Good Practice Note | August 2005 | Number 4 Good Practice Note 33659 Managing Retrenchment W Environment and Social Development Department hether it is the pursuit of new markets or the workforce. However, the key to a good the desire to improve performance or outcome lies in developing and implementing a productivity, companies must periodically retrenchment procedure that achieves the review and adjust their business plans and commercial aims of the process while minimizing processes. The injection of new capital, changes in the impact of job losses on workers and ownership, or changing economic circumstances communities. Such a procedure, often encapsulated can often lead to reorganization and restructuring in a retrenchment plan, should be founded on within a company. It is not uncommon for job widespread consultation (particularly with workers What’s Inside? losses to result, and in some cases it may be the and their representatives) and should seek to 2 The Case for Getting It Right only way for a company to move forward and ensure that the selection of workers for dismissal is 2 Key Steps in Planning and Managing Retrenchment thrive. Loss of employment may be caused by a based on principles that are fair and transparent and 5 Consultation Is Critical range of factors from technological change to do not discriminate against particular groups. During 7 National and Legal Requirements privatization to total closure of a workplace. the course of the process, efforts should be made 8 IFC Requirements to reduce the number of jobs that have to be lost 10 Determining Selection Criteria No one single international definition or universally and to mitigate the effects of the job losses on 13 Non-Discrimination used terminology exists to categorize such job individuals, groups, and communities. 15 Appeals and Grievances losses. Terms used can include: retrenchment, 16 Severance Pay redundancy, downsizing or lay-off. Throughout this The aim of this Good Practice Note is to provide 17 Beyond Compensation: Assisting Workers Good Practice Note, we use the term guidance to IFC clients and the wider private sector 20 Addressing Impacts on Communities “retrenchment,” which can cover a wide range of operating in emerging markets on how best to plan 26 Preparing a Retrenchment Plan dismissals that do not essentially relate to the and manage significant job losses. A well-managed conduct or capability of the worker. These include process can help avoid a host of problems and » the closure of a plant, factory, mine, or other result in better outcomes for the company, its workplace, with the total or near-total loss of employees, and the wider community. This note jobs contains a range of good practice measures that can » job losses arising from a reduction in staffing help companies think through the key issues, avoid requirements due to efficiency gains or falling common pitfalls and hidden problems, and design a demand for the company's products or services comprehensive retrenchment plan. The » job losses arising from a downsizing in development of such a plan is a requirement for operations or restructuring of the workforce IFC-financed investments where a significant following, for example, privatization. number of job losses is expected. Retrenchment may sometimes be a necessary part of securing future employment for large sections of Page One Managing Retrenchment The Case for Getting It Right selecting a particular individual over another cannot be explained and justified. Morale and Productivity It is evident that retrenchment will have a Avoiding Misinformation substantial impact on the workers involved. Sound retrenchment practices should be as However, the effect can be much more transparent as possible. A good communications widespread. Those employees who are left behind strategy and clear information will both enable the A poorly executed and managers who deal with the retrenchment can consultation process to run smoothly and make it retrenchment be affected by the process, especially if it is badly much more likely that employees, their handled or creates unnecessary conflict. A poorly representatives and other stakeholders will be able process can lead to executed retrenchment process can lead to loss of to come up with alternatives to job losses or loss of productivity, productivity, low morale, and decreasing economic indicate ways in which the effects of job losses can low morale, and performance. While it will always be difficult to be mitigated. Full and frank disclosure of information maintain employee morale during a retrenchment helps to avoid rumors and misinformation, which decreasing exercise, there is likely to be a better response to a again can fuel low morale and lack of productivity in economic process that appears to be based on clear grounds the workplace. A transparent process that engages that employees and their representatives can key stakeholders early on decreases the likelihood performance. understand and contribute towards. of resistance to changes in the longer run. Legal and Reputational Risks Efficiency Every country has basic national rules for dealing It is much easier for a company to manage a with collective job losses and reorganization. An retrenchment program that has clear rules and important aspect of developing and implementing a boundaries than one that is open to subjective retrenchment plan is ensuring compliance with manipulation. If the process is fair and objective, national laws and the terms of collective bargaining challenges to the process are also much less likely. agreements. This not only ensures that the employer is doing the right thing, but also minimizes the legal risk arising from the retrenchment process. Minimizing risk is an Key Steps in Planning and important factor to bear in mind from both a Managing Retrenchment financial and a reputational perspective. Key aspects in this regard include severance payments to Ensure Retrenchment Is individual employees and the nature of consultation Necessary carried out with trade unions and other One of the first questions to ask during any stakeholders. Also important are the transparency retrenchment process is whether there are and fairness of the selection criteria used to select alternatives to job losses. Quite often, workers and employees for dismissal. A company’s risk of being their representatives will come up with alternative sued for discrimination, unfairness, or a range of and innovative ways to deal with particular other causes is much higher if the rationale behind economic situations so that a large number of Page Two Good Practice Note | August 2005 | Number 4 people will not lose their livelihood. It is always start forming a picture of the options available. This worth verifying whether the level of job loss includes gathering information to answer the proposed is necessary or whether there are following questions: alternative ways of achieving the changes sought. » What are the workers’ rights and obligations in relation to job loss, not only in terms of the content of their contracts of employment and Look for Alternatives to Job Losses their entitlement to payments upon There are several instances where reducing the retrenchment, but also with respect to collective One of the first number of individuals directly employed by an agreements and local and international rules? questions to ask is organization seems to be the most obvious way to » How employable are the workers to be achieve necessary savings. However, further retrenched and what is the job market like for whether there are consideration and consultation may reveal that the types of skills they possess? alternatives to job alternatives to job losses might be possible. Options » From what areas and groups of workers will the losses. to consider include cuts come? » a freeze on new hiring » What is the gender and ethnic breakdown of the » enforcement of retirement ages workers to be retrenched versus those who are » reduction in hours worked by existing staff to be retained? » outsourcing of particular activities » an end to using agency and contract workers » internal transfers and redeployment Commence Consultation with » transfer of employees to third party organizations Key Stakeholders » reduction in salaries » Begin consultation with key stakeholders early. » active performance management Engage workers and their trade unions or other » staff involvement to find productivity gains. representatives. Consultation may also include local, regional, or national government agencies It is important to consider whether any of these (most frequently the Labor Ministry). alternatives is viable in the circumstances of each retrenchment exercise. Of course, fewer options » Reach an agreement with stakeholders on exist in the case of a total closure of a workplace. process for consultation. One of the easiest ways Even then, however, there may be opportunities to to ensure problems with any process, relocate some workers to a sister company or particularly one as difficult and contentious as outplace them to another local employer. retrenchment, is to leave unions and other stakeholders feeling that they have no say in relation to the process. (See “Consultation is Gather Preliminary Information Critical”, p. 5.) Decisions should be based upon full knowledge of all the relevant facts and the legal and economic context in which the organization is operating. Companies need this initial information in order to Page Three Managing Retrenchment Decide on the Nature » reach a decision on the appropriate course of of Retrenchment and Establish action in light of all the information available. Procedure Implement Retrenchment Plan Form a committee or group within the organization to manage the process of retrenchment. The role » Prepare the tools and procedures to effect the retrenchment, including an appeal or grievance of the committee will be to mechanism. Prepare the tools » determine the revised shape of the workforce. » Once consultation has occurred on this point, » plan in detail the numbers of workers required in and procedures to announce the number of dismissals that will take each division of the organization and the skills place and the manner in which employees will effect the required for each post. be selected for dismissal. » determine a draft timeframe for implementation retrenchment. » If possible, carry out interviews with every to ensure there is a clear timeframe for each person affected by the retrenchment, and be stage of the retrenchment process and enough prepared to review individual selection in light of flexibility to allow for changes in the process so any particular information learned. as to reflect ongoing consultation. » Make severance payments in a timely manner. » start to develop the criteria by which workers » Carry out assistance programs (e.g., training will be chosen for dismissal, keeping in mind outplacement, job assistance, and economic potential discrimination and other legal issues. development opportunities), for retrenched » consult on the criteria for selection. workers. In some cases these programs may be » determine budgets for each course of action, extended to the families of employees and the including costs associated with retraining, local community. redeployment, early retirement, and financial implications of community impact. CONSULTATION Redeployment, cost cutting Determine whether Decide how to Check no Look for retrenchment Implement dismissals alternatives carry out dismissals discrimination is necessary Are there other ways to Selection criteria, Check payments, meet business objectives, timetable, key jobs individual consultation, bearing in mind impact that need to be grievance and appeals of retrenchment? retained Seek to reduce impact of retrenchment Page Four Good Practice Note | August 2005 | Number 4 Consultation is Critical Common Pitfalls Consultation