First instance decision
Court of Appeal decision
When a company encounters economic difficulties, it may be forced to downsize - a process that may affect one or more employees. Dismissals as part of a downsizing process must be based on factors related to the company, its business or departmental requirements. The reasons for such dismissals must be verifiable and sufficiently serious to justify such a step.
The question may arise as to whether the employer is required to comply with an occupational redeployment procedure within the company or the group before dismissing an employee as part of a downsizing programme. The Luxembourg courts recently considered the issue.
At first instance the Labour Court noted that the fact that a company has a specific activity within a group or is established in a different country from other companies in the group does not, of itself, exclude the company from the business sector that is considered for the purposes of appraising the company's economic difficulties. Therefore, the court inferred that the appraisal of the downsizing company's economic difficulties should look beyond the economic situation of the Luxembourg company. The court specified that the scope of economic difficulties should be examined at group level in order to assess the problems faced by the company and the possibility of redeploying the employee in question. It ruled that any such possibilities should be considered from the date on which dismissals are contemplated. The process should take account of companies within the group whose activities, organisation or place of operations would allow for a different distribution of staff, even if the companies in question are located abroad.
Following an appeal, the Court of Appeal recapitulated the basic principles which govern a dismissal on economic grounds and which impose no obligation on the employer to consider the employee's redeployment.
Grounds for dismissal determined by circumstances of company, not group
The court stated that if the department of a company is unprofitable, the employer may embark on a restructuring of the department in question, including dismissals.
This reasoning also applies to a group composed of distinct legal entities in which one of the companies is unprofitable. If the unprofitable unit of a group undertakes a restructuring and downsizing process, it is not required to offer a detailed description of the group's financial situation in the letter which sets out the grounds for dismissal. The court held that it is sufficient - but necessary - for the employer to explain precisely:
- the course of the economic problems faced by the unprofitable department or company before the dismissal; and
- the department or company's economic situation at the point at which the dismissal is announced.
The description of the department or company's economic situation must be supported by statistics and must set out a justification for the restructuring or reorganisation and for the elimination of the employee's role. In addition, the employer must mention the restructuring measures to be undertaken, as well as the impact of those measures on the position of the employee to be dismissed. However, the employer is not required to mention or describe the economic situation of the wider group.
No requirement to redeploy in the event of dismissal on economic grounds
In considering the requirement to redeploy, the judge began by noting that an individual entrepreneur assumes responsibility for the company's business risks. As such, an entrepreneur has the power to implement any internal regulatory measure that is in the company's interest, notwithstanding that such a measure may result in the termination of employment contracts.
Hence, the determination of the criterion by which job cuts are made and the determination of the employees to be dismissed are a function of the employer's power of appraisal. A labour tribunal has no competence to assess the employer's decision, provided that the decision does not constitute an abuse of rights.
In the context of a dismissal from an unprofitable department or an unprofitable company within a group, the Court of Appeal held that if an employer provides a plausible justification for the choice of the employee affected by the dismissal decision, it is not compelled to ensure that the employee is successfully redeployed within the company (or within another company of the same group). In so doing, the court has clearly signalled that the Luxembourg courts will not follow the trend in related French case law towards introducing a requirement to redeploy employees in such circumstances.
For further information on this topic please contact Guy Castegnaro or Ariane Claverie at Castegnaro by telephone (+352 26 86 82 1), fax (+352 26 86 82 82) or email ([email protected] or [email protected]).
(1) Articles L 124-5(2) and L 124-11(1) of the Labour Code.