Addressing negative externalities of collective dismissals

First and foremost, special procedures for collective dismissals reflect the need to address important negative social and economic consequences that collective dismissals may have. Those are related to the fact that in collective dismissals, the social value of even one individual’s job can go beyond its private value (Cahuc and Zylberberg, 2006), and the value of worker’s human capital can be greater for a society than for an individual firm (Booth and Zoega, 2003). Depending on company’s size and the number of workers to be dismissed, collective dismissals affect not only individual workers, but also whole sectors of activity, labor market segments, and geographical areas. A relatively large collective dismissal may depress the local economy and, thereby, increase the likelihood of dismissals in other local firms. There may also be risks of poverty and social exclusion not only of the affected workers, but also of their families, and severe consequences for the health of the affected population, including stress over job loss, sleep deprivation, depressions, and even suicides (for a review, see Countouris et al., 2016). In addition, many workers entering suddenly into unemployment will interact in their job search activities, creating congestion, with negative effects on search efforts of new unemployed workers and decreasing their likelihood of finding a suitable job at a local level. Thus, the laws and practices of many jurisdictions regarding collective dismissals aim at avoiding systemic disruption of the labour market and of the local economy.

Internalizing costs of collective dismissals

The social costs of collective dismissals may include, but are not limited to, providing the economic support to the unemployed; expenses linked to retraining workers and helping them in finding employment; expenses linked to relocations of workers and their families; economic desertification of an area and consequences for other enterprises and sectors, including education and medical sectors, among others; as well as various hidden costs including health care and criminal justice (Collins et al., 2012). Thus, as a second objective, both ILS and the national laws and practices of many jurisdictions on collective dismissals explicitly aim at internalizing these costs, in other words, involving the employers in sharing the burden of costs with the society, with public authorities and public budgets. Moreover, research shows that cooperation between tripartite social partners with a view to anticipating and preparing restructuring processes can help to avoid or lessen the overall costs (Eurofound, 2011).

Improving risk-sharing and redistributing the losses

Since having all of the social costs borne by the employer may be not be possible, nor desirable, the third objective of the collective dismissals procedure is to redistribute the losses and share them equitably – not only between workers and societies, but also between employers and societies. For this reason, both ILS and national laws and practices also often explicitly aim at finding solutions to prevent such costs, jointly by the tripartite social partners. Social dialogue is key in this respect, as it can result in ingenious solutions to preserve jobs and improve outcomes for the workers, the employers, and the communities at large. Involvement of public authorities at the consultation, notification, and/or approval stages, if well designed, can help develop solutions to mitigate and better forecast the consequences of collective dismissals.

Reducing information asymmetries

The effective realisation of these objectives can only be possible if full information is available to all parties. Thus, the fourth objective of the procedure is to reduce information asymmetries between workers, employers, and also public authorities. This asymmetry is due to the fact that employers have more and better information on the economic situation of a firm that leads them to consider collective dismissals.

The information asymmetry is principally reduced at the notification and consultation stages of the collective dismissals procedures. Unless addressed, information asymmetry may create an imbalance of powers, aggravating market failures. The costs of such consequences are usually not incorporated (and cannot be incorporated) in individual private contracts between employers and employees. Rather, they are shifted to the taxpayers or to social security systems (Skedinger, 2010), hence again begging for involvement of the tripartite social partners in their avoidance. Moreover, the respect of the information and consultation procedures may also have other effects, such as reducing a “moral hazard” situation where, once the dismissal plan is agreed, but there was no information provided, or provided too late, the employer may have an incentive to conduct a dismissal differently from the one agreed upon.

Decreasing transaction costs

In the absence of a collective dismissals procedure, carrying out multiple individual dismissals may be quite costly for an employer. Thus, the fifth objective is to create a special avenue aiming at decreasing transaction costs of multiple dismissals. In most of the legal traditions, collective dismissals procedures are designed to respond to objective circumstances faced by an enterprise, and to accommodate the business needs by streamlining several individual dismissals into a constructive channel. The special procedure reflects the recognition of the necessity to provide the employers with an efficient way to terminate the employment of workers by preserving their businesses and competitiveness, taking into account the requirements of the enterprise (GS 1995, p.106). It offers a possibility for employers to find solutions jointly with workers and their representatives over the number of separations, the type of separations (some workers may accept voluntary departures), the schedule, and the list of workers concerned. As the procedure often includes the possibility of selecting and rehiring employees, employers may be in a position to strengthen their productive capacities.

Public authorities may also play a positive arbiter role in facilitating and streamlining terminations for economic reasons, especially where social partners cannot find an agreement. They often have special competence and experience to handle sensitive dismissal issues and to plan many of their aspects.

Many good practices aim at rendering collective dismissals sensible and fair. When several individual terminations need to be effectuated, collective dismissals procedure aims at offering a transparent and fair alternative, which can help mitigate the adverse psychological climate in which redundancies take place, and thus help preserving company’s productivity and reputation. Effective management of collective redundancies may also help maintain trust and provide a decent basis for restructuring the business, helping employers to preserve their uniqueness rather than re-starting their business from ground zero.

