MANAGING CROSS-BORDER REDUNDANCIES AND REDUCTIONS …

©2016

Morg

an,

Lew

is&

Bock

ius

LLP

MANAGING CROSS-BORDERREDUNDANCIES ANDREDUCTIONS IN FORCEManaging the Global Workforce Webinar Series

October 6, 2016

Presenters

2

Michael SchlemmerSilicon Valley

Bela PelmanMoscow

Walter AhrensFrankfurt

Eric BordWashington, DC

Lee HardingLondon

© 2016 Morgan, Lewis & Bockius LLP

INTRODUCTION

Overview

• Strategic considerations

• Seven key questions to consider at the outset:

– What qualifies as a ground for redundancy/reduction in force?

– When are you required to consult with employees?

– How do you select the employees who are to be made redundant?

– Are you required to consider alternatives to dismissal?

– What severance payments are terminated employees entitled to?

– Can you obtain a binding waiver and release?

– What liabilities could you face if you do not comply with your legalobligations?

• Immigration issues on a redundancy exercise

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Early involvement of counsel is critical

• Risk is created early and grows fast.

– External business conditions create urgency.

– HR team leaps into action; emails fly; names are put on layoff lists.

• A lot of forethought is required.

– Are incremental or less disruptive alternatives available?

– Who has decisionmaking responsibility?

– How will we handle communications and disclosures?

– Logistically, what is required in terms of timing and process?

• Privilege matters.

– Be aware when you are acting as a decisionmaker or business advisor andwhen you are providing legal advice.

– EEO analysis must be performed by or under direction of General Counsel for the purpose of providing legal advice.

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GROUNDS FORREDUNDANCY

What qualifies as a redundancy/reductionin force in Germany?

• No statutory definition

• Employer needs to demonstrate that actual headcount exceedsheadcount required for a certain kind of work

• Usually based on organizational decision by the employer:

– Reorganization (new vs. current organizational chart)

– Outsourcing

– Closure of business or part thereof

• May require detailed workload analysis, including forecast regardingfuture workload (remaining employees must not work overtime)

• Courts review in detail how employer’s decision affects future workloadand to what extent reduced workload makes employees redundant

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What qualifies as a redundancy/reductionin force in Russia?

• Redundancy has a statutory definition under the Russian Labour Code

• Two types of redundancy

– Redundancy of employees

– Elimination of positions

• Employer needs to consider:

– Protected categories: pregnant women, sole wage earners in a family withdisabled children, among others

– Preemptive right to keep the job

– Performance and qualification analysis

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What qualifies as a redundancy/reductionin force in the United States?

• No statutory definition of redundancy/reduction in force

• Under the ADEA and OWBPA, an exit incentive or other employmenttermination affecting two or more employees requires special treatmentto release federal age claims for employees 40 or older.

• Under the WARN Act, special notice required for layoffs > 50 employees, ifthis constitutes >33% of workforce (otherwise > 500 employees)

• Otherwise, usually refers in practice to layoffs driven by business decisions(rather than performance-based terminations), generally based on:

– Plant closure

– Cessation of business operations (full or partial)

– Headcount reduction

– Relocation (outside of commuting distance)

– Reorganization

– Outsourcing (international or through use of vendors)

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What qualifies as a redundancy/reductionin force in the UK?

• Redundancy has a statutory definition

• Broadly falls into three categories:

– A business closure – closure of the business altogether

– A workplace closure – closure of a site

– Diminished requirement for employees to do work of a particular kind

• It is important to be able to identify whether there is a genuineredundancy situation

• Focus on what employees actually do rather than what individuals wereemployed to do

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CONSULTATIONOBLIGATIONS

When are you required to consult withemployees in Europe?

• European works council

– May be established in all groups of businesses with

– At least 1,000 employees in the EU/EEA

– At least two businesses in different EU/EEA countries with at least 150 employees each

• Information and consultation

– Tailor-made EWC – review EWC agreement for matters subject to information andconsultation

– Standard EWC – matters subject to information and consultation include, inter alia,

– Cutbacks or closures of undertakings, establishments or important parts thereof, andcollective redundancies

• Implications

– Communication

– No implementation until process completed

– Timing of European vs. local consultations

– Implications beyond EU/EEA?

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When are you required to consult withemployees in Germany?

