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29 June 2017

The judicialization of collective redundancies: added risk to corporate reputation

The need to address labor restructuring processes by companies entails very high reputational risks: not only does the company need to adjust the structure of the company, which often becomes public, but also to the potential dissemination of the sensitive financial situation: lack of profitability, debt, investment and finance management, asset value, organizational structure, duplicity in functions, lack of effectiveness, etc.

Moreover, since the 2012 labor reform, the number of cases that end up in court has increased, meaning not only that processes take longer, but also that the risk of public exposure consequently increases, due both to the increased length of time involved and to the uncertainty of the outcome of the ruling.

“Moreover, since the 2012 labor reform, the number of cases that end up in court has increased”

During the financial crisis that erupted in 2008, the number of collective redundancies rose drastically, affecting large numbers of workers in the following years and creating major social impact. Given the high emotional impact on the workers involved in these processes, communication becomes particularly important in their management.

In these situations, where companies often risk their own survival, developing a special sensitivity regarding the communication strategy the company should adopt throughout the process becomes particularly relevant; people must be the top priority. They need to be explained hard and difficult decisions that, while absolutely grounded based on economic, productive or organizational causes, are not always easy to understand or accept.

The data: evolution of redundancy procedures over the last ten years.

According to data provided by the Ministry of Employment and Social Security, during the 2006 to 2015 period, redundancy procedures underwent a significant increase after the onset of the crisis in 2008.

The review of these data shows that the number of workers involved started rising from 2006 to 2009, with a decrease in 2010 and a new increase in 2011 and 2012, after which figures began to decrease again without equaling employment figures prior to the beginning of the crisis.

As shown in the table, figures corresponding to 2006 have not been reached again over the last ten years. That year, 3,481 companies carried out redundancy procedures involving a total of 51,952 workers. Since then, the number of workers involved increased by more than ten by 2009, when 19,434 procedures were authorized, the effects of which affected 549,282 workers.

In 2010, this figure decreased by 45 %, to 302,746 employees. In 2011, there is a slight increase in both the number of authorized procedures and the number of workers affected. This trend continues to rise in 2012, when the data showed that 27,570 companies carried out 35,521 procedures involving more than 480,000 workers.

According to these data, it is noteworthy that despite the fact that in 2009 there was a lower number of redundancy procedures, these involved a larger number of workers (almost 550,000 in total). However, in 2012 this figure decreased by 12 % (483,313 employees) despite the fact that 1,734 more redundancy procedures took place. Therefore, it can be observed that it was in 2012, the year in which the labor reform came into force, when companies carried out a greater number of procedures.

According to these figures, this trend has gradually decreased. As of 2013, we can see that all variables drop, leaving behind the most critical years of the financial crisis, both in terms of the number of procedures and the number of companies involved and in the total number of workers affected.

In 2015, last year with complete data available, the total number of workers involved still doubled that of 2006 (100,552 vs. 51,952). However, it has decreased by more than 80 % compared to the number of workers involved in 2012.

“More than 10 % of workers have been affected by redundancy procedures in recent years”

The analysis of these graphs proves that according to the last years for which data is available, 108,000 companies carried out some sort of redundancy procedure. Additionally, from 2008 to 2015, more than 2.4 million workers were affected redundancy procedures. Therefore, taking into account that the working population comes up to approximately 22 million Spaniards, we can conclude that more than 10 % of workers have been affected by redundancy procedures in recent years.

On the other hand, over the last ten years, the general trend regarding the redundancy procedures implemented (which include collective redundancies, suspension of contract and reduction of working hours) shows that they have been executed with the agreement of the workers’ representatives in almost 85 % of cases. The percentage of workers involved who did not reach an agreement in their procedures ranges from 10 % to 18 %, the latter percentage not being exceeded in any of the years reviewed.

However, in the specific case of collective redundancies, as of the entry into force of Royal Decree Law 3/2012 in 10 February, on urgent measures to reform the labor market, there has been an increase in the number of workers who do not reach an agreement with the company on the relevant collective redundancy. With the disappearance of the Labor Authority as a decision-making institution, Labor Chambers began to fill with labor claims.

Until 2012, workers involved in collective redundancies reached an agreement in almost 90 % of cases, or, in other words, only 10 % of workers were involved in collective redundancies without reaching an agreement.

During the three years following the labor reform, the number of cases that did not reach an agreement doubled, so in 2012 and 2013, no agreement was reached in 22 percent of collective redundancies. In 2015 the trend can be seen to have decreased slightly, although compared with the 2006 figures, there are still almost 50 percent more workers involved in redundancy procedures that have not reached any agreement in their procedure.

During the three years following the labor reform, the number of cases in which agreements were not reached doubled, so in 2012 and 2013, no agreement was reached in 22 % of collective redundancies. In 2015 this trend decreased slightly, although compared with the 2006 figures, there are still almost 50 % more workers involved in redundancy procedures that have not reached any agreement in their procedure.

This lack of consensus between the workers and the company in collective redundancies, which leads to court proceedings, has serious consequences on the procedure since it increases the time factor and creates greater insecurity regarding the final situation of both the company and the workers.