Reducing uncertainties

Last but not least, because both individual and collective dismissals may be challenged in courts by workers and unions, the expectation of a certain court’s decision will directly impact the likelihood and the content of individual worker’s actions against their own dismissal. Collective dismissals procedure conducted in an open manner and involving genuine negotiations can reduce litigation risks and their uncertain legal outcomes, which is of value for both workers and employers (Oyer and Schaefer, 2002). For example, some authors show that the passage of the Civil Rights Act of 1991 in the US has affected the methods of displacement used by American firms (Oyer and Schaefer, 2000). To the extent that it was legally possible, some firms preferred to implement a collective dismissal procedure instead of many successive individual dismissals, in order to avoid high costs of wrongful termination litigation. If many workers were to be dismissed at the same time through a special procedure, it would be very difficult to prove discrimination in courts thereafter (ibid; Malo and Pérez, 2003). Thus, one of the outcomes of the special collective dismissals procedure is often a legitimization of the whole dismissal program.

In light of the above, any assessments of the impacts of collective dismissals procedures need to take into account their positive and negative effects on workers, on employers, and on the societies. They should also strive to see what the counterfactual would have been. In other words, any assessment needs to address the extent to which terminating several workers through a collective dismissal procedure is indeed more efficient and optimal for enterprises and for the societies than several terminations through an individual dismissal procedure.

Which ILS are relevant for collective dismissals?

The Termination of Employment Convention, 1982 (No. 158) and the Termination of Employment Recommendation, 1982 (No. 166), thereafter C158 and R166, are the main ILO technical standards addressing the termination at the initiative of the employer. They provide important guidance on the regulation of both individual and collective dismissals.

C158 and R166 stipulate that national governments may, in consultation with employers’ and workers’ organizations, put in place special procedural requirements for terminations of employment for economic, technological, structural or similar reasons, whether they concern one, or several workers. The explicit objective of such procedures is “to avert or minimize as far as possible termination of employment for reasons of an economic, technological, structural or similar nature, without prejudice to the efficient operation of the undertaking, establishment or service, and to mitigate the adverse effects of any termination of employment for these reasons on the worker or workers concerned” (R166, Para 19).

As per March 2020, C158 has been ratified by 35 out of 187 ILO member States.5 The moderate level of ratification of this instrument may be explained by different factors. One of them is that the Convention currently has a “no conclusions” status6 and is not promoted for ratification on a priority basis (ILO, 2009a). Another is the persistent debate on the role of EPL, which is often reduced to seeing EPL as purely a cost to the employer, without recognizing its beneficial aspects (for a review of both advantages and downsides of EPL, see Skedinger, 2010). Nevertheless, the level of ratification of C158 is comparable to other technical ILO conventions.7

Such special procedural requirements may include, but are not limited to: consultations of workers’ representatives, notifications to the competent authorities, undertaking measures to avert or minimize termination and to mitigate their effects, establishing criteria for selection for termination and priority of rehiring. The ILS explicitly recognize the importance of involving the tripartite parties in the deployment of these measures.

The ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR), in its general observation on C158 in 2008, noted that, regardless of whether the Convention 158 is ratified or not, the basic principles of these standards are actually embedded in the legislations of a wider set of countries, including “notice, a pre-termination opportunity to respond, a valid reason and an appeal to an independent body” (ILO, 2009a).

Although they do not refer directly to collective dismissals for economic reasons, several other ILS outline important employment protection principles for some categories of workers. These instruments include both fundamental conventions and several technical conventions and recommendations (Box 1).

The ILS are the key benchmarks against which national laws can be meaningfully compared, regardless of whether they have been ratified or not. The current paper does not intend to measure the national laws’ ratification and implementation of ILS, but rather identify to what extent national legislations contain provisions outlined in these standards (especially the two specific technical standards governing employment termination: C158 and R166). This is different from comparing regulations against a benchmark of “no provisions”, or “minimum” provisions in a given sub-sample of countries, as may be done elsewhere. Using ILS as a benchmark for cross-country comparisons is legitimate, since ILS are one of the key sources of national labour laws.

Definition of collective dismissals for economic reasons: substantive and quantitative aspects

Strictly speaking, C158 and R166 do not refer to the term “collective dismissals” as such. Rather, both contain a special part (Part III in both) entitled “Supplementary provisions concerning terminations of employment for economic, technological, structural or similar reasons”. Article 13 (2) of C158 provides that “National laws or regulations may limit the applicability [… of these provisions] to cases in which the number of workers whose termination of employment is contemplated is at least a specified number or percentage of the workforce”. Thus, C158 leaves it to the national regulators to determine whether such procedures are to be applied in the case of any individual termination for economic, technological, structural or similar reasons, or whether the national law and practice may provide for a quantitative limit - a quantitative definition of collective dismissal, which, when met, would trigger these special procedures. In other words, C158 recognizes the operational requirements of the enterprise as a valid reason for dismissals, and dismissals for such reasons may be individual or collective.

Importantly, according to the General Survey of the ILO CEACR (GS 1995), the fact that the special procedures for terminations of employment for economic, technological, structural or similar reasons are contained in “Supplementary provisions” part of the Convention does not mean that they are secondary. The word “supplementary” is used in the meaning “additional”; “additional” to other provisions of the Convention (GS 1995).

Special procedures triggered in case of collective dismissals: information and consultation of workers’ representatives

ILS stipulate that when the employers contemplate collective dismissals, they should foresee providing the workers' representatives with the information and conducting a consultation (C158, Art. 13 (1); R166, Para. 20 (1,2)). Information and consultation are two distinct processes, and one should precede the other. The ILS also provide guidance as to their purpose, the content, and the timing. The term “workers' representatives” signifies “the workers' representatives recognized as such by national law or practice, in conformity with the Workers' Representatives Convention, 1971 (No. 135)” [C158, Art. 13 (3)].

