In a recent ruling, the Supreme Court of Cassation (SCC) unified its conflicting case law on the differences between the closure of a part of an enterprise, reorganisation, and staff reduction.
Closure and reorganisation
Firstly, the SCC summarises its previous contradictory case-law on the distinction between closure of part of an enterprise and restructuring/internal reorganisation.
Two viewpoints stand out. According to one view, the closure of part of the enterprise should be understood as the cessation of the activities of a particular unit or structure of the enterprise, whereby the activities will not be exercised in the future by another unit or structure within it. Accordingly, in the event that the activities of the closed structural unit continue to be carried out by another division or body within the enterprise, there will simply be a case of internal reorganisation. This kind of ‘relocation’ of activities may take various forms – merger, separation, division.
The reorganisation may lead to a reduction in the number of employees/workers carrying out the activity. This in turn potentially leads to:
- Complete abolition of positions related to the execution of the respective activity
- Reduction of staff allocated to these activities
The second opinion interprets the closure of a part of the enterprise more broadly. Such, it is argued, is not only the case where the activity in question ceases altogether, but also in cases where the core activity of the closed part of the enterprise ceases. This means that the employer will not be needing the work of the employees who were previously engaged in that activity. Thus, unlike the first viewpoint, there is no requirement that the closure of part of an enterprise requires that its activities cease in their entirety.
Reduction of staff
With regard to reduction of staff, this side of the case law distinguishes between real and fictitious reduction.
- A real reduction of staff occurs where part of the job function of the abolished position has been transferred to one or more other positions, however, it does not constitute a core activity
- A fictitious reduction of staff means the transfer of the activity of the abolished position to another position, but where it is retained as an essential part of the job function of the new position
Opinions of the SCC on the issues at hand
The SCC holds that ‘part of an enterprise’ must be understood as a certain organisationally separate unit which does not have the characteristics of an employer under the Supplementary Provisions of the Labour Code (LC). It is the distinctiveness within the enterprise and its structure that is key. This autonomy is characterised primarily by the organisational and managerial element.
The organizational unit may constitute a division, branch, workshop, department, sector of the enterprise, and the independence is expressed in its management as the main feature, and also in the source of income, the territorial distribution of the activity carried out in relation to the overall activity of the enterprise as secondary features.
The intrinsic difference of internal restructuring is that the activity is preserved by simply reorganising it via a merger, separation or division. It is then redistributed into other parts of the enterprise. On the other hand, a closure of part of the enterprise occurs when an organisational unit is abolished and the activity for that unit is discontinued.
The distinction between the closure of a part of an enterprise and reorganisation is important because reorganisation is not in itself a ground for the exercise of the employer’s right to terminate the employment, and that right is closely linked to selection. However, reorganisation may lead to a reduction in the number of employees/workers carrying out the activity in question, the complete abolition of positions related to the carrying out of the activity, but also a reduction in the number of staff for those positions. This is where ‘reduction of staff’ will be present and will be a ground for termination of employment.
Reduction of staff should be understood as the abolition of all or part of the staff for a particular position. Furthermore, it constitutes an independent ground for termination of employment and is available irrespective of the reasons which led to it.
The SCC also emphasises the employer’s option, in the event of the closure of a unit of an enterprise, to choose between two grounds for employment termination – on the ground of ‘closure of part of the enterprise’ or on the ground of ‘reduction of staff’. This right is not subject to judicial review.
Right to selection
Last but not least, attention is drawn to the right to selection which accompanies the right to terminate the employment. It is applicable only in cases of closure of part of the enterprise, reduction of staff or reduction in the volume of work. It is no coincidence that the SCC calls it the “right to selection” (as it is also referred to in the Labour Code) – the employer may exercise it if and when they deem necessary.
However, there are cases where the right becomes an obligation. These are particular cases of “reduction of staff” where the job functions are the same or at least similar.
Regarding cases of real closure of part of an enterprise (as referred to above), which constitutes grounds for employment termination, but selection is not possible because there is no one to choose from, the SCC refers to a previous ruling. It concluded that the right to selection could also be exercised in such cases, and that an assessment would be made as to whether the employees in the part of the enterprise being closed down or those in the parts of the enterprise not being closed down should be dismissed. The necessary conditions for this are:
- Identical or similar job functions
- Identical place of work
The reason for these conditions is that the employer cannot unilaterally change the place and nature of work of the employee.
With regard to internal reorganisation (unless accompanied by a ‘reduction of staff’), no selection may be made, since reorganisation does not constitute grounds for termination of employment.