Procedure for reducing the workforce

When the employer considers measures that may lead to the dismissal, layoff or part-time employment of one or more employees on economic or production grounds, the employer must negotiate the matter in accordance with Chapter 3 of the Act on Cooperation within undertakings. A similar obligation to negotiate also exists if the employer changes the terms of the employee’s employment on the basis of the above-mentioned dismissal. The obligation to negotiate must be fulfilled carefully and correctly before the employer makes decisions that lead to a reduction in the workforce.

Implementation of the negotiation process in accordance with the requirements of the legislation

The implementation of the negotiation process involves many questions, starting with the correct timing of the measures, thus the employer must prepare for the negotiation procedure carefully. If you want to use an external legal advisor in the process, it is advisable to get in touch well in advance so that possible risks can be eliminated in advance. In this case, by planning the negotiation process, preparing the necessary reports and careful documentation of the negotiations, it is possible to make sure that the procedure complies with the law. The negotiation process is accompanied by statutory formal regulations regarding, for example, deadlines, parties to the negotiations and the content of the negotiations. In jurisprudence increasingly strict requirements have been placed on the employer to comply with the regulations.

What if the negotiation obligation is neglected?

If an employer fails to comply with its obligations under the Act on Co-operation within Undertakings, a worker who has been dismissed, laid off or made part-time may bring a claim for compensation. From the beginning of 2022, the maximum amount of compensation will be €35,000 per employee. The maximum amount of compensation will be adjusted by government decree every three years in line with the change in monetary value.

The negotiation process and possible subsequent dismissals also involve the risk of illegal dismissal. An illegal dismissal can lead to large compensation claims, which is why it is necessary to know how to pay attention to recruitments and approach them with caution already at the stage when a possible change negotiation is considered.

Does the obligation to negotiate apply to all employers?

The negotiation procedure described above applies to employers whose number of employed employees is regularly at least 20. In smaller workplaces, there is no obligation to negotiate, but layoffs, part-time reductions and dismissals carried out on production and economic grounds are carried out personally in the manner stipulated in the Employment Contracts Act. Even then, of course, the employer has procedural obligations regarding, among other things, consulting the employee, finding out the reasons for the layoff and finding out other options than dismissal.


Legal advice on reducing employees

We have experience assisting employers of various sizes in workforce reduction situations. For example, we have acted as an external advisor or secretary in a negotiation situation. Alternatively, we have been able to support the process in the background, for example by participating in the advance planning of the process and by ensuring that the documentation complies with the law and that the content is comprehensive during the negotiations. We also assist public sector employers in meeting their legal co-operation obligations.

According to our experience, legal expertise should be utilized in the overall process in such a way that a possible course of events is outlined in advance, from the start of the co-operation negotiations, all the way to the end of the obligation of re-employment of the persons who may be dismissed. Even though there are no final decisions before the cooperation negotiations, legal risks can be detected, the avoidance of which requires advance investigations and foresight.

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