Economic and trade sanctions have become a favoured geopolitical tool of governments. The rules are complex, ever evolving, and the violation risks can be high. Every company operating across borders needs to plan for the potential effect of sanctions on its business, how to manage the risks, and how to position itself to operate safely by taking decisions that make business sense. Please have a look at our sanctions guide to read more on how to best plan to protect your business.
Sanctions create their own human resources issues for businesses. As a global employer you will have to understand whether some of your employees could be subject to additional sanctions law obligations due to their nationality or residence (eg US nationals are bound by US sanctions wherever they are operating). Also, some of your employees and officers could be personally targeted, by being blacklisted as individuals (and often referred to as Designed Individuals – DIs), preventing you from having any dealings with them. You will have to put the necessary training and compliance programmes in place for relevant employees to become familiar with the sanctions that are directly impacting your business and with their new obligations, and to make sure your monitoring and reporting procedures are adjusted where needed. You also have the obligation to look at the (physical) safety of your staff and, due to sanctions often relating to armed conflict and other instability situations, you may need to take action and move people.
In some cases, you may even have to (temporarily) pull out from a specific country. Even if you don’t, you are likely to face an economic slowdown, either in places in which you operate and which are subject to sanctions or in your home market, trying to find ways not to suffer additional damages by losing the skilled and experienced workforce you will need once the sanctions are lifted. Retaliation measures may lead to the same challenges (as a consequence of the West’s sanctions, for example, Russia banned imports of agricultural products from the US and the EU for a year, hitting companies whose governments introduced sanctions in the first place).
Impact on existing employment contracts
Can sanctions be seen as a case of “force majeure” and allow an employer to suspend or even terminate existing employment contracts at no cost?
Force majeure is admitted as a valid cause for suspension or termination of an employment contract in a number of jurisdictions (Belgium, Spain, France, Luxembourg, Italy, England). Some countries will require a force majeure clause to be inserted in the contract, others not.
One may need to address the possibility of calling on force majeure when confronted by an employee or company officer becoming a DI or when looking at the situation of the workers whose function is generally impacted by collective sanctions.
If the blacklisting of your employee/officer is for reasons unrelated to your business or for facts which happened outside of the company knowledge (and of any fault on the company’s side), then a dismissal for cause/gross misconduct might be a more appropriate solution, subject to a factual analysis. If the blacklisting of said individual relates to actions which took place in the context of a work assignment, then there will be no force majeure as the company as such may be the one ultimately responsible for the individual sanction.
Another question is whether the imposition of sanctions on a particular country may be considered as a case of force majeure by an employer towards its local workforce (whether expats or local workers). This is a factual matter and in many cases, a judge may consider that the sanctions are a mere commercial risk and are not totally unpredictable, thus not qualifying as force majeure. Sanctions are also, of course, temporary by nature meaning that at best, should the force majeure be accepted, it could justify a suspension of an employment contract, but not a termination. Another challenge would be to identify the employees in scope for such a suspension, with in some cases redeployment obligations possibly forcing the employer to offer another job within the company – one would have to check for the applicable collective bargaining agreements and other legal rules.
How to best overcome a temporary slowdown while protecting your talent
There are a range of options for you to consider when trying to overcome a temporary slowdown, including:
- Freezing or lowering employees’ salaries – in most countries salary may be reduced only with the employees’ consent. Where there are works councils and trade unions, salary cuts are subject to collective consultation. In other jurisdictions, if there are organisational or technological changes in working conditions in the company, the employer may unilaterally change employees’ salaries. A salary freeze will be easier to implement in most countries but not all.
- Announcing temporary downtime, due to economic, technical or organisational reasons. Some countries require government approval before an employer can temporarily ‘hibernate’ the company, or may require employees’ consent or notice to be given. Workers on downtime are often entitled to a percentage of their salaries, the exact amount being determined according to national laws.
- Reducing work schedules – collective bargaining agreements or any other contract should be reviewed before reducing the work schedule. Most countries will require employees’ consent to the changes, as well as consultation or agreement with any works council or trade union. Expatriate workers may face issues if their original visas were requested for full-time jobs.
- Agreeing on unpaid leave periods – employees may request and be granted unpaid leave for an agreed period, as a means to balance the company’s budget and lessen the need for staff layoffs. Parties may also agree on partially paid leave or so-called “garden leave”.
Other options to overcome the effect of sanctions may include:
- Repatriating staff – if a company discontinues a foreign national’s contract in the country affected by sanctions and wants to repatriate the employee, the employee’s local employment contract, if any, would need to be terminated under national labour law. Depending on the circumstances and whether the company plans to re-employ the employee in other countries, the local employment contract could be terminated by the employee’s voluntary resignation or by mutual consent.
- Relocating staff – as a consequence of the Ukraine crisis and following targeted US and EU sanctions against Russia, leading international employers have been reviewing their strategy to retain talent while trying to keep the long term in mind. Measures include transferring Russia based teams to Asia or temporarily relocating staff to other offices through an increase in secondment programmes.
Redundancy and related issues
In the worst-case scenario, employers may decide to enact individual or collective termination as the final employment cost management strategy. In most European countries, companies must prove substantial financial losses before laying off employees – simply having a sense that the economic environment is slowing down may not suffice. Employers would also need to be prepared to consult with employee representatives through works councils or trade unions, which is essential throughout the EU and in many Asian countries in case of collective termination. Failing to comply with these obligations may lead to penalties.
The employer must generally give notice of redundancy plans. During the consultation period that follows, employees remain employed and continue to be paid their regular salary. The employer may also be obliged to offer those employees being made redundant other available positions in the company. Employees may only be dismissed if there are no vacant positions to offer them or if they refuse to accept vacant positions they are offered.
Local rules regarding statutory severance payments and notice of termination – often based on the employee’s length of service to the company – must also be taken into account. Some employees may be protected from redundancy by virtue of their condition or status (for instance, single mothers, pregnant women, etc).
Termination is a last resort, certainly unappealing to employees. However, it gives an opportunity to redesign, reorganise and transform the business’s structure based on its current needs. Even though termination may seem the easiest way out of financial pressures, the company should keep in mind that recruiting at a later stage has a cost as well.
Liquidating businesses in countries under sanctions
Liquidating the business and pulling out of the relevant country is another option, of course (and can even be imposed on the company). Employees can be dismissed as a consequence of the employer’s liquidation of business in countries subject to sanctions.