International Series Episode 1: Mastering Workforce Reductions and Restructuring for Global Companies

Transcript

Maya Atrakchi
Of Counsel, New York City

My name is Maya Atrakchi, and I am a member of the International Group at Jackson Lewis, where we really support our U.S. clients with their global employment law needs. We're part of L&E Global, which is an alliance group made up of 34 firms in over 40 jurisdictions. We really operate as one firm, and work together on a daily basis. 

One of the big areas that we work with and constantly see U.S. companies really navigating the challenges associated with global issues is restructuring and reductions in force. I have my amazing colleague Florence Bacquet here from Paris. She'll share a little bit about herself. Florence and I work regularly on restructurings and reductions in force. We really see pain points recurring for U.S. companies as they are navigating a reduction in force that may impact their U.S. workforce and their workforce more globally. We hope the discussion today will be very informative, including some key takeaways, misconceptions, risks, and best practices that companies can take with them. We hope you enter your next restructuring or reduction in force more effectively, more efficiently, and most importantly, cost-effectively. I'll turn it over to Florence, and then we'll jump in.

Florence Bacquet
Partner, Flichy Grangé Avocats

Thank you, Maya. I'm Florence Bacquet, and I'm a French-qualified attorney with Flichy Grangé, so the French partner of Jackson Lewis in the L&E Global Alliance. As Maya explained, we work with Jackson Lewis on several international projects, especially in restructuring, which is what I specialize in. 

One of the key elements that we see is that Europe, and I'll try to speak as much as possible about Europe as a whole, but Europe often feels very complex and very different from the U.S. structure. This is where it's important that we work together, and this is what we actually do with Maya on a day-to-day basis. We try to find pragmatic and practical solutions for clients to navigate these very different environments.

Atrakchi

Thank you so much, Florence. You started discussing what we've been working on today. As a kickoff, what do you see as the biggest misconception of U.S. companies as they're handling a rift? They started in the U.S., and we're an at-will jurisdiction. They think terminations should be fairly quick, and if they decide that they want to terminate next week, then they would like that synchronized across the globe. I tapped into it a bit, but what do you see as the biggest misconceptions that U.S. companies have as they're navigating France and Europe more globally?

Bacquet

The biggest misconception is first, that Europe would be like one single jurisdiction and acting just as a whole. Second, that it would be just slower than the U.S. It's not just that it is more often, let's be honest, but also it's a different perspective on risk. It's more process-driven, and process is very important, and we see it as a very regulated legal process, and that's in most of the jurisdictions in Europe. It's really not just to give more time; it's also to actually follow the steps. 

If I take the example of France, of course, we have a specific process depending on how many restructurings, how many job cuts you have, but it's actually the same in Germany, it's the same in Spain, it's the same in Italy, and there are certain thresholds. You have in various jurisdictions a very specific process to follow, and if you don't, this is where you have an issue. The misconception is that it's not just slower; it's a very structured process, and it's not harmonized. We have directives in the European Union that set the floor, if I can say it like that, but local jurisdictions have specificities, and a client would need to be sure that their project has adapted and is compliant with a local jurisdiction’s laws.

Atrakchi

I'll add that, in terms of harmonization, we really see this issue vice versa when companies are entering the United States, and this is actually a podcast that we'll do in a few weeks regarding U.S. restructuring and misconceptions that global companies have. In terms of harmonization, people and company enters the U.S. and they expect the termination process to be one-to-one, regardless of whether their employees are in California, Florida, or New York. At a high level, of course it is, but there are all sorts of nuances. The payout of PTO and bonus notices regarding unemployment benefits, final pay of salary, and all those things are both costly and can create compliance and reputational issues if not followed. A U.S. company, as they're entering the E.U., has an understanding that there are these directives, and they think if they're in France, Belgium, or Germany, the process will be quite similar. However, we do see expansive differences. 

Shifting now into a softer matter. When and how do you think E.U. counsel or local counsel, in general, should be involved in the global RIF process? A lot of times, we see clients come to us again, as mentioned at the beginning of the podcast. They're notifying employees in the U.S. next week, and they'd like to do a similar process in the E.U. What's too soon? What's not what? What's not soon enough? How do you see that balancing act of involving local counsel and, at the same time, trying to be aware of global synchronization, and not going too much into the local requirements before you need to?

Bacquet

It is a balancing act, and I'm not sure there is a time too soon. There could be a point when you do not have enough details, and you don't know yet. However, clearly too late is going to be the most expensive problem. One key moment, and that would apply to about every jurisdiction in Europe, would be when you have the headcount number per jurisdiction, because it is going to be, and I'm sure we'll have time to talk about it, it's going to be a key element that's going to very much shape the process to be followed in each jurisdiction. Your process is going to be different depending on how many job cuts you have. Once you have the headcount in each jurisdiction, you need to have local counsel involved to understand whether this is a small restructuring, not a restructuring at all, or even if it's a massive restructuring that you need to anticipate. 

