Professional Documents
Culture Documents
only way for a company to move forward and ensure that the selection of workers for dismissal is 2 Key Steps in Planning and Managing
Retrenchment
thrive. Loss of employment may be caused by a based on principles that are fair and transparent and
5 Consultation Is Critical
range of factors from technological change to do not discriminate against particular groups. During
7 National and Legal Requirements
privatization to total closure of a workplace. the course of the process, efforts should be made
8 IFC Requirements
to reduce the number of jobs that have to be lost
10 Determining Selection Criteria
No one single international definition or universally and to mitigate the effects of the job losses on 13 Non-Discrimination
used terminology exists to categorize such job individuals, groups, and communities. 15 Appeals and Grievances
losses. Terms used can include: retrenchment, 16 Severance Pay
redundancy, downsizing or lay-off. Throughout this The aim of this Good Practice Note is to provide 17 Beyond Compensation: Assisting Workers
Good Practice Note, we use the term guidance to IFC clients and the wider private sector 20 Addressing Impacts on Communities
“retrenchment,” which can cover a wide range of operating in emerging markets on how best to plan 26 Preparing a Retrenchment Plan
dismissals that do not essentially relate to the and manage significant job losses. A well-managed
conduct or capability of the worker. These include process can help avoid a host of problems and
» the closure of a plant, factory, mine, or other result in better outcomes for the company, its
workplace, with the total or near-total loss of employees, and the wider community. This note
jobs contains a range of good practice measures that can
» job losses arising from a reduction in staffing help companies think through the key issues, avoid
requirements due to efficiency gains or falling common pitfalls and hidden problems, and design a
demand for the company's products or services comprehensive retrenchment plan. The
» job losses arising from a downsizing in development of such a plan is a requirement for
operations or restructuring of the workforce IFC-financed investments where a significant
following, for example, privatization. number of job losses is expected.
Page One
Managing Retrenchment
The Case for Getting It Right selecting a particular individual over another cannot
be explained and justified.
Morale and Productivity
It is evident that retrenchment will have a Avoiding Misinformation
substantial impact on the workers involved. Sound retrenchment practices should be as
However, the effect can be much more transparent as possible. A good communications
widespread. Those employees who are left behind strategy and clear information will both enable the
A poorly executed and managers who deal with the retrenchment can consultation process to run smoothly and make it
retrenchment be affected by the process, especially if it is badly much more likely that employees, their
handled or creates unnecessary conflict. A poorly representatives and other stakeholders will be able
process can lead to
executed retrenchment process can lead to loss of to come up with alternatives to job losses or
loss of productivity, productivity, low morale, and decreasing economic indicate ways in which the effects of job losses can
low morale, and performance. While it will always be difficult to be mitigated. Full and frank disclosure of information
maintain employee morale during a retrenchment helps to avoid rumors and misinformation, which
decreasing exercise, there is likely to be a better response to a again can fuel low morale and lack of productivity in
economic process that appears to be based on clear grounds the workplace. A transparent process that engages
that employees and their representatives can key stakeholders early on decreases the likelihood
performance.
understand and contribute towards. of resistance to changes in the longer run.
Page Two
Good Practice Note | August 2005 | Number 4
people will not lose their livelihood. It is always start forming a picture of the options available. This
worth verifying whether the level of job loss includes gathering information to answer the
proposed is necessary or whether there are following questions:
alternative ways of achieving the changes sought. » What are the workers’ rights and obligations in
relation to job loss, not only in terms of the
content of their contracts of employment and
Look for Alternatives to Job Losses
their entitlement to payments upon
There are several instances where reducing the retrenchment, but also with respect to collective One of the first
number of individuals directly employed by an agreements and local and international rules? questions to ask is
organization seems to be the most obvious way to » How employable are the workers to be
achieve necessary savings. However, further retrenched and what is the job market like for
whether there are
consideration and consultation may reveal that the types of skills they possess? alternatives to job
alternatives to job losses might be possible. Options » From what areas and groups of workers will the
losses.
to consider include cuts come?
» a freeze on new hiring » What is the gender and ethnic breakdown of the
» enforcement of retirement ages workers to be retrenched versus those who are
» reduction in hours worked by existing staff to be retained?
» outsourcing of particular activities
» an end to using agency and contract workers
» internal transfers and redeployment Commence Consultation with
» transfer of employees to third party organizations
Key Stakeholders
» reduction in salaries » Begin consultation with key stakeholders early.
» active performance management Engage workers and their trade unions or other
» staff involvement to find productivity gains. representatives. Consultation may also include
local, regional, or national government agencies
It is important to consider whether any of these (most frequently the Labor Ministry).
alternatives is viable in the circumstances of each
retrenchment exercise. Of course, fewer options » Reach an agreement with stakeholders on
exist in the case of a total closure of a workplace. process for consultation. One of the easiest ways
Even then, however, there may be opportunities to to ensure problems with any process,
relocate some workers to a sister company or particularly one as difficult and contentious as
outplace them to another local employer. retrenchment, is to leave unions and other
stakeholders feeling that they have no say in
relation to the process. (See “Consultation is
Gather Preliminary Information Critical”, p. 5.)
