Global Reductions in Force: A Practical Checklist

By Ute Krudewagen, Ben Gipson and Victoria Richter Nov 3, 2016
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Reductions in force (RIFs) require careful planning and implementation. In any single jurisdiction, they can be expensive and time-consuming. Add the complexity of a multi-country RIF, and the situation can become daunting.

However, global RIFs are manageable if you plan ahead, bearing in mind country-specific requirements. This article provides a checklist of key practical steps to consider whether you are facing layoffs within the United States or simultaneously in many countries.

Within the U.S.

When a RIF is planned in the U.S., things tend to move fast, but there are several key steps that should be taken to ensure the process is managed effectively and the organization is protected:

  • Worker Adjustment and Retraining Notification Act. Determine if the RIF is a WARN event. The federal WARN Act requires that employees be given 60 days of notice, or pay and benefits in lieu thereof, if there is a plant closing or mass layoff that involves at least 50 employees who make up at least 33 percent of the workforce at the affected location. Careful planning is necessary as the federal WARN Act uses a 90-day window, so employers must look forward and back 90 days from the planned RIF date to determine if there are enough employees such that WARN is triggered. Remember, too, that many states have local WARN acts with different rules on the employee threshold, who is counted as part of the analysis and what notice is required.
  • [SHRM members-only toolkit: Managing Downsizing by Means of Layoffs]
  • Adverse impact assessment. Determine if the RIF has resulted in an adverse impact. Even if a RIF was not directed at an individual because of that person being part of a protected class, the RIF process can have an adverse impact on a protected class. Initial RIF lists should be analyzed using, at a minimum, the EEOC 4/5ths test (nonminority employees are affected at a rate of less than 80 percent of the minority employees). If there is a potential violation, the decision-making framework should be carefully analyzed, and, if necessary, adjustments should be made before the final RIF.
  • Severance and releases. Determine if employees will be receiving a severance package in exchange for a release of claims. This is not a requirement, but it is a best practice to limit potential liability. If a severance package is offered, additional information must be given to individuals who are over 40—specifically, they must be provided with the decisional unit, the decision-making framework, and the titles and ages of those individuals who were selected for termination and those who were not. Also note that in the case of a mass layoff (two or more employees), employees over 40 must be given 45 days (instead of 21 days when laying off one employee) to review the release agreement before signing.

Outside the U.S.

What can be achieved in a day (or a couple of months if WARN applies) in the U.S. can take months (and yes, sometimes years) once taken global. What can be implemented in the U.S. at no cost or with separation payments that can be enshrined in releases is often far more expensive internationally. The key to protect the organization is to plan ahead while bearing in mind the requirements of each jurisdiction involved.

