Staff reductions are currently an issue for many companies because they need to adapt their structures to economic and technological changes. In the automotive industry, the shift from internal combustion engines to electric mobility brings with it new challenges. The digital transformation and artificial intelligence are also changing the world of work: Certain jobs are being lost, whilst new ones are being created.
By reducing its workforce, a company adapts its staffing structure to changing economic and organisational conditions. A staff restructuring is particularly challenging when a works council has a say, an international parent company sets requirements or the company relocates its production. A company loses control as soon as it can no longer determine the course of the project itself. There are four clear signs of this:
- The planned timetable can no longer be adhered to.
- Legal obstacles are hindering implementation.
- The costs exceed the allocated budget.
- The concept for the target organisation can no longer be implemented.
As soon as planning and reality diverge, the utmost attention is required. If deviations arise that are no longer covered by the project plan, or if previously identified risks materialise, staff reductions can spiral out of control. Typical examples include significantly delayed negotiations with the works council or court injunctions that prevent the planned implementation. It is, however, too narrow a view to regard staff reductions solely as a redundancy programme. A company is usually investing in its future through such measures. Reducing the workforce costs a great deal of money, and what remains is a workforce that is expected to continue working for the company – and, in the best-case scenario, is willing to do so. The remaining organisation must be fit for the future in the face of international competition. Staff reductions can therefore help to make the remaining jobs more crisis-proof.
That is why it is not enough to focus solely on the number of jobs to be cut. It is equally crucial to build acceptance among those who remain. The following ten tips show how you can maintain control over the process.
Tip 1: Define the business decision in concrete terms before you plan the staff reductions.
In large corporations in particular, the impetus for staff reductions often comes from outside the organisation. For example, guidelines from group headquarters may stipulate that a certain number of posts are to be cut in a particular department. However, this does not yet determine how that department is to operate afterwards. You should therefore first clarify the business decision: Identify every planned change and use this to determine the actual staffing requirements.
Example: Production relocation
In the case of a production relocation, you must specify which machine is to be moved to the new site and when, and how many people will be working on that machine. With a single machine, this seems straightforward. However, if you are relocating an entire production site from Germany to Turkey and Romania, this presents an organisational challenge. You should therefore plan complex production relocations precisely by product, location and timeline.
If you skip this step, you may have a redundancy figure, but you will not yet have a viable plan. Works councils can recognise when a plan is unlikely to work in practice, and will use this to justify their opposition. When restructuring the workforce, the following therefore applies: Derive the staffing requirements for the future organisation from the planned target organisation – and not the other way round, based on pre-determined redundancy targets set by group headquarters.
Tip 2: Plan the target organisation before discussing individual staff members.
As soon as you start discussing individual staff members in a planning meeting, personal assessments and experiences come into play. At the same time, the question arises as to which employees are actually willing and able to go along with the upcoming changes and embrace new roles, responsibilities or tasks.
You should therefore first describe the target organisation – objectively and in terms of content.
- What tasks does it require?
- Which tasks will be discontinued?
- How can the remaining tasks be organised?
In doing so, consistently separate the tasks from the people who currently carry them out. Only once the target organisation has been established should you derive personnel decisions from it. Difficult decisions may not become any easier, but this creates a objective benchmark that allows you to provide a clear and transparent justification for why a particular task is being discontinued.
Tip 3: Gain a clear understanding of who actually carries out which tasks.
For each department concerned, identify which tasks actually arise there and who carries them out. In some companies, management does not know who is responsible for which task. The work gets done without the responsibilities being clearly documented between individual staff members. In day-to-day operations, this may be sufficient. However, it is not enough when planning a target organisation.
You should therefore compare the current state with the future organisation:
- Which tasks will be eliminated?
- Which ones will remain?
- Who is carrying them out today?
You will also need this clarity later on for the social selection. The Unfair Dismissal Act obliges employers to take certain social criteria into account when reducing staff numbers. If a company does not have a precise understanding of the distribution of tasks within its departments, it cannot form the comparison groups for the social selection process without errors. An unclear distribution of tasks therefore gives rise to a legal risk. You should therefore complete this survey before the social selection process is due to take place. Do not attempt to carry out both tasks simultaneously.
Tip 4: Involve the works council and employees in the planning process at the appropriate time.
Involve the works council right from the planning stage and not just when you announce the staff reductions. Also involve the employee representatives in good time. I see this time and again: When people understand the need for change, they are usually more willing to support it. That is why it makes sense to turn those affected into active participants and incorporate their experiences and ideas into the planning.
This is not an easy path to take. Dealing with resistance from the works council requires time and negotiating skills. However, the supposedly easier route – implementing the redundancies without involving the works council and the workforce at an early stage – can come at a high price later on. If the works council does not support the redundancies, it can exercise its co-determination rights under the Works Constitution Act against the new target organisation. Changes may then prove impossible to implement, or can only be implemented much later. Costs rise, whilst staff motivation falls. In extreme cases, the works council may obtain a court injunction, rendering the original plan unworkable.
