EIRO thematic feature

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1 European Foundation for the Improvement of Living and Working Conditions EIRO thematic feature Redundancies and redundancy costs Introduction Definition of redundancy Redundancy procedure Redundancy payments Conclusion This report is available in electronic format only. Wyattville Road, Loughlinstown, Dublin 18, Ireland. - Tel: (+353 1) Fax: / postmaster@eurofound.eu.int - website:

2 Introduction The issue of redundancy, and of the financial, social and moral costs it involves, has been the subject of widespread public debate over the last two decades. Governments, employers and trade unions agree that growing unemployment resulting from collective dismissals has become a serious economic problem. Against the background of the social costs of redundancies, rules to limit and mitigate collective redundancies have been introduced in all the countries examined. Efforts to minimise the negative impact of redundancy have focused on three kinds of measures: active employment policy, employee participation in the redundancy process, and severance pay. For many years, the latter measure has been the most important one. Aimed at creating an incentive for employers not to dismiss employees, statutory compensation payments have been introduced in many countries. On the other hand, severance pay has been used as an inducement to employees to abandon jobs in the face of declining demand for their labour. Thus, this comparative study aims at giving an overview of existing national legislation on redundancy, focusing particularly on compensation payment provisions. It further seeks to reflect current debate on the issue and outline new approaches to dealing with redundancies. 1

3 1 Definition of redundancy According to legislation in most of the EU15 Member States, collective redundancies are understood as dismissals for economic reasons, i.e. effected by an employer for reasons unconnected with the individual employee concerned. Such dismissals are also referred to as collective redundancies. Furthermore, national legislation set up criteria defining precisely the circumstances in which redundancy legislation applies, such as, for example, specifying thresholds according to the number of employees made redundant and/or the size of the company where the redundancies occur. Thresholds, however, can vary widely from country to country. In most countries, the collective redundancy procedure applies when more than five or 10 employees are made redundant in an enterprise normally employing at least 20 workers. The most significant exceptions regarding the thresholds are Spain and Greece, where collective redundancy occurs only when at least 100 and 220 employees respectively are made redundant. Apart from France, Italy, Sweden and the UK, countries have introduced gradated thresholds defining redundancy cases according to the number of employees made redundant and the size of the company. Another relevant criteria is the period within which those dismissals are effected. This can vary from 30 days in Austria, Denmark, Germany, Greece, Ireland, Luxembourg and rway, to 60 days in Belgium, and up to 90 days in France, the Netherlands, Spain and the UK. Italy and the Netherlands specify the geographical extent to which redundancies have to be defined as collective. In Italy, for example, the redundancies are to be made at the same production unit or at several production units in the same province. In the Netherlands, dismissals have to occur within one of the country s six regions. France and to some extent Italy can be considered as exceptions. According to French legislation, the number of employees has no bearing on the definition of redundancy procedures. Thus, the motive of dismissal for economic reason is criteria enough to apply collective redundancy provisions. The Italian regime, in contrast, is more complex, since it distinguishes between temporary and permanent redundancies for economic reasons. Furthermore, both types of redundancy are not exclusive and can be adopted in successive stages. Where transitory events are followed by the resumption of normal production activity, enterprises may qualify for temporary redundancy allowance. Collective redundancies, intended to produce definitive dismissals, are treated as permanent redundancy cases. Thus, rather than the number of redundancies, it is the duration of the redundancy that counts even though thresholds are defined within those categories of redundancies. Table 1: Definition of collective redundancies Austria Belgium Denmark Any dismissal that is not related to the individual employee and that....affects the following number of workers over a period of 30 days: - five employees in establishments employing 21 to 99 employees - at least 5% of the workforce in establ ishments with 100 to 600 employees - at least 30 employees in establishments with over 600 employees - at least five employees aged over 50 years, irrespective of the size of the establishment affects the following number of workers over a period of 60 days: - 10 in an establishment with 20 to 99 workers - 10% of workers in an establishment with 100 to 299 workers - 30 in an establishment with at least 300 workers affects the following number of workers over a period of 30 days: - 10 in an establishment with 20 to 100 workers - 10% of workers in an establishment with 100 to 300 workers - 30 in an establishment with at least 300 workers 2