• Works council– May be established in businesses with five or more employees

– Information and consultation on “business changes”– Definition includes closures and downsizings of businesses or material parts thereof

– Equipment and/or staff

– Employee thresholds:

– Businesses with >20 and <60 employees: >5 employees to be dismissed

– Businesses with 60+ and <500 employees: 10% or >25 employees to be dismissed

– Businesses with 500+ and <600 employees: 30 employees to be dismissed

– Businesses with 600+ employees: 5% of employees to be dismissed

• Economic committee– To be established in businesses with a works council and >100 permanent

employees

– Information and consultation on all matters that may materially affect employees’interests

– Prior to information and consultation with the works council

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When are you required to consult withemployees in Russia?

• Two types of employee representative bodies in Russia:

– Trade union (any three employees may form a trade union at any time)

– Workers council (relatively new)

• Trade union – the employer must:

– Provide notice on the upcoming reduction in force two months in advance (incase of mass layoffs – three months)

– Take into account the opinion of trade union when dismissing trade unionmember

– Obtain consent of trade union to dismiss the head of the trade union

• Workers council – employer must review proposals submitted by thecouncil and provide feedback

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When are you required to consult withemployees in the United States?

• WARN Act– Federal WARN Act applies to employers of 100 or more employees; state WARN Acts may be lower

(e.g., 75 in California)

– Notice requirement generally triggers based on an employment loss within a 30-day period thatimpacts either (i) 500 employees at a single site or (ii) at least 50 employees, if this constitutes atleast 33% of the employees at the site

– Requires providing 60 days’ advance written notice of certain plant closures, mass layoffs, andrelocation events

– Notice goes to employees, state dislocated worker unit, local government official, and any unionrepresentative

– Notice must be specific, and must contain certain enumerated information: location of triggeringevent; whether expected to be permanent or temporary; whether there is an entire plant/facilityclosure; expected date of first separation; scheduled or anticipated separations; contact informationof company official for further information

• Contractual Obligations– Consider notice requirements required by contract (e.g., executive employment agreements;

requirements/obligations regarding employees pursuant to certain transaction agreements)

– Collective bargaining agreements: If labor costs motivate the layoff decision, then there may be abargaining obligation with applicable unions

– Be mindful of notice requirements for non-employees (e.g., independent contractors, contingentworkers, third-party service agreements)

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When are you required to consult withemployees in the UK?

• Individual consultation

– Fundamental to the fairness of any dismissal

– Must consult with an open mind – must not be a fait accompli

– Must consider points that are raised and respond

– Consult about any selection criteria, the pool for selection, the basis for selection,ways to avoid redundancy, and alternate employment

• Collective consultation

– Where there is a proposal to dismiss as redundant 20 or more employees within aperiod of 90 days or less

– Must consult with trade union and/or appropriate representatives

– Must notify the Secretary of State

– Set information must be provided to the representatives

– Where proposing:

– 20 or more redundancies – minimum 30 days of consultation

– 100 or more redundancies – minimum 45 days of consultation

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SELECTION

How do you select the employees who areto be made redundant in Germany?

• Three-step selection process

– Determining the group of comparable employees

– Interchangeable

– Same hierarchy level

– Selection criteria

– Length of service

– Age (stands for chances to find alternate employment in the labor market)

– Number of dependents

– Severe disability

– Exemptions

– Employees in whose continued employment the employer has a legitimate interest

– Retaining a balanced personnel structure (age)

• Name list agreed with works council in implementation agreement

– Judicial review of selection limited to gross errors

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How do you select the employees who areto be made redundant in Russia?

• Employer is free to determine pool of employees to be made redundant

• Protected categories of employees are exempt from redundancy

• Employer to consider which employees have preemptive right to retainthe job (two-level test):

– Assess employee qualification and performance

– If equal

– Review family status (two or more dependants)

– Sole income earners

– Injured at workplace

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How do you select the employees who areto be made redundant in the United States?

• Focus on job functions (not persons) relative to anticipated future business needs

• Unions: if applicable, consider obligations under collective bargaining agreement (seniority, bumpingrights)

• Use work-related objective criteria when possible

– Productivity measurements, if objective data available (production/sales figures, revenue generation, etc.)