Second, it's not just having the head count and knowing where you go. It's not just about the process. It also helps to find alternative solutions. We had a case where our client wanted to do a very big restructuring all over the world, really. Coming to France, having this tough process that we have for redundancies in France, because we were early enough to say, given your numbers and your headcount, maybe we should try an alternative route, which will be more effective for you. That was through a voluntary plan. If you start to plan too close to the actual announcements, you don't have time to reshape, rethink, and take a moment to think about what will be the best way forward. Once you have the number of job cuts and clarity on the headcount in the country or jurisdiction, that is when, to me, in that very last moment, is when you need to involve local counsel to understand what's going to be the most compliant route and what could be an alternative yet compliant route to take.

Atrakchi

Along with that, what triggers a collective redundancy? Of course, in the E.U., there is this Collective Redundancy Directive, but how countries have implemented this can really vary on a case-by-case basis. The number of terminations over what period? What triggers are there in France? What is there to consider globally? How can we potentially avoid hitting those numbers?

Bacquet

If we talk about, for instance, I'm going to scare people here, but it is very small. The trigger is if you have just two redundancies, there is a small process, but it's fine, really. It's pretty straightforward. If you reach 10 redundancies over the same period of 30 days, which is not that much really, you come up with this number very fast, then you start to have a much bigger process to follow involving a consultation with the works council, social plans, and many other elements. In fact, this threshold in France, 30 days and 10 job cuts, is going to be adapted in each jurisdiction. This is where it becomes a bit tricky, because you don't have the same thresholds. The directive sets a minimum, but some countries, including France and Germany, have lower thresholds. It can also depend, for instance, in Germany on the size of the company. You cannot say that there will be the same threshold for a bigger company and a smaller company. This is also where, as a client and foreign company, you need to have local counsel involved. Don't just read what you can find on the internet or in some AI chatbots, because it is a very complex matter. It is very different in various jurisdictions. You need to have someone to say, this is your situation and these are the thresholds actually applicable to you. That's where it becomes key to have this advice.

Atrakchi

What about alternatives to avoid? Do you recommend clients adopt a voluntary plan, or maybe if they're very close to the threshold number, to think of potential alternatives, maybe even spacing out the termination so as not to fall within this defined period?

Bacquet

That’s why it is important, as I was mentioning, to have counsel sufficiently in advance to be able to shift to those processes. One thing that's also interesting about voluntary plans, for instance, is that in Europe, you mostly have what we call selection criteria. You cut jobs, not people. You don't pick and choose the people you want to see gone. It's really about the positions. That's really about restructuring and forced redundancies. When we see clients who are having issues, maybe defining the economic rationality that has to be presented at some point to support the restructuring, fitting the right number, or going into a very large restructuring process with a social plan and a works council consultation. Given the headcount, the context, and how the workforce is shaped, maybe a voluntary plan will lift all or many of those constraints and will be as efficient. It will be different. It will be presented differently.

This brings up another point I want to make, which is that communication needs to be harmonized. The communication is not going to be the same, but in the end, I think what we aim for is to implement the restructuring. Maybe it will be an alternative route, and it will be as good as through voluntary plans. Sometimes we have clients who take more time, so we can anticipate other ways to just work side by side on smaller plans, but over a longer period. There are compliant alternatives available. Sometimes they're better fitted to what the company needs, in fact. It is also better suited to what the company will be able to deliver, because working through a consultation with the works council is not necessarily easy. It's not that it's too scary, but it shouldn't be that scary. Anyway, the company needs to be ready, so having those alternatives available and having the time to consider them is just important.

Atrakchi

You mentioned the works council a bunch, and that really brings me to my next question. I think U.S. companies hear works council and they just find the concept intimidating. We'd love to hear from you, almost on a basic level, what is a works council? How is it different than a union? What role does it play in this process? How can we maximize the relationship with the works council to make the process smoother and more efficient?

Bacquet

Sure, works councils do not exist in every jurisdiction in Europe. I would say it's more central Europe. The UK is no longer part of the EU, but it's not in, I would say, the Anglo-Saxon countries, like it is not in Ireland. Works councils come from France, Belgium, Germany, and Italy. The idea is that it's an elected staff representation body. Its employees from the company elected to represent everyone regardless of their being associated with a union. It's really the people voting talking for the people if you say it's a bit like an MP. It's through an election, whereas a union represents a union, and a union member comes from that. 