on both the development and the implementation of a retrenchment plan is critical. » not providing sufficient information to unions or workers early in the process Without consultation, companies run the risk of not » failing to adequately consult with unions or only getting key decisions wrong, but also of breaching workers’ representatives legal rules and collective agreements and alienating » assuming that retrenchment is the only workers and the community. Workers can often alternative without looking for other ways of The first issue to be dealing with the problem provide important insights and propose alternative determined in » choosing final selection criteria too early, ways for carrying out the process to minimize impact without considering implications or on the workforce and the broader community. alternatives relation to » failing to seek government or other third consultation is party support to either reduce or mitigate the Choosing Whom to Inform and Consult number of job losses whom to inform » concentrating solely on how much severance Determining whom to inform and consult is the first to pay. and consult. issue to address. The most obvious group of people will be the workers who are likely to be affected by the proposed retrenchment. Other authorities is required where a large-scale loss of groups may also be important. jobs is anticipated. The purpose behind this requirement is to allow the relevant state bodies to Trade Unions and Worker Representatives. If engage in economic regeneration, training, or other there is a recognized trade union either at the forms of intervention. Government may be a good workplace or named in the national law, this will be partner when looking at alternative forms of one of the key consultees. Even when no ongoing economic activity for workers who are to be relationship with a trade union exists, if workers wish dismissed. They may also be able to provide a trade union to be consulted on their behalf, this resources for training or other support. may well be the appropriate course of action to take. Each country will have different rules on whether Community Leaders. Where the closure of a consultation with trade union representatives is workplace has substantially wider ramifications (for obligatory. However, it is important to identify the example, where the company is a major provider of appropriate group to consult or, failing this, either healthcare, social services, transport, or housing), elect worker representatives or consult with consultation with the wider community through its everyone in the workplace individually. This latter traditional leaders or elected representatives is option can be time-consuming and difficult, so an important. However, in some countries where this appropriate form of collective consultation is may not be possible or is insufficient to get to the normally the best route. heart of issues affecting particular parts of the community, it may be appropriate to consult local Government Authorities. Usually, notification of non-governmental organizations (NGOs) and other either the local, regional or national government civil society groups. Page Five Managing Retrenchment Timing Issues Participatory Process: The timing of the initial provision of The Case of Côte d'Ivoire Railways information about proposed job losses is crucial. On the one hand, it may be harmful to The restructuring and privatization of Côte d'Ivoire disclose the information before there is a clear idea railways illustrates both good and bad practice. In of what the likely proposals are, both in the sense the early 1990s, the railway was restructured without union consultation. It soon became clear that there of bad publicity and in the sense of damaging the The timing of the had been too many redundancies in some key employer's financial stability. On the other hand, areas. The company found itself having to pay initial provision of the earlier workers and others know about what is overtime, so much so that the potential for likely to happen, the more they may be able to restructuring to lead to a sound financial footing was information about undermined. contribute in terms of avoiding job losses, looking proposed job losses for alternative economic solutions, or ensuring that A second phase of restructuring from 1993 onward, is crucial. those selected for redundancy receive fair and in which the union was more effectively engaged, equitable treatment. Companies are well-advised to produced better results, with changes in commercial attitudes, reduction of fraud, and a clear increase in make sure there is a clearly formulated proposal for the availability of locomotives. The second phase also carrying out the retrenchment before they created a more conducive labor relations climate. commence consultation. This will allow for effective engagement with trade unions and other However, a subsequent breakdown in communications and consultation produced further stakeholders around a concrete proposal, rather avoidable problems. A union request for information than just preliminary hypothetical conversations. about how further labor restructuring would be This is not to say that information sharing and carried out was ignored. This led to a strike and consultation should not come as early as possible. other direct actions. Details of the envisaged redundancies were provided eventually, but the union had managed to negotiate severance terms Not all information has to be released at the equal to 14 months of wages, double the initial offer. same time. Good practice encourages a phased In addition, the number of years of contributions release of information and consultation on a staged required to entitle an employee to an early retirement package was reduced from 20 to 15. basis. This means not having to announce immediately that “there will be 2,000 jobs lost and During the subsequent negotiations, the union these are the names of the individuals.” For example, proposed a plan to enable workers to establish their an announcement of the need to reduce headcount own businesses after retrenchment. The concession company that took over operational responsibility for may take place reasonably early in the process, the railways agreed in principle to favor companies followed by a consultation and discussion about the created by former workers. Subsequently, track alternatives and likely numbers. Subsequently, the maintenance, company car fleet management, and proposed final numbers and the proposed means of printing of timetables and tickets have been contracted out to firms set up by former workers. selection for dismissal may be announced followed When recruiting new staff, preference was also given by a consultation about selection. to workers made redundant in 1995. Source: Martin and Micould, "Structural Adjustment and Railways Privatization: World Bank Policy and Government Practice in Ivory Coast and Ghana." (1997) Page Six Good Practice Note | August 2005 | Number 4 Confidentiality Issues agreements negotiated with trade unions on either a In order to let worker representatives know what is sectoral or an undertaking basis. Examples of issues happening early in the process, it may be necessary that will be covered in such rules include to require that they keep the information » minimum severance payments for each worker confidential until, for example, disclosure has been dismissed made to markets, other financial partners, or » requirements for consultation with employee shareholders. This can be a difficult route to take, as representatives the representatives may feel an obligation to talk » requirements for notification of national Good practice with the workforce to try to gauge their reaction. authorities encourages a » prohibitions on dismissals based on particular Content of Information Disclosed defined criteria, such as discriminatory criteria or phased release of The type of information to disclose to worker trade union membership. information and representatives includes the consultation. » number of workers or particular categories of Although compliance with national law is essential, workers likely to be dismissed in some instances good practice may dictate going » total numbers in each worker category beyond the minimum standards set out in national » proposed timeframe for dismissals legislation. For example, most national legislation » economic, technical, or organizational reasons provides that minimum amounts of severance be behind the decision paid to each worker dismissed in a retrenchment. » proposed severance package However, there is rarely any legal obligation to » alternatives to retrenchment that have been provide funds to pay for retraining of workers to considered. find new employment—although such a provision may be found in some collective agreements. For The sort of information to provide to communities social, reputational, and/or business reasons, includes the however, many socially responsible companies » timeframe for retrenchment choose, either on their own or with relevant » anticipated impact of retrenchment on the governmental or other partners, to organize and community fund retraining and other assistance for workers » proposed remedial measures that the company affected by the retrenchment process. (See “Beyond anticipates taking. Compensation: Assisting Workers”, p. 17.) Additionally, the consultation requirements may National and Legal lead to requests and agreement to carry out Requirements particular actions to mitigate the effects of the retrenchment. If companies enter the consultation There will inevitably be some national rules dealing process with an open mind, they must be prepared with the question of mass dismissals for economic to accept that the results of the consultation may reasons. The rules may be found in national, state, or lead to their doing things that are over and above regional legislation or within the terms of collective their minimal obligations under national law. Page Seven Managing Retrenchment IFC Requirements Legal Checklist The IFC has a defined set of Social and When planning retrenchment, it is important to take Environmental Performance Standards that it applies either external or internal legal advice as to the various requirements placed on an employer by to its financing. During appraisal, IFC identifies the national legislation and collective agreements. performance standards and guidelines applicable to Below are some of the important questions that need a potential investment. In addition, IFC-financed to be considered: IFC-financed investments are expected to comply with applicable » Is the undertaking/sector covered by a collective investments are local, national, and international laws. IFC's agreement and, if so, what are the provisions with Performance Standard and Guidance Note on Labor respect to collective dismissals/retrenchment? expected to comply and Working Conditions contains specific » Is governmental permission required to proceed? with applicable requirements in relation to retrenchment.* » What are the requirements for consultation with trade unions or other employee representatives local, national, and over retrenchment and downsizing? IFC Performance Standard Requirements on » Is voluntary severance/early retirement a possible international laws. Retrenchment.* The relevant part of the policy legal alternative? states that the client will develop a plan to mitigate » How are minimum severance payments to be calculated? the adverse impacts of retrenchment on employees, » How much notice must be given to each if it anticipates the elimination of a significant number employee? of jobs or a layoff of a significant number of » What are the individual requirements that must be complied with in relation to each worker's employees. The plan will be based on the principle dismissal? of non-discrimination, and will reflect the client’s » Is there specific legislation dealing with women or consultation with employees and their organizations, other protected groups, such as minorities? and where appropriate, with the government. » What legislation, if any, covers unemployment insurance and other aspects of social security, and regulates joint welfare funds, pension funds, IFC Guidance Note Language on and other such systems of workplace-social Retrenchment.