Challenge: Doing a reduction-in-force outside the US is complex and triggers completely different issues than RIFs trigger in the states.
A recent article says that reductions-in-force are "so ubiquitous in the American corporate landscape" because "[t]here are few options when business levels no longer support the size and scope of company operations." "Your Next Reduction in Force: The Dirty Little Secret," Employment Law 360, Aug 11, 2008. The article cautions that US RIFs:
- "cost money rather than save money in the short run"
- "monopolize scarce management resources and cause significant hardship"
- "in the worst circumstances" cause both "enormous legal liability" and "professional humiliation and financial ruin" for the "responsible executives"
RIFs are this much of a problem in the states even though the US is an employment-at-will jurisdiction with few laws regulating layoffs (beyond W.A.R.N. [29 U.S.C. Section 2101], state equivalents, and disparate-impact analysis under American discrimination laws). Jurisdictions outside the US, by contrast, regulate involuntary RIFs more comprehensively. Overseas, RIFs (called "redundancies" or "collective redundancies" in Europe, "retrenchments" in India and "termination, change and redundancies" in Australia) raise tough problems because other jurisdictions subscribe to "indefinite" employment — which in the Philippines goes by the more graphic name "security of tenure." Countries outside the US impose up to five tiers of laws that affect a RIF:
Pointer: Project-manage any outside-US RIF to account for local laws. Use tailored local-country "field guides" that address all the issues.
- Employment contracts: Any employment termination must comply with termination-specific clauses in individual employment contracts (which are often legally-mandated outside the US), collective agreements, and company-issued benefit plans and severance policies.
- Individual severance pay requirements: Countries impose up to four types of individual severance pay: pre termination notice obligation/pay in lieu; mandated severance payout/end-of-service "indemnity"; wrongful termination cause of action (or a so-called "severance indemnity" court award); and mandated "redundancy pay" (extra severance pay for a lack-of-work layoff, including enhanced notice pay, extra employer-funded "indemnities," job training and outplacement).
- Duty to notify/negotiate with government bureaucracies or get court approval: In the Netherlands the government must approve a layoff; no approval means no RIF. Governments from Colombia and Venezuela to Japan, Korea and China can also block layoffs not blessed by government agencies or judges.
- Collective bargaining obligations and the duty to inform/consult/co-determine with worker representatives, trade unions, local works councils and any European Works Council: In Europe an employer that merely considers a RIF has to sit down and talk to workers before making any decision: The EU Collective Redundancy Directive (75/129/EEC; 92/56/EEC; 98/59/EC) requires "consulting" in good faith with employees with a view to reaching agreement — even if they have no union or organization — on "avoiding," "reducing," and "mitigating" a contemplated RIF that is not yet a fait accompli. (This European directive expressly rejects the argument that a RIF decision was made by higher-ups at an overseas headquarters, so it reaches right into US boardrooms.) In these "consultations," the employer must demonstrate so-called "economic, technical and organizational" reasons for the RIF, but worker groups and government officers may push back, challenging the business case for job cuts. In short, these consultations must be about the decision to do a RIF, not merely the effects, and employee representatives get to review the RIF decision: Headquarters cannot decide alone. These consultations take time — up to 75 days, in Italy — and can be document-intensive. Enforcement of this obligation can be serious: Famously, Belgium once launched criminal proceedings against executives of an automaker who shut down a plant without talking to employees first. Other jurisdictions (beyond Europe) have similar rules.
- RIF-specific severance pay laws regulating collective layoffs: Over and above severance pay for an individual dismissal, RIF-specific laws impose extra obligations for collective layoffs. This can include the enhanced notice or severance pay obligations as well as mandated selection procedures (who gets laid off) and a duty to sponsor a "social plan" (or equivalent) ameliorating effects of the layoff.
A US-based employer project-managing a RIF outside the US not only must account for these five tiers of overseas severance laws, but should also actively jettison most of its US-honed RIF tools. Because redundancies abroad differ so radically from layoffs in the US, US-made RIF tools mostly get in the way abroad. Statistical adverse-impact-selection models and other non discriminatory US-style selection procedures, for example, are almost worthless in countries where RIF-selection laws affirmatively require factoring in age, marital status, number of children, or date of hire (such as last-in-first-out by job category).
In short, laws overseas demand tailored compliance tools, while US RIF tools are inappropriate for structuring an outside-US RIF. Therefore any multinational project-managing a RIF that simultaneously affects employee populations both in and outside the US should bifurcate its RIF plan into a dual US/rest-of-the-world model. Handle the US prong like any US RIF, but simultaneously engineer distinct, yet aligned, overseas strategies. A best practice is to come up with an overarching project plan with a US component plus separate local "field guides" that include, for each affected country outside the US:
- Checklist of applicable local laws affecting RIFs
- Inventory of applicable local individual and collective employment agreements and company HR policies that touch on severance
- Local timetables and process (who must be consulted? when and how early? whose approval is required?)
- Local consultation strategy (how to confer with employees, representatives, government agencies?)
- Local selection criteria (account for selection rules in local law/local agreements)
- Severance pay and outplacement packages to be offered locally
- Global and local communications strategy (never announce a RIF as decided in countries that impose a duty to consult on the threshold RIF decision until consultation is finished).
- Alignment (synchronize each country field guide with the global project plan)
Large multicountry RIFs are always hugely expensive in the short run. Set-asides for "restructuring costs" can reach millions of dollars. RIF rules overseas always seem to involve more costs, delays and problems than US management anticipates. To avoid a chaotic, reactive multicountry layoff fraught with compliance problems, manage the global RIF process in a proactive, well-informed way. And consider alternatives: With all the procedures and costs of layoffs internationally, some multinationals reassess the need to do a RIF outside the US and, on occasion, opt for milder solutions, like incentivized voluntary RIFs and hiring freezes.