Editor’s Note: We are pleased to welcome Jacque Vilet as a guest author for the International HR Forum. Jacque is a Global HR/Benefits Consultant for TriNet, providing global Human Resources services to SME’s with international operations. She has over 20 years experience in International Human Resources with both local nationals and expatriates, and has been an expat twice during her career. Jacque holds the Certified Compensation Professional (CCP) designation from WorldatWork, and the GPHR (Global Professional in Human Resources) designation from the Society of Human Resources Management.
In Part 1 of “What Keeps Executives Up at Night”, we talked about the importance of employment contracts and how requirements vary from one country to another. But employment contracts are only one of the major labor issues that companies face when doing international business. Terminating local national employees can also create major problems.
Like employment contracts, there are strict procedures and processes for terminating employees that vary by country. This post, Part 2 in a series, will focus on termination rules from selected countries around the world.
There can be heavy monetary penalties if terminations are handled improperly. Settlements are usually calculated as a multiple of annual earnings. In the EU particularly, termination settlements can amount to two to three years of earnings. Settlements as high as eight times earnings have been noted.
Let’s take a look at some examples of how global terminations can vary.
Termination based on business reasons (for example, an employer’s decision to restructure its business in a way that certain jobs or positions are no longer needed), requires a process called social selection (Sozialauswahl) be applied. The employer must identify who among the employees should be given notice if more than one person is redundant, using a process of social selection. Employers must consider the following factors for each employee:
- Number of dependents or maintenance obligations; and
- Disability (if any).
The employee with the highest factor(s) in the social selection process keeps his/her job.
It does not matter that the employer may be shutting down a global business unit that has only one type of job, that needs to be laid off in all countries, Germany included. The laws in Germany disregard this. The only process that can be used is the one described above, the social selection process.
The criteria used to determine which employees are going to be dismissed are based on data given by the social selection under the Dismissal Protection Act (Kündigungsschutzgesetz). It is extremely important that the social selection is performed without any significant mistakes, since every mistake puts the validity of the termination at risk for possible litigation in front of the labor courts..
The Labor Contract Law requires dismissal to be based on objective and reasonable grounds and appropriate in general societal terms. For example, if a worker breaches discipline this would be called a disciplinary dismissal. This type of dismissal is most dishonorable and prejudicial to the employee. Because of this, the courts examine these cases very strictly.
The concept of “constructive dismissal” does not exist in Japan. Another unique part of termination law is that other than being paid 30 days advance notice of termination, employees do not have any rights to severance pay.
In practical terms, the validity of a company’s claim for termination is strictly examined by the court if disputed. Therefore, employers try to persuade the employee to voluntarily resign by providing monetary incentives. This is a very common practice. It allows the employee to “save face” and leave the company with honor. Depending on the employee’s length of service, the incentive could easily amount to one to two years pay.
If an employee in Mexico believes that he/she has been unjustifiably dismissed, the employee is entitled to demand at the proper Conciliation and Arbitration Board either to be reinstated in his/her position or be paid an amount equal to three months’ salary. If the employer cannot justify the reason for the dismissal, the employee also will be entitled to back wages from the date of dismissal to the date of payment.
Because employment relationships in Mexico are based on the principle of employee stability, if an employee demands reinstatement and obtains a favorable resolution, the employer must comply and reinstate the employee. An employer can be excused from mandatory reinstatement only in certain situations:
- If the employee has been employed for less than one year;
- If, on the job, the employee is in direct and permanent contact with the employer, therefore making a normal relationship impossible; or
- For employees in positions of trust, such as executives.
For more information on Mexican termination rules, see this summary from the International Labor Organization (ILO).
Situations of massive worldwide layoffs always seem to involve more costs, delays and problems. Layoffs in some countries may be completed relatively quickly. Layoffs in other countries, even if started on the same date, may sometimes drag out for months. With all the procedures and costs of layoffs internationally, some multinationals reassess the need to do a reduction in force and, on occasion, opt for milder solutions, like incentivized voluntary terminations, hiring freezes, or even pay-cuts.
The actions taken to reach a legal resolution regarding employment terminations are tedious, require much time from both local and corporate management and incur both corporate and local country legal fees. In addition, if the company loses a labor court case, monetary penalties can be substantial.
Tip: Never, ever, process a termination without the advice and counsel of a labor lawyer in-country, or with specific knowledge of the local jurisdiction.
Executives CAN sleep at night by understanding the important complexities involved in labor laws around the world. Handling employment contracts and terminations correctly are good places to start.
Does anyone have any stories to share regarding a termination in your country? Please feel free to comment as we all gain from sharing!
Important Note: This document is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that TriNet is not engaged in rendering legal or accounting services. If legal or accounting advice is required, the services of a competent attorney or accountant should be sought.
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