4 Definition of redundancy Table 1: Definition of collective redundancies (cont.) Any dismissal that is not related to the individual employee and that. Finland affects at least 10 employees within a period of 90 days or if their full-time contracts are cut to part-time contracts France affects more than one employee within 30 days Germany affects the following number of workers over a period of 30 days: - five employees in an establishment with 21 to 59 employees - 25 employees or 10% of the workforce in an establishment with 60 to 499 workers - at least 30 employees in an establishment with at least 500 employees Greece affects at least the following number of employees within a period of 30 days: - four employees in establishments employing between 20 and 200 people - 2-3% of staff or at least 30 employees in establishments employing over 200 people te: The precise percentage is set for each calendar year by the Minister of Labour, according to the conditions prevailing in the labour market Ireland...affects at least 10 employees within a period of 30 days: - at least fi ve in an establishment employing between 20 and 49 employees - at least 10 in an establishment employing between 50 and 99 employees - at least 10% of the number of employees in an establishment employing between 100 and 299 employees - at least 30 in an establishment normally employing 300 or more employees Italy occurs on a temporary or a permanent basis. Both types of redundancy can be adopted in successive stages. 1. Temporary redundancy: - ordinary Cig (Wages Guarantee Fund Cassa integrazione guadagni, Cig) can be requested only by industrial enterprises in cases of transitory events to be followed by resumption of normal production activity - extraordinary Cig is reserved to employees of industrial enterprises with more than 15 employees, and commercial enterprises with more than 200 employees, in cases of severe situations of labour surpluses (e.g. restructuring, bankruptcy) 2. Permanent redundancy is understood as any dismissal due to production downsizing or the transformation of the business in the following cases: - the enterprise has at least 15 employees - the enterprise intends to make redundant at least five employees within a period of 120 days - the redundancies are to be made at the same production unit or at several production units in the same province Luxembourg affects at least the following number of employees: - at least seven over a period of 30 days - at least 15 over a period of 90 days Netherlands affects at least 20 employees working within one of the country s six regions within a period of three months rway affects at least 10 employees within a period of 30 days Spain affects the following number of employees within a period of 90 days: - at least 10 workers in companies with fewer than 100 employees - 10% of the employees in companies with between 100 and 300 workers - at least 30 workers in companies with 300 or more workers Sweden affects at least five employees UK affects at least 20 employees at one establishment over a period of 90 days Collective redundancy rules appear to be particularly stringent for French employers. However, whereas formal criteria can be easily controlled, the criterion of economic reason is likely to generate disagreement among the actors involved in the process of redundancies. Therefore, control mechanisms ensured by third actors have been introduced. 3