– Education/certifications/licensure

– Performance ratings/past merit bonuses/evaluation history/disciplinary records

– Attendance records (*but be mindful of potential leaves/disability accommodations)

– Consider seniority as possible tiebreaker where all else is equal (generally not a good selection criteria on itsown, unless required by CBA)

– Avoid using salary levels (has been successfully argued to serve as a proxy for age)

• Subjective factors are permissible, but can result in judicial scrutiny (more prone to discrimination/bias;may be inconsistent)

– Knowledge (functional knowledge, technical skills, etc.)

– Problem solving abilities (creativity, judgment, analysis)

– Leadership/communication/organizational skills

– Teamwork (flexibility, cooperation, building/fostering teamwork)

• Conduct adverse impact analysis on preliminary selections and, if issues arise, consider revisitingselection criteria and/or ensuring proper implementation of selection criteria

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How do you select the employees who areto be made redundant in the UK?

• Need to undertake a fair selection process

• Identify the pool of employees from which to select

• Consider which employees undertake similar work

• To what extent are employees’ jobs interchangeable?

• Consider bumping

• Use fair, nondiscriminatory, and objective selection criteria

• Criteria should be focused on roles’ requirements going forward

• Apply the criteria fairly

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NOTICE ANDSEVERANCE

What severance payments are terminatedemployees entitled to in Germany?

• Severance sometimes set out in a collective bargaining agreement

• Severance agreed with the works council in a social plan

– No standard formula

– Differs by industry and employer’s financial situation

• Individually negotiated severance

– Termination agreements

– Settlements in court

• Usually between 0.5 and 1.5 month’s salary per year of service,sometimes higher

• Statutory severance in case of noncompliance (discussed below)

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What severance payments are terminatedemployees entitled to in Russia?

• During notice period – regular salary or payment in lieu (two months)

• Severance – one average monthly salary

• For the second and third (in exceptional cases) months ofunemployment – average salary

• Total – up to five salaries (internal policies may increase the amounts)

• In addition to above, at dismissal the employee is paid

– Compensation for unused vacation

– Outstanding salary and bonuses

– Other payments owed by the company (included those provided under anindividual employment contract)

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What severance payments are terminatedemployees entitled to in the United States?

• No severance entitlements under general statute

– Generally, employees presumed to be at will

• Consider potential contractual obligations

– Executive employment agreements

– Severance plans/practices

– Change-in-control obligations

– Potential severance or notice obligations pursuant to transaction provisions (ifemployee(s) joined as part of a merger/acquisition)

• If WARN triggered, then 60 days’ notice or pay in lieu thereof

– Must include the value of benefits for the 60-day period

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What severance payments are terminatedemployees entitled to in the UK?

• Statutory redundancy payment

– Need two years’ continuous employment

– Statutory formula:

– Complete years’ service x weekly pay (max. 20 years) (subject to statutory cap)

– Multiplier of 1.5 for each complete year employee is over 41 years old

• Contractual/discretionary/custom and practice redundancy entitlement

• Notice or pay in lieu of notice

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RELEASE ANDWAIVERS

Can an employer obtain a waiver andrelease in Germany?

• A waiver and release of claims can be obtained

– If the employer agrees to pay severance in return for the waiver and release,or

– If the waiver and release are mutual

• Claims arising from collective bargaining agreements can be waived onlyin a settlement approved by the parties to the collective bargainingagreement

• Claims arising from an agreement with a works council can be waivedonly with the works council’s consent

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Can an employer obtain a waiver andrelease in Russia?

• Waiver and release is not recognized in Russia and is not enforceable

• Employees can bring a complaint to the state labor inspectorate or file alawsuit in the court

• Termination by mutual consent termination agreement

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Can an employer obtain a waiver andrelease in the United States?

• Yes, but it must be carefully drafted– Must be “knowing and voluntary”

– Provide adequate consideration (something of value employee wasn’t otherwise entitled to)

– Special requirements for those over age 40 to ensure federal age release in a RIF:

– 45-day review period; 7-day revocation period

– Must clearly describe decisional unit, selection, and eligibility factors

– Must provide titles and ages of all decisional unit employees considered, and whether or notselected

– Beware of drafting pitfalls:

– Do not attempt to release claims that cannot be released as a matter of law (e.g., undisputedwages in California)

– Ensure release applies to all known and unknown claims (e.g., in California, include express CivilCode Section 1542 notice and waiver)

– Properly carve out claims that are not subject to the release (e.g., workers’ comp, unemployment,COBRA, prospective claims)

– Minimize agency challenges by including “permitted actions and disclosure” provision (be wary ofchallenges to provisions that may “chill” agency witnesses/activities, such as confidentiality,nondisparagement, and cooperation provisions)

– Be careful to limit any restrictive covenants within bounds permitted by law

– If references are made to trade secrets or confidentiality, include new DTSA notice language

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Can an employer obtain a waiver andrelease in the UK?

