Temporary employment was one of the first casualties of the growing financial crisis, and now full-time staffers across half the globe are feeling its effects, too. Large and small companies in Spain and other countries have adjusted their labor forces, either because they need to cut expenses in order to survive the recession or because they have already been forced to shut down. Nevertheless, labor experts note, some companies and corporate boards are negotiating alternative formulas for dealing with the situation, such as eliminating staff bonuses and cutting social benefits.

In Spain, nearly 20,000 workers in the automotive and real estate sectors were the first to suffer the effects of the global financial crisis. The virus has since continued to spread throughout the Spanish economy. So far this year, more than a million jobs have been affected by the downturn, according to Spain’s Ministry of Labor. This situation has been repeated in most European countries and in the United States, where the recession originated. So far, Latin America appears to have been largely spared. Although growth in that region seemed certain to reach an average annual rate of 4.8%, the International Monetary Fund has lowered its forecasts to 2.5% for next year. Facing a difficult 2009, companies and labor unions are trying to find alternatives that are more flexible than layoffs so they can guarantee jobs for their employees without losing productivity, maintaining the viability of their companies.

Last month, ArcelorMittal, the world’s largest steelmaker, announced that it would cut 1,000 jobs in Spain, both temporary and subcontracted workers. At the same time, the company announced an ambitious cost-cutting plan around the world, and guaranteed employees that any further job cuts would be considered a last resort. However, only days ago, ArcelorMittal was compelled to present a plan for cutting 9,000 jobs in the group’s various subsidiaries. The company found itself in a situation where demand was falling sharply throughout the world, not only in the construction sector but also in the automotive sector, one of the sectors most affected by the credit crunch. In that industry, many companies have opted for partial, rather than total, layoffs of their workers while waiting for the situation to improve. In some cases, such as the Nissan plant in the town of Noáin in Navarre in northern Spain, the staff managed to negotiate special conditions to avoid downsizing the workforce, such as shutting down on Fridays. Another example is Fagor Electrodomésticos (owned by Mondragón Cooperative Corp. in Spain’s Basque Country), which proposed that its employees no longer receive Christmas bonuses so the company could make early retirement payouts to workers who are older than 55 and who cannot be relocated to other plants that belong to the same corporative group.

Rocío Bonet, a human resources specialist at the IE Business School, notes that some alternatives to firing involve “reducing [workers’] social benefits, including meal allowances, travel opportunities and [budgets for] entertainment activities.” He adds, “Some employees may be interested in signing up for programs that offer them shorter work days and unpaid vacations.” According to Bonet, many companies have already done away with overtime wages and wasteful spending. To save money, managers can now use videoconferencing instead of the “air bridge” (the flight route connecting Madrid and Barcelona), and breakfast can be considered a business meal. The biggest savings can come when a company no longer pays bonuses or when it reduces salaries, but in Spain, these sorts of measures must be negotiated between workers and management.

Miguel Ángel Cruz, an attorney with Sagardoy Abogados, which specializes in labor law, explains, “A company cannot unilaterally force something on workers.  Any large-scale change in working conditions must comply with the requirements established in Article 41 of the [Spanish] labor statute. In order to carry out a collective change in working conditions, you have to provide explanations that are economic, technical, organizational or production-related, and you need to have an agreement that reflects [the views of] workers’ representatives.” Some companies choose to take advantage of their employees’ anticipated paid vacations by instituting what are technically scheduled labor shutdowns. But from a legal point of view, to carry out that approach, “You have to comply with what has been established in your collective bargaining agreement regarding the duration [of the labor shutdown]; 30 days is the normal minimum. You also have to abide by the agreement’s provisions for the timing, method and period of forewarning [which is two months in advance],” explains Cruz. He adds that “the company cannot force people to take their vacations on just any dates that the company wants,  not even when there are justifiable reasons. That provision always applies, even when there is no [formal] agreement between the company and its workers.”