5 2 Redundancy procedure In all countries examined, the event of collective redundancies as defined above activates a statutory defined procedure of information and consultation of employees or their representatives, and/or state bodies. Employee involvement In compliance with the EU Directive on information and consultation, the employer has to inform and consult the employees or their representatives on the reasons for the job cuts, the number of dismissals, the categories of employees concerned, the criteria determining the employees concerned, and the method of calculating redundancy payments. This information and consultation procedure varies according to national provisions. Austrian and German works councils, for example, have a right of codecision over dismissals, whereas the bulk of the EU15 Member States provide for information and consultation rights only. In some countries, such as Austria and rway for example, employee representatives are entitled to avail of an expert s advice during the bargaining over redundancies. Swedish law, furthermore, permits the trade unions to ask for a financial assessment to be carried out in order to find other solutions within the company rather than the cutting of jobs. Moreover, the aim of the consultation as defined in law reflects the scope of employees involvement in the process. According to the EU Directive on information and consultation, consultation shall take place with a view to reaching an agreement on decisions of the employer. Legislation in Austria, Denmark, Germany, Luxembourg and rway explicitly states that the consultation procedure with employee representatives should aim to minimise the number of redundancies and to soften the impact of redundancy where it cannot be avoided. Thus, countries such as Denmark, France, Germany, the Netherlands and Spain provide for a statutory obligation to draw up a social plan. Although there is no obligation to draw up social plans in Finland and Sweden, employment programmes elaborated by the local labour market authorities and the social partners do provide for a trade union negotiation right. Regarding the divergent forms of employee involvement in redundancy procedures, the recent EU Directive on information and consultation is expected to harmonise those provisions. The Directive is likely to change the redundancy procedure, especially in the UK, where employees did not enjoy any statutory information and consultation rights. Table 2: Redundancy procedures: actors and objectives Austria Belgium Denmark Finland Actors (and nature of the involvement) - Works council (co-determination) - Local office of the Labour Market Service (information) - Works council (information and consultation) - Sub regional em ployment office (support in finding a new job) - Employee representatives (information and consultation) - Regional Labour Market Council (information, and possibly support to find a new job) - Public Employment Service (training) - Employee representatives (information and consultation) - If needed, labour authorities (support in finding a new job) France - Employee representatives in companies with less than 50 employees (information); in companies with more than 50 employees (information and consultation) - Local Ministry of Labour, Employment and Vocational Training (monitoring) Obligation to draw up a social plan Yes Yes (employment programme) Yes (in enterprises with more than 50 employees) 4

6 Redundancy procedure Table 2: Redundancy procedures: actors and objectives (cont.) Germany Greece Ireland Italy Actors (and nature of the involvement) - Works council (co -determination) - Labour office (information) - In case negotiations fail, establishment of a conciliation board (employers, employees, impartial chairperson who is usually a member of parliament) - Employee representatives (information and consultation) - Prefect s office (information) - Labour inspectorate (information) - Trade unions or employee representatives (information and consultation) - Department of Enterprise, Trade and Employment (information) 1. Temporary redundancy: - Company-level unions (information and consultation) - Ministry of Labour (monitoring) Obligation to draw up a social plan Yes (in companies with more than 20 employees) A plan for the resumption of the company s activity and proposals to protect the jobs must be submitted in the case of temporary redundancies 2. Permanent redundancy: - Company level unions (information and consultation) - Regional Labour Office (information) - Regional Employment Office (information) Luxembourg - Employee representatives (information and consultation) - National Conciliation Office (information in the event that negotiations fail) Netherlands - Employee representatives (information and consultation) - Regional Centre for Work and Income (information) rway - Employee representatives (information and consultation) - Public Employment Service (support in finding a new job) Spain - Employee representatives (information and consultation ) - Labour administration (authorisation) Sweden - Local trade unions (information and consultation, to some extent co-determination) - County Labour Board (information) - Local job centre (support in finding a new job) UK - Employees or their representatives (information and consultation) - Department of Trade and Industry (information) Yes Yes Yes (employment programme) Obligation to notify redundancies In addition to the consultation of employees, the obligation to notify state bodies of the planned redundancies had been laid down in the legislation of all EU15 Member States. In fact, in most countries, the state is involved in redundancy procedures. Even though the state has no say in employers decisions (an exception is Spain where employers require state authorisation to conduct redundancies), governments are involved in the redundancy process, insofar as they seek measures aimed at mitigating the collective dismissals. The purpose of notifying local employment centres of redundancies is, therefore, to lose no time in finding alternative job placements for employees who will be made redundant (see below). In Finland and Sweden, for example, local job centres elaborate employment programmes helping employees made redundant to find a new job, to start their own company, or providing them with training. 5

7 Redundancies and redundancy costs In Belgium, the information and consultation procedure aims at giving the employment office the time to find a solution to the consequences of the redundancies. In Italy, details of employees to be made redundant are put on an availability list in the regional employment centre. Employers hiring employees from this list will then be granted tax relief as an incentive to employ them. In Belgium, redeployment measures are even laid down in national agreements. In general, it is hoped that, if companies can be helped to restructure in time, redundancies can be reduced. Towards a decentralisation of redundancy payments Moreover, the involvement of employees or their representatives in the redundancy process is expected to mitigate the effects of redundancies. Thus, there is a clear trend towards the decentralisation of bargaining over redundancies with the aim of locating the procedure at the level where the redundancies happen, i.e. at company level. Both employers and the state benefit from avoiding confrontation and industrial action by encouraging company-level dialogue between employers and employees. 6

