How to Conduct a Layoff Outside the U.S.
Conducting a layoff overseas is far more complicated than in the U.S. As a result, it's easy for U.S.-based companies trying to downsize outside the States to run afoul of foreign labor laws. To avoid stiff fines and penalties, U.S. companies need to understand the five tiers of overseas layoff regulation.
Mon, March 16, 2009
CIO — Because of the current global economic crisis, U.S. employers are downsizing in the U.S. and internationally. While reductions-in-force in the U.S. are not simple, layoffs outside the U.S. are even more complex and raise completely different legal issues. As a result, a U.S. employer implementing a layoff overseas can easily run afoul of local employment laws and incur significant legal liability unless the company proceeds with extreme caution.
Why Layoffs Are More Complicated Outside the U.S.
Reductions-in-force pose fewer legal problems in the United States because the U.S. is an employment-at-will jurisdiction; few laws beyond W.A.R.N (29 U.S.C. Section 2101), state equivalents and certain aspects of anti-discrimination laws regulate layoffs. Consequently, U.S. employers are free to make sweeping workforce reductions for any reason—as long as they do not discriminate or retaliate against employees—or for no reason at all.
In contrast, jurisdictions outside the U.S. regulate reductions in force far more comprehensively. Overseas, layoffs (called redundancies or collective redundancies in Europe; retrenchments in India; and termination, change and redundancies in Australia) pose challenges because these jurisdictions subscribe to the notion of "indefinite" employment. Indefinite employment systems regulate, restrict or prohibit employee terminations and grant recourse to employees who do lose their jobs.
Five Tiers of Layoff Regulation
Countries outside the U.S. impose up to five tiers of laws affecting workforce reductions, and U.S. employers conducting layoffs in countries outside the U.S. must comply with these laws.
The first tier deals with employment contracts, which are often legally mandated for employees in Europe. Any termination must comply with termination-specific clauses in individual employment contracts, collective agreements, and company-issued benefit plans and severance policies. For example, pre-termination notice (or pay in lieu) clauses are standard in many employment contracts outside the U.S.
The second tier deals with individual severance pay requirements. Countries impose up to four types of individual severance pay requirements:
- pre-termination notice obligation/pay in lieu (that is, a duty to give sometimes lengthy notice before firing, or to pay in lieu.)
- mandated severance payout/end-of-service "indemnity" (that is, mandated severance pay.)
- wrongful termination cause of action or a so-called "severance indemnity" court award (that is, employees can sue for wrongful dismissal.)
- mandated "redundancy pay" (extra severance pay for someone who got laid off due to lack-of-work, including enhanced notice pay, extra employer-funded "indemnities," job training and outplacement.)
The third tier requires employers to notify or negotiate with governments. In the Netherlands, employers must get approval from the government to do a layoff. If they don't get approval, they can't cut staff. Governments in Colombia, Venezuela, Japan, Korea and China can also block layoffs.