  • Business justification. At the outset, it is important to decide on the business rationale for the RIF. Local definitions vary, but typically the closure of part or whole of the business would fall into the category of a redundancy. If the rationale is global cost-cutting, this may also suffice. For example, a reduced need for individuals due to financial constraints may provide a legal ground to downsize in some locations, while others (e.g., France) would require that the company is in serious financial difficulties—sometimes on a global basis. Be careful if the rationale falls outside of this scope. In particular, a performance termination disguised as redundancy is likely to expose the company to successful claims that a proper performance dismissal process was not followed.
  • Gather necessary information. At the initial planning stages, it is also important to gather headcount (total and impacted) per country and state or province; information on any works councils, employee representatives or collective bargaining agreements (CBAs); type of employees (for example, level of employees in jurisdictions with CBAs, workers vs. nonworkers in India); employment agreements; copies of policies and procedures; and information on prior practices.
  • Collective or individual layoff. If the redundancy is a collective exercise, it is crucial to identify the mass layoff threshold for the jurisdiction and obligations if triggered. Analysis should be done at an early stage to determine whether the terminations in question would fall over or under the threshold for mass dismissal. If it is collective, typically information and consultation exercises with employees or their representative are required within certain timescales. This can significantly impact estimated timeframes.
  • Realistic timeline. Based on the information gathered above, prepare termination timelines for each jurisdiction. Also, determine an overall time frame to wrap multiple jurisdictions with different timelines. As the requirements in one or more of the affected countries may be particularly time-consuming, preparing an overall timeline at an early stage is crucial to mitigate the extent to which any such outliers hold up the wider global project.
  • Real cost of a redundancy. A termination costing tool should be prepared. Depending on the countries involved, employees outside the U.S. generally will be entitled by law to notice (given or paid in lieu). They may also be legally entitled to receive severance based on local statutory formulas or company contractual entitlements. Other mandatory payouts may include noncompete payments, accrued vacation entitlement, commissions and bonuses. In addition, employees may receive an ex gratia (nonmandatory) severance package in exchange for a release of claims. Like in the U.S., this not a requirement, rather a best practice to limit potential liability. However, significant ex gratia payments are relatively common for global RIFs given the complications of implementing redundancies globally or as part of a negotiated social plan. Typical ex gratias outside of the U.S. can range from being minimal to several years of wages in some cases.
  • Lawful selection of employees. In situations where the selection of employees is relevant, it is important to determine local statutory selection criteria (for example, social selection based on protected levels of employees in Germany, last-in first-out in Sweden). If there is no local statutory selection criteria, use fair, objective and consistent criteria that are nondiscriminatory to mitigate the risk of claims. It is also important to confirm local rules and determine risks for protected employees. Employee representatives and employees on certain types of leave are frequently afforded protection from dismissal; breaching the rules can result in significant penalties. For instance, employees in China who are pregnant or in their one-year post-birth nursing period cannot be unilaterally terminated.
  • Government notification requirements. Determine whether any governmental filings or notifications are required. This is most frequently relevant if the threshold for a mass dismissal is triggered but may also be a factor in certain individual redundancies, such as the requirement for tax clearance before issuing a final paycheck for certain foreign employees in Singapore.
  • Collective consultation requirements. At an early stage, identify any collective groups within the local entity (for example, works councils, unions, employee forums). Then determine the triggers, scope and timing requirements for information and consultation exercises with each such group. Failure to properly inform and consult if required under local law can result in hefty fines, sometimes calculated per dismissed employee. Thus, in a RIF, especially with a large number of impacted employees, missing this step can be a very costly mistake. Perhaps even more concerning, there could also be a risk of criminal penalties in some cases or injunctions aimed at stopping the RIF.
  • Consultation requirements with individual employees. Determine if individual information and consultation is required and the scope and timing requirements. It is important to also identify any other country-specific obligations (for example, mandatory searches for alternative roles or accommodations for protected employees). When entering into any discussions, employers should equally be alert to any local terminology recommended to mitigate risk. For example, often the redundancy proposal should be described as "provisional" until the termination is confirmed (otherwise in some jurisdictions employees may successfully argue consultation was a sham because dismissal was a done deal).
  • Draft and deliver country-specific termination documentation and releases. As a final step, determine when notice of termination and any releases can be issued, the required method for delivery (such as by hand, post or e-mail) and appropriate signatories. It is important to confirm rules on releases to ensure they are enforceable locally. For example, is the employee's legal representative's sign-off required like in the U.K.? Is agency or court approval or a filing mandatory like in Mexico? Are translations required like in Belgium and France? In addition, in some countries, like Brazil, the release may only have deterrent effect, in which case the merits of paying for a waiver should be considered.
  • Post-termination obligations. Finally, check post-termination obligations, such as timing of payments and any filings with authorities. There may be specific time frames within which termination payments must be made and/or authorities notified (such as the tax or immigration authorities). Employers that breach such requirements can face substantial penalties together with interest. Having come so far, this should be carefully checked to avoid faltering at this final hurdle.

Ute Krudewagen is an attorney in the Silicon Valley, Calif., office of DLA Piper. Ben Gipson is an attorney in DLA Piper's Los Angeles office and Victoria Richter is an attorney in the firm's Chicago's office.

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