International Layoffs Require Time and New Strategies

By Nancy Hatch Woodward Feb 4, 2009
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Concern about unemployment has become the No. 1 issue across the globe, according to a 22-nation survey by Ipsos, a global survey-based market research company. Overall, 41 percent of the over 22,000 people surveyed rated unemployment and jobs as their biggest worries.

They have good reason to be concerned. Reductions in force (RIFs) are a significant trend right now, says Elizabeth Stern, a partner in the Washington, D.C., office of the global law firm Baker & McKenzie. She notes that the significant RIFs and cost-cutting measures occurring globally are expected to continue for several months.

Unfortunately, many U.S. employers might be at a disadvantage when it comes to dealing with layoffs and redundancies in other parts of the world. They might believe that their strategy for layoffs in the United States will work as well in other countries, but they are mistaken. “Our system marches to its own drummer,” says Donald C. Dowling Jr., international employment counsel with White & Case LLP in its New York City office, “and U.S. employers who fall back on their toolkits for handling RIFs in this country will find these tools are completely irrelevant abroad.”

The most important thing companies need to realize, warns Dowling, is that global RIFs are going to take them more time and a great deal more flexibility than they realized.

Approval, Negotiations Might Be Required

First, employers need to be able to justify a RIF. In most European countries, especially France, businesses have to demonstrate a financial loss for several quarters, not just a generalized notion of a downturn in the economy, explains Susan Eandi, a partner in Baker & McKenzie’s Palo Alto, Calif., office. Other jurisdictions, such as Japan, demand that the company show not only financial losses for several quarters but also that it is close to bankruptcy for the layoff to be considered economically valid.

A number of countries, including the Netherlands, Columbia and China, also require that employers notify or negotiate with government bureaucracies or get court approval for a major layoff. “They are going to try to talk the company out of it and suggest other options, such as cutting everyone’s hours or having a forced vacation shutdown,” says Dowling. “In Brazil, that is quite common. They shut the place down for a month and tell everyone to use their vacation.”

In addition to government entities, companies usually must consult with employee representatives through works councils, trade unions or other representatives, says Dowling. This is true throughout the European Union (EU) and in many Asia-Pacific (APAC) countries. In the EU, if there is no such entity, the company has to have employees form a union or elect someone to be their spokesperson in the event of a big layoff.

Severance and Notice

Many employees in countries outside the United States have an employment contract, so before a company can terminate someone it has to determine whether the employee is promised severance pay or notice, says Dowling. Depending on the country, many individuals have the right to one or both of these. In Mexico, for example, workers receive three months’ pay plus an additional 20 days’ pay per year of service.

The International Labour Organization (ILO) provides detailed data on each country’s requirements. For example, in India workers generally receive 15 days’ wages per year of service, while Spain requires statutory redundancy payments of 20 days per year with a maximum of 12 months’ wages total. On the other hand, Singapore allows the levels to be set by collective agreements.

Notice requirements are required by most jurisdictions but vary greatly. According to the ILO, most countries base the amount of notice on the length of service to the company. In Germany, for instance, someone who has been working for two to five years would be given one month’s notice, while someone with a tenure of more than 20 years would be provided with seven months’ notice—and payments are not allowed in lieu of notice. China requires 30 days’ notice, as do Chile and South Korea. Mexico, however, has no statutory period.

Selection Process

The selection process of who is terminated is often mandated statutorily as well, says Eandi. In the Netherlands, it is last in, first out. In other jurisdictions, though, social requirements determine who is let go and who stays. In Germany, she notes, the social criteria are based on the age of the employee, whether the person has a spouse who works, how many children they have and how close they are to retirement. But even in countries with strict social criteria, such as many countries in APAC, other criteria like skills and performance might also be considered as long as they are not discriminatory, says Eandi.

Ideally, the original contract that expats have should include an anticipated termination and how it will be handled, says Eandi, but usually this is not the case. Expats have the best of both worlds because they have U.S. protections as well as local protections. “You have to put them in a separate bucket,” she says, “and do a little closer analysis of what country they are working in, what documents they have and what their agreement provides separate and apart from what they may be entitled to under local laws.”

In addition, it is important, because of their unique situations, to get expats to sign releases of legal claims, Eandi advises. The trick is to get a release that is legal for all of the jurisdictions they have worked under during their tenure with the company, she says. Doing so can be difficult, but it is better than having to fight a wrongful termination in court outside the United States, she notes.

Pay attention to immigration laws as well, Stern advises. Some countries will provide expats with a short-term grace period before they have to move, but other countries expect the employee to leave quickly.

Nancy Hatch Woodward is a freelance writer based in Tennessee.

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