The works council cannot prevent staff cuts. However, it can significantly delay them – and this delay costs money. Ideally, do not use the allocated budget for solicitors and labour court proceedings, but rather for ensuring the staff reductions are carried out fairly. Explain the necessity of the workforce restructuring in such a way that employees can understand the measures both from their own perspective and from the organisation’s point of view. Take on board the reservations of the employee representatives and adjust your plans where the objections are valid. If this engagement is successful, the works council will negotiate the details of the staff reduction rather than trying to prevent it.
Tip 5: Make communication an integral part of the restructuring process.
Do not treat communication as a side issue. Plan it as an integral part of the restructuring. The communication strategy has a clear objective: employees who remain with the company should be able to understand and accept the changes. You should therefore explain in detail what objectives you are pursuing with the restructuring and the direction in which the organisation will develop. Employees must understand why the changes are necessary and what opportunities they present for the remaining workforce.
Individual messages are not sufficient for this. Before the first announcement, develop a comprehensive communication strategy. Co-ordinate this with the law firms and internal stakeholders. This will enable you to take legal obstacles into account and create a shared understanding amongst those involved. However, communication problems often have their roots even before the actual communication takes place. If the target organisation is not in place or a carefully thought-out strategy is lacking, employees will quickly realise that the plans will not work in practice.
This can quickly lead to rumours or staff expressing negative views about the impending changes. If companies allow this situation to continue, it may affect precisely the group that is crucial for the future:
- Employees do not support the changes.
- Top performers are applying for jobs with competitors.
- Sick leave is on the rise.
- Employees are actively resisting the change measures.
- The works council is attempting to delay or thwart these measures.
Ultimately, this may mean that you, as an employer, are unable to implement your original plan. You should therefore take note of the informal mood within the company. You can get a simple indication of acceptance without needing any figures: Are employees talking about new prospects and the opportunities that the changes open up – or do they mainly see disadvantages?
6. Tip: Manage staff reductions centrally from the HR department.
Delegate the central management of the process to an experienced project manager in HR department. All key threads should converge there. The HR project management team is responsible for employment law, maintains contact with external law firms and works councils, and involves colleagues from Corporate Communications at a sufficiently early stage so that they can prepare their measures in good time. Equally important is close contact with Finance. Staff reductions cost a great deal of money. You should therefore clarify, before negotiations begin, whether the necessary financial resources are available.
Bring together labour law experts, law firms, works councils, communications and Finance via this central point of contact, and appoint a project manager with relevant experience. Without such coordination, you may not be able to implement your plan as scheduled. This carries the risk of employment law issues and associated costs. Employees may bring proceedings for protection against unfair dismissal and succeed in getting their jobs back. The timetable will be thrown into disarray. Works councils may seek interim legal relief to challenge the operational change.
Ultimately, this can make staff reductions considerably more expensive than calculated. You should therefore also implement a risk management. As soon as deviations arise that are no longer covered by your project plan, you must react. Otherwise, you will lose control.
7. Tip: Make your managers advocates for implementation.
Involve the managers in an ongoing dialogue with the project management team. The project team alone cannot implement staff reductions within the organisation. In day-to-day operations, managers play a central role. They explain to staff why the change is necessary and implement it within their departments.
At the same time, the practical work is shared amongst several people. If termination agreements need to be drawn up, this is often the responsibility of the local HR team. In addition, exit interviews must be conducted. Should individual discussions escalate, the project management team can step in and attempt to de-escalate the situation. Relevant experience is particularly helpful in this regard.
You should therefore clearly assign these and other tasks before implementation begins:
- Who draws up termination agreements?
- Who conducts separation discussions?
- And who handles discussions that escalate?
Clarify this final point so that you are prepared should a discussion actually escalate.
Tip 8: Allow sufficient time for the administrative and formal implementation.
In large-scale redundancy projects, do not underestimate the administrative workload. For example, it may be necessary to print out hundreds of termination agreements. In corporate groups, there are also numerous coordination tasks with various stakeholders to contend with. Time and again, I see companies planning very tight timeframes for this work.
You should therefore make a realistic assessment of the scope of the administrative work before committing to binding deadlines. Allocate separate time slots in the project plan for the formal steps and treat coordination loops as a separate cost item. The notification of mass redundancies requires particular attention. The legal requirements placed on the employer in this regard are quite stringent. An error-free and proper notification requires meticulous work and sufficient time – for example, to identify the correct occupational groups. Make sure you explicitly allow enough time for this as well.
Tip 9: Take the time pressure out of the project.
Time pressure can make staff reductions considerably more expensive. If the works council and employees know that you have to adhere to a very tight schedule, this weakens your position. Severance payments may become more expensive. At the same time, you make yourself vulnerable – for example, to a strike through which a trade union can secure a collective social plan.