8 Redundancy payments 3 Beyond these uncertainties of interpretation and evaluation, the actual costs of redundancies to employers can be measured according to the amount of compensation payments that the employer is liable to pay in the event of such a collective redundancy. Legislation in most countries provides for statutory compensation payments in the event of collective dismissals. Among countries lacking such provisions, such as Denmark, Finland, Greece, the Netherlands, rway and Spain, only a few have collective agreements (rway, Spain) or social plans (Netherlands) providing for compensation. In Finland, employers are liable to pay compensation to employees only where they failed to notify them in time of the planned redundancies. In Austria, France, Germany, Ireland, Luxembourg and the UK, it is usual to find collective agreements and/or social plans topping up statutory payments. Legal provisions The amount of severance pay, moreover, varies according to the country. France, Germany, Italy, Luxembourg and the Netherlands are among the countries providing for the highest statutory severance payments. In France, for example, redundancy payment amounts to 20% of a month s pay per year of service. In Germany, in contrast, the maximum payment stipulated by law is equal to 12 months pay. For employees aged at least 55 years, with at least 20 years service, compensation can amount to as much as 18 months pay. In fact, redundancy payment provisions tend to be gradated according to the employee s length of service. In Luxembourg, an employee working for over 20 years in the same company and who is made redundant will be granted severance pay amounting to two months pay per year of service, instead of one month s pay per year of service. Belgium, Ireland and the UK, in contrast, provide for much lower statutory redundancy payments. In Belgium, for example, severance pay amounts to half the difference between a net reference wage and the unemployment benefits. This amount is, however, payable for only four months. In the UK, employees who are made redundant receive a lump-sum redundancy payment limited to a maximum of GBP7,800. Denmark, Finland, Greece, rway, Spain and Sweden do not provide for any statutory redundancy payments. At first glance, the costs of redundancy to employers appear to be very low in these countries. In fact, a distinction has to be made between the northern European countries, on the one hand, and those of southern Europe, on the other. Greek or Spanish legislation, for example, does not provide for any compensation in the event of collective redundancies. In the rdic countries, the picture is quite different. While legislation does not provide for special compensation in the event of redundancy in those countries either, collective agreements, however, may provide for redundancy payments. Moreover, collective agreements often introduce redundancy packages. Thus, the highest costs faced by employers in the rdic countries are not the severance payment as such, but the costs resulting from the corrollary provisions included in the redundancy packages. In fact, employers with or without support of the state often have to provide training and assistance in job seeking. An evaluation of redundancy costs in the rdic countries therefore involves looking beyond redundancy payments alone. Though compensation usually will be provided by a lump sum, some countries have chosen different forms of payments. In Belgium, for example, as already mentioned, employees made redundant are granted an amount of up to half the difference between a net reference wage and the unemployment benefits. This allowance is payable for four months. In Italy, employees made redundant receive an availability allowance up to 100% of the worker s last pay from the Wages Guarantee Fund (Cassa integrazione guadagni, Cig). This allowance can be received for a maximum of one year. According to the age of the worker, the duration of the payment might be extended up to 36 months. Workers in the southern regions of Italy, moreover, may receive the availability allowance until they have reached retirement age. Alternatively, employees can request their entire allowance in a lump sum. This option is aimed at encouraging selfemployment. 7