* If it anticipates the elimination of supports? a significant number of jobs or a layoff of a significant » What rights do workers have in the event of transfers of employment to other employers and number of employees, the client will develop a plan outsourcing? to mitigate the adverse impacts of retrenchment on » What state agency procedures exist that relate to employees. The following elements apply: disputes resolution, including arbitration (binding » Retrenchment means the elimination of a and non-binding), conciliation, and mediation? » What laws are in place related to the rights of significant number of jobs or the dismissal or workers in “atypical” or “contingent” layoff of a significant number of workers by an employment, including temporary, part-time, and employer, generally by reason of plant closing or self-employed workers? for cost savings. As used in the Performance » What is the position in relation to public and private pension arrangements, and their Standard, retrenchment does not cover isolated portability between employers? » Are there any rules that require preferential * At the time of printing, IFC’s Board had not yet approved the treatment for retrenched employees in respect to new Performance Standards. Please refer to: www.ifc.org/ any future employment? enviro for the latest policy language and guidance notes. Page Eight Good Practice Note | August 2005 | Number 4 cases of termination of employment for cause or criteria for selection, and compensation voluntary departure. payments. Where national law or an existing » In many countries, national law requires advance collective bargaining agreement stipulates that notice to affected workers, communities and/or retrenchment is a subject for collective governments of plant closings or layoffs above bargaining, the client should allow time for good specified numerical thresholds. Some national faith bargaining as well as to implement the laws require that retrenchments must be terms of applicable collective bargaining negotiated with workers' organizations through agreements. Any legal requirements specifying a The IFC has a collective bargaining. Severance payments to period of advance notice must be followed. It is defined set of Social affected workers may be required by national good practice to establish grievance mechanisms law or existing collective bargaining agreements. to deal with claims that any provisions in the and Environmental » When significant layoffs cannot be avoided, the retrenchment plan were not followed. Performance Performance Standard requires the development » It may be necessary in some projects for clients Standards that it of a plan to address the adverse impacts on to consult with governments where required by workers and their community. The law, where the scale of layoffs can have a applies to its retrenchment plan should address issues such as significant effect on communities, and where financing. the schedule of cutbacks, retrenchment methods government assistance may be available to help and procedures, selection criteria, severance address the impacts. payments, offers of alternative employment or assistance in job placement and retraining efforts. When Is Retrenchment “Significant”? » The plan will be based on the principle of non- There is no single numerical threshold for when the discrimination. numbers involved in a retrenchment exercise » Selection criteria for those to be laid off should become sufficiently “significant” to trigger the need be objective, fair and transparent. The to have a plan under IFC Performance Standards. Performance Standard requires that the However, the greater the impact a retrenchment retrenchment not be based on the basis of program has on workers, the local economy, and personal characteristics unrelated to job communities, the greater degree of planning, requirements. review and forethought the Performance Standard » The plan will reflect the client's consultation with requires. This will vary with the circumstances. employees and their organizations, and where Factors to consider when determining whether a appropriate, with the government. It is also retrenchment is significant include the required under the Performance Standard that » total number of workers being retrenched clients consult with employees and their » number of retrenched workers as a percentage organizations in developing the retrenchment of the total workforce plan to consider their concerns as well as their » number of retrenched workers as a percentage of ideas about ways to avoid or minimize layoffs, the working population in a town or community » characteristics of the current job market * At the time of printing, IFC’s Board had not yet approved the combined with the skill sets of the workers being new Performance Standards. Please refer to: www.ifc.org/ enviro for the latest policy language and guidance notes. retrenched, i.e., how easy or difficult it will be for Page Nine Managing Retrenchment retrenched workers to find equivalent-paying may be required either by national law or by some jobs elsewhere form of collective agreement with trade unions. » level of diversification in the local economy and/or the level of dependency of the local Once the criteria have been either decided upon or community on the company for employment as determined by reference to agreements and well as infrastructure and services national rules, the next step is to consult with » anticipated secondary impacts of unemployment employee representatives over their proposed IFC requires a on local businesses and other providers of goods implementation. This will involve clearly setting out retrenchment plan and services. the proposed criteria, explaining how they will be implemented, and listening to any concerns or where the client It is always best to assume that a retrenchment plan suggestions. Subsequently, a management anticipates laying of some kind will be necessary if multiple dismissals procedure should be put in place to ensure that the are due to take place at the same time. The more criteria are accurately applied to all employees off a significant dismissals there are, or the greater the impact of considered for dismissal. number of those dismissals, the more detailed the plan may employees. have to be. Typical selection criteria Much as criteria such as “worker potential” and “commitment to the business” may seem attractive, Determining Selection they are almost always based on a subjective Criteria assessment of an individual without the back-up of objectively verifiable facts. More typically, selection Once it has been established that there is no criteria involve one or a combination of the alternative to losing jobs, it is important to move on following factors: to determining the method and criteria for selection » length of service of those employees who will be chosen for » performance record dismissal. (This of course applies to situations other » disciplinary record than a total closure of the workplace.) There are » absence record several ways in which a selection process can be » skills organized, but it is important to ensure that it is » knowledge. » transparent » based on fair, objective criteria Voluntary measures » applied consistently Voluntary severance may be an appropriate way to » contains an appeal or grievance procedure. deal with selection of employees for dismissal in a retrenchment scenario. Advantages of this approach When developing selection criteria, one should include: assess which criteria will best serve the future » Speed. Selecting workers to be dismissed from requirements of the organization. For example, a pool of volunteers will be much faster than what balance of skill sets and functions will be selection by other methods. needed? Also, in certain cases, a particular criterion Page Ten Good Practice Note | August 2005 | Number 4 ILO Termination of Employment Convention No. 158 The ILO Convention on Termination of Employment The Recommendation also has some advice as to the (No.158) was adopted in 1982 and has so far been appropriate criteria for selection of those workers to be ratified by some 33 countries. The Convention requires dismissed, suggesting that the selection by the employer states to specify the grounds upon which a worker can of workers whose employment is to be terminated for be terminated from employment. Employment may not reasons of an economic, technological, structural or be terminated by the employer unless there is a valid similar nature should be made according to criteria, reason connected with the capacity or conduct of the established wherever possible in advance, which give worker or based on the operational requirements of the due weight both to the interests of the undertaking, undertaking. Union membership, filing a complaint establishment or service and to the interests of the against the employer, acting as a worker representative, workers. race, color, sex, marital status, family responsibilities, Grievance pregnancy, religion, political opinion, national With regard to the question of rehiring those who have extraction, social origin, absence from work during been dismissed following a retrenchment or mechanisms should maternity leave, or temporary absence for illness shall reorganization, the Recommendation states that such not be valid reasons for termination. workers should be given priority if the employer again be in place to deal hires workers with comparable qualifications, subject to The Convention provides that when the employer their having, within a given period from the time of their with any claims contemplates the introduction of major changes in leaving, expressed a desire to be rehired. However, it is production, program, organization, structure or accepted that such priority of rehiring may be limited to that appropriate technology that are likely to entail terminations, the a specified period of time. It is provided that the criteria employer should consult the workers' representatives for the priority of rehiring, the question of retention of procedures were concerned as early as possible on, among other things, rights—particularly seniority rights—in the event of the introduction of such changes, the effects they are rehiring, as well as the terms governing the wages of not followed. likely to have, and the measures for averting or rehired workers, should be determined according to mitigating their adverse effects. national law, collective bargaining or other appropriate workplace rules. In order to enable the workers' representatives concerned to participate effectively in these consultations, the On the issue of the mitigation of the effects of employer should supply them in good time with all termination, the Recommendation suggests that, in the relevant information on the major changes contemplated event of termination of employment for reasons of an and the effects they are likely to have. economic, technological, structural or similar nature, the placement of the workers affected in suitable The Convention is supported by the ILO Termination of alternative employment as soon as possible, with Employment Recommendation, 1982, which contains training or retraining where appropriate, should be further specific guidance with regard to retrenchment promoted by measures suitable to national situations. circumstances, to be taken by the competent authority, where possible with the collaboration of the employer The Recommendation suggests that the measures which and