The purpose of providing all the relevant information is to “to enable the workers' representatives concerned to participate effectively in consultations” [R166, Para. 20 (2)], while the purpose of the consultation is to “avert or to minimize the terminations and measures to mitigate the adverse effects of any terminations on the workers concerned” [C158, Art. 13 (1b)].

The content of the information should be “relevant” [C158, Art. 13 (1a)], and include, at the minimum, “the reasons for the terminations contemplated, the number and categories of workers likely to be affected and the period over which the terminations are intended to be carried out” (ibid). R166 also provides that it is the “relevant information on the major changes contemplated and the effects they are likely to have” (Para. 20 (2)) to be supplied. Relevant and complete information gives the parties the opportunity to discuss the basis on which particular employees will be made redundant, to consider whether the overall number of employees being made redundant can be reduced, and what can be the measures for such reduction. Indeed, consultation without information leaves little room for negotiation and may signify that the employer has made decisions unilaterally. When a proposal for dismissal is presented as final, it will not give employees’ representatives an opportunity to constructively participate in discussions on the possible way forward. Consultation without information would thus miss the objectives of C158 to seek genuine effective solutions through constructive social dialogue and to mitigate their adverse effects. Consultation should be viewed as an opportunity “for an exchange of views and an establishment of a dialogue which can only be beneficial for both the workers and the employer.” (GS 1995, p. 105). Consultations can also be seen as a key safeguard to ensure that dismissals are not taking place on prohibited grounds and there are no disguised discriminatory dismissals.

As clarified by the General Survey of 1995, “finding alternative employment” is the only explicitly prescribed measure of the content of the consultation in C158, while the rest of the consultations’ content is left to the national methods of implementation. It is implicit, however, that consultations should also be based on the supplied information.

ILS also stress the importance of the timing of consultations. The information is to be provided “in good time” [C158, Art. 13 (1a), R.166, Para. 20(2)], and the opportunity for consultation is to be given “as early as possible” [C158, Art. 13 (1b); R166, Para. 20(1)]. The more time the workers are given to better understand the business reasons behind the proposals to dismiss employees, the better they can prepare for consultation and ensure that they can effectively participate in them. Moreover, the information and consultation take place even at the stage when “employer contemplates the introduction of major changes in production, programme, organization, structure or technology that are likely to entail termination” [R166, Para. 20(1)], in other words, even before the stage at which actual terminations become inevitable. Involving workers’ representatives into the major changes in the organization that may result in employment termination is likely to produce more satisfactory solutions (GS 1995, p. 107). Good timing, clear and comprehensive information, and transparent and genuine consultations with workers’ representatives are the procedures designed to channel grievances, to provide necessary space for social dialogue, and to create win-win situations for workers, employers, and societies.

Special procedures triggered in case of collective dismissals: notification to competent authorities

According to ILS, employers contemplating terminations for economic, technological, structural, or similar reasons, should notify competent authorities of such intentions. ILS provide guidance as to the timing, the content, and the form of notification to public authorities [C158, Art. 14 (1) and 14(3)] although leaving the modalities thereof to national law and practice. The international instruments do not, however, specify, whether terminations also have to be authorized by competent authorities, nor do they prescribe the exact role that public authorities should play upon the receipt of the notification.

The key objective of the notification is to give public authorities a possibility to play a mediator role between employers and workers in finding agreement and appropriate solutions, and mitigate its effects both for the affected workers and for the wider community. Thus, notification is a first step towards ensuring that public authorities can effectively play such roles during and after collective redundancies. The role of public authorities often goes well beyond simply taking note of terminations’ notification. It involves, among others, carefully elaborating social measures, securing funds for alternatives to dismissals (such as work-sharing) and for mass claims of unemployment benefits, preparing job placement centers. Indeed, R166, Para. 19 (2), states that “where appropriate, the competent authority should assist the parties in seeking solutions to the problems raised by the terminations contemplated”. Training and retraining options should be considered by public authorities with the collaboration of the employer and the workers' representatives concerned [R166, Para. 25 (1)].

Special measures to avert or minimize dismissals for economic reasons and to mitigate their effects

ILS explicitly provide that the procedures contained therein serve the objective of averting or minimizing termination of employment and mitigating its effects [C158, Art. 13 (1b); R166, Para. 19(1)]. R166 also puts forward a set of specific measures to reach this objective, including the obligation of the employer to consider other measures before termination of the employment; criteria to be applied in selecting workers whose employment is to be terminated; and priority rules for rehiring dismissed workers.

The ILO CEACR in its General Survey of 1995 reminds that “it is important to ensure that certain protected workers, such as workers’ representatives, are not dismissed in an arbitrary manner on the pretext of a collective termination of employment” (Para. 335). In this context, the special regimes of protection for several categories of workers (e.g. trade union members, workers’ representatives, women on maternity leave) are not to be neglected.

Obligation of the employer to consider other measures before termination of the employment

R166, Para. 21, contains a non-exhaustive set of measures which should be considered with a view to averting or minimizing terminations of employment. It provides that such measures “might include, inter alia, restriction of hiring, spreading the workforce reduction over a certain period of time to permit natural reduction of the workforce, internal transfers, training and retraining, voluntary early retirement with appropriate income protection, restriction of overtime and reduction of normal hours of work.” Furthermore, Para. 21 provides that “where it is considered that a temporary reduction of normal hours of work would be likely to avert or minimize terminations of employment due to temporary economic difficulties, consideration should be given to partial compensation for loss of wages for the normal hours not worked, financed by methods appropriate under national law and practice”.

