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Cross-border implications for workforce reductions

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Beyond Data|COVID 19 Coronavirus

By Darryl Davis and Doug Gerke | May 14, 2020

In response to COVID-19’s impact on global employers’ businesses, employers around the world are taking a variety of measures to deal with the economic impact of the pandemic. 

In North America, a recent pulse survey by Willis Towers Watson found employers containing costs through actions on pay, alternative work arrangements and even head-count reductions. Some companies have put staff on paid or unpaid furloughs in response to collapsing demand or the need to respect social distancing and quarantine conditions. Reductions in force (RIFs) are under consideration or have been acted on by over a third of the companies surveyed. While the U.S. “at-will” employment environment generally allows employers to announce sudden and immediate changes to the employment relationship (including its termination), elsewhere how (and if) such actions may be taken are often quite different.

Broad spectrum of cross-border scenarios

The spectrum of possible scenarios employers face across borders present a formidable obstacle to taking certain types of actions, let alone implementing globally consistent action plans. For example, several EU member states have programs under which working time (and pay) may be reduced for a fixed period of time, with the loss in pay partially offset by wage subsidies. In return, the employer is often required to retain staff for the duration of the program (and beyond). 

Furloughs as an alternative to head-count reduction

Just understanding what employers can or must do is a challenge. Globally, furloughing staff typically requires employee consent. EU consultation requirements with statutory bodies such as works councils and widespread collective bargaining coverage means employers must negotiate with different counterparties. The situation is ambiguous in more lightly regulated markets because there may not be an established body to consult with, making it more difficult to obtain employee consent. And in a variety of places, legislation simply doesn’t address such matters directly, often obliging employers to seek government approval and to negotiate terms. Pay cuts specifically are often technically possible (excluding a few countries such as Italy and Brazil that have provisions specifically prohibiting reductions in pay), but the process can be very complicated, and there are rarely explicit provisions in labor laws giving the employer the ability to do so. As a result, the process of pursuing changes can be time consuming, and the ultimate outcome can be very different from the employer’s initial plans.

When head-count reductions can’t be avoided

Where furloughs and pay cuts are insufficient or impractical to pursue, the primary option remaining is to pursue RIFs, but here too there are wide variations among regulatory landscapes. Unlike pay cuts and furloughs, RIFs may involve substantial up-front costs to the employer rather than short-term cost savings. What employers need to do may be determined by statutory requirements, mandatory negotiation with worker representatives, government authorities, local custom, corporate image or (invariably) some combination of these. In addition, some countries — such as Spain, Italy and Turkey — have temporarily blocked employers from terminating staff or introduced punitive measures (such as Argentina, which has doubled severance entitlements). As a result, for companies engaging in or exploring scenarios involving RIFs, understanding current market frameworks and practices is critical.

Global Severance Policies and Practices Survey

Determining severance pay for termination of employment is challenging under any circumstance but it is particularly hard now due to the wide-ranging nature of the pandemic. The Global Severance Policies and Practices survey provides an overview of severance policies and practices and how these practices may evolve over time in 24 of the world's largest economies across 4 regions.

Authors

Darryl Davis

Doug Gerke

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