Labour and employment challenges in cross-border workforce reductions in the context of multinational corporations (MNCs)

Rashel Ann C Pomoy
L&E Global, Manila
rc.pomoy@thefirmva.com

Celina Eunice Cheyenne D Abueg
V&A LAW Villaraza & Angangco, Manila

Workforce reductions on a global scale

In an increasingly interconnected global landscape, restructuring initiatives undertaken by multinational corporations (MNCs) frequently trigger workforce reductions on a global scale.^[1] In recent years, MNCs have increasingly implemented global restructuring and streamlining efforts affecting thousands of employees.^[2]

However, the legality of a global restructuring initiative does not necessarily determine the legality of the resulting terminations of employment. While the business rationale may be developed and approved at a regional or global level, each termination is ultimately assessed under the labour and employment laws of the jurisdiction in which the affected employee is situated.

As a result, a restructuring initiative that is commercially justified and legally defensible in one country may give rise to legal challenges in another. This reflects a fundamental feature of cross-border restructuring: while business decisions are increasingly global, labour and employment laws remain largely local and fragmented.

The challenge of cross-border workforce reductions

Cross-border workforce reductions present unique legal challenges for MNCs. At a purely domestic company, the entity implementing the termination is typically the same entity that developed and approved the business case. Within MNCs, however, workforce reductions are frequently decided at a regional or global level but implemented by local employing entities across multiple jurisdictions.

As a result, when an employee challenges the dismissal, local subsidiaries are often required to justify the validity of a redundancy or reduction in force before local labour tribunals. This is true even where they had limited involvement in the underlying business decision, the strategic, financial and/or operational considerations for which may have been approved elsewhere within the corporate group.^[3] Notably, no uniform global standard exists for determining the validity of terminating employment on grounds of redundancy or retrenchment; jurisdictions impose varying levels of scrutiny, evidentiary burdens and regulatory requirements.

For example, in the United States, employment is generally governed by the doctrine of at-will employment, under which employers may generally terminate employment for any reason, provided that the decision is not discriminatory, retaliatory, or otherwise unlawful.^[4] Although large-scale workforce reductions may trigger advance notice obligations under the Worker Adjustment and Retraining Notification (‘WARN’) Act, the statute principally regulates notice requirements rather than the substantive justification for the workforce reduction itself.^[5]

Other jurisdictions adopt a markedly different approach. In India, under the Industrial Relations Code, certain establishments may be prohibited from effecting retrenchments, layoffs or closures without first obtaining prior government approval.^[6] In Italy, under Law No. 223/1991, collective dismissals that meet statutory thresholds are subject to extensive statutory consultation procedures and other regulatory requirements before workforce reductions may be implemented.^[7]

In the Philippines, for terminations based on redundancy or retrenchment, employers are generally required to demonstrate the existence of a genuine business rationale, establish that the exercise was undertaken in good faith, apply fair and reasonable selection criteria, and present substantial evidence supporting the abolition of affected positions.^[8] This requirement was recently underlined by the Philippine Supreme Court in Aragones v Alltech Biotechnology Corporation where the Court emphasised that employers must present concrete and contemporaneous evidence demonstrating the necessity of the redundancy programme. In rejecting the justification, the Court observed that generalised assertions regarding business restructuring and organisational changes, unsupported by sufficient documentary evidence, were insufficient to establish a valid redundancy. The decision highlights the degree of scrutiny that Philippine labour tribunals may apply when evaluating workforce reductions and serves as a reminder that global or regional restructuring initiatives must be supported by jurisdiction-specific evidence demonstrating their impact on local operations.

The practical consequence is that a workforce reduction arising from a single restructuring initiative may be subject to materially different legal requirements depending on the jurisdiction in which it is implemented. Accordingly, a decision to eliminate a business function, department, or position at a global level may be implemented relatively straightforwardly in one jurisdiction, while requiring extensive consultation, regulatory compliance, or evidentiary support in another.

Managing labour and employment risks in cross-border restructuring

As multinational corporations continue to operate on a global scale, cross-border restructuring initiatives are expected to become more frequent and complex. As such, they may need to fortify how workforce reductions are planned, documented and implemented across jurisdictions.

To mitigate legal risk, greater coordination among business leaders, human resources professionals, and labour and employment counsel across jurisdictions may be warranted from the earliest stages of the restructuring process. In jurisdictions imposing more stringent requirements for a valid redundancy or retrenchment, such as the Philippines, employers may need to incorporate jurisdiction-specific legal considerations, evidentiary requirements, and termination justifications into the restructuring framework from the outset. Otherwise, a restructuring that is valid from a global business perspective may nevertheless expose multinational corporations and their local employing entities to significant litigation risk.