14 September 2017

Reduction in workforce before and during insolvency

In order to avoid insolvency, companies facing financial difficulties often consider a reduction in workforce to reduce personnel costs (i.e., dismissals for economic reasons). If the workforce is reduced significantly, a special mandatory procedure needs to be complied with.

Before insolvency:
Threshold for mass dismissals
A reduction in workforce qualifies as mass dismissals where the employer gives notices of termination within 30 days for reasons unrelated to the person of the employee (e.g., their conduct or performance) and which affect:

  • at least 10 employees in businesses which usually employ more than 20 and less than 100 employees;
  • at least 10 % of all employees in businesses which usually employs more than 100 and less than 300 employees;
  • at least 30 employees in businesses which usually employs at least 300 persons.

If the above thresholds are met, a mandatory procedure regarding mass dismissals with information and consultation obligations must be observed.

The information and consultation obligations are triggered once the employer intends to make dismissals for economic reasons in numbers meeting the above thresholds. These obligations are, however, not triggered where such dismissals are merely a possibility or even likely - there has to be a clear intention by the employer to make them.

In the absence of an employee representative body and/or a social partner, the employer must inform and consult with all its employees regarding the planned dismissals.

The employer is obliged to provide the employees with all pertinent information about the mass dismissal in order to allow them to make constructive suggestions on how to avoid the mass dismissals, reduce the number of dismissals, or alleviate the consequences of the dismissals for example by internal relocations or by providing retraining programmes. This information must be provided to the employees in writing and a copy sent to the local labour office. The employer is expected to consider the employees' suggestions in good faith, but does not have to follow any of the employees' proposals.

At the end of the consultation period, the employer must inform the local labour office of the outcome of the consultation, in particular the number of redundancies. Only upon completion of the consultation procedure may the employer distribute notice letters to the affected employees. The employment relationships will not end earlier than 30 days after notification to the cantonal labour office is made.

Generally, the whole procedure from informing the employees until dispatching the notice letters takes approximately 20 days.

Duty to establish a social plan
By law, the employer is required to negotiate a social plan if at least 30 employees are made redundant in a business usually employing at least 250 employees.

During insolvency
Mass dismissal
The provisions governing mass dismissals do not apply if the employer has become bankrupt, or if he has concluded a composition agreement with assignment of assets. Liquidation means the employer can no longer take into account the employees' suggestions regarding how to avoid dismissals, as that is exactly the objective of the liquidation.

Social plan
The duty to negotiate a social plan does not apply when the employer is declared bankrupt, or if the employer has concluded any type of composition agreement.

However, during the moratorium, i.e., before a composition agreement has been agreed upon, this duty still applies.

For further questions, please contact our Insolvency Law Team and our Employment Law Team.

Authors: Marc Ph. Prinz, Sara Ianni

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