International HR Economic Downturn Toolkit:What You Need to Know to Project-Manage Cross-Border Restructurings, Pay-Cuts, and Reductions-in-Force

When a US-headquartered employer suffers economic difficulties and needs to cut back its human resources costs, the first strategies that will likely come to mind are US-style retrenchments like restructurings, pay-cuts, and reductions-in-force. Because the US is (virtually uniquely) an employment-at-will jurisdiction, implementing a restructuring, pay-cut, or reduction-in-force within the US, although inevitably tricky, tends to be less regulated, by international standards. Outside the US, where so-called “indefinite employment law” systems impose the concept of “vested and acquired” rights, laws regulate workplace restructurings and pay-cuts rather more extensively than in the US—and they regulate reductions-in-force substantially more extensively.

To address what you need to know to project-manage cross-border restructurings, pay-cuts, and reductions-in-force, our discussion breaks into three parts: (A) “vested/acquired” rights restrictions on restructurings outside the US (B) restrictions specific to pay-cuts outside the US and (C) project-managing cross-border reductions- in-force.

A. “Vested/Acquired” Rights Restrictions on Restructurings Outside the US
American employers are generally free to make sweeping workplace restructurings that result in material reductions in work terms, a freedom they exercise regularly. By contrast, outside the US the operative legal rule is “indefinite” employment—or, as it is known in the Philippines, the “security of tenure” doctrine. Indefinite-employment systems regulate, restrict or prohibit employment terminations and grant to fired employees a cause of action (of one sort or another) for unfair dismissal. Outside the US, an employer that violates the vested rights rule and unilaterally makes changes that materially reduce terms and conditions of employment risks having employees quit, sue for constructive discharge, and demand full severance pay. In many countries the burden in these lawsuits shifts to the employer to prove the quit was not a constructive discharge. And in some countries, such as Brazil, an employee may have standing to sue even without quitting.

B. Restrictions Specific to Pay-Cuts Outside the US
Of the various cost-cutting measures that an employer might make (such as benefits cuts, pay freezes, forced paid vacations, unpaid leaves, temporary shut-downs), pay-cuts in particular involve unique complexities. When considering a straight pay-cut (one that does not alter compensation structure), in most (but not all) jurisdictions a five-step analysis is necessary: (1) Verify that pay-cuts are not flatly illegal or against public policy; (2) Comply with minimum wage laws, statutory benefits mandates, and employment contracts; (3) Articulate a demonstrable, genuine, and pressing economic need that justifies the pay-cut; (4) Determine whether employee consent is necessary, and collect consents where it is; and, (5) Follow the country-specific local procedures and rules that modify or add to the above four steps.

C. Project-Managing Cross-border Reductions-in-Force
Jurisdictions outside the US regulate involuntary RIFs more comprehensively. Overseas, RIFs (called “redundancies” or “collective redundancies” in Europe, “retrenchments” in India and “termination, change and redundancies” in Australia) raise tough problems because these other jurisdictions subscribe to “indefinite” employment. In short, laws overseas demand tailored compliance tools, while US RIF tools are inappropriate for structuring an outside-US RIF. Therefore any multinational project-managing a RIF that simultaneously affects employee populations both in and outside the US should bifurcate its RIF plan into a dual US/rest-of-the-world model. Handle the US prong like any US RIF, but simultaneously engineer distinct, yet aligned, overseas strategies. A best practice is to come up with an overarching global RIF project plan with a US component plus separate local “field guides” aligned in format across countries.

Read Related Articles

The full article, outlining specific strategies for project-managing cross-border HR restructurings, can be found in the current issue of International Finance & Treasury.

Whether your transaction involves cross-border finance from Europe, the U.S. or emerging markets in Asia and Latin America, International Finance & Treasury is your best source for solid, trusted, timely advice on corporate finance regulatory issues ranging from international accounting regulations, governmental hurdles for regional tax planning and financing strategies, to regulatory issues such antitrust, securities regulation or financial governance matters. To Subscribe>

Printable Version | Email to a Friend