This is Part VI of an eight-part series of newsletters giving an overview of regulatory requirements governing the conduct of mass compulsory redundancies. The series focuses on key EU jurisdictions, providing practical information to Japanese companies operating in those countries.
In this newsletter, we will present an overview of the regulatory regime affecting mass compulsory redundancies in Spain. In Part I we considered the position in the UK; Part II focused on Germany; Part III on France; Part IV on the Netherlands; and Part V considered the Belgian regime. In Part VII, we will consider the position in Italy. Each of these briefings will provide a quick reference guide to the most important provisions in each jurisdiction to enable Japanese companies to address the most significant timing and cost issues faced in that territory.
In Part VIII, we will outline recent developments in relation to industrial action in the UK, setting out practical guidance to follow both to prevent a strike and to minimise disruption to business once a strike has commenced.
The information contained in this series is necessarily of a general nature. If any of these issues affect your company, please contact us for assistance regarding your particular circumstances.
One might think that the law relating to mass compulsory redundancies ought to be the same in every EU country, given that it derives from a single EU Directive1 setting out in some detail what is required by each member state. In particular, the Directive specifies the following key obligations:
- Where there are "collective redundancies", an employer must consult with the workers’ representatives in good time and with a view to reaching agreement as to the terms or number of compulsory redundancies.
- The consultation must aim to avoid or minimise compulsory redundancies and to mitigate their consequences (for example by redeploying or retraining workers).
- The employer must give the representatives specified information including the reasons for the proposals, the number and category of workers to be made redundant, the proposed timescale and selection criteria and the level of redundancy payments.
- Consultation must take place with a view to reaching agreement as to the proposals so it is very important that no decisions are taken before the process commences.
- A specified period before dismissals are to take effect, the relevant government body must be notified.
However, individual member states are given discretion in a number of key areas, for example:
- how to define "collective redundancies";
- who the "representatives" are;
- whether the representatives can call on the services of experts; and
- what the remedy for breach of the terms of the Directive should be.
The Directive only sets out minimum requirements – individual member states are free to adopt laws more favourable to workers.
When do I have to consult collectively?
When there is a proposal to make the following number of employees compulsorily redundant over a 90 day period:
- at least 10 employees from a workforce of less than 100;
- at least 10% of employees from a workforce of between 100 and 299; or
- at least 30 employees from a workforce of 300 or more.
You must also consult if the company closes its business and redundancies affect the entire workforce of more than five employees.
What is the consultation requirement?
You must inform and consult with the works council or, if none, the employee representatives or, if none, the affected employees. Where the whole business is being closed and the entire workforce of more than five is to be made redundant, you must arrange for employee representatives to be elected. If there are 50 or more employees, you must negotiate a social plan with the works council including details of the severance package.
How long will it take?
You must consult with the works council for a minimum of 30 days (or 15 days if there are fewer than 50 employees). In practice, the process usually lasts for three to four months.
Can unions, works councils or other representatives veto compulsory redundancy proposals?
No, but the consultation process can be dragged out. Further, if a social plan is required and no agreement can be reached with the works council by the end of the consultation period, the labour authorities will be notified and will then approve or reject the application for collective redundancy within 15 days. If the application is rejected, the redundancies cannot go ahead and the process has to be restarted.
What is the potential penalty for breach of the consultation requirements?
A fine of €6,250 can be imposed for failure to inform and consult.
Such a failure will also lead to the labour authority rejecting the collective redundancy application.
What external approvals or notifications are required?
The approval of the local labour authorities is required before the redundancies can go ahead. The labour authorities can intervene in the compulsory redundancy procedure at any stage, and may request reports from other organisations involved in the process.
How do I make the individual compulsory redundancies?
Selection criteria are not fixed by law but must avoid unlawful discrimination and should be reasonable in the context, for example skills, experience, and staffing requirements. Certain categories of employees, such as employee representatives, have greater protection. The criteria are set as part of the consultation process. Once the collective redundancy process has been approved by the labour authorities, you must deliver to each affected employee a letter of dismissal.
What severance payments will employees be entitled to?
The statutory minimum severance payment is 20 days’ salary per year of service, up to a maximum of one year's salary. The agreed amount is usually much higher, often amounting to around 45 days’ compensation per year of service subject to a cap of 42 months. Note that recent legislative changes mean that a small part of this payment may in future be paid by the government.
There may be additional social security obligations for employees aged at least 55.
Key practical points to keep in mind
For those Japanese companies that are contemplating instituting a compulsory redundancy program across multiple EU jurisdictions, the following list of key practical points should be considered as a starting point:
- Focus on the proposed redundancy timetable as early as possible – is it feasible in each jurisdiction? You may need to delay taking steps in one country until certain other steps have been completed in another. Appoint a single internal person with overall coordination responsibility.
- Ensure any messages given to employees/employee representatives are consistent across all relevant jurisdictions – trade union or other employee representatives may liaise with colleagues in other countries.
- Ensure any statements clearly indicate that the proposals will not be finalised until consultation is complete – for example avoid assurances to one country’s representatives that other countries will suffer just as many compulsory redundancies or that one country will be "safe" because any compulsory redundancies will take place elsewhere.
- Ensure all documents record steps as mere proposals until the full consultation process has been completed – pay particular attention to board minutes, press announcements and written communications with employees and their representatives.
- Check whether there are additional requirements for consultation and compensation specified in collective bargaining arrangements or pursuant to a European Works Council or other agreement.
- Prepare a public relations strategy.