the workers' representatives concerned. Also where should be considered with a view to averting or possible, the employer should assist the workers minimizing terminations of employment for reasons of affected in the search for suitable alternative an economic, technological, structural or similar nature employment; for example, through direct contact with might include restriction of hiring, spreading the other employers. workforce reduction over a certain period of time to permit natural reduction of the workforce, internal With a view to mitigating the adverse effects of transfers, training and retraining, voluntary early termination of employment for reasons of an economic, retirement with appropriate income protection, restriction technological, structural or similar nature, consideration of overtime and reduction of normal hours of work. should be given to providing income protection during any course of training or retraining and partial or total The Recommendation suggests that where it is thought reimbursement of expenses connected with training or that a temporary reduction of normal hours of work retraining and with finding and taking up employment would be likely to avert or minimize terminations of which requires a change of residence. employment due to temporary economic difficulties, consideration should be given to partial compensation www.ilo.org for loss of wages for the normal hours not worked, financed by methods appropriate under national law and practice. Page Eleven Managing Retrenchment » Less conflict. Selection from a volunteer be approved for retrenchment. If possible, the first population will normally be much less damaging option is preferable as it avoids the morale to morale and less likely to lead to individual or problems that arise when an employee volunteers collective disputes than will compulsory but is then told that he or she cannot go and cannot dismissals. receive a payment. Disadvantages of taking the voluntary route include Early retirement It is important to not having any control over which workers put Another commonly used alternative to compulsory assess which themselves forward for selection. The most skilled dismissals is asking for volunteers to take early workers, for example, may volunteer as they are retirement. This has many of the advantages criteria will best the ones who have most confidence in their ability associated with voluntary measures and may also serve the future to find new employment. However, to avoid this provide opportunities for younger workers to scenario, one may designate only certain groups of advance into new roles. However, sometimes it requirements of the workers as eligible to volunteer while those who means that the organization loses substantial skills organization. are of most value to the organization are deemed and experience. The effectiveness of this option ineligible. Or the plan may require that volunteers also depends heavily on the ability of the pension OECD Guidelines on Multinational Enterprises These guidelines apply to multinational enterprises On the specific issue of downsizing and retrenchment, operating in or from the OECD countries, plus the guidelines state that ”in considering changes in their Argentina, Brazil, and Chile. The chapter on operations which would have major effects upon the employment and industrial relations contains much livelihood of their employees, in particular in the case guidance relevant to socially responsible downsizing or of the closure of an entity involving collective lay-offs or retrenchment. Examples include dismissals, [multinational enterprises should] provide reasonable notice of such changes to representatives of » respecting the right of workers to form and take part their employees, and, where appropriate, to the in the activities of trade unions and engage in relevant governmental authorities, and cooperate with collective bargaining the employee representatives and appropriate » not discriminating among workers governmental authorities so as to mitigate to the » providing facilities to employee representatives as maximum extent practicable adverse effects. In light of necessary to assist in the development of effective the specific circumstances of each case, it would be collective agreements appropriate if management were able to give such » providing employee representatives with information notice prior to the final decision being taken. Other needed for meaningful negotiations on conditions of means may also be employed to provide meaningful employment cooperation to mitigate the effects of such decisions.” » promoting consultation and cooperation between employers and employees and their representatives The guidelines further suggest that employees should on matters of mutual concern not threaten to move operations out of one country in » providing information to employees and their order to influence the course of labor negotiations and representatives that enables them to obtain a true also that the managers conducting labor negotiations and fair view of the performance of the entity or, should have sufficient authority to make decisions on where appropriate, the enterprise as a whole the issues to which the negotiations relate. » observing standards of employment and industrial relations not less favorable than those observed by www.oecd.org comparable employers in the host country. Page Twelve Good Practice Note | August 2005 | Number 4 arrangements to cover the cost of accelerated Retrenchment in China pension payments. The State Council's document published in the People's Daily on 23 June 1998 states that Non-Discrimination » enterprises should consider workers' living standards Selection criteria for retrenchment must be based before making decisions on who should be made redundant. For example, they should not lay off both on the principle of non-discrimination. To avoid husband and wife from the same family. discrimination against particular groups during the » local governments should encourage the rural labor Selection criteria for force to find jobs within rural regions and the size of retrenchment process, it is necessary to assess the rural migration should be controlled. retrenchment must impact of the overall retrenchment and particular » every enterprise with redundant workers should set aspects of the process on defined groups. In up a re-employment service center, which will be based on the distribute living allowance and other benefits, as well particular, attention should be paid to as pensions and unemployment and medical principle of non- insurance for redundant workers. » gender » the re-employment centers will take care of discrimination. » trade union membership redundant workers for no more than three years. The living allowance for redundant workers should » race or color gradually be reduced over the three-year period, but » national origin or ethnicity to no lower than unemployment benefit. » religion » redundant workers should be encouraged to set up small businesses of their own. Those who do so » disability should enjoy three years' tax-free status. Financial » age. institutions should provide loans for these businesses. » redundant workers, regardless of whether they were Although discrimination rules are different re-employed or not, should enjoy the same pension benefits and housing arrangements. throughout the world, some common principles » enterprises with vacancies should give employment can be discerned—most notably, that decisions preference to redundant workers, especially female workers. based directly on any or most of the above » redundant rural migrant workers are not eligible for characteristics will be unlawful. Therefore, choosing any of these benefits. someone for dismissal in a retrenchment process merely because of national origin or trade union qualifications, or length of service. However, there membership will not be acceptable. will need to be objectively justifiable reasons for the client to select in this manner. Examples include Impacts of Criteria on Certain Groups » Part-time employment. Selecting part-time More frequently, however, the issue is not flagrant employees as first candidates for retrenchment is discrimination but rather the adoption of a particular in itself, gender neutral; in many societies, practice that has an adverse impact (often however, this choice is likely to disproportion- unintentional) on one particular group. This may be ately affect women. Therefore, companies must because a particular group has less qualifications than show good reasons for adopting this criterion other groups or because other characteristics are less rather than others that are available. For prevalent. In such cases, it will not be unlawful or example, if it can be shown that the nature of inappropriate for a client to use criteria such as type the work is such that part-timers are proved to of employment (part-time vs. full-time), worker be less productive—which will often not be the Page Thirteen Managing Retrenchment case—or that the administrative burdens Addressing Gender Impacts attached to part-time employment are in Privatization of Kenya Railways disproportionately high, then the company may succeed in making a case for using the criterion. » Qualifications. An important principle for As part of the privatization of the Kenya Railways selecting which employees should be dismissed Corporation, a procedure was developed for retrenching a group of temporary workers which during a retrenchment exercise is to try to retain Some selection complied with all legal requirements. However, an those individuals who will contribute most to the analysis of the workforce revealed that all criteria may business in the future. Therefore, using worker retrenchees in this “temporary worker” category qualifications may be an obvious guide to the were women. The group was relatively small but was disproportionately skills of employees. However, clients should identified as facing serious economic problems after disadvantage consider whether qualification requirements retrenchment. Many of these women were single disproportionately affect particular groups, for heads of households raising several children. Many women. example, ethnic or national groups. There is had outstanding loans of amounts exceeding the nothing wrong with using worker qualifications as retrenchment payments. While some were re- a criterion if they genuinely reflect necessary skills employed by the KRC on social grounds (i.e., consideration of their family situation), others faced for a post. However, the skills should be actually difficulties in finding new jobs, particularly if they used in the job. Moreover, other tests may be were older. available that can be used to determine which workers are most skilled in their job. Through its Advisory Services, IFC worked with the » Length of service. A common criterion in client to try to reduce the negative social impacts on selecting for redundancy is to dismiss those with this category of workers by proposing the following least service in the organization, i.e., last in, first recommendations: out. Although this has the apparent advantage of “fairness,” minorities and women are often those » Consider the total length of service of the workers when calculating the severance payment. They with the least length of service in the could invest the funds in a small business or in organization. Therefore, it is necessary to further education or training, which would help determine the real benefit to the organization of bridge the transition period. adopting this route. For example, length of » Provide counseling. service may be the agreed method for selecting » Offer training in business management courses workers for retrenchment in a collective for three months to those over 40 so that they agreement. Or it may be that those with longest could gain skills to start small businesses. service