Criteria for selection of employees to be dismissed

R166, Para. 23 (1), provides that there be specific criteria for selection of workers whose employment is to be terminated for reasons of an economic, technological, structural or similar nature. These criteria should be “established wherever possible in advance, which give due weight both to the interests of the undertaking, establishment or service and to the interests of the workers”. The determination of these criteria, of their order of priority and of their relative weight is left to national practice.

Priority of rehiring

R166, Para. 24 (1), provides that “[w]orkers whose employment has been terminated for reasons of an economic, technological, structural or similar nature, should be given a certain priority of rehiring if the employer again hires workers with comparable qualifications, subject to their having, within a given period from the time of their leaving, expressed a desire to be rehired”. R166, Para. 24 (2), also states that such priority of rehiring may be limited to a specified period of time.

Sources of information on national laws and practice

The examples of national law and practice provided in this section are drawn from the ILO EPLex database9, as well as from other ILO publications, and publications of the ILO staff. Where appropriate, some arguments of this paper are also supplemented by examples found in the literature.

Our objective in this paper is to make a comparative analysis of legal regulations in as many countries as possible in order to advance convincingly our legal and economic arguments. However, such cross-country legal information is not easily available, and when it is, it may be available for different time periods in different countries. In order to reach the largest comparison base, we chose the year 2010. This is the year for which we have the largest number of country-specific observations from two sources combined: the ILO EPLex database - the official ILO database dedicated to the topic of employment termination - and Muller (2011), an ILO publication. Unless stated otherwise, exact details of laws are contained in these sources. In total, our comparative analysis is based on the information for 132 countries with available data. All maps and tables in this paper are based on this sample.

We are aware that some readers may find this information outdated. However, first, what matters for us in this paper is not the exact wording of the laws today, but the diversity of experiences and examples that can be found on the international level. The key point of this paper is precisely to analyze how counties compare (and differ) in the variety of legal tools that they use to regulate the same phenomenon, to show the ingeniousness of the legislators, and to show that sometimes the same objectives may be reached by different tools. Second, in fact, much of the legal information presented here is still of relevance today. This is because collective dismissals is a legal area where reforms are not frequent. Indeed, at the revision stage of this paper, we verified the ILO EPLex database. At the moment of writing, 57 countries contained information updated till the year 2018 or 2019. Out of them, only 6 experienced reforms of collective dismissals since 2010, or 10,5 per cent. Appendix 1 lists all countries with this latest available information, and records which countries experienced reforms. The details of the reforms are also provided in Box 2. Summing up, as this paper is the first attempt to analyze a cross country data on collective dismissals, the comparison base of the year 2010 is still useful for exploratory purposes, with much of the information still being meaningful.

This section presents a variety of legal practices of regulating collective dismissals. It also shows that there are several countries in which specific provisions on collective dismissals do not exist in statutory laws. Interestingly enough, while C158 allows each member State to determine the specific requirements necessary to apply its provisions, so as to respect different industrial relations traditions and specific features of national labour markets, in the developed countries there is more similarity than divergence across countries with respect to collective dismissals procedures (similar findings are also reported in Countouris et al., 2016; OECD, 2013). In the European Union countries, in a large part this is due to the European Council Directive 98/59/EC of 20 July 1998 on the approximation of the laws of the member States relating to collective redundancies, which has been transposed into national legislation of 27 countries (Box 3). The key differences across countries are embedded in the implementation practices, the definitions and content of the provisions, the roles of various competent bodies and of courts, different historical powers of tripartite actors, compliance and enforcement (ibid).

Definition of collective dismissals for economic reasons: substantive and quantitative aspects

Definitions of collective dismissals vary tremendously across countries. In the 132 countries with available information, 22 countries have formal laws that contain neither the definitions of collective dismissals, nor any additional specific procedures for terminations of workers on the grounds of economic, technological, structural or similar reasons, beyond procedures previewed for any individual dismissal. In 50 countries, there is no definitional distinction between collective and individual dismissals on economic grounds (the statutory law does not contain any numerical threshold or time limit); however, specific procedural rules are provided. In other words, such special provisions are applied for terminations for economic, technological, structural or similar reasons regardless of the number of employees involved. In the largest group of 60 countries, laws provide for specific thresholds limiting the applicability of the Parts III of C158 and R166. Stated differently, they contain both substance and quantity components of the definitions for collective dismissals (Figure 1).

The substance component of the definition implies that collective dismissals are dismissals based on economic, technological, structural, or similar reasons. Normally, they cannot be based on worker-related reasons, such as worker’s capacity or conduct, but only on the operational requirements of the undertaking, establishment or service. Only the operational requirements of the enterprise are recognized as a valid reason for collective termination of employment.

Examples of scenarios in which collective dismissals may take place include employer’s insolvency or cessation of activity, cessation of a job, scaling down of an enterprise, or an enterprise’s transformation. Depending on a jurisdiction, each of these scenarios may trigger a different employment termination procedure. This is especially the case of insolvency or the cessation of the enterprise activity, which may be governed not only by labour law, but also by civil law and specific bankruptcy provisions.

