Cutting Your Global Workforce? Watch Out for These 5 Termination Pitfalls

Recessions and job loss typically go hand-in-hand as nervous executives look for quick ways to reduce spending. Through the first half of 2022, companies have cut 32,000 tech jobs in the US alone, with predictions for rising unemployment through 2023.

As it happens, the US has some of the most lenient dismissal regulations, making it one of the easiest countries in which to terminate workers. US labor law follows “at will” employment, meaning employers can fire people immediately without cause or warning.

In comparison, most other countries, like France, Germany, and the Netherlands, are much more worker-supportive and, therefore, more stringent regarding termination laws. As a result, dismissing workers, particularly in Europe, is a much more complex and time-consuming process.

Employers might encounter the following pitfalls when trying to reduce their workforce:

1. Long Notice Periods

Many countries require employers to give 30 days’ notice before dismissing employees. But some countries require more extended notice periods aligned to an employee’s length of service.

Employees in Austria who work between 1-2 years require six weeks of notice, and the length continues to increase with more extended service. For executives, France requires two months’ notice after two years and three months. Colombia and Brazil require a minimum of 30 days plus three days for every year served.

The process could go even longer in countries that require approval from unions and government agencies to dismiss employees (see #3 below).

Notice periods could add up when longstanding employees are involved, undermining the quick gains companies might be looking for, especially when combined with other factors on this list. 

Other countries with long notice periods include Switzerland, Portugal, and Poland.

2. High Severance Payments

The laws on severance pay vary from country to country, so employers should always be aware of what might be expected in the event of a termination.

All countries require employers to payout any outstanding salary and unused paid time off upon termination, and some countries also require some level of severance or gratuity payment. But there are also countries that mandate particularly high severance payments – such as the Czech Republic – at one month of additional payment for every year worked at the company.

In Spain, employers are required to pay 20 days of salary for every year of service, and they usually pay even more when collective dismissals are involved.

Other countries with high severance payments include France and the Netherlands.

3. Union or Government Involvement

In many countries, particularly in Europe, workplaces operate under rules set by collective bargaining agreements. Employee unions often need to sign off on all terminations in those cases. The rules will vary from country to country and union to union, but it can often be a complex, multi-step process for the employer.

In Norway, for example, employers seeking dismissals must meet with the employees and issue a written dismissal notice. The notice must adhere to a strict set of rules, including informing the employees that they can challenge the dismissal in court. If any required element is not included in the dismissal notice, it may be ruled invalid, and the employee granted compensation. Collective dismissals (10 people or more) must be reported to the appropriate government agencies.

In Colombia, collective dismissals (defined as a certain percentage of the workforce, depending on the size of the company) require permission from the government. A termination letter must be sent to the proper authorities and permission granted – a factor that could lengthen the time required.

Other countries with a high union or government involvement include Greece, Italy, and Sweden.

4. Legal Restrictions on Terminations

Governments may place restrictions on terminations – or even ban them entirely – if the impact of the terminations is deemed too severe. Some countries, such as Italy, barred companies from firing employees during the period of Covid restrictions because doing so was seen as both unfair and potentially destabilizing for the economy.

Some countries have Mass Layoff rules. For example, in the Netherlands, strict information and consultation rules apply when 20 or more employees are to be let go in 3 months or less.

While the practice isn’t widespread, employers need to know if there are any governmental restrictions on terminations before hiring in that country.

5. Complexity of Termination Process

The termination process will vary widely between countries, particularly regarding how much employers will have to pay, how strict the oversight, and how impactful the penalties are if there are errors in the process.

Some countries even require formal hearings for every employee before a dismissal can be finalized. Others demand that employers write a detailed report on the reason for the termination, even when it is a response to market conditions.

The termination process tends to be more comprehensive in countries with strong pro-worker policies, particularly in Europe.

Countries with a high level of complexity include Japan, the Philippines, and Malaysia.

Complexity Index Leaders

A study by Papaya Global assessing the complexity of termination around the world identified five countries in particular that are high on the complexity scale of termination. France, Germany, the Netherlands, Greece, and Sweden all rated high in overall termination difficulty, and only two – the US and Canada – rated low in every category.

Of course, as terminations are a natural part of doing business, if you ever find yourself in a situation where you’re letting go of team members in those countries, being extra careful and attentive is always a good idea.

You can also build your workforce and grow your company in ways that provide you with better flexibility down the road. Here are a few examples of how this can be done.

Mutual Agreements – In many countries, ending employment through a mutual agreement is seen as an alternative and sometimes even preferred solution. To many people, a mutual agreement suggests a drawn-out period of negotiations. Still, in many countries, particularly in Asia, there is an expectation that companies will seek a mutual agreement and avoid resorting to the normal termination process. These agreements are standard in many parts of the world and are often the most straightforward way forward when workforce cuts are necessary.

Fixed-Term Contracts – Instead of onboarding employees on open-ended contracts, when compliant to do so, consider using limited-term contracts. In many countries, limited-term contracts bypass the need to follow the regular termination process because a natural endpoint is built into the contract – it will simply run out on its own. The contract can often be extended for another limited-term or even terminated early, providing certain conditions are followed or early ending payments are made. Beware, however: fixed-term contract rules vary across the world and some countries, like the Netherlands, have laws limiting the number of times a fixed-term contract can be extended, requiring that employers provide a permanent contract after three renewals.

Understanding the Termination Process– Before hiring workers, employers must ensure that they review and understand the termination process, timeline and requirements so that they can plan ahead should there be a need to terminate.

These methods can reduce or avoid the burden of following long termination processes required when hiring on open-ended employment contracts. But they do not replace the need to understand the challenges companies might face if cuts are needed in some areas.

The more companies know about termination complexity, the stronger their position. Papaya Global’s Knowledge Base and Countrypedia contain information about terminations in over 160 countries.

Find out how you can boost your workforce management accuracy and compliance while saving time and money on your global payroll costs (even without looking at reducing headcount).

Schedule a demo today.