Decisions should be based upon full knowledge of
all the relevant facts and the legal and economic
context in which the organization is operating.
Companies need this initial information in order to
Page Three
Managing Retrenchment
CONSULTATION
Redeployment,
cost cutting
Page Four
Good Practice Note | August 2005 | Number 4
Page Five
Managing Retrenchment
Page Six
Good Practice Note | August 2005 | Number 4
Page Seven
Managing Retrenchment
The IFC has a defined set of Social and When planning retrenchment, it is important to take
Environmental Performance Standards that it applies either external or internal legal advice as to the
various requirements placed on an employer by
to its financing. During appraisal, IFC identifies the
national legislation and collective agreements.
performance standards and guidelines applicable to Below are some of the important questions that need
a potential investment. In addition, IFC-financed to be considered:
IFC-financed investments are expected to comply with applicable
» Is the undertaking/sector covered by a collective
investments are local, national, and international laws. IFC's agreement and, if so, what are the provisions with
Performance Standard and Guidance Note on Labor respect to collective dismissals/retrenchment?
expected to comply and Working Conditions contains specific » Is governmental permission required to proceed?
with applicable requirements in relation to retrenchment.* » What are the requirements for consultation with
trade unions or other employee representatives
local, national, and over retrenchment and downsizing?
IFC Performance Standard Requirements on » Is voluntary severance/early retirement a possible
international laws. Retrenchment.* The relevant part of the policy legal alternative?
states that the client will develop a plan to mitigate » How are minimum severance payments to be
calculated?
the adverse impacts of retrenchment on employees, » How much notice must be given to each
if it anticipates the elimination of a significant number employee?
of jobs or a layoff of a significant number of » What are the individual requirements that must be
complied with in relation to each worker's
employees. The plan will be based on the principle
dismissal?
of non-discrimination, and will reflect the client’s » Is there specific legislation dealing with women or
consultation with employees and their organizations, other protected groups, such as minorities?
and where appropriate, with the government. » What legislation, if any, covers unemployment
insurance and other aspects of social security,
and regulates joint welfare funds, pension funds,
IFC Guidance Note Language on and other such systems of workplace-social
Retrenchment.* If it anticipates the elimination of supports?
a significant number of jobs or a layoff of a significant » What rights do workers have in the event of
transfers of employment to other employers and
number of employees, the client will develop a plan
outsourcing?
to mitigate the adverse impacts of retrenchment on » What state agency procedures exist that relate to
employees. The following elements apply: disputes resolution, including arbitration (binding
» Retrenchment means the elimination of a and non-binding), conciliation, and mediation?
» What laws are in place related to the rights of
significant number of jobs or the dismissal or
workers in “atypical” or “contingent”
layoff of a significant number of workers by an employment, including temporary, part-time, and
employer, generally by reason of plant closing or self-employed workers?
for cost savings. As used in the Performance » What is the position in relation to public and
private pension arrangements, and their
Standard, retrenchment does not cover isolated
portability between employers?
» Are there any rules that require preferential
* At the time of printing, IFC’s Board had not yet approved the treatment for retrenched employees in respect to
new Performance Standards. Please refer to: www.ifc.org/ any future employment?
enviro for the latest policy language and guidance notes.
Page Eight
Good Practice Note | August 2005 | Number 4
cases of termination of employment for cause or criteria for selection, and compensation
voluntary departure. payments. Where national law or an existing
» In many countries, national law requires advance collective bargaining agreement stipulates that
notice to affected workers, communities and/or retrenchment is a subject for collective
governments of plant closings or layoffs above bargaining, the client should allow time for good
specified numerical thresholds. Some national faith bargaining as well as to implement the
laws require that retrenchments must be terms of applicable collective bargaining
negotiated with workers' organizations through agreements. Any legal requirements specifying a The IFC has a
collective bargaining. Severance payments to period of advance notice must be followed. It is defined set of Social
affected workers may be required by national good practice to establish grievance mechanisms
law or existing collective bargaining agreements. to deal with claims that any provisions in the
and Environmental
» When significant layoffs cannot be avoided, the retrenchment plan were not followed. Performance
Performance Standard requires the development » It may be necessary in some projects for clients
Standards that it
of a plan to address the adverse impacts on to consult with governments where required by
workers and their community. The law, where the scale of layoffs can have a applies to its
retrenchment plan should address issues such as significant effect on communities, and where financing.
the schedule of cutbacks, retrenchment methods government assistance may be available to help
and procedures, selection criteria, severance address the impacts.
payments, offers of alternative employment or
assistance in job placement and retraining efforts. When Is Retrenchment “Significant”?
» The plan will be based on the principle of non- There is no single numerical threshold for when the
discrimination. numbers involved in a retrenchment exercise
» Selection criteria for those to be laid off should become sufficiently “significant” to trigger the need
be objective, fair and transparent. The to have a plan under IFC Performance Standards.