Figure 1. Legal definition of collective dismissals for economic reasons triggering specific procedures

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

The ILO CEACR stresses the importance of the manner in which the termination of an employment relationship is defined. If the termination of the employment relationship at the initiative of the employer “is wrongly labelled by him [or her] for example as resignation, breach of contract, retirement, modification of the contract, force majeure or judicial termination, the rules of protection governing termination might apparently seem not to apply; but the use of such terminology should not enable the employer to circumvent the obligations with regard to the protection prescribed in the event of dismissal.” (GS 1995). While this quote applies generally to the dismissal at the initiative of the employer, the same can be said about the choice over collective versus individual dismissal procedure.

Given this, it is important to ensure, both through laws that include the right incentives, but also through enforcement policy measures, that employers do not deliberately stagger or scatter redundancies, when this is done exclusively with the aim of avoiding specific procedures such as notification and/or consultations10. For this reason, voluntary redundancies (employees volunteering to be considered for redundancy) are usually included in the total number in order to determine whether a collective dismissals procedure is to be followed11. Depending on a jurisdiction, when a separate redundancy situation within the same organization is taking place, additional dismissals may or may not be taken into account when considering new proposal to make employees redundant. While there is not much guidance on the supranational level on how to deal with issues of deliberate mislabeling of dismissals or their scattering, some legal systems have robust jurisprudence allowing to prevent or to revert the process. In some instances, such as in Italy before the recent labour reforms of the mid-2010s, it was not uncommon to reinstate workers terminated individually and to request that employers follow a collective dismissals procedure.

The way the collective dismissals unfold may also depend on who decides that it is to take place, for example, if it is a decision taken unilaterally by management, or did it involve a works council. When the decision is at the employer’s discretion, judges may be more likely to evaluate the validity of economic grounds for dismissals. Whether the presented economic grounds are indeed valid or not may depend on the extent to which reductions in profits or sales were expected or anticipated, whether the reductions are current or past. Some of the recent reforms dealt precisely with such elements of substantive definition of collective dismissals. Examples include the 2012 labour law reform in Spain, where the definition of dismissals on economic grounds was broadened and the concept of “negative economic situation” was clarified.

The quantitative component includes a definition of how many workers are terminated in order for such series of dismissals to be considered as collective rather than individual. While C158 provides that there may be a difference in procedural requirements depending on the number of workers terminated on economic and similar reasons, it leaves it to national jurisdictions to provide (or not) any quantitative definitions or thresholds to collective dismissals.

When quantitative definitions exist, they most frequently relate either to a specific number of employees involved (often with thresholds depending on the enterprise size), or the percentage of the enterprises workforce, dismissed over a specified period of time. Some specialists also highlight a sometimes present local element of the collective dismissals’ definition, which may refer to a specific area concerned (Heinsius, 2009). Even more than a geographical area, an important element is the definition of a unit, establishment, or enterprise, within which a specific number of workers may be terminated on economic grounds. If terminations can be spread easily across different units or areas, it may be easier to avoid collective dismissals procedures. It is thus important that both legal and enforcement frameworks provide clear definitions of such units and areas, and contain measures to prevent circumventing them. In some countries (ex.: Austria12), quantitative definitions take into account workers’ age, providing for a lower threshold for older workers. Table 1 highlights examples of quantitative definitions found throughout the world.

Table 1. Examples of quantitative definitions

Source: ILO EPLex and Muller (2011). Information as of 2010. Note that, as shown in Appendix 1, the information was the same for Argentina, Armenia, Australia, China, Morocco, and South Africa in 2019; and for Japan and Zimbabwe in 2018, the latest year of available data.

From the economic point of view, provisions such as those defining quantitative definitions of collective dismissals are often setting a more objective scene for the procedures to unfold, and decrease uncertainty about the nature that the dismissals will have. They also serve a safeguarding role for disguised collective dismissals. Thresholds also matter if the dismissal process involves negotiations over the number of employees to be dismissed and over the alternatives to dismissals to be sought.13

Special procedures triggered in case of collective dismissals: Information and consultation of workers’ representatives

Providing information to (notifying) workers’ representatives is legally mandated in 97 countries out of 132 countries with available information (Figure 2). In other words, out of 110 countries that have any specific procedures related to dismissals on economic grounds, whether with or without quantitative definition of dismissals, almost 85 per cent contain this legal requirement. Consultation is legally mandated in 87 countries (Figure 3). The ten countries in which notification to workers’ representatives, but not the consultation, is a legal requirement are Armenia, Azerbaijan, Bangladesh, Comoros, Kazakhstan, Montenegro, Nigeria, Sudan, Uganda, and the United States of America.14 However, even if a legal requirement to notify and consult is absent, information and consultation may exist in practice and be regulated by collective agreements.

A particularly high value is accorded by the law to sharing information and carrying out consultation in a transparent way as a means of “moderating or reducing the social tensions inherent in any termination of employment for economic reasons” (GS 1995).

Figure 2. Information to workers’ representatives: legal requirement

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

The content of the information varies tremendously across jurisdictions. In some, the law may set detailed lists of the items to be provided, such as the criteria to select workers to be made redundant. In others, the type of information to be provided is also subject of collective agreements.