have the most skills and experience. » Offer training in administration, business, Finally it could be that it is more expensive to accounting or HR to those under 40, to increase dismiss those with longer service, due to their chance of finding jobs. » Consider the use of job placement or temp enhanced severance payments. agencies to helped retrenched workers find employment. For more information, refer to IFC’s Good Practice Note: Non- Discrimination and Equal Opportunity (Forthcoming). www.ifc.org/enviro/publications Page Fourteen Good Practice Note | August 2005 | Number 4 Gender Considerations in Retrenchment Appeals and Grievances Although the retrenchment process is a collective In assessing the overall impact of retrenchment on exercise, each individual has the right to put both the workforce and community, it is good forward reasons why he or she should not be practice to consider the potential gender impacts of selected for dismissal or to raise complaints about the process to ensure that it does not It is important that the way in which the process has been handled. disproportionately disadvantage women. For Having an appeal and grievance procedure ensures appeal hearings are example: the sense of fairness and consultation reaches down to an individual level. It also means that the right conducted fairly. » Women may occupy lower grades within an organization or may have less service compared people are more likely to keep their jobs and that to men as a group overall. If this is the case, then the right people are selected for retrenchment. It selection criteria dismissing lower paid workers or may also mean that other ways of avoiding job those who have been with the company for the losses, or at least mitigating their effect, are least amount of time may disproportionately identified. affect women. The criteria should be evaluated to decide whether they are appropriate and/or truly Key elements of an effective appeal or grievance the best way to carry out the retrenchment procedure are as follows: process. » The process should be transparent and » Where there is a predominantly male workforce, communicated to workers in writing. there are still substantial gender impacts to be » All workers should have the right to initiate the considered. The loss of income from a large- procedure. scale retrenchment will have major impacts on » The process should be completed promptly. families and communities. It may be that there » Where possible, a manager other than the one are issues related to spouses that need to be who effected the dismissal should hear the considered. For instance, there are some appeal or grievance. examples of ensuring that spouses know the full amount paid to workers in severance payments; of the payment being made to a joint account of Appeal hearings, like dismissal interviews, must be both the worker and the spouse; and of training conducted fairly. It is often useful to make sure being made available to spouses as well as another person is in the room in addition to the workers to promote economic development, new manager and the worker. The appeal process skills, and job opportunities. should involve reviewing the decision to select the individual for retrenchment and checking the way the selection criteria were applied to the worker. It should also consider any factors that the employee puts forward against his or her selection for dismissal. Page Fifteen Managing Retrenchment Severance Pay by workers but not taken prior to termination of employment. When retrenchment occurs as part of a project, » payment of salary or wages in arrears. severance payments are the key instrument of Any salary or wages owed to the workers on mitigation. They are important from the standpoint termination of employment should be fully paid. both of complying with relevant national legislation Any monies owed to the employer that are and ensuring that workers and their families have deducted from final payment should be clearly Severance some form of financial compensation to cushion the identified and this should only be done if payments are the often harsh effects of losing their livelihood. The permitted by the contract of employment and terms of a severance payment will often vary within national law. key instrument of an organization, depending on an individual mitigation. employee's length of service, wage or salary level, Any such payments should not be delayed. It is performance, or special hardship payments. good practice to ensure that payments are received Although laws, regulations, and collective by the employee on his or her last day of work. agreements vary among countries, the main However, circumstances (e.g., when the money is elements of severance payments typically include not yet available) may make it necessary to provide » statutory or collectively agreed the payments in stages over a period of time. If this termination benefits/severance route is taken, it is important to ensure that payments. National law or relevant collective employees and their representatives understand agreements normally establish payment of a what is happening and know when payments will minimum number of weeks’ wages in be made. There should be a means for complaint accordance with a worker's length of service. about late payment. » notice period or payments in lieu of notice. Employees should be fully compensated Calculating the appropriate amount of payment for for their notice period. If not required to work each employee requires accurate information on during this time, workers should receive the salary and wage levels in the company and payment that reflects the wages they would have information about service and other criteria. It is earned if they had been working. important to ensure that this information is correct, » gratuity benefits. These are payments that particularly where the retrenchment scenario arises can be made at certain triggering events, after a privatization, sale, or other change in legal including retirement, dismissal, and death. ownership. » pension benefits. Care should be taken to ensure that any payments relating to pension Issues When Making Payments benefits are made on termination and that all There are several issues to be considered regarding workers are clear as to how their future pension the way in which payments are made and the benefits will be affected and calculated. information given at the time of payment. The aim » unused earned leave. Payment should be of severance payments is to ensure that the worker made for any holiday leave that has been earned and his or her family are financially secure for the immediate future. However, such payments, Page Sixteen Good Practice Note | August 2005 | Number 4 together with accrued earnings, in some cases may » Is the way in which the payments have been add up to a substantial amount of money—more calculated fully transparent to each worker? money than workers have ever had in their hands » Are workers' spouses aware of the amount of at one time. The temptations associated with large money that has been paid and when it has been sums of money—particularly where there are a paid? number of individuals in the locality who have been paid severance money—can be great. Recipients may spend the money in a way that does nothing Beyond Compensation: It is good practice to alleviate the impact of the retrenchment on families and communities. Additionally, the danger Assisting Workers to ensure that exists of their being exposed to possible fraud and Companies may take a range of steps that go payments are theft. The following are important questions to bear beyond severance payments and compliance with received by the in mind: basic legal requirements to demonstrate corporate employee on his or » Is there a secure method for paying the money social responsibility in relation to retrenchment. to workers? Whenever a worker is dismissed, his or her ability her last day of » Do workers have bank accounts? If not, are to find new sustainable routes to livelihood is work. there financial institutions that can assist workers essential to cushion the effects of retrenchment on set up accounts? both the individual and the community. Companies » Is counseling available to advise workers on the are often in a good position to use some resources best ways to invest or spend their money? to seek to improve the work and life chances of those workers that they have placed in precarious Type of Retrenchment Key Issues Additional Issues » Total closure of plant » Social impact assessment » Retrenchment payments » Consultation with workers and community » Housing » Measures to lessen impact on workers and » Infrastructure community » Financial management » Retraining » Promotion of new businesses » Reduction in numbers » Clearly defined selection criteria » Retrenchment payments due to reduced sales » Consultation » Ensuring best work force » Non-discrimination in selection remains behind » Retraining » Streamlining following » Consultation about dismissals » Retrenchment payments privatization » Defined selection criteria » Pensions payments » Non- discrimination » Retraining » Outsourcing to retrenched workers » End of construction » Social impact assessment » Payment of back pay and phase » Effect on migrants benefits » Funds to effect resettlement of workers » Construction issues addressed through SIA Page Seventeen Managing Retrenchment situations as a result of the retrenchment process. These may include one or a combination of the following: » training » career and financial counseling © International Labour Organization » promotion of local economic development opportunities Consideration » outsourcing should be given to » assistance with finding new employment. developing training Training programs which On occasion, the type of work a retrenched Southern Africa aimed at mitigating the impact of provide the worker has been doing is readily available at mine closures, retraining and business development another employer within the locality. Most often, were also made available to the partners of mine employee with new however, this is not the case. Therefore, workers (see p. 24). This approach takes into skills and consideration should be given to developing training account the fact that in the communities where the programs that provide the employee with new mine workers' families live there may be greater opportunities. skills, hence widening the opportunities potentially opportunities available to women than to the male available to him or her. Consultation with trade mine workers. Good practice would be to make unions, other stakeholders, and the employees such training and counseling available to workers themselves will indicate the types of training most and their partners. demanded. Local government authorities and other agencies may be able to indicate what assistance is Financial Counseling available for training. The loss of income and livelihood, coupled perhaps with a relatively large severance payment, can Kinds of training that may be considered include amount to a real shock to many retrenched » training in new skills that fit available job workers. They may be receiving more money than opportunities they have ever had at one time yet their longer- » training in small business development term financial outlook may be bleak. Therefore, it is » basic literacy and numeracy training. important to find ways to counsel workers on how to manage their finances. Examples of actions could Most commonly, the person who receives include retraining or counseling on establishing micro- » employing an independent advisor or NGO to enterprises or other ventures is the worker who work with employees to explain financial matters has been let go. In some instances, however, it may » supporting a local advice center be appropriate to offer this training option to a » supporting trade union financial advice