terminated. The statutory minimum remuneration for work in 2020 amounts to PLN 2600, therefore the statutory cap for severance payment amounts to PLN 39k (approx. EUR 8.6k). Recent legislation regarding combating the economic consequences of crisis caused by the epidemic, reduced the limit to 10 times the minimum wage (PLN 26k – approx. EUR 5.7k) in the period of the state of epidemic for employers whose economic standing was adversely affected by it.

 

What are the key employment law challenges for an employer going through a redundancy procedure? 

  • Applicable provisions of law - the redundancy procedure depends on the number of employees in the work plant and the number of employees intended to be made redundant.
  • Employee's representation - collective redundancy procedure requires consultancy with employees' representatives, therefore in the absence of employees' representative body, the redundancy procedure requires election of employees' representatives in a manner adopted by the employer.
  • Timeline - the redundancy procedure requires in practice approx. 1-2 months on the top of the period of notice. A three months period of notice (the longest statutory period of notice) may be shortened to one month in case of redundancy.
  • Costs - employees made redundant in work plants with at least 20 employees are entitled to statutory severance payment. 
  • Criteria of selection for redundancies – they must be objective and not discriminatory. 

Spain

 
Spain

Five key issues to consider when managing a redundancy procedure 

The pandemic has led to most companies in Spain reducing their incomes and earnings. Some companies could revert this situation with the application of collective temporary measures for reducing the working hours or for suspending employment contracts. Nonetheless, the measures were not enough for some companies which are now having to apply redundancy procedures in order to reduce the negative impact of the pandemic.  Cost reductions and an adaptable workforce are key to help guarantee business longevity.   

How can employers identify a redundancy situation? 

According to the Spanish regulations, it is possible for employers to dismiss employees through an objective dismissal or through collective dismissal when they concur any or all of the following reasons: 

  1. Economic reasons: When the Company has losses or a decrease in incomes in its accounts. 
  2. Technical reasons: When there are changes on the means or tools of production. 
  3. Productive reasons: When there are changes on the demand of products.
  4. Organizational reasons: When there exist changes on the systems or methods of work or in the way to organize work.

 

How are employees selected for redundancy? 

If the redundancy affects all employees of the Company, it is possible to select representatives of the employees and employees specially protected by law (e.g. pregnant women, employees on reduced working hours for taking care of children or disabled relatives). 

If the redundancy procedure is applied only to certain employees, representatives of the employees should be excluded. It will be necessary to analyse the scope of the redundancy and the reasons to determine whether it is possible to include employees specifically protected by law. It is necessary to analyse that the Company does discriminate discrimination when selecting employees. 

What consultation must take place when making redundancies? 

It is compulsory to start a consultation period when:

  1. The redundancy affects all employees in companies or work centres with more than 5 employees.  
  2. The redundancy affects at least 10 employees in companies with less than 100 employees. 
  3. The redundancy affects at least 10% of employees in companies with 100 or more employees. 
In these cases, the duration of the consultation period will be 30 days for companies with 50 or more employees and of 15 days for companies with less than 50 employees.

 

What pay is a redundant employee entitled to and what criteria must they meet? 

Employees dismissed through collective dismissals or through objective dismissals are entitled to a severance compensation of 20 days of salary per year worked with the limit of one year of salary. 

If the dismissal is declared unfair, the severance compensation is: 45 days of salary per year worked until 11th February 2012 +33 days of salary per year worked since this date until the date of effects of the dismissal. 

If the dismissal is declared null, the company will be obliged to reinstate the employee in the company and to pay him or her the salaries for processing time. 

What are the key employment law challenges for an employer going through a redundancy procedure? 

All companies which start redundancy proceedings before 30th September 2020 cannot base the termination of contracts on reasons derived from COVID-19, otherwise the dismissals will be declared as unfair. The Government is negotiating to extend this prohibition. 

Companies which had applied collective reduction of working hours or suspension of contracts due to force majeure, cannot dismiss employees affected, at least for a period of six months following the termination of these measures, except if they apply a fair disciplinary dismissal. Not following this obligation will lead to an unfair dismissal and a requirement to return the amount of the exemptions on Social Security contributions. 