9 Redundancies and redundancy costs Furthermore, the financing of severance payments varies from one country to another. While employers in most countries are responsible by law for the payment of compensation payments, a few countries have set up funds. In order to face the financial burden of severance payments at a time when the solvency of the enterprise may be in doubt, there are employers funds in Austria and Belgium. Such funds are also found in rway and Spain. In contrast to Austria and Belgium, however, the rwegian fund is financed by employers and employees. In the case of Spain, finance is provided by employers and the state. Table 3: Nature of redundancy payments and their financing Austria Belgium Severance pay, according to legislation Financing Existence of collective agreements Employees with at least three years of Employers contribute Many social plans include special service have the option either to take the % of monthly severance pay regulations providing severance payment at once or to save the pay to a separate fund for extra payment entitlement towards a future pension from the beginning of the employment relationship Severance pay amounts to half the difference b etween a net reference wage and unemployment benefits and is payable for four months. Employees excluded from these provisions: - those on fixed -term contracts - those in the construction industry - temporary agency workers - those working in ports Works council s representatives and trade union delegates receive special compensatory payments - Severance payment borne by the employer - In the case of a plant closure, compensation is paid by the Enterprise Closure Fund. It is funded by contributions levied on total paybill and by the recovery of money advanced to the bankruptcy administrators Specific collective agreements regulating redundancies of port workers and in the construction industry. Denmark special compensation Employer Collective agreem ents of sectors characterised by structural industrial change may provide for special compensation. In the food industry, for example, workers with more than four years of service receive severance pay of 2,300 with a further 200 for every additional year of service Finland special compensation. Exception: cases where the employer failed to notify the collective redundancy. Compensation can amount to 24 months pay. France Germany Greece Redundancy package am ount to: - 20% of a month s pay per year of service up to 10 years - 20% of a month s pay plus 13.33% for each year over 10 years of service Maximum payment stipulated by law is equal to 12 months pay, with two exceptions: - 15 month s pay for employees aged at least 50 with at least 15 years service - 18 month s pay for employees aged at least 55 and with at least 20 years service special compensation Employer Employer - Company agreements might top up the legal provisions. - Government seeks to develop company level bargaining on redundancy issues by introducing method agreements (e.g. GIAT, DHL, Alcatel) Social plans might provide higher compensations. The trend, however, is to increase the working time and to freeze salaries (e.g. Siemens, Daimler- Chrysler, VW) 8

10 Redundancy payments Table 3: Nature of redundancy payments and their financing (cont.) Ireland Italy Severance pay, according to legislation Financing Existence of collective agreements Redundancy pay amounts to two weeks pay Collective agreements top up legal per year of service, plus one week s pay, and provisions. Severance packages of HB is due to employees who have been employed ice cream and Irish Petroleum, for for at least two years example, provide for up to eight - The same provisions apply to employees weeks pay per year of service, plus with fixed-term contracts (without the special bonus payments necessity of having been continuously employed) - Ordinary Cig is equal to 80% of the worker s last pay and may be received for a maximum of one year. - Extraordinary Cig amounts to 100% for the first 12 months and to 80% there after. The duration of the allowance varies according to the worker s age (24 months for workers aged between 40 and 50 years, 36 months for workers aged over 50 years), and the enterprise s geographical location (in the southern regions, workers may recei ve the availability allowance until they have reached retirement age) - Definitive termination of the employment relationship Employees to be made redundant have the option to request their entire availability allowance in a lump sum (to encourage selfemployment) Allowances are financed by the state - Industry-wide collective agreements may top up the extraordinary Cig allowance to 100% of the redundant worker s last pay. - An alternative to collective redundancy might be introduced by a job-security agreement that allows working time reduction. For the duration of 24 months, the state pays an allowance up to 60% of the pay lost by the worker as a result of the reduction in working time. The employer, moreover, enjoys a series of reductions in social s ecurity contributions Luxembourg Severance pay amounts to: - one month s pay per year for five to 10 years of service - two months pay per year for 10 to 15 years of service - three months pay per year for 15 to 20 years of service - for 20 to 25 ye ars of service: three months pay per year for blue-collar and six months pay per year for white-collar workers - 25 to 30 years of service: three months pay per year for blue-collar and nine months pay per year for white-collar workers - over 30 year s of service: three months pay per year for blue-collar and 12 months pay per year for white-collar workers Netherlands There is no statutory severance pay in the Netherlands According to a recommendation drawn by district court judges, the compensation they award in the event that they agree to dissolution requests may be as high as 51 months pay. Compensation should consist of one month s pay for every year of service preceding an employee s fortieth birthday, one and a half months pay for every year between the fortieth and fiftieth birthday, and two months pay for every year after the fiftieth birthday Employer Employer Collective agreements in the banking sector contain special provisions Social plans sometimes included in collective agreements have regulated redundancies since the 1990s. These plans provide rules for redeployment, benefits on top of unemployment benefits or of lower wages earned in a new job. Evidence shows that the direct cumulative costs of supplementary benefits for employers lie between three and five months pay, while the cost of one-off allowances range between two and 27 months pay. 9

