One size does not fit all when it comes to dismissing workers
Many employers are struggling with the impact of the recent economic downturn and considering terminating employees here in Canada as well as in other countries. Since the employment laws of each jurisdiction vary, employers must understand the rules and laws around workforce reductions, layoffs and terminations in these countries.
In general, there are five primary considerations to take into account when approaching any downsizing operation.
Who can be dismissed
The first thing an employer needs to consider is under what circumstances a business can dismiss employees. In Canada, an employer can often assume that so long as the reason for dismissal is not for cause and does not violate human rights statutes, it is free to terminate employment at any time, upon providing reasonable notice or pay in lieu of notice.
Obviously, Canadian employment law does not apply universally throughout the world. In China, for example, an employer is restricted from using a workforce reduction to terminate employment of workers under a number of circumstances including: an employee who is pregnant; an employee who has worked for 15 years and is less than five years from legal retirement age; or an employee who suffers from an occupational disease or injury caused by the employment.
Once an employer determines whether it can dismiss an employee, it should determine the costs of such a dismissal, which vary depending on the jurisdiction. (See sidebar.)
Getting the process right
It is imperative for employers to understand workers in some jurisdictions have certain procedural rights before a termination can become effective.
Germany requires employers to notify the local employment office in order for a mass dismissal to be valid. Terminations qualify as a mass dismissal if they are for more than five employees in a unit of 20 to 60; more than 25 in a unit of 60 to 500; and 30 or more in a unit with at least 500. These terminations must occur in a period of 30 days. The terminations cannot become effective earlier than one month after the information is filed with the employment office.
If there is a works council (the local or firm level complement to national unions) in the business, it must be informed at least two weeks before the local employment office. If either the works council or the employment office is improperly informed, a court may declare the terminations invalid.
In addition, in a mass dismissal, an employer of more than 20 employees must consult with the works council beforehand to negotiate an “equalization-of-interests agreement” and a “social plan,” which provides severance payments to the dismissed employees. If the negotiations do not occur prior to the notices of termination, the works council may obtain a temporary injunction against the employer.
In France, there are separate procedures depending on the number of employees being terminated. These procedures include multiple notifications, meetings, consultations with works councils, strict timelines and the requirement to respond to any employee request for an explanation of the criteria used for the selection of the employees dismissed. The total duration of this process usually takes about two to six months.
When an employer fails to get the process right, it can lead to substantial liability. In 1997, an employment safeguard plan required by the French Labour Code was deemed insufficient, and the Supreme Court cancelled the plan and ordered the reinstatement of dismissed employees several years after the fact. In addition, the court ordered the employer to pay the employees’ salaries from the date of the dismissal to their effective reinstatement. In situations where reinstatement is impossible or the employee does not wish to be reinstated, the employer is required to pay an indemnity of at least 12 months’ salary.
Signing the release
An employer must also consider obtaining separation agreements, waivers or releases from terminated employees in exchange for providing them with notice or pay in lieu of notice.
In Canada, for example, it is common practice for an employer to insist upon a full and final release from an employee who has received notice or pay in lieu of notice. Of course, an employer in Canada is not entitled to such a release simply because it has paid an employee his outstanding wages, vacation pay and termination or severance payments under minimum employment standards legislation.
While it is also common for employers in the United Kingdom and United States to demand a full and final release from employees, employers must be aware special statutory rules may exist in those jurisdictions. In the U.K., for example, special rules apply to most statutory employment protection claims. Employees can only waive the majority of statutory claims by entering into a “compromise agreement” or a “COT3 agreement.”
Other considerations
Finally, employers must always consider other requirements of local labour laws and some of these may appear odd to most Canadian employers. For example, in Saudi Arabia, there is a large number of expatriate employees. If an employer in Saudi Arabia dismisses them, it is generally required to repatriate them at its own expense.
While there are similarities between jurisdictions with respect to certain broad concepts on termination, every country has a special approach to an employer’s obligations during terminations and layoffs. Employers considering such downsizing in foreign jurisdictions must understand there could be serious financial consequences if they fail to take these differing laws into account and should, therefore, consult local counsel before the downsizing occurs.
George Avraam is a partner at Baker & McKenzie in Toronto and can be reached at
(416) 863-1221 or [email protected]. Adrian Ishak is an associate at the same firm and can be reached at (416) 865-6967 or [email protected]. Trish Appleyard is an articling student at the firm.
Layoff Costs
Worldwide requirements
|
Country |
Minimum notice and indemnity requirements |
|
Brazil |
Thirty days’ notice of termination required in addition to an indemnity including accrued vacation, vacation bonus, Christmas bonus and 50 per cent of the funds in the employee’s severance fund. Additional contributions to the severance fund may be required on the basis of the above-noted payments. |
|
France |
Notice period is based on years of service. An employee is entitled to at least one month’s notice or pay in lieu of notice if the employee has six or more months of service. In addition, employees with one or more years of service will be entitled to a dismissal indemnity. The indemnity will be calculated, at a minimum, on the basis of one-fifth of the average monthly remuneration per year of service with additional compensation of two-fifteenths’ remuneration per year of service after 10 years’ service. |
|
Germany |
The basic notice period is four weeks — it increases with years of service over two years. Pay in lieu of notice is not possible because tax laws prevent this. Although not legally required, it’s customary to pay severance of one month per year of service for older employees and one-half of that to younger employees. |
|
China |
The employer must give 30 days’ notice of termination to an employee no longer on probation. Termination indemnities, when required, are usually calculated on the basis of one month per year of service. |
|
Saudi Arabia |
30 days’ notice or pay in lieu of notice must be provided upon termination, in addition to a termination indemnity and an end-of-service award. The termination indemnity can vary greatly but is often three months of wages. The end-of-service award is calculated on the basis of one-half the monthly wage for each year of employment for the first five years, and one full month’s wages for each subsequent year. |
|
United Kingdom |
Notice requirements are based on years of service with a low of one week and a high of 12 weeks. These notice requirements can be converted to pay in lieu of notice. A termination indemnity is payable when an employee has more than two years of service and is calculated on a sliding scale based on employee’s age (multiplier of 0.5, one or 1.5), length of continuous years of service (to a maximum of 20) and salary (to a maximum of £350 per week, indexed with inflation). |
|
United States |
No notice requirements generally. Special notice provisions in mass termination situations. No indemnity is payable unless required by the employment contract. |