Increase in judicialization after Royal Decree Law 3/2012, of February 10, on urgent measures for the reform of the labor market

The labor reform of 2012 had a very significant impact on public opinion, particularly those sections related to collective redundancies. While one of the aims of the reform was to reduce the judicialization of procedures and to streamline redundancy procedures, experience in applying the act showed that these disputes led to court proceedings even more frequently than they did in the past.

The data analysis shows that the labor reform was a turning point in the litigation rate of collective redundancies once negotiation processes were completed. Before the reform, collective redundancies were carried out through a Redundancy Procedure that required the administrative authorization of the Labor Authority in order to be implemented. If the company and workers’ representatives were unable to reach an agreement, this Labor Authority undertook the monitoring of the conditions arising from the negotiation and of issuing the relevant authorization, where appropriate.  The many cases in which authorization was denied were due to errors or non-compliance with formal aspects. On the other hand, as we        mentioned, it was possible for an agreement not to be reached but for the Authority to grant its authorization to implement the procedure, in which case it was unusual for the workers to decide to take their disagreement to court.

“The data analysis shows that the labor reform was a turning point in the litigation rate of collective redundancies once negotiation processes were completed” 

However, after the 2012 reform, the requirement by virtue of which the Labor Authority was needed to issue the administrative authorization was abolished. Therefore, companies could implement the collective redundancy process even if no agreement had been reached, with courts being the only way for workers to challenge the process after the consultation period. This means that, regardless of whether there has been a decrease in the total number of redundancy procedures and collective redundancies, the judicialization of these processes has undergone a significant increase, which undoubtedly creates additional risks for companies, not only at a legal and economic level, but also from a reputational perspective.

Rulings regarding these disputes usually take several months to be issued, even exceeding a calendar year in some cases, drawing out a process that, under normal circumstances, should take just one or two months.

Management of communication during redundancy procedures: some key point to minimizing the impact on reputation

Judicialization entails extending the periods involved and the situation of instability. The problem is that the redundancy procedure moves into a different phase in which it must be taken into account that the publicity of the case is going to be greater and longer-lasting, given that the dispute is more evident; so communication actions implemented by company at this time will be particularly important. The new periods that this judicialization entails will have an even more negative impact on aspects such as productivity (which will be particularly affected if workers start strikes, mobilizations and calls for boycotts in protest against the decision), the motivation of employees, the internal climate and the relationship with customers, suppliers and institutions.

Taking into account the risks associated with such a process, the communication strategy should be aimed at mitigating its impact on the company, promoting communication and negotiation with workers, and avoiding transmission to other unaffected business units. The following are the main key points to protecting the reputation of the company in redundancy procedures:

Explaining the decision

It is essential to properly prepare the announcement of the process as well as to provide a very convincing explanation of the reasons that have led the company to have to adopt one of the most difficult decisions that any company has to face and that, however justified it may be, it will always be difficult to understand and accept for the workers involved, their families and the rest of the workers who remain in the company and whose future may also be perceived as threatened.

The fact that a company has all the legal and professional support to implement a redundancy procedure based on the well-known economic, organizational and/or productive reasons does not mean that it can afford not to make the effort to explain to all of its workers, regardless of their category or training, the reasons for this decision.

Preparing a clear and brief argument, with no communication tricks, but with the necessary honesty and transparency, and without avoiding any of the often inconvenient questions that may arise, is the best way to begin to recover the confidence that has been compromised since the time when the process was announced.

“Preparing a clear and brief argument, with no communication tricks, but with the necessary honesty and transparency, and without avoiding any of the often inconvenient questions that may arise, is the best way to begin to recover the confidence

Alignment with the legal strategy

The judicialization of the process is a challenge for the company’s communication, since it is possible that this new phase will give greater publicity to the redundancy procedure, increasing the associated reputational risks.

At this point, coordination with the legal team is particularly relevant when establishing the communication framework for the announcement of the main milestones of the process. Thus, the communication strategy must be contingent on the legal strategy from the consultation process and throughout the judicial process, so that the messages to be conveyed to different audiences (translating technicalities into a simpler language), the main actions to be taken and the most appropriate reaction to possible contingencies and scenarios that may arise are established jointly. The corporate announcement established within the framework of the process has to put the measure adopted into context and explain the reasons for it, with suitable technical accuracy but allowing the message to be understood by audiences who are not necessarily familiar with legal terminology.

Maintaining the initiative in communication

Based on an honest, clear and duly-grounded argument, it is imperative to maintain the initiative in communication. In processes where there is a certain degree of exposure and reputational risk involved, it is also common for the media to be more interested and therefore they are used by the negotiating parties as the main means to take advantage of such circumstance.

In this regard, transparency is a very important value for the company and therefore, it must seek fluent communication with workers, media, suppliers, customers and other stakeholders. While the factual milestones, such as the announcement of the measure, the opening of the negotiation period or the implementation of the results, should be taken from the proactive point of view, the company should remain reactive before the more circumstantial milestones. Establishing a communication path demonstrates an open stance with workers, which in turn is generally interpreted as willingness to reach an agreement. The main data in these cases is the final number of workers who will be affected by the measure, which is one of the main consequences of the procedure. Remaining reactive at key moments in the process may lead to others taking the initiative and using their messages to monopolize the coverage and conversation generated on the subject.