11 Redundancies and redundancy costs Table 3: Nature of redundancy payments and their financing (cont.) Severance pay, according to legislation Financing Existence of collective agreements rway special compensation - In the event of a temporary lay-off, the employees are compensated by the national insurance scheme - Severance pay is drawn from a f und jointly financed by employers and employees Most collective agreements in the private sector include a scheme regarding severance pay for employees aged over 50 years with more than 10 years service. It takes the form of a lump sum and varies between NOK 18,000 (for those aged over 50 years) and NOK 57,000 (for those aged over 62 years). - Redundancy packages may include several months extra pay, economic support during further training, early retirement and assistance in job seeking Spain special compensation. In very few cases, collective agreements establish higher compensations - Employer - A company with fewer than 25 workers has to pay only 60% of the redundancy compensation, with the remaining 40% paid by the Wages Guarantee Fund Sweden special compensation Funds set up by collective agreements are jointly funded UK Employees receive a lump sum redundancy payment if they have at least two years of continuous service over the age of 18 years. The level of payment depends on age and pay level: years: 0.5 week s pay years: 1 week s pay years: 1.5 week s pay 65+ years: entitlement However, the maximum number of years that count towards redundancy payments is 20 and the limit on payments is GBP260 per week. This gives a maximum statutory payment in 2003 of GBP7,800. Employer In very few cases, collective agreements establish higher compensation - White-collar adjustment agreements set up a Council for Redundancy Support and Advice that gives employers redundancy support, including additional income. - LO and the Confederation of Swedish Enterprise have established a collective redundancy insurance for blue-collar workers which pays out an agreed sum to redundant workers - A similar fund has been established in the public sector to help the rising number of redundant employees Many employers improve on these minimum statutory payments, mainly by: removing the earning cap on a week s pay, increasing the number of weeks per year or service, or simply making additional lump-sum payment. e.g. Bombardier Aerospace: up to 104 weeks, with the earning cap removed 10

12 Redundancy payments Redundancy payments in practice Despite the scarcity of information on this issue, there seems to be evidence showing that the practice tends to diverge from the legal provisions regulating redundancy and redundancy payments. According to a WSI-study published in 2003, compensation payments in Germany are rare and their amount is overestimated. In fact, only 10% of employees interviewed received compensation. In contrast, 34% of people who concluded a legitimate termination agreement received a compensation payment. A termination agreement (Aufhebubgsvertrag) is concluded between the employer and the employee instead of stating that the employee is made redundant. However, if the total number of employment contracts terminated in this way exceeds the collective redundancy threshold, the legal provisions for collective redundancies are applicable. Thus, the majority of compensation payments result from individual agreements. It has been shown that, in cases of individual agreements, it is the practice to pay 50% of one month s income for every year that the employee has been in the enterprise. Only 40% of compensation payments result from a social plan. It is significant that the same phenomenon of invididual agreements can be observed in some other countries. Indeed, employers are interested in avoiding lengthy redundancy procedures. Consequently, Dutch employers often resort to the contract dissolution method, whereby they request the district court judge to dissolve the employment contract. Due to the level of compensation involved in this method, it is usually a safe but more expensive way of termination for the employer. According to a recommendation made by district court judges, the compensation awarded in the event of a contract dissolution may be as high as 51 months pay. Furthermore, there are generic collective agreements that have regulated collective redundancies in the Netherlands since the 1990s. These plans provide for rules governing benefits on top of unemployment benefits or of lower wages earned in a new job. Therefore, while there is no statutory severance pay in the Netherlands, compensation payments are, however, made in practice. In Spain and rway, for example, no legal provision is made for severance packages going beyond statutory provisions or awarding compensation payments through such provisions. Figures on the cost of individual dismissals show that the average cost set by conciliation in Spain was nine to 11 times the average gross monthly wage. In rway, it is not unusual for companies to resort to redundancies among their employees to use severance pay packages. However, such arrangements are normally conditional on employees resigning voluntarily. This also means that the employers responsibility is nullified. Such measures have also been widely used in situations where public enterprises have reduced their workforce. According to a recent survey by the Industrial Relations Service, many employers in the UK also improve on minimum statutory payments, mainly by increasing the number of weeks per year of service, or simply making additional lumpsum payments. Such redundancy packages may be the result of negotiations with the trade union at company level or may be unilaterally determined by the employer. The 2000 Labour Force Survey, however, indicates that one third of employees made redundant received no payments at all. The variety of practices reflect employers divergent needs according to the particular circumstances of the enterprise. But it, furthermore, reflects a wide gap between legislation and practice. This raises the question of the effectiveness and efficiency of the law. Against the background of economic difficulties most EU15 Member States have had to face in recent years, questions have arisen regarding the effectiveness of redundancy provisions in reducing unemployment. Many critiques underline the multiple limitations of the existing redundancy regulation systems. 11