I understand why a works council can be intimidating, especially in jurisdictions such as France, Germany, or Belgium, where they have a lot of powers and can request experts to help them move through the process. Let's be honest, it can be intimidating. Yet, when you have transparent communication and are compliant with the regulations, in fact, the relationship with the works council can be beneficial to everyone. They can also bring out some good elements. What's key to understand, at least for France, and that's not the case in every jurisdiction in Europe, for instance, different in Germany, but for France, the works council has to be consulted. It does not have to approve, but just give its opinion on a project before it is definitive. It's really very important that the works council be informed before you have a big announcement, like saying a project is done, it’s over. In Germany, on the other hand, you can do it sometimes later, but for some projects, you need to have an agreement. Again, we come to the same idea that each local jurisdiction has its specificities. 

In terms of a works council, one of my clients told me you have the unions and the staff reps. If you work in a transparent way, and you accept that you have staff reps who work with you. Yes, sometimes they will ask questions that you will need to answer, but they can also bring some ideas and give you some feedback on what the employees think. It will work. If you are very confrontational from the beginning, then usually it doesn't work very well at the end.

Atrakchi

Now, you touched on the communication, not just of what's compliant and what's required, but understanding the cultural nuances of that particular jurisdiction. The relationship that the company has with the work council in that jurisdiction can go such a long way in helping the process run smoothly. You touched on it in terms of the consultation process that's required with the works council, and also more broadly across the E.U., in the UK, Ireland, and outside of Europe, also in Australia and Israel, there are consultation processes. 

A lot of issues that we run into are timing and coordination. A company will come to us, and it will be really important for them to have synchronization. They have departments that work very closely together. For example, a marketing department will have an employee in France, another in Australia, and another in the UK, and they'll want everyone notified at the same time. Also, they will want to keep a positive morale for their existing workforce and say that there will not be additional terminations following these. However, there is tension between an at-will jurisdiction like the U.S., where you can provide notification fairly quickly, versus other jurisdictions. How do you see this tension? How do you see companies navigating and balancing this act of trying to provide synchronization and also maintain compliance with consultation processes, notice periods, et cetera?

Bacquet

There's a tension, and we have some solutions. They're not always the best solutions because clearly, again, the timing is very different from the U.S. to some countries in Europe and between countries in Europe. You could go faster in some countries, but in some other countries, like France or Belgium, you need to wait until the works council has issued its opinion before you can make some very formal, definitive communication and announcement. 

In fact, we work around it. We try to find solutions that can at least satisfy everyone. Usually, what we work with is to say the company announces globally it's proposed restructuring, and it insists locally on the fact that there are some country-by-country consultations, which means that the works council has to be consulted, but that doesn't mean that you cannot communicate at all. It means that you need to shape your communication so that whatever you say is still a project. It's not the best, and I understand because it doesn't allow the employer to just give a very straightforward message. It's a bit different; it's a project or a proposal, but at least it allows everyone to have the message at the same time because, as you said, you have some people in teams in various countries. Of course, they are going to talk to each other about something that has just been disclosed in the U.S. If it is known in the morning in the U.S., even if it is the afternoon in French time, within seconds, everyone within the team knows about it. It's really key to coordinate communication in terms of timing, but also in terms of what you say. We've had some cases that unfortunately went up to litigation, and actually, the communication was used by French courts to say, what you communicated to the overall company to the world really showed that you had made up your mind it was no longer a project and instead was a decision, so it's something to be mindful of. It’s not just a message; it is something that could come up later to be used against you. Again, what we work with is just to say to work around terminology, proposed restructuring systems, and local consultation to try and navigate to find a compromise, really, between the various constraints. 

This is also another reason to involve local counsel not too late in the process, because it gives us just a bit of time to go through the communication decks and to ensure that this is compliant and when we review that, to make the changes as minimal as possible that we suggest.

Atrakchi 

Another surprise and one of the key components of this as a company is navigating a restructuring or a reduction in force is severance and cost expectations. Across various jurisdictions, there are statutory redundancy fees, and there are different notice periods. You can be required to pay restrictive covenants and strong expectations around enhanced packages. How do you propose a U.S. company thinks of severance, and more generally, costs around a redundancy in the employment law space as they're navigating redundancy globally in the E.U. and France specifically?

Bacquet

To your point, after discovering the works council and being afraid of the works council, the second scary part is indeed severance costs, which are much higher than what you see in the U.S. That's a fact, and there is nothing against it. The trend in many jurisdictions is to make it more transparent and predictable. That was something France worked on a lot since 2017. I know Spain has a very straightforward formula applicable, but basically the main difference compared to the U.S. is that it has several layers, if I can put it like you have a notice period in most countries. Then you have a severance payment, which is either set by the law or the collective agreement that would be applicable. On top of that, you could have accrued vacation or PTO that would need to be paid if not taken at the end of the contract. On top of that, even on top of that, if that's not enough, if you don't follow the right process and cannot demonstrate the right economic rationality, then you come with damages on top. You can see that you have several structures. It's very important to anticipate those costs and to be conservative, I have to say, about those costs. It's always a nice surprise when, in the end, your costs are less than what you had expected. Clearly, it's a multi-step process. 