The economic and social rationale for legally defining the content of the information is to help mitigate significant psychological risks of workers, even those who will not be dismissed. The extent of information’s completeness may also be an important means to keep workers motivated and engaged during the dismissal process, and protect their well-being (ACAS, 2014). Employee motivation, in turn, is essential to maintaining a sound social climate propitious to the continuation of the employer’s activities that are both productive and prone to innovations (Acharya et al., 2013). Given this, for employers, the alternative to not providing information is not an “easier” dismissal procedure, but possibly an adverse social climate, disloyalty, strikes, lower productivity of remaining workers, sizeable production disruptions and potentially hurt image and reputation loss for the company. Similarly, the absence of social measures proposed by the enterprise may also affect its reputation, hurting its business, while a well-designed social measure may be used as a public relations strategy.

Figure 3. Prior consultations with workers’ representatives: legal requirement

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

In practice, however, providing full information may be challenging. Some information may be commercially sensitive, and hence not readily available for disclosure. It is thus important for the employers to strike the right balance as to which information to provide. In this respect, the laws often serve as providing only the minimum guidance, while the information actually provided in practice may be substantially richer.

The content and objectives of consultations, as well as their nature, differ both within and across countries, but usually presuppose an active role of the workers’ representatives. They may also depend on the exact reason for terminations (whether it is a plant closure, a reorganization, or an abolition of a job). In some countries, especially in the European Union member States, the objective of consultation of employers with workers’ representatives is to reach an agreement. However, reaching such agreement or consensus may not always be required.

In some countries, laws and practices make a distinction between consultations and negotiations. When negotiations are common in national practice, they may pre-determine the type of information that is to be provided. In other words, the objective and the content of the information may differ depending on whether it serves mere informative purpose, or also consultation, or negotiation. The content of negotiations may include, but not be limited to, the number of workers to release, priority rules, schedule of release (for example, redundancies may be taking place by teams of workers with similar functions), additional compensations, but also retraining options and placement in other units of the enterprise. Negotiations of each of these items are often interconnected and may be traded against each other. They may also include additional items, beyond what is prescribed by laws and collective agreements, and determined by the ingeniousness of social partners seeking mutually beneficial solutions. In some countries (for example, France), it is standard practice for workers to obtain financing from the employer to hire an external expert to verify some of the business information on the basis of which dismissal justification is made, and help finding an alternative reorganization solution. Effective negotiations can also provide an incentive for both employers and workers to reach an agreement without having to recur to the mediation of the third parties.

In some jurisdictions, the laws may prescribe that the consultations not only aim at averting or minimizing terminations, but also that they mitigate the adverse effects of terminations. The legislation of several countries contains legally binding requirements for employers to come up with accompanying social measures (Box 4). Such measures may have different names, but are frequently referred to as “social plans” or “programs of settlement of the manpower problems” (see, for example, Cosio et al., 2017).

In the majority of countries, there is no specific time period established by law during which the information has to come in. “Reasonable” time periods are often suggested by law, which in practice means periods sufficient enough to mobilize trade unions. When they exist, the time frames provided by law may refer to a different reference point. For example, in Cote d’Ivoire, information is to be provided at least 8 days before the information and consultation meeting; in Poland, it was to be provided at least 45 days prior to the date of notification of termination.15 In many countries, this is an area that has been regulated by collective agreements. Time periods for information may or may not be combined with the individual notice to be given out to the employees (for an example of practice, see Box 5).

The length of the consultation may or may not be limited in the laws of different countries. Minimum limits can help ensure that enough time for an effective consultation is provided. But placing maximum limits may also be needed, both to limit the cost associated with consultations for employers and the detrimental effects for workers, who face uncertainty and psychological pressures during these times.

In practice, several consultations are usually necessary, depending on the extent to which the agreement could be reached during the first consultation. The actual length of the consultation process may hence vary within the same country and for various dismissals, and may depend on the complexity of the situation, the number of workers involved, and the type of measures that need to be agreed upon and put in place in order to mitigate the consequences of collective dismissals. Moreover, when notification to public authorities is required by law, public authorities may request additional consultations if they feel that not all options have been explored by employers and workers’ representatives, or that the consultations have not been carried out in good faith.

In recognition of the important role of information and consultation, it is not uncommon that they are conducted even in those countries where they are not legally required. For example, in Brazil, the jurisprudence “Embraer” became emblematic in 2009. Even if from the legal point of view, the employer was not obliged to consult with the trade unions, a trade union complained to the tribunal about the lack of consultation on collective dismissals, and the tribunal positively accepted the complaint in light of the importance of the dismissal that was to be undertaken. Convention No. 158, although not ratified by Brazil, was mentioned as an international reference. Similar decisions of some regional courts have constituted important precedents, which cannot be ignored by companies considering mass redundancies. Although these decisions were being partly overturned in 2010, the Superior Labour Court of Brazil highlighted the importance of collective bargaining to avoid significant job losses, and some firms continue recurring to the consultation even if they are not legally obliged (Muller, 2017).

Special procedures triggered in case of collective dismissals: Notification to competent authorities

The laws of the majority of countries contain the requirement of notifying competent authorities of terminations that the employer contemplates for reasons of an economic, technological, structural or similar nature. This concerns 101 countries with available information (Figure 4). Competent authorities that are to be notified differ across countries, and most frequently include the Ministry of Labour or Employment, the labour inspectorate, a public employment service, an unemployment insurance or social security fund.

Figure 4. Notification to public authorities: legal requirement

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

Notification to competent authorities may be an alternative measure to the notification of workers’ representatives (Table 2). However, in the vast majority of countries, notification to both workers’ representatives and competent authorities is required.

