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As the economy is turning, a restructuring is sometimes inevitable. A difficult yet crucial question in this context is, Who to let go? First, you’ll want to decide how many people will become redundant and identify the departments they work in. You will determine which activities you no longer need and how you’ll realize savings. But this blog post won’t focus on these aspects. Rather, we’ll discuss what to do once you’ve decided how many people you should let go in which departments, and you’re facing what might be the most complex question: ‘Which employees should we dismiss?’
How to get through a rough patch?
If your company is going through a rough patch, it’s paramount that you keep your best employees. During a restructuring, you’re probably analyzing what went right and wrong in the past few years, and you might identify successes and nonperformance. So, this might be the time to tackle the latter. But how to go about it?
In the Netherlands, there are two ways to let people go. We’ll discuss both and explain why most companies ultimately choose the option they didn’t prefer at first.
Settlement agreement versus collective redundancies
The first option you have is to offer a settlement agreement. This gives you a lot of freedom in selecting the people you’ll let go, as long as you negotiate the agreement with each individual.
On the other end of the spectrum are collective dismissals, which comprise a carefully regulated process involving UWV (Employee Insurance Agency). This process includes a strict timeline and allows for much less freedom than a settlement agreement, especially when it comes to selecting people you want to let go. Given these restrictions, many management teams initially lean toward settlement agreements. If you’re dismissing a small number of people (who represent a tiny percentage of your overall workforce), this could work. But if the number is more substantial, you might want to reconsider your approach, as settlement agreements will probably get you into trouble.
The woes of settlement agreements
Individual negotiations can quickly get expensive. Once people lawyer up, they learn their employer can only ‘get rid of them’ if they reach an agreement. This often results in costly settlements (employees negotiate many months of severance payment) or unfavorable outcomes (employees stay while their relationship with the employer has been irreparably damaged).
But there’s more. In practice, it’s not easy to decide who are the ‘worst performing’ or ’least crucial’ employees. Many managers find it difficult to get on the same page — which is often required to finalize the list.
That brings us to another problem: the employees you want to keep will likely consider the process to be flawed and unfair — for example, because they hear about large severance payments or significant differences in pay. But also because there’s just no good way to explain how you’ve made your selection.
Why collective redundancies are often the better choice
Although many people believe otherwise, the process is similar to that of settlement agreements: you create a plan, get advice from the works council, and take several straightforward steps (which also involve UWV, among other things). A crucial difference is that this process leads to a dismissal permit: the ability to let a person go without their approval. Process wise, the big difference lies in the mandatory mirroring process: as an employer, you should establish objective criteria for redundancy. Along with the function groups you want to reduce, these criteria are used to select a representative cross section of your staff for dismissal. In this case, ‘representative’ means the selection does not distinguish between factors such as age, length of employment, and gender.
So with collective dismissals, fixed rules limit one’s freedom in selecting who to let go. While this poses some restrictions, the results of mirroring are often closer to management’s preferred list than they expect. It also comes with significant advantages. For example, severance payments are predictable, as the maximum required payout is clear. Of course, you can still pay what you want. But payouts are often lower because there’s no basis for negotiation.
Communication wise, this method is vastly superior: your approach is dictated by Dutch law, so both the selection process and severance payouts can be explained. Employees who stay probably won’t accuse you of randomness or favoritism, which will make for a much better atmosphere in your company’s ‘post-restructuring era.’
Making the right decision
Financially, the UWV route tends to be much more appealing. The feared restrictions (which relate to process and selection) usually aren’t as bad as you think. And, most importantly, those who stay often find collective redundancies more acceptable and easier to understand. Even though you’ll probably focus on the people you let go during the restructuring, you should realize the employees you keep are crucial to your company’s future. So, it’s paramount that you adopt an approach that makes them feel safe.