Downtime is not an option

Dienas Bizness 

For a business, reducing costs in the event of decline in turnover is a matter of survival. One of the biggest costs is wages. How to address the issue of declining turnover? The government suggests implementing downtime. Business owners are against it, they’d rather reduce their number of employees.

Compensation for downtime provided by the state doesn’t do much for a business owner, it only makes rapid restructuring difficult. Compensation for downtime could only be effective if the day the panic will end was known. We’re currently experiencing an economic free fall, both in Latvia and globally, therefore compensation for downtime is a poor choice. It is unclear why the state would suggest such a solution, as it is even worse than claiming unemployment benefits.

Downtime could create formal obstacles for employees to look for other, perhaps better jobs or it could create an opportunity to change fields or start something new on their own. If the government partially covers downtime, the employer still must provide a job and continue to bear the other costs associated with the employee. Therefore, I am personally against any downtime compensations.

If downtime is not implemented, staff layoffs – accompanied by emotional and rational considerations – take place. Statistics show that any solidarity among employees (with respect to salary cuts or salary alignment) is unlikely and the decision on the layoff algorithm will have to be made by the manager and the shareholders.

First of all, the Latvian Labour Law does not allow for such simple employee layoffs. At times, it seems impossible to dismiss an employee in a legally correct way. Second, if the employee’s salary is reduced by more than 40-50 percent, it is better to become unemployed. Third, arguing with the employer is pointless, as the employer may no longer be solvent by the time the judgment comes into effect. Fourth, by becoming unemployed for a few months an employee may spot new opportunities or return to his or her workplace once the crisis is over. A greater benefit than downtime would be the liberalisation of the provisions of the Labour Law, giving the employer more freedom when it comes to employee layoffs.

On the one hand, employee dismissal is only a matter of financial calculations. On the other hand – who should be laid off and who should stay? First, companies should get clear on what is the key to their competitive edge. In the case of most businesses the key is their competent workers. If competence is what matters most, then everything must be done to maintain the competence, i.e. the less competent staff should be released. Competence outweighs years of professional experience or family situation.

If keeping the competent staff would result in a heavy financial burden, preference should be given to those who voluntarily agree to reducing the financial burden.

In my opinion, it is important for the laid-off employees to see that the company is doing everything it can to reduce costs and that their colleagues who the company has chosen to retain are also negatively affected. Both the employees that remain with a company and the employees that are forced to become unemployed must see a fair and comprehensible explanation as to why such changes are taking place within the company.

If a company cannot reach a decision, the employee layoff can be based on the regulation of the Labour Law which sets out priorities. The Labour Law can provide at least a little sense of justice in cases when a company can’t decide what’s the right thing to do.

Employees should be perceived as professional football players who change clubs when offered a higher salary without consulting with the owner. Owners should approach employee layoffs with more ease – the weakest or the most expensive players may occasionally need to go in order to find another club.

This doesn’t create a moral dilemma because the company has to survive in order to provide an opportunity for the laid-off employees to return at a later time. If a company survives a crisis, it will most likely want to see its employees return. While a company fights for survival, it may be a good idea for it to maintain contact with its laid-off employees so that none of the parties miss out on their future opportunities.

Air Baltic, for example, demonstrates an excellent approach to these issues: no downtime, let’s allow everybody to claim unemployment benefits. However, the next big task for the Air Baltic personnel manager is to maintain contact with its laid off personnel for the next 3-6 months in order to be able to resume Air Baltic flights without undue delay.

Employee layoffs due to the crisis is a painful experience for every company. It is equally important to remain in touch with the colleagues that have been laid off. The laid-off employees should not get desperate, as they will most likely be free from any competition restrictions. While being unemployed people will have time to prepare for starting their own businesses in order to compete with their former employers or to join their competitors. Laying off employees at the beginning of a crisis is always the right decision, what we don’t know yet is who the biggest winners will be – both the companies and the laid-off employees may come out of this as winners.

by Gints Vilgerts, Partner, M&A, Latvia

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