Table 2. Examples of countries in which informing public authorities and workers’ representatives are alternative measures

Source: ILO EPLex and Muller (2011). Information as of 2010. For countries marked with *, the same information is still true in 2019. For all other countries, there is no information yet available for 2019.

In contrast, only 22 countries also require that collective dismissals be authorized by public authorities (Figure 5). This is a significant change from some decades ago, when, for instance, many European countries contained such legal requirement (Cosio et al., 2017; EU, 2006). Out of those 22 countries, seven are also the ones in which no information/consultation procedure with workers’ representatives is required: Afghanistan, Colombia, Honduras, India, Panama, Sri Lanka, and Sudan.

Figure 5. Authorization by public authorities: legal requirement

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

The economic and social rationale of notification is to improve risk-sharing and redistribute economic losses among tripartite economic actors. It can allow public authorities to jointly elaborate safeguarding measures helping employers to preserve the sometimes considerable investment represented by the costs of recruiting staff with the right experience, as well as staff’s skills and experience acquired on the job and sometimes through expensive training (GS 1995). It can also prevent the loss of firm-specific human capital. Measures such as work-sharing, reduced hours of work, and restrictions on overtime, allow to rationalize the workforce and to save upon other costs, such as costs of severance payment that need to be paid to terminated workers (ibid, p.118; European Commission, 2009). In many countries, the involvement of public authorities to the joint elaboration of measures mitigating terminations helps ensure that such measures are financed by the State. For example, reductions in the hours of work may not necessarily result in the loss of salary, if state compensation can cover the shortfall; this can be a means to preserve the production capacities of the enterprise at little, or no, additional cost. Some employers may also qualify for wage subsidies for retained or rehired workers.

The content of notifications to competent authorities differs across countries, and includes, among others, the reasons for the terminations, the number and categories of workers likely to be affected, and the period over which the terminations are intended to be carried out. The most significant differences observed are in those countries that also require notification to workers’ representatives. Typically, in case when workers’ representatives are also to be informed, the employer must indicate to the competent authority the information it has given to workers’ representatives, and also provide the information on the consultation and its outcomes, including the communication of the workers’ representatives’ response (GS 1995). In numerous EU countries, a copy of the notification to public authorities must also be sent to the workers’ representatives, who may send their comments to the competent public authority. In countries where no information/consultation procedure with workers’ representatives is required, but the employer is required to ask the competent public authority to authorize dismissals, the information to be provided also includes grounds for termination and the necessary justification for terminations (ex.: Colombia, Panama). The form of notification is usually written.

The timing of notification to competent public authorities also varies across countries. In some, it must be effectuated after information and consultation of workers’ representatives. In others, it precedes notification of workers’ representatives. Laws may also foresee various periods of time within which collective redundancies may take effect after notification; the period being used by the competent public authority to seek solutions. Sometimes, public authorities may have to be notified several times, before and after the consultation process with workers’ representatives. In some countries (most of the EU), public authorities are granted with the power to reduce or extend the period following notification, in cases where the problems cannot be resolved within the initial period (EU, 2006). In such cases, employers are informed of any extension and the grounds for it before expiry of the initial period.

From the economic viewpoint, giving the social partners sufficient time to negotiate the dismissals and elaborate social plans is to be weighed against the macroeconomic cost of not doing so, or of negotiating poorly defined social plans. Either could result in mass dismissals and resulting mass unemployment, wider social unrest and adverse political consequences.

Authorization by competent authorities is also part of the timing schedule for collective dismissals, which may sometimes run concurrently with the information and consultation process with workers’ representatives. In case no public authorization is received, the employers may still have an option of triggering a series of individual dismissals, which may take a longer time to complete, and be challenged if a collective dismissals’ procedure is perceived as not respected.

While the laws of many countries contain the legal obligation to inform a competent public authority in case of terminations for economic or similar reasons, it does not mean that the role of competent authorities is equivalent. Indeed, the exact role is determined by a number of factors, starting from which the competent authority is to be involved and what its role is: whether it is essentially a labour inspectorate or an employment administration with social security or public employment functions. The relevant competent authority may also be determined by the geographical extent of collective dismissals, whether they are single-region or multi-regional (Countouris et al., 2016).

The role of the competent authorities ranges from monitoring the dismissal process (ex.: UK), to systematically and proactively verifying the substance of dismissals and the extent to which a general interest of the economy is respected (ex.: Greece), to requesting additional consultations when necessary (ex.: the Netherlands), to assisting parties in finding solutions (ex.: Portugal), to carrying out conciliations (ex.: Peru, Tunisia). Competent authorities are often directly and proactively involved in a joint elaboration of social measures to mitigate the effects of terminations (ex.: France).

In some jurisdictions, in consultation with the local employment services and trade unions (or workers’ representatives), public administrations may suspend collective dismissals for a given period, if the labor market situation is particularly unfavorable. Such suspensions may have limits provided by statutory laws. For example, they can last up to 60 days in Cambodia, 6 months in the Russian Federation, 1 year in Belarus, or be without any statutory limit in Venezuela (Muller, 2011).

In countries where the authorization of public authorities is mandated by law, some may only have administrative powers and a purely administrative function of approving collective dismissals as long as the procedures are respected (ex.: India). Others may also to some extent exercise political discretion, which may be manifested in different ways depending on the electoral and economic cycles. Some of those public authorities may have an almost unlimited discretion over authorizations of dismissals, which often has to be exercised within a short period of time before the authorization can be considered as granted automatically (ex: Greece prior to the 2017 reform). In others, if an agreement is reached between the employer and workers, the administrative authorities must authorize collective dismissals. Finally, in some jurisdictions, several public authorities need to intervene.

