Just as for other elements of a business, human resources (HR)-related risks in Europe change as a consequence of difficult economic times. Those responsible for HR issues need to make sure they are up to speed with these changing risks and think about the best ways of minimising their effects.
The risks to global employers operating across Europe arise from a number of factors. Some are external and some are a direct result of financial pressures within a particular business. Most of them are interrelated and all of them need careful handling to avoid worsening the financial situation and/or resulting in damaging publicity.
Increased political and regulatory pressures
Mass redundancies, reduced working hours or any other business decisions affecting the local labour market are always sensitive matters likely to generate some sort of political reaction or investigation by the relevant labour authorities. Investigations are not always merely routine: those that reveal irregularities may in some European jurisdictions lead to a fine or even criminal sanctions.
Notwithstanding the existence of such potential repercussions, even closer scrutiny may be applied to such decisions in the current market, given that redundant workers are often not able to find new jobs and those put onto reduced hours may struggle financially.
Politicians and regulatory bodies have also expanded their field of interest to include executive pay. This is particularly true for industries benefiting from public funding, such as the financial and automotive sectors. It was perhaps predictable that bonuses would come in for heavy criticism but executive remuneration structure overall has also been in the line of fire and no employer is immune to negative press. Explaining that bonuses were paid out in accordance with contractual obligations (and that the employer did not have any discretion over the matter) is no longer enough to protect a business or individual from public – and political – furore. Some European member states are now altering tax arrangements in response to what is seen as excessive remuneration. Regulations aimed at remuneration more generally are also emerging at a local and global level (whether at the EU or the G20 level).
The severity and wide reach of the current crisis are – almost inevitably – resulting in unions and employee representatives reacting strongly against any business decisions that may adversely affect workers. The consequences of this can be extremely uncomfortable:
- industrial action, wildcat strikes and even physical intimidation (including instances of workers holding managers hostage for short periods of time) may ensue. Local politicians may be tempted to back some of these actions, adding to the political dimension and the ‘newsworthiness’ of the event and so possibly making it more difficult to end the actions;
- there may be possible litigation with employee bodies, such as local works councils and European works councils, with the aim of delaying restructuring processes by claiming that the employer did not comply with the requisite information and consultation processes;
- unions and employee representative bodies may become more powerful as a collective ‘voice’ for employees and seek more formal recognition rights than might have been pursued in the past; and
- there may be difficult PR implications because even if an employer’s actions are not motivated by the nationality of its workforce some elements of that workforce may see it in that way in the current climate.
People struggling to find new jobs
As well as an increased focus on compliance with the prescribed mechanics of redundancy exercises, this is likely to lead to a significant increase in employee litigation as individuals pursue money they think they are entitled to or allege unfair practice in relation to dismissal processes. We may expect an increase in:
- bonus claims in cases of non/reduced payment;
- constructive dismissal claims. These may result from changes to working conditions but there are also cases in which an individual claims that non-payment of his bonus amounts to constructive dismissal;
- whistleblowing claims (particularly arising in connection with redundancies) because, in most countries, whistleblowers are protected from employer retaliation (and they will claim they were made redundant because they blew the whistle) and damages are often uncapped. Some countries are occasionally also seeing whistleblowing claims being used as a form of retaliation against the employer, even if the employee cannot hope for any financial return from the claim;
- discrimination claims in cases of redundancy. This is particularly likely in the jurisdictions where damages are uncapped; and
- Acquired Rights Directive issues whereby individuals claim protection under the national implementing legislation (eg the UK’s ‘TUPE’ regime: the Transfer of Undertakings (Protection of Employment) Regulations), alleging either that they should have been transferred or that the transferor is liable for their salary etc if the transferee goes bankrupt.
As an added complication, individuals with international contracts are becoming increasingly expert in identifying the most advantageous jurisdiction in which to bring a claim, making the dispute more difficult for the employer to handle.
Employees and management alike may sometimes take misguided action during difficult times to protect their own interests or what they perceive as the interest of the business. In a downturn, these actions come to light more quickly and generate more (negative) reactions.
How to best manage these risks?
- Compliance: make sure your compliance policy is up to date and effectively enforced.
- Co-ordination: make sure your in-house legal team is close enough to key business lines and is working effectively with HR. Furthermore, make sure you know about all relevant existing key agreements, both collective and individual.
- Communication: this means both internally with employees and their representatives and externally with unions, regulatory/local authorities and the press.
- Governance: review your internal control and investigation policies.
- Funding: make sure any public funding obtained does not interfere with planned measures, which would be the case if, for example, there was a commitment to maintain a minimum workforce.
- Remuneration: review remuneration and bonus policies, particularly in the light of any new government or regulatory measures.
- Redundancies: be careful with selection procedures and carry out consultation properly.