international employment law firm alliance L&E Global

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID-19, and what are the primary limitations on each?

  1. Furloughs.
    Decree 329/2020 (dated 31 March 2020) has been extended by Decree 487/2020 (currently in force until 30 July 2020) prohibits unilateral furloughs on the grounds of force majeure, lack of work or work reduced for a period of 60 days. The Decree provides one exception only, regarding furloughs covered under the terms of Section 223 bis of the LCL, which provides that, for furloughs agreed to between the employer and with each employee, respectively, or the relevant union, and approved by the labour authority for those employees who do not perform any tasks as a result of a lack of work or a reduction of work (not attributable to the employer) or force majeure (dully evidenced). Based on the foregoing, the Ministry of Labour issued Resolution No. 397/2020 for the purpose of facilitating the Ministry’s process to approve furlough agreements as such, pursuant to section 223 bis of LCL.
  2. Salary reductions.
    Salary reductions are not permitted under local labour laws. The only alternative is to proceed with a furlough agreement (see part a. Furloughs, above).
  3. Redundancy.
    Decree 329/2020 also prohibits dismissals: (i) without justified cause; or (ii) due to lack of work or a reduction of work, and by force majeure, for a period of 60 days (e.g. currently in force until 30 July 2020, as extended by Decree 487/2020). The Decree provides that any dismissals in breach of the provisions established in 329/2020, shall have no effect, and the labour relationship will continue in force under the same terms and conditions. Moreover, prior to the implementation of COVID-19-related measures, duplication of severance payments was enforced for 180 days, and has, just recently, been extended for an additional 180 days (Decrees 34/19 and 582/20).
  4. Facility closure.
    While a company may proceed with the closure of its facilities, due to the prohibition of dismissals in force, the permanent closure of the company’s premises/offices would not be possible. However, the company does retain the option to execute a mutual termination of the employment agreement with each employee. In case the company faces an impossibility to continue paying salaries, the company has to go through a mandatory conciliation procedure before the Ministry of Labour, which the union and the company will be summoned to a hearing to discuss salary reductions and where the parties are encouraged to reach an agreement.
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