UAE

 
UAE

Five key issues to consider when managing a redundancy procedure 

 In mainland UAE (and the various business free zones), the employment relationship is governed by Federal Law No.8 of 1980 (as amended) (the "UAE Labour Law").  Under the UAE Labour Law, redundancy is not recognised as a legitimate ground for termination of employment. For termination of employment to be valid, it must be for a valid work related reason directly linked to the performance or behaviour of the employee.  Similarly, in the two common law jurisdictions; the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) free zones, redundancy is not expressly set out in the respective employment legislation as a ground for termination. Employees in the DIFC or ADGM must be issued a notice of termination in accordance with the prescribed statutory minimums. 

How can employers identify a redundancy situation? 

Not Applicable.

How are employees selected for redundancy? 

It has become increasingly common for employers to terminate employment contracts on the grounds of “redundancy” due to the current economic climate. Such a termination exposes the employer to the risk of claims for arbitrary (unfair) dismissal and the employees could be awarded compensation of up to three (3) months’ salary. 

Due to the pressure on employers to limit their costs to enable survival, the Labour Courts, have from time to time recognised an employer's right to restructure a business to limit financial losses and accepted redundancy to be valid where businesses can prove that operations have been substantially impacted. 

What consultation must take place when making redundancies? 

The UAE court regime is a civil law jurisdiction and there is no concept of precedent, which means matters in Court are decided on a case-by-case basis. It is therefore prudent for employers to consider following a consultation process with its employees to ensure that the employer is able to justify the reason for termination if required to defend claims for arbitrary dismissal.

In the DIFC and the ADGM whilst redundancy is not recognised, employers must ensure that the reason for termination is not deemed as discriminatory and therefore consultation is recommended. 

What pay is a redundant employee entitled to and what criteria must they meet? 

In the UAE, there is no redundancy pay; however it is common market practice for employers governed by the UAE Labour Law to offer employees three (3) months' severance as an ex gratia settlement offer to mitigate claims for arbitrary dismissal. 

In addition to any contractual payments, employees are entitled to the following termination payments:

  • Notice pay (statutory minimum is 30 days unless otherwise stipulated within the contract of employment but cannot be lower than the statutory minimum prescribed);
  • End of service gratuity (termination payment based on years of service with a minimum of one year service to trigger the payment);
  • Accrued but unused annual leave; and
  • One-way repatriation ticket to the employee's home country. 

 

What are the key employment law challenges for an employer going through a redundancy procedure? 

The key challenge is ensuring that employees fully understand the reason for termination. It is therefore important for a termination procedure to be fair and transparent to mitigate the risk of claims. Too often, employers fall into the trap of making a position 'redundant' purely for financial reasons yet hire someone who is 'more affordable' and this also can result in arbitrary dismissal claims being filed by employees against their employer. 

One of the additional challenges that employers must face is the fact that they are required to cancel residency visas of employees upon termination and within 30 days from the termination date – as such, employers are susceptible to claims being filed with the Ministry of Human Resources and Emiratisation or the local freezone authorities by employees to buy them time to remain in the country and look for alternative employment. 

UK

 
UK

Five key issues to consider when managing a redundancy procedure 

Many organisations across the UK have already implemented redundancies and, as the pandemic continues and government support reduces, we expect many more employers will need to make difficult decisions.  Recent statistics obtained by the BBC showed that more than 300,000 redundancies were planned in June and July.  In June 1,888 employers filed plans for 156,000 redundancies, representing a six-fold increase on the previous year.  

How can employers identify a redundancy situation? 

In the UK, the statutory definition of a redundancy situation covers a business or workplace closure or where the need to do work of a particular kind or in a particular place has ceased or diminished meaning fewer people are required.  It does not apply where somebody's role has changed but the needs for all elements of that role remain, for example a reorganisation.  Employers will need to consider carefully whether their proposed changes amount to a redundancy situation.  

How are employees selected for redundancy? 