• A waiver and release of all claims can be obtained

• Called a settlement agreement, and to be binding it must comply withstatutory requirements

– Employee must obtain independent legal advice from a qualified lawyer

– Customary for the employer to pay for the employees’ legal fees

• Need to offer employees something more than their statutoryentitlement

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ALTERNATIVES TOREDUNDANCIES

Are you required to consider alternatives todismissal in Germany?

• Termination must be last resort

– Examples for alternative options

– Reducing overtime hours

– Let temporary workers go

• Termination unenforceable if employee can be further employed in avacant position, even after reasonable training or under different termsand conditions

– Normally limited to the employing legal entity

– Vacant positions at other group companies do not normally have to be offered

– Vacant positions outside Germany do not need to be offered

– Amendment termination where further employment is possible

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Are you required to consider alternatives todismissal in Russia?

• No statutory requirement to consider alternatives

• Employer must offer available positions during the notice period

• In a court dispute with employees, employer may be required by thecourt to provide evidence to justify the necessity of redundancy(economic downturn may not always count)

• Alternatives available at the employer’s discretion are (requireemployees consent):

– Reduction of working hours

– Operational downtime

– Unpaid leave

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Are you required to consider alternatives todismissal in the United States?

• Not required, but recommended

– Lower legal risks

– Less harmful to employee morale/productivity

– Public relations/marketplace/investor impact

– Consider the long game

• Possible alternatives

– Hiring freezes (*filling necessary roles through employee transfers)

– Voluntary separation/voluntary retirement plans

– Shutdown periods (furloughs; mandatory time off without pay)

– Pay freezes/reductions; elimination/reduction of bonuses/incentive comp

– Vacation/PTO reductions; fringe benefit reductions

– Sale of business unit(s) (with transfer of employees)

– Increased individualized performance-based terminations

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Are you required to consider alternatives todismissal in the UK?

• As part of consultation, the employer should consider ways to avoid anyredundancies

• If there is no alternative to making a role redundant, the employershould consider whether any alternate employment is available

• Use reasonable efforts to find alternate employment

• Not obliged to create roles that do not exist

• Provide employees with sufficient information about the available roles

• Consider whether any alternate roles in affiliated companies

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PENALTIES FORNONCOMPLIANCE

What liabilities could you face if you do notcomply with your legal obligations in Germany?

• Works council may obtain injunction temporarily blocking RIF

– Where employer starts implementing RIF prior to having reached animplementation agreement with the works council or, in the absence of suchagreement, prior to the completion of a mediation process

• Severance

– Where employer gives termination notice prior to implementation agreement ormediation (as above)

– Up to 18 months’ pay for employees from age 55 with 20+ years of service

– Up to 15 months’ pay for employees from age 50 with 15+ years of service

– Up to 12 months’ pay for other employees

• Administrative fine of up to €10,000 where information provided to theeconomic committee or works council is incorrect, incomplete, late, ormissing

• Unenforceability of termination (reinstatement with back pay) if grounds fortermination are insufficient

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What liabilities could you face if you do notcomply with your legal obligations in Russia?

• Unfair dismissal claims

– Reinstatement of the employees at work

– Compensation for unemployment period

• Administrative fine of up to €700 x the number of employees affected bythe violation

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What liabilities could you face if you do notcomply with your legal obligations in the UnitedStates?

• Employees presumed to be at will, so statutory are liabilities limited.However:

– Potential discrimination claims (class or individual) based on selection criteriaor implementation (particularly if there is adverse impact)

– WARN Act:

– If event triggers the WARN Act and insufficient notice is provided, then employer maybe liable to each affected employee for equivalent of 60 days’ pay plus benefits;$500/day civil penalty (up to 60 days/$30,000); and attorney fees

– ADEA/OWBPA:

– Failure to comply with the release agreement obligations of the ADEA and OWBPA foremployees age 40 and older may result in the release being unenforceable withregard to federal age claims

– Breach of contract:

– Liability depends on underlying contractual obligations (executive employmentagreement, severance plan, CBA, etc.)

