We have published an article last Thursday, 19th of March[1] regarding the impact of recent events surrounding COVID-19 and their effect on employees. We are following-up with some business ideas and their legal risks to address the situation for the benefit of the market in this publication.
Misinformation and anxiety are spreading fast in the current circumstances. As an employer, it is your duty to clearly and transparently communicate your next steps and new policies to your employees. If you, as an employer, were to adopt any of the below scenarios, communicate to your employees the reasons behind that specific decision.
Direct and transparent communication with your employees will reassure them that you are doing your best to ensure their rights, including their financial rights, which is a major concern for most employees as well as their safety. Transparency in this case will include presenting your approach to cost-cutting solutions that highlight your best efforts to avoid cutting-down on employees’ salaries. Such solutions may include the cancellation of certain expenses such as office supplies, renovation and furnishing budgets.
It is very important to determine the actual impact of the situation on the workload needed aside from any cost-cutting considerations. The measures applicable to employees who become unable to carry out their functions due to the events would differ from those applicable to employees who are capable of working but whose functions are no longer required in full or in part due to the business disruption.
In exploring your options among the below mentioned ideas, we highly recommend that you consider short, medium and long-term perspectives. As we are approaching global uncertainty, it is crucial to consider the different possible outcomes and avoid decisions which would result in definite damage to your business in the future. We also highlight that the nature of this crisis reminds us all to consider the social and human impact of our decisions and choices.
Employers’ Options
We highlight below a number of measures to be taken into consideration, depending on the business requirements. We divided the measures according to their nature to cover those related to new and recent hires, leaves, alteration of financial remuneration/benefit and finally lay-offs. In our view, priority should be given to the retention of existing employees.
Employers may adopt the following measures in order to manage the headcount costs:
Legal Risk: Limited.
Employers may explore measures relating to paid and unpaid leaves.
Employers are legally entitled to ask the employees to consume the remaining of their annual leaves during the down time.
Legal Risk: Limited.
We notice an approach in the market whereby employees are forced to apply for unpaid leaves during down times. This practice is not compliant with the law. Alternatively, employers may encourage people to voluntarily apply for unpaid leaves as an act of solidarity towards the employer and other employees during this crisis.
Legal Risk: High. Employee consent is required.
The most important category of measures for all employers are those related to the alternation of benefits and remuneration in order to manage the cost of their human capital. In this respect, employers may consider the following measures:
We recommend that employers start by cutting-down or even cutting-off the non-core benefits granted to their employees. For example, an employer may consider suspending the meals or food allowance, leisure and entertainment. Employees do not normally rely on these benefits in managing their monthly expenses and would be open to their cancelation in the current circumstances.
Legal Risk: High. Employee consent is required.
Employers may propose reducing the working hours or the working days against a reduction in salary. For example, the employers may ask their employees to work three days per week instead of five and reduce their salary by up to 40%.
It is important to note that employers may not make any reductions to the salaries, and only in cases of force majeure, of more than 50%.
It is highly recommended to document any agreement regarding these arrangements with employees by signing an addendum agreement to be annexed to their original employment agreement. The addendum shall state the reduced working hours against the reduced percentage of the salary for the agreed period.
Legal Risk: High. Employee consent is required.
Employers may propose to their employees a reduced payment of salary and a deferral of the remaining percentage of the salary to a determined future date.
Legal Risk: Medium. Employee consent is required.
This measure is different from the abovementioned one. According to this measure, the deferred amount of the salary will not be guaranteed. Its payment will be conditional on the actual development of events and actual impact of the crisis on the business.
Legal Risk: High. Employee consent is required.
Instead of the contingent deferred payments, employers may consider offering their employees ESOPs against a reduction in salary. This measure will also affirm the employees’ sense of ownership.
Legal risk: High. Employee consent is required.
As an alternative to laying off employees if the impact on business worsens, employers may consider reducing the salaries of employees. The main difference between this measure and part time arrangements is that employees will continue to work on a full-time basis but yet receive a reduced salary.
It is worth noting that the law permits employers to reduce salaries by up to 50% in case the employees are not able to undertake their job duties and responsibilities due to force majeure events – unless otherwise agreed in the employment agreement or in accordance with the employers’ policies.
Legal Risk: High. Employee consent is required except in case of force majeure. Courts have the discretion to deem the pandemic COVID-19 (Coronavirus) a force majeure event or not.
If any employee is, at the time of contract renewal, with the same employer, it would be relevant to discuss any of the above measures. Employers may also review the duration of the renewal term in light of future uncertainties.
We highly recommend that businesses do not opt for employee lay-offs and use it as a measure of last resort. Employers may opt for workforce reduction – in other words termination of employment. In the normal course of business, this process is carried out by compensating employees for termination as explained in the below paragraph (Legal Risk). Alternatively, businesses which are shutting down their activities in part or in full may explore the possibility of closure for economic reasons which provides reduced compensation payments.
Legal Risk: High. The Labour Law does not allow employers to terminate their employment agreements except in cases of fundamental breach. The employer’s liability in such case will be as follows:
Employers may incentivize their employees to voluntarily resign if they so wish and offer them an amount of compensation against their resignation (e.g. two to three months’ worth of salary). This will help the employee who has alternative opportunities to be encouraged to resign as well as benefit from the additional compensation.
Legal Risk: Limited.
Finally, and more importantly, please do not forget to:
Stay home to protect yourself and others around you, wash your hands regularly and stay safe.
Our Senior Associate Alia Monieb welcomes your questions
[1] https://adsero.me/blog/covid-19-coronavirus-what-employers-need-to-know