projects proxy who will receive the training or advice as a » working with local banks and community-based way to reduce the impact on communities and financial projects. families. For example, in a Care Project operating in Page Eighteen Good Practice Note | August 2005 | Number 4 Finding New Employment » Contact other employers, explaining the skills A significant part of any retrenchment plan is a and abilities of the workforce. strategy to help workers find new employment. » Consider employing outplacement consultants to Generally, it is far easier to find employment while help the individual with skills development and still employed, so ideally the help should be job search, or to actually seek out alternative available before the worker's contract has ended. work for the worker. This involves assisting the worker to get information » Provide focused help for particularly vulnerable about alternative jobs and opportunities. groups, such as those over 40, to develop their Evidence shows abilities to seek new employment. that workers are Below are some examples of actions that » Help all workers to develop their skills. » Offer workers travel subsidies to go to other much more likely to employers can take to assist retrenched workers to find alternative employment at another workplace areas to look for work or to assist with use counseling and when no suitable alternative job is available with the relocation. retraining facilities same employer: » Contact state or private agencies that will be if they are available aware of job opportunities in the region. before contracts are terminated. Key Points in Helping Workers Find Other Work » Launch assistance programs early. Evidence » Foster competition and efficiency in the shows that workers are much more likely to use delivery of services. Bring in a wide range of counseling and retraining facilities if they are institutions, including trade unions and non- available before contracts are terminated. governmental and private institutions to offer » Ensure that redeployment services are driven services. Use performance-based contracting by demand rather than by supply. This arrangements, where appropriate, to improve approach may give workers a choice between incentives and efficiency. training and severance pay, and may build in a » Give workers access to information about cost-sharing element through the use of vouchers training and other service providers’ and other instruments. performance. This information can help workers » Target services to workers for whom such make better selection among courses and services are most cost-effective. Younger services. Allowing workers to make their own workers with basic educational levels and skills choices increases the likelihood that programs are most likely to benefit and improve their selected will be more relevant and demand- chances in the labor market. Effective targeting driven. requires taking a survey of workers to obtain a » Provide support to help workers set up their clear profile of worker characteristics and needs. own small businesses. This approach will » Develop a good understanding of the labor empower workers to be more self-sufficient market that workers will be entering. A labor instead of merely equipping them with skills for market survey and consultation with other parties jobs in the formal sector. need to be undertaken as early as possible. » Engage effectively with stakeholders. » Develop good counseling and advisory Consultation is critical for success. services. Such services help match workers to relevant retraining and other programs. Page Nineteen Managing Retrenchment Promoting Local Economic Development Small business development In situations where alternative employment is not readily available, it is often appropriate to help retrenched workers establish new small businesses or co-operatives as a means of livelihood. To do this, companies may consider putting money into a The effects of fund to support new businesses or working with © International Labour Organization company local governmental and non-governmental organizations to help provide start-up capital and downsizing can lead technical assistance. to wider unemployment Outsourcing Where the cause of the retrenchment lies in a throughout the business decision to outsource a particular part of patronage of workers and their families, can be local economy. the organization's activities, then it is good practice hard hit as well. Socioeconomic impacts can be to first consider whether outsourcing is the best especially severe in cases where a company is the approach. If it is, a company should consider main employer in the area or where local helping the employees working within that section communities have grown dependent on the to set up a business to bid on the contract to carry company not only for their livelihood but also for out the work in question. If the workers are to lose social services and facilities such as health care, direct employment, it is a better outcome for them housing, education, sanitation, water supply, to continue their work, but to do so through a electricity, and maintenance of the transport or contract they have established for themselves and communications infrastructure. in which they have a stake rather than being left without employment. The Need for Social Impact Assessment It is good practice for a company to undertake a Addressing Impacts Social Impact Assessment (SIA) when large-scale retrenchment or closure is expected to have on Communities adverse impacts on the broader community. The Although the effects of downsizing are most acutely SIA can be an important planning tool for felt by the workers and their immediate families, a companies seeking to manage the process in a large-scale retrenchment or closure of a major plant socially responsible manner. The SIA provides or industry can have significant impacts on information on existing socioeconomic conditions, communities. The effects of company downsizing predicts potential impacts, engages a range of on secondary and tertiary enterprises can lead to stakeholders including communities, local wider unemployment throughout the local governments, and NGOs in defining priority issues; economy. Local businesses, dependent on the and generates means for cushioning negative Page Twenty Good Practice Note | August 2005 | Number 4 impacts and assisting communities during the or countries and may need assistance in transition. Issues to be considered as part of an SIA returning home. Additionally, the effect on may include the following: communities dependent upon remittances sent » Range and severity of retrenchment or by these workers (coupled with the return of closure impacts on local communities. A large numbers of community members without good social assessment process will identify and obvious means of subsistence) can be significant. engage key stakeholder groups and identify (See box on p. 22.) impacts that might otherwise be overlooked. » Impact of a sudden and large injection of The SIA can be an Having a comprehensive picture of the scope cash into the local economy as a result of important planning and degree of impacts allows a company to severance payments. The risks associated with prioritize and target mitigation and assistance workers receiving large lump sums of cash need tool for companies efforts. to be considered and measures put in place, seeking to manage » Impacts on vulnerable groups including where feasible, to promote sustainable outcomes. the process in a women, older workers and migrant » Level of dependency of communities on workers. Certain groups within a community social infrastructure and services socially responsible may be affected differently and may require provided by the company. This is most manner. special assistance or consideration. For example, common in “one industry” towns, remote areas, migrant workers who comprise a significant or situations where companies have taken on portion of the workforce may often come from government roles or responsibilities due to lack a cluster of towns or villages in particular regions of capacity at the local level. » Food security. In some rural areas, it is not Outsourcing Functions uncommon for workers to give up agriculture or to Retrenched Workers fishery for cash wages. This may decrease food security and self-sufficiency in the medium to In a beverage company in Latin America, IFC helped long-term as communities use cash incomes promote sustainable business practices in several from company employment to purchase part of ways. The impacts of closing less efficient plants their food supply externally. The impacts of were mitigated by outsourcing the logistics, distribution, sales and marketing functions to closure in this context may need to be assessed. retrenched workers in order to alleviate the effect of job losses on the affected communities. Seed capital For more information on Social Impact Assessment, refer to IFC's Good Practice Note: Addressing the Social Dimensions of for these micro-enterprises came from severance Private Sector Development, December 2003. www.ifc.org/enviro packages provided by the company which also hired an external expert to provide the training the retrenched workers needed to set up and manage What Companies Can Do their own businesses. The program has created » Extend eligibility for skills training and direct employment for over 100 persons and indirect entrepreneurship development employment for nearly 8 times that number. The opportunities to family members of company too has benefited by outsourcing functions retrenched workers or, where feasible, the that can be undertaken more efficiently and at a community at large. lower cost by these micro-enterprises. Page Twenty-one Managing Retrenchment » Extend eligibility for financial counseling economic use of the land and facilities. regarding savings and the use of severance » Avoid and limit dependency by considering payments to the spouses of retrenched workers. post-closure sustainability of services and Promoting the facilitation of savings and infrastructure provided by the company to local investment in alternative livelihoods can be a communities at the earliest stages of planning. In valuable service for affected communities. industries where closure or downsizing can be » Convert company facilities, predicted in advance, it is critical to build ongoing Where there is a infrastructure, and land post-closure to capacity within local government, NGOs, and large-scale productive economic and social uses for communities to enable them to take over the community and, in conjunction with local responsibility for infrastructure and services. retrenchment and » Work with local and regional government and communities, plan the large numbers of rehabilitation of the area around future governments as important partners in assisting migrant workers, there will inevitably Migrant Workers be some degree of One of the most vulnerable groups of workers, in to try to consult with either the workers or social dislocation terms of susceptibility to the negative effects arising representatives of their community to determine the from retrenchment and to labor rights violations in appropriate measures in these circumstances. For and a need for general, are migrant workers. Where there is a example, it may be that the focus of efforts should remedial action. large-scale retrenchment and large numbers of be to enable the migrant workers to regularize their migrant workers, there will inevitably be some degree situation in the country. This may involve working of social dislocation and a need for remedial action with local or national governments to ensure that an to help those workers find new jobs in the locality or appropriate safety net is put in place to keep these to relocate back to their countries of origin. workers from drifting into unregulated, poorly