13 4 Conclusion Though social partners agree that growing unemployment rates resulting from collective dismissals are economically disastrous, they disagree strongly on how redundancies can be avoided. Employers view From an employer s perspective, redundancy rules are considered to be too rigid. Undergoing continuous change, employers want greater flexibility to undertake restructuring and adjust their labour force to their needs. Furthermore, the level of compensation for collective redundancies is thought to be too high in times of a tight labour market. Among the specific provisions under debate, the seniority principle, in particular, has come under fire. In most of the countries, candidates for redundancy are selected on the basis of the seniority principle. Sweden introduced a significant change in 2000, and a new rule stipulates that companies with 10 or fewer employees have the right to exclude two employees from the usual last in, first out redundancy selection rules. In general, employers consider redundancy rules to be too welfare oriented. Trade unions view Trade unions, in contrast, are unhappy that many employee categories are excluded from redundancy provisions. It is reported that men, manual workers, older age groups and those working in manufacturing are more likely to be made redundant. Those categories of employees may be the most concerned by redundancies, but they are also the best covered by legislation. In fact, the service sector is often not covered by redundancy legislation. The sector often falls outside the scope of redundancy legislation, either because it is explicitly excluded from the provisions (Italy) or because of the generally smaller size of service companies (see above for thresholds). At the same time, some other employees, such as employee representatives and pregnant women, enjoy particularly advantageous provisions. It is significant that most of the countries report a gender breakdown of redundancies that is particularly favourable to women. Conversely, however, the percentage of women working part time and, therefore, not covered by redundancy legislation is relatively high in the countries examined. Generally speaking, the workers affected by collective redundancies are a minority in comparison with the workers dismissed individually. It is noteworthy that the existence of supplementary compensation on top of statutory payments depends on whether the workplace is trade-union organised. In Ireland, for example, trade unions at HB ice cream and at Irish Petroleum managed to obtain severance packages providing for up to eight weeks pay per year of service, plus special bonus payments. In times of high unemployment, employees bargaining power, however, tends to be reduced. In fact, there is a trend to accept lower wages and longer working hours in order to secure jobs. Given their exposure to the risk of marginalisation, trade unions strongly support the EU Directive on employee particiption in restructuring. Governments view Against the background of high unemployment rates, governments themselves are increasingly concerned about unemployment and its costs. According to OECD figures, the direct costs of unemployment in Finland have been estimated at between 2.5% and 4.5% of GDP in Furthermore, governments criticise excessive use of pre-retirement schemes. In fact, the seniority principle was an incentive for employers to offer employees, who were to be made redundant, attractive pre-retirement schemes. This, 12