A second effect is less obvious: Under intense time pressure, there is often too little scope to think through the project plan properly. As a result, you find yourself in a situation in various areas where having to make concessions – to the works council, by refraining from making certain employees redundant, or by adjusting the project plan.
In social plan negotiations, the time pressure is directly reflected in the cost. Anyone who needs to reach a conclusion quickly can buy time in agreeing a social plan by offering a high severance payment. In that case, you pay for your timetable both with money and by making concessions on your target organisation.
You should therefore, before the project begins, align your timetable with the administrative and formal requirements. Set deadlines in such a way that you do not have to defend them under pressure during negotiations. Also, build in buffers – particularly where negotiations and deadlines overlap.
Tip 10: Consider setting up a transition company as a route into the labour market.
Also consider staff reductions from the individual perspective of the employees affected. How critical the situation is for them depends largely on how well their CV aligns with the labour market.
In a strong labour market, where many people find new employment quickly, a situation can arise that benefits both sides: employees receive a severance payment, gain qualifications for their next employer and reposition themselves in the labour market.
The situation is different in regions with weak economic structures and few jobs. It is also particularly difficult for people whose skills have been very closely tied to a single employer over a long period : for example, they have been working for the same company for twenty years, have undertaken hardly any further training, and possess highly company-specific knowledge that is of limited interest to other employers. For these employees, staff reductions can be particularly hard to bear.
In such cases, consider a transfer company as an option. It is a labour market policy instrument for implementing redundancy measures. Employees are trained there to meet labour market requirements and receive coaching as well as job-application advice. The employer funds this support. The aim is to ensure that the affected employees do not become unemployed in the first place, but are instead able to apply for new jobs whilst in protected employment.
You should therefore coordinate the requirements for a transfer companywith the works council’s needs. Check with Finance whether sufficient funds are available, and plan the employment law arrangements for the transferred employment contracts with external law firms. You should also appoint a person to coordinate these arrangements centrally.
How a transfer company works
Employees terminate their employment with their previous employer and, at the same time, enter into a new employment contract with the transfer company, limited to a maximum of twelve months. The model is partially state-subsidised. There is a transfer short-time working allowance, and the Jobcentre supports the employees.
A practical advantage is particularly evident for staff in production. Anyone who finds a new job but does not yet know whether it is really the right fit faces a significant hurdle outside a transfer company when it comes to simply trying out the new role. If the person in question subsequently terminates the new employment relationship of their own accord, they risk being barred from receiving benefits from the Jobcentre.
From within a transfer company, however, it is possible to try out a new job: the contract with the transfer company is suspended beforehand. If the new job isn’t a good fit, the person returns to the transfer company. This low-threshold option can make job placement significantly easier.
Staff cuts always send a message to those who remain
Staff cuts do not only affect the employees who leave the company. How the remaining workforce experiences the process is also crucial.
My ten tips therefore follow a common logic:
- First, set out the business decision in concrete terms.
- Plan the target organisation before discussing individual staff members.
- Develop a sound concept before you start communicating.
- And base your timetable on the actual workload, rather than subordinating implementation to a predetermined deadline.
What is at stake here extends far beyond the downsizing project itself. If you do not manage the process carefully, the remaining workforce may react with frustration, sickness absence may rise and employees may lose their willingness to continue working for your company.
Externally, too, a poorly managed staff reduction can damage your employer brand. Your company may be perceived in a negative light by customers and lose its appeal in the competition for skilled workers. A lack of proper management therefore incurs costs that extend far beyond severance payments and the immediate implementation of the redundancies.
Check whether you have the necessary management experience at your disposal
In particular, a large-scale redundancy programme cannot simply be carried out as an afterthought. You should therefore assess at an early stage whether your company has sufficient experience to manage all processes centrally:
- Has anyone in your organisation ever managed a staff reduction of this scale, from the initial decision right through to the final termination agreement?
- Who liaises with external law firms, works councils and the finance department?
- Who takes charge of escalated discussions when managers and the local HR team reach an impasse?
- Who coordinates the requirements of a outplacement organisation with the needs of the works council?
If you cannot answer these questions, you lack the control you need for staff reductions. I see my role in such projects – often as an interim HR manager – as that of a bridge-builder: I incorporate the ideas and concerns of employee representatives and staff into the change process, ensure all stakeholders are on board, and adapt the employer’s plans where necessary. This task requires experience and my full attention.
In my view, staff reductions fall within the responsibility of the management: they must make a clear decision, centrally manage the implementation and secure the acceptance of those who remain with the company. Simply achieving the planned number of redundancies does not in itself constitute a successful restructuring. The crucial factor is whether the company keeps the process under control whilst at the same time creating an organisation that can continue to operate sustainably following the staff reductions.