Real time management

The current communication channels (in which social networks play a leading role) have a capacity for immediate dissemination and are available to any stakeholder, so the information provided throughout the process, however trivial it may seem, should be previously checked, given the high potential of filtration and virality. The appearance of the slightest amount of information in this type of channel can create a line of conversation that encourages users to participate, probably in detriment of the reputation of the company. To control this effect, it is advisable for the company to have a proactive position that shows its point of view and attempts to redirect or mitigate the conversation without entering into a war in social networks.

In addition, each of us, through our telephone, are potential spokespeople, sources and media, so it is necessary to understand these processes from a much wider perspective than that with which they were approached just five years ago, accepting the fact that concepts such as “off the record” no longer exist and that confidentiality is much more compromised at all times.

Anticipation of scenarios and contingencies

The common factor of a good communication management strategy lies in its in-depth preparation before the risk becomes a crisis. During these processes, different manner of contingencies tend to arise (strikes, demonstrations, sit-ins, blockades, etc.). Therefore, it is instrumental to prepare a plan that determines how to manage communication properly in each of these possible situations, anticipating the specific scenario, the most appropriate response by the company and the messages to be conveyed. This is how we are able to control risks and to minimize their effects.

Improvisation is unadvisable in the management of incidents, since it is usually also accompanied by the lack of experience of the management teams in this type of situation. Experience in these matters is precisely what helps to identify all the situations that can arise at times at which the creativity of unions, workers and third parties affected by the process emerges.

Multi-stakeholder strategy

 It is important to bear in mind that collective redundancy, despite being the least common type of dismissal, has a greater impact, more risk of public exposure, and a higher emotional component, which results in a greater influence on the perception that the main stakeholders of the company have regarding it.

That is why the communication strategy must include all the stakeholders that in any way comprise the reputation of the company and not only the workers themselves, notwithstanding the fact that the latter is the main group, the principal collective stakeholder,to which the management team must communicate their decisions. Likewise, it is a mistake to approach reputation management only through the media, since there are other stakeholders, such as public administrations, suppliers or customers to mention the most obvious, whose contribution to the reputation of the company should not be forgotten and with whom it is desirable to maintain a more direct communication flow. The aim of this strategy is to ensure that these stakeholders know the company’s position firsthand and avoid the spread of false information that would lead to speculation about the future of the company, which would aggravate the situation.

CONCLUSION 

After reviewing the data analyzed, we can conclude that even though the number of collective redundancies has stabilized in recent years, the judicialization of these cases, in the absence of an agreement after the negotiation period, has undergone a pronounced increase after the labor reform of 2012, which abolished the previously necessary authorization of the Labor Authority. This judicialization draws out the process adopted by the company, causing more uncertainty about the final outcome. In addition, depending on the development of the legal process, media impact can increase, meaning an added risk with a direct impact on the reputation of the company. In this context, developing a communication strategy in coordination with the legal department is critical in order to establish the form and content of the messages to be communicated to different stakeholders of the company. Then, we will be ready to prepare a plan to anticipate scenarios and take the initiative at key moments when required, always with the aim of assisting in the negotiation process and minimizing the impact that an eventual judicial process may have on the reputation of the company.

Luis González is Director of the Litigation and Restructuring Area at LLORENTE & CUENCAWith 20 years of professional experience, he is an expert in crisis communication, restructuring and insolvencies, and relations with the media, with a history of specialization in the Infrastructure, Real Estate, Health and Industrial sectors. He was a Manager in the operations of LLORENTE & CUENCA in Chile (2014-2016) and Portugal (2012). Before joining that company, he was an editor with the journal Diario Médico, editor-in-chief of the local TV stations Teletoledo and TV Guadalajara, and chief press officer and expansion manager at the advertising agency Tactics Europe. He is a journalist and graduate in media studies from the Complutense University of Madrid, and a guest lecturer on several Strategic Communication Master programs.

email  lgonzalez@llorenteycuenca.com        linkedin  Luis González Martín 

Twitter_64x64@luisglez 

Alba García is Manager of the Litigation and Restructuring Area at LLORENTE & CUENCA. She is a graduate in Advertising and Public Relations and has a master’s degree in Corporate and Advertising Communication, both from the Complutense University of Madrid. She coordinated the following Master’s programs of the Complutense University of Madrid: “Communication of Public and Political Institutions”; and “Corporate and Advertising Communication”. At LLORENTE & CUENCA, she has in recent years worked on many different communication projects during judicial restructuring processes. In this sphere, the campaign carried out for the reputational crisis of the Vitaldent lawsuit received a Stevie Award in 2017. She has also performed different roles on corporate communication projects for clients such as Coca-Cola, Burger King, Mercadona, Atento and Faurecia.

email  agarcial@llorenteycuenca.com        linkedin  Alba García López 

   Twitter_64x64 @alba_galope

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