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? 

• Furloughs.

An employer suffering from temporary lack of work tasks may have a legal basis for short-term layoffs. Temporary layoffs imply that the employee’s duty to work and right to salary is temporary suspended. An employer may carry out temporary layoffs for a maximum period of 26 weeks. The employees affected, may have the right to unemployment benefits according to the National Insurance Act.

• Salary reductions.

An employer cannot impose salary reductions unilaterally. In order to carry out salary reductions, the employer is required to obtain consent from the employee, or is obliged to follow the procedures related to dismissals prescribed by law, including having a justifiable cause and carrying out consultations with the employee representatives.

• Redundancy.

Employers with a need for cost reductions, may carry out a redundancy process if certain requirements are met. A redundancy includes collective dismissals, and the employer has the burden of proof that the redundancy is necessary, and must carry out consultation meetings with the employee representatives and/or hold individual consultation meetings with those employees who will be impacted. Next, a decision should be made as to whether the dismissals are necessary, with consideration given to both the employer’s needs as well as the situation that the employees are faced with. An important limitation is that the employer shall offer other suitable vacant positions if such work is available. If a court considers that the employer had other suitable vacant positions, the dismissals will most probably be deemed invalid.

• Facility closure.

It is within the employer’s managerial prerogative to decide whether a business shall exist or not. If a decision on facility closure implies dismissals, the rules described in section c. above, will apply. It should be noted that courts are often reluctant to overrule an employer’s business assessments.