paid work and living in substandard housing. Wherever a substantial number of migrant workers Alternatively, the best response may be to establish are employed within a project, a retrenchment plan training and job search arrangements within the should take this into account and look to develop countries of origin of the migrant workers and assist support mechanisms to ensure that migrant workers them with the cost of traveling home. have adequate housing, health care, and other social support if they are remaining in the country; One situation where there will almost inevitably be a or that they are given sufficient logistical and large number of either internal or international financial support to return to their countries of migrants is where there is a large-scale construction origin. There are many examples of employers project in operation. At the end of a construction carrying out this kind of activity, and there are also phase, even though this will not strictly amount to a organizations such as the International Organization retrenchment under the IFC labor policy, good on Migration, which can provide programmatic and practice would be to seek to ensure that the migrant financial support. workers are able to return home should they wish to do so and that this is done in an orderly, safe, and Where an employer is developing a plan to deal socially responsible manner. with issues related to migrant workers, it is important Page Twenty-two Good Practice Note | August 2005 | Number 4 communities affected by unemployment. These trying to assist local communities. Depending on partners may help provide social programs and their particular focus and skills, these subsidies for retraining and, in some cases, take organizations may play an important facilitation over service delivery and infrastructure role in the transfer of company resources to maintenance roles. While companies must do local communities, provide training and their part to try to ease the impact of job losses counseling services, or help in the design and on the local population, it is a primary delivery of alternative livelihood and micro- responsibility of government to coordinate social enterprise development. and economic planning and development at the regional and local levels. » Partner with NGOs or civil society groups that can be a valuable resource to companies in Zambia: Promoting Local Economic Development Konkola Copper Mines (KCM), an Anglo- generated and services provided by the mine. considered to have the potential to increase American project, was formed as a result of KCM agreed to a dialogue with government and diversify their business. These SMEs were the privatization and splitting up of the state- and civil society to look for ways to lessen the engaged in supplying business to KCM in the owned mining company Zambia effects of retrenchment and reduce areas of mining, metallurgical, engineering, Consolidated Copper Mines (ZCCM) in dependence on mining. This included safety and horticulture. 2000. Prior to vesting, ZCCM retrenched a encouraging the retrenched workers to considerable number of employees from the establish their own commercial enterprises The following were amongst the program’s operations now owned by KCM who and/or use their skills to enhance the achievements: subsequently had to undertake further capacity of established local businesses. downsizing. » Employment increased from 2142 to 3084, The KCM SME Supplier Development an increase of 44%. Rather than return to their home districts, Program » Total turnover for the SMEs participating in many ex-employees opted to remain on the the program doubled from US$9.5 million Copperbelt, especially due to the sale of KCM and the Africa Project Development to US$19.0 million. mine houses by ZCCM to local employees. Facility (APDF) of the IFC forged a » KCM Procurement of services/commodities This resulted in retrenchment having greater partnership, in November 2002, establishing grew from US$5.3 million to US$11.4 localized impacts on the communities in the a pilot supply chain linkage program for million, an increase of 115%. immediate vicinity of the mining operations. SMEs doing business with KCM. Under the » SMEs' Service/Commodity business to other partnership, the IFC through APDF would companies other than KCM grew from Apart from their retrenchment packages, undertake capacity building in business US$4.2 million to US$7.6 million, an most workers had no alternative sources of management skills and KCM would provide increase of 80%. income and became increasingly dependent the market for SME services and » During 2003-2004 the SMEs recapitalized on family support and subsistence farming. commodities. to US$2.5million and total asset base Given the economically depressed situation increased by 118%. in the Copperbelt, neighboring communities Twenty-three participants in the pilot program » Over 200 people were trained in business were highly dependent on the revenue were selected from SMEs that were management. Source: Business Partners for Development and KCM Sixtus.mulenga@kcm.co.zm Page Twenty-three Managing Retrenchment Training and Assistance Programs in South Africa The Care Project’s ‘Open Days’ provided retrenchees with an opportunity to see and experience innovative income and economic ideas in locations close to where they lived. Here a group of women in Lesotho are learning about a solar cooker. training center during courses, which could last up to four months. The following are a few examples of businesses started under the auspices of the project: » In Lesotho, a young woman opened an W. Dunn electronics repair shop and a school to teach others her skills. » Several ex-miners in Mozambique decided to In October 1999, the mining multinational, Placer grow vegetables for market after taking the Dome, retrenched 2,560 workers from its South Deep financial skills course. Mine in South Africa. The company provided support » Another worker went back to his village an hour for the retrenched employees and their families. away from the nearest retail outlet and opened a Following consultations with the workers themselves, small general store in his house, making a living the company launched the Care Project whose focus for himself and sparing local women and children was on mitigating the effects of the retrenchment at a long walk to purchase supplies. the household and community level. It sought to do this by identifying local opportunities for small The Care Project ended in December 2003, after business development, providing skills training, and virtually all the laid-off miners had been contacted. facilitating start-up capital for viable ventures. The Outreach workers had made 3,251 home visits and second phase of the project also sought to benefit registered 2,232 participants. 56 percent of the miners who were unable to work because of the workers were still making at least $100 per month in HIV/AIDS pandemic and provided counseling and October 2003—well above the subsistence-level income generation support to the victims of the wages common in the rural areas where they lived. disease and their families. Several problems had to be overcome such as finding the workers who had A unique feature of the Care Project was that a returned to their countries, overcoming widespread retrenched mineworker could nominate a proxy from skepticism, and dealing with low levels of literacy his immediate or extended family. In this way, the before starting a training program. benefits of the project were extended beyond the original retrenched worker, who for various reasons Project workers hired from within the ranks of might have been unable to benefit from the retrenched mineworkers were trained and employed program. In the courses, about 40 percent of the to work directly with the retrenched mineworkers and trainees were women, nominated by their husbands. their extended families. These workers provided This was the first time that women had been able to counseling on skills training options and local benefit directly from retrenchment benefits in the economic opportunities, such as home appliance South African gold mining industry. repair and solar panel installation. Skills and vocational training was then organized, including the Source: Wayne Dunn, Stanford Social Innovation Review, provision of travel and accommodation at the Winter 2004. Page Twenty-four Good Practice Note | August 2005 | Number 4 Tigar Michelin, Serbia: Enterprise Development In 2001, IFC invested in equity and finance for Tigar The SEED interventions can be categorized as Michelin Holding in Serbia, in a joint venture with follows: Michelin, the region’s largest producer of tires and rubber goods. In order to turn around the poor » New SME Development—including mini livestock performing divisions, it was anticipated that some farming, medicinal herb processing, and laundry 800 workers would be made redundant. Therefore, operation. Southeast Europe Enterprise Development (SEED) » Outsourcing—splitting non-core activities into was engaged to provide technical assistance by individual business units to minimize the social developing feasibility studies for several new impact of restructuring. » Tire distribution—creation by the holding business ideas to help Tigar's redundant employees company of a separate legal entity to perform this seek alternative income replacement opportunities. operation because the joint venture did not take SEED is a $25 million initiative managed by IFC to over the domestic retail operation. SEED worked strengthen small and medium-size enterprises (SMEs) with Tigar to improve its operation to sustain in Albania, Bosnia and Herzegovina, FYR continued employment. Macedonia, Serbia, and Montenegro. » Feasibility studies—undertaken for projects such as herb plantations, picking wild herbs, and mini cattle farms. Macedonia: Developing New Business Ideas Southeast Europe Enterprise Development (SEED) and their ideas discussed and decided upon. Rather, has worked on programs to try to ensure that large- the company, supported by SEED, sponsors a series scale retrenchment exercises lead to positive results of feasibility studies on a range of projects with the and generate sustainable new business. For potential new businesses being narrowed down from example, with one company in FYR Macedonia, it a long to a shortlist. These projects are then was decided that it was necessary to effect considered further and their prospects assessed in redundancies following privatization. A consultant terms of both financial viability and potential from SEED looked at the business to determine the employment impact. Once it is felt that any of the optimum structure. The consultant took the view that projects are likely to be both sustainable and in addition to restructuring some parts of the beneficial, then discussions are opened with the business, it would be possible to build a logistics workforce to determine whether employees wish to function that did not previously exist, therefore, engage in developing the projects as new businesses. redeploying some workers who would otherwise For example, for Tivkes Winery in Macedonia, which have lost their jobs. expects to lay off a few hundred employees, feasibility studies are being conducted for such SEED also has tried to develop a systematic way of projects as snail farms, eco-tourism, egg trays, developing new business ideas with several souvenir shops, and a bed-and-breakfast facility. companies. Part of the program is aimed at training local consultants to enable them to deliver advice in Once the businesses are established, there are a sustainable manner on the establishment of new defined modules that support and provide training businesses. The most innovative part of the program on a range of subjects and issues related to is that money is not simply made available to workers establishing and