Employees with two or more years’ service can claim unfair dismissal if their role is made redundant.  A fair redundancy programme involves: (1) identifying the statutory redundancy situation; (2) considering the alternatives to redundancies; (3) following a fair and objective selection process (if applicable); (4) consultation with individuals and, if applicable, their representatives; and (5) considering the availability of alternative work opportunities for those at risk of redundancy as well as a general obligation to act fairly and consistently.  

Before selecting an employee for redundancy, an employer must consider the appropriate redundancy selection pool.  Although employers have a wide discretion when deciding on the pool, they should usually discuss the pool with any recognised union or employees' representatives.  When identifying the pool, employers should consider the type of work which is ceasing or diminishing and which employees perform that kind of work.  

Once the pool has been identified, it is important that the selection criteria used by the employer are fair, reasonable and non-discriminatory. Potentially fair selection criteria include records on performance, attendance and disciplinary matters and relevant skills, knowledge, experience and qualifications.  Last in first out (LIFO), though popular historically, should be avoided.  Dismissing recent recruits may well mean that the employer loses more relevant and up to date skills and may present a risk of an age discrimination claim as, inevitably, younger workers are more likely to be selected.  Attendance records should also be used with caution due to the risk of discrimination.  Pregnancy-related absence should be disregarded and absence related to a disability should be considered carefully.  Failure to discount disability related absence could amount to a failure to make a reasonable adjustment under the Equality Act 2020.  

What consultation must take place when making redundancies? 

Consultation with individual employees is fundamental to the fairness of any dismissal for redundancy.  Employers should consult employees who have been identified in the selection process as at risk of redundancy before making any decision to dismiss. Employers should provide adequate information about the reasons for the redundancy situation, the selection process (including details of the reasons for selecting the particular employee) and any alternatives to redundancy. 

In addition to individual redundancy consultation, there are mandatory collective consultation requirements for larger redundancy programmes involving 20 or more dismissals at the same establishment over a 90 day period.  Where the employer proposes to make between 20 and 99 employees redundant at the same establishment over a period of 90 days or less, consultation must begin at least 30 days before the first dismissal takes effect.  If there are 100 or more proposed redundancies, consultation must begin at least 45 days before the first dismissal takes effect.

On or before commencement of the collective consultation process, employers must submit a completed HR1 form to the Redundancy Payments Service (part of the Insolvency Service) in respect of each location where redundancies are proposed. Failure to do so amounts to a criminal offence.

Consultation should take place with trade union representatives, elected employee representatives or with a standing body of elected employee representatives not specifically elected for the purpose of redundancy consultation.  At the beginning of the consultation process, employers must provide the representatives with specific information about the redundancy proposals as well as a copy of the HR1 form or forms. During the consultation process, employers must give employees or their representatives enough time to consider the redundancy proposals and respond to any requests for further information.  At the end of the consultation process (which usually but not always takes 30 or 45 days depending on the numbers involved), employers can give notice of dismissal to the affected employees. 

Breach of the collective consultation requirements can lead to protective awards of up to 90 days' gross actual pay per dismissal, a potentially ruinous sum for many organisations already in financial difficulties.

What pay is a redundant employee entitled to and what criteria must they meet? 

Regardless of length of service, employees are entitled to notice of dismissal in accordance with their contract of employment or, if longer, statutory minimum notice (one week's notice for each year of service up to a maximum of 12 weeks' notice for 12 or more years' service).

Employees with at least two years' continuous employment are also entitled to statutory redundancy pay.  Statutory redundancy pay is calculated using a set formula based on age, length of service (capped at 20 years) and pay (capped at £538 from 6 April 2020 to 5 April 2021).  The maximum statutory redundancy payment for the year 6 April 2020 to 5 April 2021 is £16,140.  

Some employers offer enhanced redundancy pay over and above the statutory minimum.  Such entitlement may be expressly set out in the contract of employment, implied by custom and practice or offered on an entirely discretionary basis. However, in the current climate, most employers are opting to pay the legal minimum.   

New legislation has been brought in to ensure that employees who have been furloughed on reduced pay receive redundancy and notice pay based on their normal pre-furlough wages.  

