Retrenchment: Trade Union and Good Practice Note
Good Practice Note I August 2005 | Number 4 Managing Retrenchment W hether it is the pursuit of new markets or the desire to improve performance or productivity, companies must periodically review and adjust their business plans and processes. The injection of new capital, changes in ownership, or changing economic circumstances can often lead to reorganization and restructuring within a company. It is not uncommon for Job losses to result, and in some cases it may be the only way for a company to move forward and thrive.
Loss of employment may be caused by a range of factors from technological change to privatization to total closure of a orkplace. Good Practice Note No one single international definition or universally used terminology exists to categorize such Job losses. Terms used can include: retrenchment, redundancy, downsizing or lay-off. Throughout this Good Practice Note, we use the term “retrenchment,” which can cover a wide range of dismissals that do not essentially relate to the conduct or capability of the worker.
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These include В» the closure of a plant, factory, mine, or other workplace, with the total or near-total loss of Jobs В» Job losses arising from a reduction in staffing requirements due to efficiency gains or alling demand for the company’s products or services В» Job losses arising from a downsizing in operations or restructuring of the workforce following, for example, privatization. Retrenchment may sometimes be a necessary part of securing future employment for large sections of the workforce.
However, the key to a good outcome lies in developing and implementing a retrenchment procedure that achieves the commercial aims of the process while minimizing the impact of Job losses on workers and communities. Such a procedure, often encapsulated in a retrenchment plan, should be founded on idespread consultation (particularly with workers and their representatives) and should seek to ensure that the selection of workers for dismissal is based on principles that are fair and transparent and do not discriminate against particular groups.
During the course of the process, efforts should be made to reduce the number of Jobs that have to be lost and to mitigate the effects of the Job losses on individuals, groups, and communities. The aim of this Good Practice Note is to provide guidance to IFC clients and the wider private sector operating in emerging markets on how best to plan and manage significant Job losses. A well-managed process can help avoid a host of problems and result in better outcomes for the company, its employees, and the wider community.
This note contains a range of good practice measures that can help companies think through the key issues, avoid common pitfalls and hidden problems, and design a comprehensive retrenchment plan. The development of such a plan is a requirement for IFC-financed investments where a significant number of Job losses is expected. Environment and Social Development Department What’s Inside? 2 The Case for Getting It Right 2 Key Steps in Planning and Managing
Retrenchment 5 Consultation Is Critical 7 National and Legal Requirements 8 IFC Requirements 10 Determining Selection Criteria 13 Non-Discrimination 15 Appeals and Grievances 16 Severance Pay 17 Beyond Compensation: Assisting Workers 20 Addressing Impacts on Communities 26 Preparing a Retrenchment Plan Page One Managing Retrenchment The Case for Getting It Right Morale and Productivity It is evident that retrenchment will have a substantial impact on the workers involved. However, the effect can be much more widespread.
Those employees who are left behind and managers who deal with the retrenchment can be affected by the rocess, especially if it is badly handled or creates unnecessary conflict. A poorly executed retrenchment process can lead to loss of productivity, low morale, and decreasing economic performance. While it will always be difficult to maintain employee morale during a retrenchment exercise, there is likely to be a better response to a process that appears to be based on clear grounds that employees and their representatives can understand and contribute towards. electing a particular individual over another cannot be explained and Justified. Avoiding Misinformation Sound retrenchment practices should be as transparent as possible. A good communications strategy and clear information will both enable the consultation process to run smoothly and make it much more likely that employees, their representatives and other stakeholders will be able to come up with alternatives to job losses or indicate ways in which the effects of Job losses can be mitigated.
Full and frank disclosure of information helps to avoid rumors and misinformation, which again can fuel low morale and lack of productivity in the workplace. A transparent process that engages key stakeholders early on decreases the likelihood of resistance to changes in the longer run. A poorly executed retrenchment process can lead to loss of productivity, low morale, and decreasing economic performance. Legal and Reputational Risks Every country has basic national rules for dealing with collective Job losses and reorganization.
An important aspect ot developing and implementing a retrenchment plan is ensuring compliance with national laws and the terms of collective bargaining agreements. This not only ensures that the employer is doing the right thing, but also minimizes the legal risk arising from the retrenchment process. Minimizing risk is an important factor to bear in mind from both a financial and a reputational erspective. Key aspects in this regard include severance payments to individual employees and the nature of consultation carried out with trade unions and other stakeholders.
Also important are the transparency and fairness of the selection criteria used to select employees for dismissal. A company’s risk of being sued for discrimination, unfairness, or a range of other causes is much higher if the rationale behind Page Two Efficiency It is much easier for a company to manage a retrenchment program that has clear rules and boundaries than one that is open to subjective manipulation.
If the process s fair and objective, challenges to the process are also much less likely. Key Steps in Planning and Managing Retrenchment Ensure Retrenchment Is Necessary One of the first questions to ask during any retrenchment process is whether there are alternatives to Job losses. Quite often, workers and their representatives will come up with alternative and innovative ways to deal with particular economic situations so that a large number of people will not lose their livelihood.
It is always worth verifying whether the level of job loss proposed is necessary or whether there are alternative ways of achieving the changes sought. Look for Alternatives to Job Losses There are several instances where reducing the number of individuals directly employed by an organization seems to be the most obvious way to achieve necessary savings. However, further consideration and consultation may reveal that alternatives to Job losses might be possible.
Options to consider include В» a freeze on new hiring В» enforcement of retirement ages В» reduction in hours worked by existing staff В» outsourcing of particular activities В» an end to using agency and contract workers В» internal transfers and redeployment В» transfer of employees to third party rganizations В» reduction in salaries В» active performance management В» staff involvement to find productivity gains. It is important to consider whether any of these alternatives is viable in the circumstances of each retrenchment exercise.