Reorganization in Times of Credit Crisis: A Checklist
Reorganization Plan
A reorganization must be well-prepared. An employer who wants to
reorganize has to draft a reorganization plan, in which the ground
for the reorganization and the purposes pursued by it are
described. In addition, the reorganization plan gives an
explanation of the consequences the decision is expected to have
for the staff and the measures intended on the basis of these
consequences.
Principle of Proportionality
Starting from 1 March 2006, the principle of proportionality
must be applied in order to determine which employee is first
eligible for dismissal in a reorganization. In brief, this
principle is that employees with exchangeable positions are divided
into age groups, namely aged 15 to 25 years, aged 25 to 35 years,
aged 35 to 45 years, aged 45 to 55 years and aged 55 years and up.
Within these age groups the employee with the shortest employment
is the first to be proposed for dismissal. Exchangeable positions
are positions that are comparable and equivalent as to their
nature, substance, position level, remuneration and
circumstances.
The Works Council
Pursuant to the Work Councils Act (Wet op de
Ondernemingsraden, "WOR") the Works Council has a
right to advise with regard to the reorganization plan. The request
for advice must be presented to the Works Council in time in order
to allow the Works Council's advice to have a substantial
influence on the eventual decision for a
reorganization.
Social Plan
A Social Plan will usually be part of the measures taken with
regard to the employees. This Social Plan may be negotiated with
the Works Council and/or the trade unions. The main topics to be
determined in the Social Plan are the conditions on which
re-employment or dismissal of redundant staff is to take
place.
Subdistrict Courts Formula
The redundancy scheme is part of the Social Plan. This scheme is
often based on the subdistrict courts formula. On the basis of this
formula, an employee receives around one monthly salary per year
worked, whilst years above the age of forty count for one year and
a half and years above the age of fifty count for two. The
so-called correction factor (C factor) may render compensation for
an employee higher or lower. In the case of reorganizations the C
factor is often around 1, because a reorganization is regarded as a
neutral ground for termination. Most likely the subdistrict court
formula will be adjusted in a number of important respects as of 1
January 2009. An important change will be made regarding the number
of years of service taken into account. In the new Recommendations,
years of service until the 35th year of life count for 0.5, from 35
to 45 years count for 1, from 45 to 55 count for 1.5, and starting
from 55 years count for 2.
Collective Redundancy
Notification Act
Should it come to forced redundancies, employers must also take
into account the Collective Redundancy Notification Act (Wet
Melding Collectief Ontslag). This Act applies if the employer
intends to terminate the employments of at least twenty employees
within three months. In that case, the employer is obliged to
notify this intention to the Center for Work and Income
("CWI") and to the trade unions.
Prohibitions
Against Termination
When choosing a route of dismissal - by giving notice,
dissolution, or mutual consent - it is also relevant whether a
prohibition against termination applies. In principle, a
prohibition against termination does not stand in the way of the
dissolution of the employment agreement, nor in that of a
termination of the employment agreement by mutual consent.
Prohibitions against termination do not apply either in the event
of a termination of the activities of the company or that part of
the company in which the employee works exclusively or
mainly.
Unemployment Benefit
If the employment agreement with the employee is terminated, the
employee will, in principle, be eligible for unemployment benefit
("WW"). This is also the case if the employee agrees to a
proposal from his employer to terminate his employment agreement.
Since 1 October 2006, voluntary consent to a proposal of
termination does not lead to voluntary unemployment
anymore.
Conclusion
A careful preparation is in order for reorganizations. Important
aspects are a good reorganization plan, in which attention is paid
to the order of dismissals, as well as a Social Plan supported by
the Works Council and the trade unions. In the coming year
employers will be able to follow the new subdistrict court formula
in this Social Plan.