What are the key employment law challenges for an employer going through a redundancy procedure? 

It is important for a redundancy procedure to be fair and transparent with consultation taking place at the formative stage.  Many employees who have already been furloughed who go on to being made redundant may feel that the decision to make them redundant has been pre-judged and no meaningful consultation has taken place.  We predict a raft of claims on this basis.  

Defining the pool for selection can present difficulties for employers.  Often employers wish to keep the pool relatively narrow, whereas employees tend to prefer a wider pool, reducing the risk of being selected.  Pools are often challenged in unfair redundancy dismissal cases.  To reduce the risk of challenge, employers should be able to evidence that they genuinely applied their minds to the composition of the pool.  As set out above, the type of work ceasing or diminishing should also be a primary factor.    

Selection criteria and process are also often challenged.  Although no employee is immune to redundancy, it is key for employers to ensure employees are not discriminated against when selecting individuals for redundancy.  Selection criteria which appear objective may inadvertently disadvantage certain groups.  Employers should ensure that any selection criteria used can be objectively justified and that the criteria are applied in a fair, consistent and reasonable manner.      

Where a redundancy situation arises during an employee's maternity leave, the employee has an automatic right to be offered a suitable alternative vacancy (including with an associated employer) where there is one available.  This right is also applicable to employees who are at risk of redundancy and are on adoption or shared parental leave.  Reform is in the pipeline extending this protection to cover employees from the time they notify the employer of the pregnancy until six months after the end of maternity leave.  

There are a number of challenges which arise in the context of collective consultation.  These  include: the moment when the obligation to consult is triggered (UK legislation refers to when an employer "proposes" to make redundancies whereas the term used in the EU Directive is "contemplating", which may be earlier); the meaning of "establishment" (especially where the workforce is working remotely and/or globally); the calculation of the number of proposed redundancies over the 90 day period;  identifying those employees who are "affected" by the redundancy proposals; and who is entitled to bring a claim for a protective award. We anticipate that there will be more case law concerning these issues in the future.  

The key to a successful redundancy programme is to: plan carefully, especially for unexpected contingencies that might arise; to communicate clearly and effectively; and to take legal advice when the proposals are at the formative stage to ensure that all the legal, practical and logistical challenges are addressed. 

USA

 
USA

Five Key Issues to Consider When Managing a Redundancy Process

In the United States, absent a collective bargaining agreement (i.e., unionized work force) or contractual obligations, the general rule is that employers and employees are free to terminate the employment relationship at any time (i.e., referred to as “at will” employment) and for any reason, so long as the reason is not otherwise prohibited by law (i.e., discrimination, retaliation for a protected activity, etc.). However, employers considering significant reductions in force need to be aware of a number of federal and state laws requiring notices to employees in advance of layoffs and the discontinuation of benefits. Specifically, under federal law, the Worker Adjustment and Retraining Notification (WARN) Act, which is overseen by the United States Department of Labor, employers are required to provide written notice at last sixty (60) calendar days in advance of qualifying plant closings and mass layoffs.

In general, a WARN notice is required when a business with one hundred or more full-time workers (not counting workers how have been less than six (6) months on the job and workers who work fewer than twenty (20) hours per week) is laying off at least fifty (50) people at a single site of employment. Many states have a similar and more restrictive notice requirements, which are often referred to as mini-WARN acts. Further, the Consolidated Omnibus Budget Reconciliation Act (COBRA), which is also overseen by the United States Department of Labor, requires notice to employees losing their health benefits the right to choose to continue group health benefits provided by an employer group health plan for a limited period of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce and other life events. Further still, the Fair Labor Standards Act (FLSA) and a number of similar state laws, set for detailed obligations for employers to provide timely pay outs of wages, paid time off (PTO) and other benefits following an employee’s layoff.  Thus, while employers in the United States generally enjoy wide discretion in structuring their workforces, they need to be aware of and carefully consider the various notification and pay requirements whenever weighing targeted layoffs or reductions in force. 

This piece was written by Robert W. Hellner from our Exclusive Association firm Wood Smith Henning & Berman LLP

 

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