Re-organizing activity – how to deal with layoffs and dissolving jobs

Once in a while, firms might need to make the dreadful decision of shrinking their activity and laying off their staff through dissolving jobs. These are more likely to happen during tough economic times like these, although layoffs are not restricted to these periods. Since they deal with sensitive issues, they should be handled with care. See what to take into account when thinking about restructuring activity and laying off staff.

A guest post by Marius Rimboaca, lawyer & managing partner with IBS Integrated Business Services

The reorganization process through dissolving jobs is something you will hear about and possibly think about most often during this period, due to the difficult economic period.

Dissolving jobs and axing staff, in this case, has nothing to do with employees themselves. So the procedure needs special attention, as employees are protected by the Labor Code. How the employer deals with these issues establishes whether the firm will avoid potential law suits from employers, as well as the interferences with the firm’s image.

The Labor Code (Art. 65, indent 1) writes that the dismissal on reasons which are not imputable to the employee is actually the end of the individual work contract due to dissolving the job the employee used to have, on one or more reasons unrelated to the employee. So there will be no connection to disciplinary issues, physical or psychical incapacities, to their work performances. The dismissal cannot be blamed upon the employer either – the employer needs to restructure due to outside reasons too. It can be due to economic difficulties, but also to technology changed, a drop or the halt in activity, the automation of the production process. So it doesn’t happen only in difficult economic times, but all eyes are on job dismissals during these periods. Most often, layoffs are triggered by measures meant to cut spending or reduce production. The firm doesn’t necessarily have to become insolvent.

The law requires the job dismissals to become effective (companies need to actually cut the positions out of their organizational chart), and have real and serious causes. Don’t think about cheating by just changing the name of the job or by re-introducing the job soon after dismissing the person, just as a mean to fire them without excuses (that is, if you’re the employer). In case the employee will file a law suit against the employer, the court will determine the reasons for which the company was restructured and the jobs were axed.

When times get better (production increases again, no more economic difficulties, etc), the employer may hire more people on the jobs which were dismissed before. The fact that the employer dissolved a computer operator job doesn’t mean the firm won’t be able to hire a computer operator again. When courts refer to dissolving a job as a definitive procedure, it means the procedure shouldn’t be used as a pretext to fire a certain employee.

The activity reorganization needs to come as a decision of the firm’s shareholders or of the administration council, according to their assignments stated in the firm’s constitutive documents.

As an employer, you also need to check the collective work contracts – either those signed in your company, in the work branch or at national level and see what are the compensations due to laid off employees. Sometimes, it may be more cost affective to keep your staff in place, if you think the crisis will be short, rather than lay them off and pay them several months of compensation salaries.

Marius Rimboaca, Managing Partner with IBS, is also the head of the legal department for the firm. He is a member of the Bucharest Bar and of the Romanian Bar Association. With over 15 years of legal practice, he has been involved in acquisitions and in a wide range of real estate deals. He has also advised on all aspects related to corporate and commercial practice, including corporate liability issues, minority shareholders rights, special corporate vehicles, share capital issues, contracts, domestic and international joint ventures and shareholding structures. His areas of practice covers various industries, including construction, consumer good, telecommunication, insurance, pharmaceutical.

You can ask for a free quotation by telephone 031 420 53 33 or by e-mailing [email protected]

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