Cost Savings

Nevertheless, many staff members prefer to take company-scheduled vacation time — which doesn’t mean a cut in their salaries — rather than lose their jobs. According to Bonet, “The first thing that a company has to do is analyze its financial situation” and study various alternatives. “If workers understand that by accepting these measures they can avoid job cuts, they will be ready to accept some proposals that, while drastic, are less drastic than actually losing your job.” In his view, the company may also be interested in reaching this sort of agreement because it can avoid the costs involved in any legal procedure for reducing its work force. Whenever people are fired en masse, Bonet adds, the company can’t discriminate between one worker and another worker well enough to retain its top talent. You have to avoid “losing the best workers, who are the ones you miss the most in times of crisis.” Another possible measure, Bonet points out, is to freeze promotions and salaries. This must be applied on every level, “although cautiously,” while identifying star employees “and doing everything possible to retain them.” Some employees may even decide to accept unpaid vacations rather than lose their jobs, although that depends on the unique circumstances of each case.

Cruz says that when conditions support a company’s future viability, the company can resort to other alternatives rather than make mass layoffs. “In that case, the most common alternative involves the suspension of labor contracts. In such a situation, the company has no obligation to pay salaries, and its suspended workers can enjoy unemployment benefits so long as that situation continues. Companies can also make temporary reductions in employees’ working hours with a corresponding reduction in their wages, while providing workers with partial access to unemployment benefits. The amount of benefits each worker receives depends on how much his or her work day has been reduced. In both cases, companies need to get authorization from labor authorities [in the government].” He notes another factor that must be considered when looking at alternatives to layoffs: “You cannot agree on a salary that is lower than what was established in the collective agreement unless [it is] nullified by a subsequent agreement that establishes new wage tables.”

If You Have to Fire

Having arrived at this point, many workers ask: Why did it turn out that the flexible system for compensating workers that many big companies have been boasting about doesn’t really function? Bonet’s answer is quite simple: “The explanation may be that they have not applied [this flexible system] sufficiently. You have to wonder, for example, if they have been paying lower-level workers in accordance with their productivity [as spelled out in the flexible severance system]. Did they share the company’s profits with those workers? Flexible severance is certainly a way of adjusting the salaries of employees in good times and during a crisis…. But my view is that in some countries, such as Spain, it has not been very widespread at lower levels, and it usually involves only certain kinds of jobs [such as commission-based sales] and certain levels of employees” where personnel cuts are often inevitable.

According to Enrique Sánchez de León, director general of APD, the Association for Management Progress, which offers executives training, orientation and networking services, “Nobody likes to engage in a restructuring process, but if you have to do it, then do it well. Those companies that manage this sort of process best will be the one that are better prepared to deal with the future.” During a conference titled, “Staff Restructuring in the New Economic Environment,” organized by APD and Mercer, the human resources consultancy, José Luis Villar, Spain’s director general of labor affairs, said, “The current economic environment is a cold one, and the economic crisis is hitting us hard. So far this year, it has produced a noticeable increase in labor restructuring initiatives. From January 1 through November 15 [of 2008], 136 different personnel restructuring programs were presented to [Spanish] labor authorities, compared with only 51 such programs in 2007. This year’s restructurings have affected 41,342 workers [so far], compared with only 3,936 workers affected last year.” To those numbers, you have to add the number of restructuring plans filed with local authorities in various business sectors. Spain currently leads the European Union when it comes to the highest growth rate of unemployment. Spain also has the highest absolute rate of unemployment: currently 12.8% of the working population, according to the latest data provided by Eurostat, the statistical office of the European Union. 

Nevertheless, says Villar, “At least, there has not been any increase in labor tensions and disputes as a result of these labor restructuring programs. In more than 90% of all cases, the company and its unions reach an agreement. The average severance period is more than the legal minimum of 20 days.” Villar concludes, “If companies limit themselves to making personnel cuts, and they do not undertake any additional series of actions, [those measures alone] won’t be enough for companies to emerge [in healthy condition] from the current economic situation.” Villar adds, “One of the measures that will mitigate the growth of unemployment will be to require companies that undertake these programs to engage in relocation programs as well.” Experts agree that such an approach not only provides support for workers but also avoids damaging the image of corporations after they make personnel cuts.

José Urquiza, director of health and benefits at Mercer, studied early retirement initiatives as an alternative method for restructuring the work force. “Although it may be more costly than paying severance, [early retirement] completely eliminates conflict within the company. And if people are treated equally, the difference between this approach and severance becomes smaller, since employees leave the company before [the severance program takes place].” Urquiza adds that “a well-designed early retirement program does not wind up being a traumatic measure…. [It] always ends up being better than a severance program.”