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6. Cost-Reduction Strategies

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

  • Furloughs.

The exact mechanism of furloughs does not exist in Luxembourg. However, there is a possibility for short-time work (see point 11 e.)

  • Salary reductions.

No specific rule has been implemented enabling employers to unilaterally reduce salaries due to Covid-19.

Salary reductions can be agreed upon by signature of a contract amendment by mutual consent.

Otherwise, the usual procedures in case of unilateral modification of an essential part of the employment agreement apply (and which is the same procedure as for a dismissal).

  • Redundancy.

Please note that during COVID-19, while a company benefits from short-time work, the employer undertakes not to do any dismissal for economic reasons as long as the State aid is granted.

Otherwise, if the employer wants to dismiss at least 7 or more employees over a period of 30 days or at least 15 or more employees over a period of 90 days, they must apply a collective redundancy procedure, which basically entails 4 steps:

  • informing the National Employment Agency (ADEM) and the staff representatives or the employees directly if the business regularly employs less than 15 persons;
  • negotiation of a social plan;
  • implementing the social plan;
  • requesting tax exemption for voluntary departure or severance pay, if applicable.

Please note that during the COVID-19 crisis, the deadlines which are normally applied during the negotiation of a redundancy plan are suspended within the framework of a collective redundancy, such as:

15-day limit for negotiations of redundancy plan, and in absence of agreement, signature of non-conciliation report, submission of the case to the National Conciliation Service, summons to meet with the conciliation committee, deadline of maximum 15 days until decision is reached (signature of redundancy plan or redundancies).

This means for businesses employing 15 or more employees that, during the sanitary crisis, it is not possible, without the approval of the employee representatives, to dismiss for economic reasons more than 6 employees over a period of 30 days or 14 employees over a period of 90 days.

For more Information: https://guichet.public.lu/en/actualites/2020/avril/03-coronavirus-suspension-delais-procedure-collective.html

  • Facility closure.

Yes, the usual procedures apply.

  • Short-time work

To maintain employment, and avoid redundancies, the Luxembourg labour law foresees the possibility for companies to use different short-time working schemes under certain conditions, and according to the difficulties they meet.

For the time of the pandemic (and until 30 June 2020), the Government has implemented a specific scheme for short-time work due to COVID-19. The application procedures are fast-tracked, simplified and generalized, in order to accelerate the employers’ access to help.

The employment agency ADEM has published a detailed FAQ about short-time work. ADEM: COVID-19 – Short-time working – FAQ  (English)

Further information and the needed forms are available on guichet.lu: https://guichet.public.lu/en/entreprises/sauvegarde-cessation-activite/sauvegarde-emploi/chomage-partiel-technique/chomage-partiel-coronavirus.html

For the period after 1 July 2020, the Government has announced to replace the currently applicable “short-time work for COVID-19 reasons” by a slightly amended version of another existing mechanism, called “Short-time working due to structural economic problems”.

To benefit from this amended mechanism, companies that also intend to terminate employment contracts for economic reasons will normally have to present a recovery plan (small businesses), or even a job retention plan (for businesses of 15 or more employees); for a job retention plan, the approval of the employee representatives (or unions in case a collective bargaining agreement exists) is requested.

In addition, apart from the sectors which are the most affected by the crisis, the possibility for companies to request short-time work will be limited to a specific percentage of employees which is decreasing over time.

There will be simplified or even ultra-simplified digital procedures available.

Any questions

Ask our member firm KLEYR | GRASSO in Luxembourg