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What liabilities could you face if you do notcomply with your legal obligations in the UK?

• Failure to inform and consult collectively – 90 days’ pay per affectedemployee

• Unfair dismissal – generally two years’ qualifying service

– To be a fair dismissal, need a fair reason, and dismissal must be fair andreasonable in all the circumstances, including the procedure followed

– Basic award – same calculation as statutory redundancy payment (will not berecovered twice)

– Compensatory award – an amount the Tribunal considers to be just andequitable in the circumstances. Currently capped at lower of (1) one year’spay; or (2) £78,962

• Discrimination – uncapped

• Whistleblowing – uncapped

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IMMIGRATIONCONSIDERATIONS

Immigration considerations in aredundancy

• Practice pointer:

– Identify all impacted foreign national employees

– Assess impact on individual employee status

– Employment authorization typically restricted to sponsoring employer

– Assess government reporting or revocation obligations

• Rules vary by country

– Impact on workers

– Status

– Departure

– Grace period, if any

– Employer reporting obligations

– Potential continuing wage obligation

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United States: Immigration Key Points

• Foreign worker: Employment authorization is typically tied to a specificemployer’s sponsorship or petition, so termination not only endsemployment, but it usually also results in a loss of immigration status forthe individual.

• Employer: There is an obligation to affirmatively withdraw the H-1Bpetition, but there is no similar obligation with respect to other visaclassifications.

• Other: Termination will not affect permanent residents (green cardholders), but it will typically result in abandonment of any sponsorshipeffort that it is in process at the time of termination.

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UK: Immigration Key Points

• If an employee holds Tier 2 work permit authorization and is dismissed,the UK employer must notify the UK Immigration Authority (the HomeOffice) within 10 working days.

– The employee can continue to remain in the UK until she receives a letter ofcurtailment (a letter bringing forward the end date of her visa).

– Once the employee receives the letter she will then have 60 days within whichto apply for a new visa or leave the UK.

– If the employee leaves the UK she may then be subject to a 12-monthcooling-off period, during which time she cannot apply for another Tier 2 visa.

• Employees who hold indefinite leave to remain (permanent residence) orare UK or EEA nationals and are dismissed can remain in the UK and nonotification is required.

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Canada: Immigration Key Points

• Foreign worker: Employment authorization is typically tied to a specificemployer and work location, so termination not only ends employment,but it usually also results in a loss of immigration status for theindividual

• Employer: There is an obligation to notify Service Canada of the end ofemployment of any temporary foreign worker for whom a Labor MarketImpact Assessment (LMIA) was issued

• Other: Termination will not affect permanent residents (green cardholders)

• Other: During the LMIA process, employers will need to attest they areaware of the rule that Canadians cannot be laid off or have their hoursreduced at a worksite that employs temporary foreign workers

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Australia: Immigration Key Points


• Once terminated, a work visa holder in Australia has 90 days to eitherfind sponsorship through a new employer or leave Australia

• Employer: There is an obligation to notify the Immigration Departmentwithin 30 days after the end of employment of any sponsored Subclass457 work visa holder

• Other: The termination of foreign employees with pending permanentresidence visa applications will result in the cancellation of these PR visaapplications

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China: Immigration Key Points


• Foreign worker: If a foreign employee has not secured a new positionwith a different employee in China, then the foreign worker can requestto have his/her work permit converted into a 30-day Tingliu visa thatallows the foreign worker to remain in China to wind down his/heraffairs or locate a new employer and be sponsored for new work andresidence permits

• Employer: There is an obligation to cancel a foreign worker’s workpermit promptly after the employee’s last day of employment

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Presenters

50

Michael SchlemmerSilicon Valley

[email protected]

Bela PelmanMoscow

[email protected]

Walter AhrensFrankfurt

[email protected]

Eric BordWashington, DC

[email protected]

Lee HardingLondon

[email protected]

This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee similaroutcomes. Links provided from outside sources are subject to expiration or change. Attorney Advertising.


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MANAGING CROSS-BORDER REDUNDANCIES AND REDUCTIONS …

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