The roles of public authorities before collective dismissals are co-determined with their roles after such dismissals. The extent and the nature in which public authorities are involved in the joint development of measures mitigating the effects of collective dismissals with the social partners may have additional bearing as to whether the notification and authorization would be a purely administrative gesture. A further consideration is the extent to which public authorities are involved in deploying such measures – whether retraining (a dominant component of European public policies mitigating the consequences of dismissals: Eurofound, 2011), helping to find alternative employment, providing income support or subsidies to employers for retaining workers, or combining income support with short-time working or temporary lay-off schemes. In some jurisdiction, as in France, when it comes to a large redundancy plan due to a major restructuring with major local economic impacts, the public authorities may share with the firms the financial burden of the redundancy plan, by financing vocational training, reducing taxes and social expenses. A unit in the ministry of finance in charge of such action is solicited by the early notification of the redundancy plan.

Once the authorization for terminations is granted by competent authorities, it may nevertheless be still contested or challenged in court. Depending on the jurisdiction, parties may start a litigation procedure or seek resolution from other competent public authorities. The authorization of a public authority may be refused if legal provisions with regard to termination have not been complied with (GS 1995).

Special measures to avert or minimize dismissals for economic reasons and to mitigate their effects

Figure 6 shows countries which do and which do not require, by statutory law, that the employers consider alternative measures before termination of the employment. This legal requirement exists in 70 countries with available information.

Figure 6. Legal provisions requiring the employer to seek alternatives to dismissals

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

The most frequent measures found in national laws or experienced in national practice, among those listed in the ILS, include finding alternative employment, early retirements, and reduction of overtime. Other measures, including work-sharing and temporary part-time, are usually more of a prerogative of collective agreements. In some countries, the absence of consideration of alternative measures to avoid or reduce the number of dismissals can invalidate or nullify the dismissals (ex.: France, Germany). Even if it may not always be possible to apply such alternative measures, some countries considered that they should at least be examined. In economic downturns specifically, governments may put forward specific measures of paying the salaries of those workers who are in “technical unemployment,” or allowing for delays in paying social security contributions and taxes, in order to prevent collective dismissals.

Many of these different measures were used in response to the global economic crisis of 2008-2011, at the company, but also at the regional or state level. Some enterprises, particularly in Germany, but also in Bulgaria, Czech Republic, Estonia, the Russian Federation, and Indonesia, have prioritized internal flexibility measures over terminations, through policies of work-sharing, also called “short-time work” or “partial unemployment” (see Box 6 for examples). In Germany, work-sharing arrangements had already been part of collective agreements prior to the crisis, and both workers and employers had experience with such measures, facilitating its deployment during the crisis (ILO, 2016). There are also examples of using working time (time-saving) accounts in order to increase flexibility in production to meet the fluctuations in demand and secure employment (ILO, 2011a).

Regarding specific criteria for selection of employees to be dismissed, 54 out of 132 countries (of which 110 have special provisions) contain specific criteria for selection of employees (Figure 7). Most frequently used criteria include skills, productivity, and social considerations. In some cases, laws may contain detailed additional criteria, such as length of service and rank class (ex.: Portugal), disability (ex.: Central African Republic) or difficult re-entry into the labour market, such as in case of elderly employees (ex.: France).

The laws may also state that specific selection criteria are to be established through collective bargaining. Indeed, the establishment of selection criteria is one of the areas that is historically subject to regulation through collective agreements and codes of good practice. Discussion of selection criteria may also be part of the consultation process.

Figure 7. Criteria for selection of workers whose employment is to be terminated for reasons of an economic, technological, structural or similar nature

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

Recently, some countries underwent re-examination of which criteria can be used to establish priority rules for termination. In some (ex.: Romania), social considerations were removed from the list of criteria established by the law, as they could be seen as indirect discrimination. In case of redundancy processes, discrimination is most frequently claimed on sex and age grounds. In the United Kingdom, the Employment Tribunal decided in 2011 that "special treatment" for women in connection with pregnancy or childbirth must be reasonable and proportionate and found that a redundancy scoring exercise constituted sex discrimination against a man in the redundancy selection pool (Eversheds Legal Services Ltd v de Belin [2011] IRLR 448 EAT). In Slovenia, specific rules are to be respected in case of terminating, including for economic reasons, the employment relationship of a person with disabilities (Blaha, 2017). In addition, countries are progressively abandoning the last-in-first-out system, whereby the worker with lowest tenure is terminated first; this is because such principle may also be seen as indirect discrimination on the grounds of age.

The principle of priority of rehiring is retained in law in forty-three countries (Figure 8). Only about a half of them have explicit time thresholds during which giving priority to rehiring of dismissed workers is required in law. They range from 1,5 months in Romania to 3 years in the Republic of Korea, with the majority of these countries having a one-year limit (Table 3). In addition, some countries contain provisions forbidding to recreate a suppressed post within a specified time limit (ex.: Moldova; Slovakia). It is also often illegal to replace workers made redundant through a collective dismissals procedure by temporary agency workers.

Figure 8. Priority of rehiring as mandated by law

Source: ILO EPLex and Muller (2011). Information as of 2010. See also Annex 1.

Table 3. Priority of rehiring: variations in legal limits when the principle is applied

Source: Muller (2011), with adaptations. Information as of 2010.