developing businesses. Page Twenty-five Managing Retrenchment Cost of Training » size of the retrenchment (number of men and women affected by skill level and type of contract) The costs of training can vary depending on the nature of the intervention, but per capita figures for » retrenchment methods (e.g., voluntary some middle income countries (in US dollars) are as retirement, severance packages, lay-offs, etc.) follows: » consultation and negotiation processes (with labor organizations, workers' representatives, A strategy to assist » Czech Republic $265 community organizations, NGOs, etc.) » Hungary $500 workers in finding » Poland $300 » impacts of the retrenchment on retrenched » Turkey $200 workers new employment is » other impacts (e.g., in the local community) Source: Fretwell, Mitigating the Effect of Privatization and an important part Enterprise Restructuring. World Bank Working Paper, » compensation paid and assistance provided to of any January 2002. retrenched workers » evidence that the redundancy or severance retrenchment plan. payments and the early retirement schemes complied with national legislation. Preparing a In Cases of Ongoing or Future Retrenchment Plan Retrenchment Preparing a retrenchment plan can be the best way Where retrenchment has not yet occurred but is to ensure that all potential problems and issues anticipated to be significant in scale or impact, IFC have been considered and that appropriate requires the client to prepare a retrenchment plan. responses can be devised and implemented. The plan also provides a clear program on which to Details on the information to be included in a base consultations. It should then be revised in the retrenchment plan are provided on the next page light of issues raised by employees, trade unions, as a sample Table of Contents. community representatives, and other stakeholders. In Cases of Past Retrenchment Where retrenchment precedes IFC's involvement, the client is normally requested to submit a description of the retrenchment done to date. Clients should provide a description of past retrenchment, including » characteristics of the labor force (number of men and women employed by skill level and type of contract) Page Twenty-six Good Practice Note | August 2005 | Number 4 Table of Contents for an IFC Retrenchment Plan A retrenchment plan prepared for IFC may address some or all of the various aspects of the retrenchment process given below depending on the nature and scale of the situation. Clients are normally expected to report periodically on the implementation of the plan. 1. Description of Anticipated Retrenchment and » legal role of trade unions or other representative bodies in the Rationale retrenchment process » anticipated magnitude, rationale, and timeframe » relevant agreements with labor unions or other labor » characteristics of the labor force (number of men and women representatives employed by skill level and type of contract) » compliance of planned retrenchment with applicable legislation » adequacy of current staffing levels and need for retrenchment and agreements from a business point of view » coverage of retrenched workers by unemployment insurance or » size of the planned retrenchment (number of men and women any other welfare programs to be retrenched by skill level and type of contract) » eligibility of part-time or contract workers to receive benefits or » retrenchment schedule. assistance. 2. Relevant Economic Context 6. Anticipated Impacts on Retrenched Workers and » situation of the local economy, as it relates to the retrenched Communities workers' ability to find new jobs or start new businesses » prospects for retrenched workers (market demand for their skills » importance of the firm/enterprise in the local economy and alternative sources of income/employment) » main trends in the sector in which the firm operates (e.g., » eligibility of retrenched workers for unemployment or other projected growth, level of employment, wages, foreign and benefits domestic investment). » impacts on wider communities and remedial measures proposed. 3. Retrenchment Methods and Procedures » methods anticipated (e.g., voluntary retirement, severance 7. Compensation and Any Additional Assistance to Be packages, lay-offs) Provided to Retrenched Workers » consultation and negotiation (e.g., with labor organizations, » compensation anticipated by skill level and type of contract workers’ representatives, community organizations, government » training programs representatives, and NGOs) » career counseling » selection criteria for worker dismissal » assistance to set up micro-enterprises. » strategies to prevent the disproportionate representation of a social group (e.g., women or members of a particular ethnic or 8. Monitoring of the Retrenchment Process religious group) among the retrenched workers. » indicators to be monitored (e.g., situation of the retrenched workers, payment of entitlements, outcomes of assistance 4. Management Arrangements provided) » person or people who will direct/supervise the retrenchment » frequency of monitoring activities process » party or parties that will carry out the monitoring activities. » grievance and appeal procedures. 9. Supporting Documentation 5. Legal/Institutional Framework » References of written materials, record of consultations with » legislation that applies to early retirement, provision of affected workers, tables, and the like included in an annex. severance packages and lay-offs Page Twenty-seven Managing Retrenchment Acknowledgments “Managing Retrenchment" is the Good Practice Publications available at Useful References International Labor Organization fourth in a series of Good Practice Notes developed by the www.ifc.org/enviropublications www.ilo.org Environment and Social Global Compact Development Department of the GOOD PRACTICE NOTE: Addressing the Social www.unglobalcompact.org International Finance Corporation. Dimensions of Private Sector Projects It was prepared by a team led by (December 2003) OECD Guidelines for Multinational Debra Sequeira (IFC Social A practicioner's guide to undertaking social Enterprises Development Specialist), and impact assessment at the project level for www.oecd.org comprising Steve Gibbons IFC-financed projects. This Good Practice (Director, Labor Rights) and Note has been written by IFC social ILO Tripartite Declaration of Principles Alastair Usher (Research Director) development specialists based on concerning Multinational Enterprises and of Ergon Associates. Designed by years of private sector experience Social Policy Vanessa Manuel. Printed by across industry sectors and regions. www.ilo.org/public/english/ Master Print, Inc. It covers issues from scoping and employment/multi/index.htm baseline data collection to impact The authors would like to thank analysis, mitigation and monitoring of Labor Issues in Infrastructure Reform Sixtus Mulenga of Konkola Copper social impacts. Social assessment is Toolkit — The toolkit provides practical Mines, Mehrdad Etemad of SEED, presented as both an integral part of tools and information to help policymakers and Wayne Dunn for their IFC's environmental assessment process and practitioners design, implement, and contribution of case examples. and as a tool for identifying value-adding monitor labor programs in infrastructure Thanks are also due to the opportunities that go beyond traditional reforms. Available from the Public-Private following IFC staff who provided mitigation measures to promote Infrastructure Advisory Facility (PPIAF), a comments on earlier drafts: sustainable development on a broader multi-donor technical assistance facility José Zevallos, William Bulmer, scale. aimed at helping eliminate poverty and Amanda Ellis, Motoko Aizawa, 28 pages | ©2003 IFC | Free to achieve sustainable development through Harry Pastuszek, Gordon Myers, download private involvement in infrastructure. Jerry Esmay, Nicholas Flanders, www.ppiaf.org/Reports/LaborToolkit/ Richard English, Julia Grutzner, GOOD PRACTICE NOTE: HIV/AIDS in the Workplace (December 2002) index.html Larissa Luy, Justin Pooley, Javier An introduction to the issue of HIV/AIDS in a business context. This Good Practice Note looks Calvo, Giulio Quaggioto, Barbara at the impact of the epidemic on the private sector, assesses the costs to companies, and “Restructuring with Workforce Zhang, and Louise Gardiner. provides a menu of program options from awareness raising and policy development to Reduction,” by Esser and Ozoux, ILO prevention, care and treatment programs for businesses interested in implementing HIV/AIDS (2004). The Good Practice Note also initiatives to support their employees and the communities in which they work and live. Provides guidance on managing the benefited from a public comment 24 pages | ©2002 IFC | Free to download restructuring process in a socially sensitive period in which valuable inputs manner. were received from external GOOD PRACTICE NOTE: Addressing Child Labor in the Workplace and parties including: Supply Chain (June 2002) IFC Good Practice Note: Non- Margaret Wachenfeld, Sandra This Good Practice Note offers a unique private sector perspective on the topic of harmful Discrimination and Equal Opportunity Polaski (Carnegie Endowment), child labor. It seeks to share corporate learning and experiences by providing companies with (Forthcoming). The fifth in the series of Bruce Moats, Jessica Seacor (ILO), a range of basic, good practice approaches that other businesses have successfully applied in Good Practice Notes provides IFC clients ILO Headquarters (Geneva), managing risks associated with child labor in their own workplaces and those of their vendors and the wider private sector operating in Sunita Kikeri (World Bank) and and suppliers. emerging markets with guidance on Alke Schmidt and Michaela 20 pages | ©2002 IFC | Free to download avoiding discriminatory practices in the Bergmann (EBRD). workplace and promoting diversity through GOOD PRACTICE NOTE: Non-Discrimination and Equal Opportunity equal opportunity. (Forthcoming) www.ifc.org/enviro Sets out the international provisions of non-discrimination in the workplace and draws on good practice examples to indicate circumstances where companies may take positive action The Management and Corporate For more information, please contact: both to prevent discrimination and encourage previously alienated or overlooked groups to International Finance Corporation Citizenship Programme, Job Creation participate in the labor market. The Good Practice Note provides guidance to IFC clients and Enterprise Development Environment and Social Development and other employers in emerging markets on promoting both equality and diversity, and Department, ILO. Department overcoming discriminatory practices, while acknowledging that this can often be a Contact: Dr. Nikolai Rogovsky at 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 controversial and difficult issue. rogovsky@ilo.org USA Disclaimer The purpose of the Good Practice Note series is to share information about private sector approaches for addressing a range of environmental and social issues. This Good Practice Note provides guidance and examples of basic good practice approaches that businesses have successfully applied in their operations. IFC has not financed all the projects or companies mentioned in the Good Practice Note. Some of the information in the Note comes from publicly available sources such as company websites. IFC has not verified the accuracy of such information nor the companies' practices. This Good Practice Note does not represent a commitment by IFC to require projects it finances to take certain or all of the actions specified in the Good Practice Note. Instead, any issues arising in an IFC-financed project will be evaluated and addressed in the context of the particular circumstances of the project. 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