Company News » Insight – Hire and Fire

Europe is heading for third-world status according to a report commissioned
by the DTI from consultants Indepen for the i2010 Conference on 6 September. The
‘i2010’ rubric comes from the European Commission’s June 2005 new strategic
framework: “i2010 – A European Information Society for growth and employment”.

This strategic framework picks up on the 2000 Lisbon Strategy goal of making
the EU “the most dynamic and competitive knowledge-based economy in the world”
by 2010 – a goal it is manifestly failing to achieve.

The starting point for the consultants is “the puzzle” that, while IT is
available to all countries, Europe has invested and gained less from IT in terms
of productivity and growth than other economies. Allied to this is the worry
over Europe’s productivity slowdown and high unemployment.

The consultants examined which countries achieved the greatest productivity
gains from IT and found a tight correlation between a flexible employment market
and productivity gains – that is, the ability to hire and fire at will.

The basic thesis of the report’s authors is that modern economic conditions
require companies to implement strategies based on the economist Joseph
Schumpeter’s idea of “creative destruction”, or the ability to set up and tear
down divisions as the market dictates.

The problem with Europe is that it needs to reverse its current trend of
producing more and stifling employment laws. “Barriers to the reallocation of
labour – including undue restrictions on hiring and firing and impediments to
labour mobility – should be lowered,” the authors argue.

However, as Amanda Jones, a partner at the law firm Maclay Murray &
Spens, notes, Europe is not homogenous in its approach to hiring and firing,
despite the best efforts of the Commission to promote ‘harmonisation’. Jones
argues that the i2010 report is spot-on when aimed at France or Germany, and
wide of the mark when it comes to the UK.

“UK companies have a relatively free hand when it comes to closing a company
or division and letting the workforce go, provided there is a real economic
justification,” says Jones. If a company is not going into liquidation, and is
going to make more than 20 but fewer than 100 people redundant, it has to
consult for 30 days. But when that period is up the company is free to act.
Where more than 100 people are being made redundant the statutory consultation
period is 90 days.

If employers fail to honour the statutory minimum consultation period,
employees can, and probably will, be awarded an additional 90 days pay on top of
their redundancy.

The contrast between the UK and, say, France is startling. Alan Sutherland,
also with Maclay Murray & Spens, was involved in the liquidation of a French
subsidiary of a UK company. “It took us three years and two court appearances to
close the business and it was a hideously complicated exercise,” he says.

Before any redundancies can be made, the French employer has to sit down with
the works council representative and devise an economic plan. This sets out the
reasons for the employer wanting to close the plant and the works council will
have the plan audited by an independent accountant, at the firm’s cost, who will
invariably trash the plan.

The company can ignore the independent auditor’s report, but it then has to
draw up a social plan, setting out alternative positions being offered to
workers elsewhere in the company or group. It has to prepare an economic impact
report and it has to do all this in dialogue with a works council representative
who can be as obstructive as they please.

“Broadly speaking, unless you can demonstrate very clearly that you have
tried to do everything you can to either keep the plant operational or offer
alternative employment to everyone, you will be in trouble in France. Just
showing that you are making a modest loss won’t cut it,” Sutherland says.

French tribunals have the power to veto any closure orders by companies if
they are not entirely happy with the case being made.

Philip Davidson, head of restructuring at KPMG adds: “The plain fact is that
large multinational companies plan ahead. If you have a plant in France, or
elsewhere in Europe, that is at the low end of your productivity scale, and you
find that the law is against closure unless you are making catastrophic losses
there, you can manipulate matters to bring this about.” Are the i2010 authors
right, then, in their observation that Europe, as it stands, is on course to
lose out to more flexible labour areas around the world? Does water flow