Beyond the pandemic: rethinking the supply chain
When reducing or ending operations in one jurisdiction and starting operations in another, there are a number of employment-related issues to consider in both the former and new host countries.
Information and consultation requirements
Many jurisdictions have laws that oblige employers to inform and consult trade unions or employee representatives when planning major changes to their operations.
These requirements may extend beyond the local level if the manufacturer has a global framework agreement (GFA) with one of the global trade unions (eg IndustriAll or UNI Global). GFAs often address the company’s supply chain, with commitments that may impact any relocation exercise.
Similar requirements may apply if the company has an informal international employee representative body (eg a global employee forum) or, when operating within the EU/EEA zone, a European works council.
Even without an obligation to inform and consult with the workforce, businesses should consider very early in the process how to best communicate to employees and other stakeholders about any relocation project (and to anticipate possible negative reactions in the media and among politicians).
The information and consultation procedures mentioned above may also need to cover the relocation of staff.
Depending on the individual contractual arrangements in place and whether any automatic transfer regime applies (eg the EU acquired rights directive), those being transferred may have to consent to the move.
Other employment laws
When considering where to relocate operations, employers should look at other labour-related requirements in potential host jurisdictions, such as minimum wages, working-time rules, employer social security contributions and union participation.
Proper due diligence will be needed, especially if the employer is considering relocating to a country with a reputation for human rights and labour violations (see the section on regulatory compliance).
Restrictions to downsizing
Employers needing to reduce headcount at certain production sites may be bound by business-support laws set up in response to the COVID-19 crisis. For example, Hong Kong, Malaysia, Italy, Spain and the Netherlands prohibit mass redundancies for a certain period of time after the employer has benefitted from the local wage subsidy scheme.
Employers will also need to look at any pre-pandemic government support measures they have benefited from, which may come with guarantees to maintain jobs at certain levels. Similar commitments may be found in existing sectorial or company collective bargaining agreements, or even in M&A agreements (eg those required under the UK Takeover Code).
Applicable rules for (mass) redundancies will also need to be complied with, which may require employers to notify authorities, and inform and consult the workforce.
Manufacturers planning to set up production facilities in a new jurisdiction should find out if there are any incentives in place to attract new investments.
- when looking to transfer staff or hire new foreign employees, companies should see if the host country has a fast-track immigration process; and
- employers might want to know if there are any social security or tax reliefs or other financial incentives from which they could benefit.
Such schemes will need to be carefully analysed as the business may have to guarantee a minimum headcount for a period, which may limit its options in relation to further reorganisations.
Advising KWS, a global seed producer headquartered in Germany, on its restructuring.
Moving roles from one country to another is a key workforce issue when reorganising supply chains. In this case, the client wanted to open a business hub in Berlin to house all its administrative functions. This entailed moving a significant number of roles (and employees) to the German capital and reducing headcount. The restructuring affected staff in more than 30 countries in Europe, the America and Asia.
Within this project, we were engaged to optimise the company structure with regards to employee co-determination on supervisory board level, and advise on the employment aspects (eg termination agreements, informing and consulting works councils, and complying with mass-redundancy obligations) of a conversion from an SE to a German KGaA and a cross-border merger. We co-ordinated the whole project, including contacting and working together with local counsel all over the world.
Advising pharmaceutical company Bristol-Myers Squibb on its post-merger integration of Celgene.
Integrating operations is key when reshoring supply chains through the acquisition of new production facilities. Issues at stake will be similar to those arising from post-merger integration scenarios. In the BMS-Celgene case, we helped with a wide range of issues, including legal entity rationalisation, restructuring, equity-related questions, the hiring and cross-entity transfer or loan of personnel, HR-process harmonisation, and compensation and benefits integration. We also regularly updated the companies on COVID-19-related measures.