At least what we can say in various countries, because it has been presented by foreign investors as being negative for the business and not business-friendly, because it was unpredictable how much you could get and how much you would have to pay when hiring someone. There has been significant work to try to make it more predictable. Again, Spain has done it. In France, we have done it because now the amount can be defined beforehand, because we have those branch collective agreements, but also in terms of damages, where we have a scale of damages with a maximum. That's very helpful in terms of navigating your cost and knowing where you step, in fact.

Atrakchi

We really emphasize the importance of budgeting to the clients. In some cases, maybe creating a best-case scenario, a worst-case scenario, and then something in between, managing expectations for leadership. Even if things generally run as planned, there are outliers, employees who are on sick leave, maternity leave, or disability. Each situation needs to be navigated accordingly. The more a company can be flexible and adaptive and understand the ranges and expectations, the smoother the process goes. People long-term have a better expectation versus going into their next restructuring, and also the workforce more broadly sees the transparency.

Just to finish up here, I thought maybe we'd go through some best practices. We’ve touched on a bunch of them throughout our discussion. I'll kick off one, actually, that we didn't speak about so much, but something that I see really is a differentiator for reductions in force and restructuring that go more smoothly than others is the alignment between various departments – legal, HR, finance, communications, and your broader leadership team. When a process is siloed, so let's say only HR is handling the process or only legal is handling it, and there isn't this alignment and transparency between the departments, things can fall through the cracks. It can also impact your reputation with your employees more broadly. We have certain processes, like we'll do a daily call where there's a representative from each department, maybe one or two representatives. You don't need too many cooks in the kitchen, but if there are various regions involved, this is something simple that can go a long way in ensuring that the process is efficient, effective, and compliant. 

Of course, we spoke about budgeting. Is there anything else that comes to mind for you in terms of best practices?

Bacquet

Just to say more on what you were discussing, it also helps when it comes to consultation or the involvement of staff representatives in Europe. It gives everyone a better understanding of what the operational constraints are, why we're asking those questions, and why we need to answer. It gives everyone a better background and better information. I'd say, so you mentioned alignment, and I am all for it. 

Also, it's important to go fast, but sometimes going too fast is not good either. It's not always about being fast. It's also about sometimes knowing when to take the time to do it right. Because when you start a process too fast, and you've not done your business right, then it's going to fail. That's going to be time lost in the end because you have to redo it all over again, or reputational damage.

Also, if possible, I'm conscious and aware that it's not always possible, but having a nature operational in your foreign jurisdiction, in Europe somewhere, or someone closer to those jurisdictions will be necessary. Having some boots on the ground at some point. Someone who will be able to actually negotiate with the unions or the works council if it comes to that, or who actually knows about the teams and their organizations and how the RIF will impact them. When the process is just managed from too far away, then sometimes you do in fact miss the small details that are going to make it all go straight. Having someone, if not in the country, because obviously you cannot always have one manager in every country, but at least closer to those involved in the restructuring. Someone who's going to be able to give the tips and the background of where we stand. It’s important.

In terms of background, you discussed aligning the various departments. I would say aligning at some point the various countries and to map out all of your obligations to try to see what the common ground is and where there are common denominators that will launch obligations everywhere. 

Atrakchi

Really, the key, as you mentioned, is that map and having thresholds where your consultation obligations are. It really expands beyond the works council. Even individual processes in the UK, Ireland, and Australia are required to consult with the employee if they have more than two years of service prior to providing termination. This is a common mistake you see with employers providing notice before they've gone through this consultation process, which means sharing with them that a restructuring is happening, but you know not confirming the decision has made regarding their particular role. This does not allow for opportunities to consider alternative options or to hear feedback before you make a final decision. Again, this can seem cumbersome on the front end, but it can really, really impact you on the back end, both in terms of time and cost. Unfair dismissal can be up to one year's salary in the UK; for example, in other jurisdictions, it's not compensable; it's just rehiring the individual. Obviously, you don't want to have this role within the organization. It will be a significant payout in terms of settlement in order to avoid reinstating them. Again, preparing the process effectively from the beginning, aligning your team and budgeting correctly, can really create a well-run process that reduces costs and conflict and provides positive morale for your workforce long term. 

Florence, any final words before we sign off?

Bacquet

No, I'd say coming back to initially what we said, the balancing act between involving local counsel too soon and too late. Too late is really a big damage. To me, the earlier, the better.

Atrakchi

Excellent. Thank you so much for joining us. We'll be back in a few weeks with part two, which will be geared towards global companies navigating U.S. RIFs. So come back, we'll have a colleague at Jackson Lewis, Jeff Brody, who runs our RIF group. It’ll be very informative. Again, best practices, key risks to consider. Thank you for joining us.