14 Conclusion however, led to high costs for the state, which had to pay more in pensions. Since the tendency today is to increase working life, the state pre-retirement measures have become an expensive alternative to redundancies. Governments, therefore, have to tackle a difficult situation. On the one hand, employers call for less rigid redundancy regulations, arguing that the existing legislation is an obstacle to employment. On the other hand, there remains a perception among people that redundancies are a relatively low-cost option for employers, rather than a policy of last resort. A look at the policies of the countries under review shows that there is a common trend to switch from a welfare orientation to a more proactive employment policy. In fact, efforts are made to use synergies between employers, employees and local employment services. According to this rationale, the redundancy procedure should not aim at financial compensation for job loss. Rather, it should help the employee to ensure a relatively smooth transition to a new job, by minimising not only financial, but also social, costs. This rationale already underpins the way rdic countries deal with redundancies. In fact, Denmark, Finland, rway and Sweden do not provide for special compensation payments in case of redundancies. However, they actively support employees in finding a new job. In Sweden, adjustment agreements constitute a form of insurance aimed at facilitating the adjustment process for employees who have been made redundant. Furthermore, employees to be made redundant are entitled to reasonable leave of absence with full employment benefit to look for a new job. In Finland, employees should be given an employment programme set out by employers, employees and labour authorities. In Sweden, a series of funds have established redundancy support for employees, including a personal advisor, training and additional income supplements. The Ericsson project is a significant and successful example of a policy that focuses on finding alternatives to redundancies or at least on finding new jobs. After four years, for example, 59% of the employees who had been made redundant had found new jobs. Policy trends Against this background, there is evidence to suggest that the rdic countries have become a role model of how to manage collective redundancies. This is reflected in recent legislative and policy changes, among which cuts in unemployment benefits and redundancy regulation (by cutting compensation payments or reducing the thresholds) are the most significant. Alongside those cuts, governments initiate and/or support more training and labour market programmes. However, this policy is not underpinned by a sustainable financing scheme in all countries, unlike the situation in the rdic states where re-employment programmes are funded by employers insurance or funds equally financed by employers and employers. In the other countries, all forms of support for employees, who have been made redundant, to find new jobs are a matter exclusively for the state. Another common trend is the increased involvement of employees in redundancy procedures, as provided for in the EU Directive on information and consultation. There has been much debate as to whether employee involvement in redundancy procedures is a cost that employers can afford. Many employers claim that strictly-regulated information and consultation procedures make the cost of shedding staff difficult to calculate and ultimately too expensive. In contrast, others argue that employee involvement helps to find innovative, alternative ways to avoid, or at least mitigate, the planned redundancies. Whether welcomed or criticised, the EU Directive strengthens the trend of a decentralisation of redundancy management. Conclusion The current debate suggests that redundancy matters have to be analysed in the wider context of employment policy. In fact, redundancy provisions have to be understood as a regulatory tool of the labour market aimed at controlling unemployment. 13

15 Redundancies and redundancy costs For a long time, compensation payments have been considered by most of the EU15 Member States as the most efficient way to deal with redundancies. This has been laid down in legislation, providing for relatively high severance payments. However, in times of economic crisis, employers criticise the rigidity of the rules and the economic burden imposed by compensation payments. Both employers and the state seek to minimise their costs in relation to redundancy and unemployment. Severance payments, thus, no longer represent the most suitable and sustainable means of dealing with redundancy. Evidence, furthermore, seems to indicate that there has always been a large gap between existing redundancy provisions and practice. In fact, compensation payments as laid down in redundancy legislation have seldom been paid to employees who have been made redundant. In fact, most contracts are terminated through individual agreements. These can provide for higher severance payments, but they equally might contain little financial compensation. The size of the company, as well as the existence of an established works council, appear to be relevant factors determining the level of payment. However, there is a dearth of research regarding the practice of redundancy and its real costs. With the emergence of new forms of redundancy management, even more research is needed to gain insight into the practice of redundancies. Timo Kauppinen and Marie Meixner, European Foundation for the Improvement of Living and Working Conditions, Dublin EF/05/75/EN 14