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Voluntary Redundancy Programs as an Alternative to One-sided Staff Cuts

For various reasons, in particular the effects of the Covid-19 pandemic, companies may be forced to make short-term decisions on staff reductions. Staff can be reduced traditionally by the employer by termination for operational reasons, or through termination agreements signed by common consent on the basis of so called voluntary programs. After thoroughly analysing the existing situation (among other things, existing job security, company image, the decision-makers on the works council and at the trade union, economic situation), the company should decide which way to go on a case-by-case basis. This article shows that voluntary programs can be a genuine alternative to one-sided staff reductions, and how this can work.

The Most Important Pros and Cons of Voluntary Redundancy Programs

Voluntary programs can be implemented quickly and therefore lead to swift financial relief. As termination agreements are concluded to ensure legal compliance, there will be no dismissal protection lawsuits involving legal risks. Voluntary programs are low profile, with minor impact on the company's image. The programs do not require social selection, so that it is possible to come to a separation agreement with older employees and employees under special protection against dismissal so they can help to achieve a new, desired age structure. This often reduces staff costs permanently if older and more expensive employees leave. In contrast to a one-sided staff reduction, voluntary programs do not usually induce strike action by trade unions which might be represented in the company, or at least in a reduced form.

The disadvantages of voluntary programs are that they are often very expensive and might constitute a negative precedent for any later social plans with one-sided staff reduction. From the company's point of view, a voluntary program that is wrongly designed bears the risk that key employees, who the company actually wants to hold on to, leave with high severance payments, and that the company will have to bring in expensive replacements for them later.

Negotiations with the Works Council

Voluntary programs may be implemented in businesses with or without works councils. If a works council exists, the voluntary program constitutes a measure which must be negotiated with the works council and which is subject to a reconciliation of interests and a social plan, insofar as the planned downsizing is covered by the requirements of section 17 of the German Protection Against Unfair Dismissal Act (KSchG). If the works council supports the voluntary program, the additional challenge of a collective social plan with the trade union typically will not arise, or will at most assume a subordinate role.

For the voluntary program to be successful - from the business perspective - careful consideration should be given to an exact definition of the scope of its application during negotiations with the works council. Furthermore, the works agreement regarding the voluntary program should include a provision reserving its "double voluntary nature". Such a provision can prevent key employees leaving with severance payments. However, a guideline must be drawn up to cover the risk of repercussions for employees, if they state an interest in the voluntary program, but where the company refuses to conclude a termination agreement as it does not want to lose them. It would also be beneficial to define a clear structure of financial terms (e.g. compensation formula with ceiling). We consider it highly recommendable to include a bonus, i.e. an additional payment for employees who sign the termination agreement within a very short period of time (for example, 10 to 14 calendar days). Additionally, the number of jobs to be eliminated should be specified.

The company should define guidelines on a one-sided staff reduction, which might become necessary as a follow-up measure, if the number of jobs to be eliminated is not reached. Such guidelines provide the company with reliability and a time schedule and thus the ability to plan, which together frequently save the business a lot of money. From a business perspective, a voluntary program runs particularly well, if it is possible to negotiate with the works council, in addition to the works agreement for the voluntary program, a social plan with lower benefits in case of unilateral terminations. The social plan applies if the desired reduction numbers have not been reached after the voluntary program has been finalized.

Blocking Period and Mass Dismissal Notification

Since it is common for voluntary programs to make severance payments of more than 0.5 monthly salaries per year of employment, the employee often faces a blocking period of twelve weeks before he can claim unemployment benefit. Insofar as the business does not wish to bear these costs, it should attempt everything with regard to labour and social security law, partly in cooperation with the works council, in order to avoid a blocking period (i.e. "collective decision"). As voluntary programs frequently conclude a number of termination agreements that exceed the standard number pursuant to section 17 KSchG within 30 calendar days, a mass dismissal notification must be sent to the relevant Federal Employment Office (Agentur für Arbeit) before signing the termination agreements. If this is not done in the correct form, the concluded termination agreements are ineffective. As voluntary programs usually grant a bonus for those who make a quick decision, it is frequently not possible to navigate the process in a way that renders a mass dismissal notification unnecessary, i.e. by not exceeding the number threshold. Businesses frequently fail to consider that the threshold includes terminations that are not part of the voluntary program (e.g. terminations by employees for operational reasons, dismissals with the option of altered conditions of employment).

Actual Implementation and Communication

The voluntary program should be openly supported by the works council (for example at works meetings through joint declarations by the employer and works council to employees). In order to have the works council on its side, a company should consider the budget for the voluntary program carefully and ensure a transparent restructuring concept, which is ideally confirmed by a works council expert. In any case, a well-planned and considered communication strategy is essential for the success of any voluntary program. In this context the following should be taken into consideration: a time schedule, guidelines for termination talks, the preparation of flyers, posters, and letters to individual employees.

Conclusion

Businesses that have to downsize should look thoroughly into the advantages and opportunities which voluntary programs represent. The employer may openly enter into negotiations with the works council on a reconciliation of interests and a social plan and suggest a voluntary program. Alternatively, the company may initially declare its intention to implement a one-sided staff reduction. The works council may then discover the possibility of using an initial voluntary program prior to the implementation of a one-sided staff reduction in the course of negotiations. However, this depends on the existing situation of the business and on the negotiation strategy chosen by the employer. Businesses should take reasonable advantage of their opportunities to design and navigate this situation.

KEY POINTS

  • Voluntary programs, which may be skilfully combined with a one-sided staff reduction and respective regulations for handling and/or designing a social plan, are an effective method and a genuine alternative to one-sided staff reductions.
  • Good analysis of the legal and actual situation, careful preparation and a reasoned negotiation strategy by the employer are all important factors for the success of a voluntary program.
  • Voluntary programs are frequently successful, if supported by the works council.
  • It is essential to involve labour lawyers early in the process to ensure the voluntary program is designed and implemented successfully.
  • In spite of their high costs, voluntary programs offer considerable advantages.

by Dr Wolfgang Lipinski, Head of the Labour & Employment Law Practice Group, BEITEN BURKHARDT, Munich

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Dr. Wolfgang Lipinski T   +49 89 35065-1133 E   Wolfgang.Lipinski@bblaw.com