Performance Standard requires that the However, the greater the impact a retrenchment
retrenchment not be based on the basis of program has on workers, the local economy, and
personal characteristics unrelated to job communities, the greater degree of planning,
requirements. review and forethought the Performance Standard
» The plan will reflect the client's consultation with requires. This will vary with the circumstances.
employees and their organizations, and where Factors to consider when determining whether a
appropriate, with the government. It is also retrenchment is significant include the
required under the Performance Standard that » total number of workers being retrenched
clients consult with employees and their » number of retrenched workers as a percentage
organizations in developing the retrenchment of the total workforce
plan to consider their concerns as well as their » number of retrenched workers as a percentage of
ideas about ways to avoid or minimize layoffs, the working population in a town or community
» characteristics of the current job market
* At the time of printing, IFC’s Board had not yet approved the combined with the skill sets of the workers being
new Performance Standards. Please refer to: www.ifc.org/
enviro for the latest policy language and guidance notes. retrenched, i.e., how easy or difficult it will be for
Page Nine
Managing Retrenchment
retrenched workers to find equivalent-paying may be required either by national law or by some
jobs elsewhere form of collective agreement with trade unions.
» level of diversification in the local economy
and/or the level of dependency of the local Once the criteria have been either decided upon or
community on the company for employment as determined by reference to agreements and
well as infrastructure and services national rules, the next step is to consult with
» anticipated secondary impacts of unemployment employee representatives over their proposed
IFC requires a on local businesses and other providers of goods implementation. This will involve clearly setting out
retrenchment plan and services. the proposed criteria, explaining how they will be
implemented, and listening to any concerns or
where the client It is always best to assume that a retrenchment plan suggestions. Subsequently, a management
anticipates laying of some kind will be necessary if multiple dismissals procedure should be put in place to ensure that the
are due to take place at the same time. The more criteria are accurately applied to all employees
off a significant
dismissals there are, or the greater the impact of considered for dismissal.
number of those dismissals, the more detailed the plan may
employees. have to be. Typical selection criteria
Much as criteria such as “worker potential” and
“commitment to the business” may seem attractive,
Determining Selection they are almost always based on a subjective
Page Ten
Good Practice Note | August 2005 | Number 4
The ILO Convention on Termination of Employment The Recommendation also has some advice as to the
(No.158) was adopted in 1982 and has so far been appropriate criteria for selection of those workers to be
ratified by some 33 countries. The Convention requires dismissed, suggesting that the selection by the employer
states to specify the grounds upon which a worker can of workers whose employment is to be terminated for
be terminated from employment. Employment may not reasons of an economic, technological, structural or
be terminated by the employer unless there is a valid similar nature should be made according to criteria,
reason connected with the capacity or conduct of the established wherever possible in advance, which give
worker or based on the operational requirements of the due weight both to the interests of the undertaking,
undertaking. Union membership, filing a complaint establishment or service and to the interests of the
against the employer, acting as a worker representative, workers.
race, color, sex, marital status, family responsibilities, Grievance
pregnancy, religion, political opinion, national With regard to the question of rehiring those who have
extraction, social origin, absence from work during been dismissed following a retrenchment or mechanisms should
maternity leave, or temporary absence for illness shall reorganization, the Recommendation states that such
not be valid reasons for termination. workers should be given priority if the employer again be in place to deal
hires workers with comparable qualifications, subject to
The Convention provides that when the employer their having, within a given period from the time of their with any claims
contemplates the introduction of major changes in leaving, expressed a desire to be rehired. However, it is
production, program, organization, structure or accepted that such priority of rehiring may be limited to that appropriate
technology that are likely to entail terminations, the a specified period of time. It is provided that the criteria
employer should consult the workers' representatives for the priority of rehiring, the question of retention of procedures were
concerned as early as possible on, among other things, rights—particularly seniority rights—in the event of
the introduction of such changes, the effects they are rehiring, as well as the terms governing the wages of not followed.
likely to have, and the measures for averting or rehired workers, should be determined according to
mitigating their adverse effects. national law, collective bargaining or other appropriate
workplace rules.
In order to enable the workers' representatives concerned
to participate effectively in these consultations, the On the issue of the mitigation of the effects of
employer should supply them in good time with all termination, the Recommendation suggests that, in the
relevant information on the major changes contemplated event of termination of employment for reasons of an
and the effects they are likely to have. economic, technological, structural or similar nature,
the placement of the workers affected in suitable
The Convention is supported by the ILO Termination of alternative employment as soon as possible, with
Employment Recommendation, 1982, which contains training or retraining where appropriate, should be
further specific guidance with regard to retrenchment promoted by measures suitable to national
situations. circumstances, to be taken by the competent authority,
where possible with the collaboration of the employer
The Recommendation suggests that the measures which and the workers' representatives concerned. Also where
should be considered with a view to averting or possible, the employer should assist the workers
minimizing terminations of employment for reasons of affected in the search for suitable alternative
an economic, technological, structural or similar nature employment; for example, through direct contact with
might include restriction of hiring, spreading the other employers.
workforce reduction over a certain period of time to
permit natural reduction of the workforce, internal With a view to mitigating the adverse effects of
transfers, training and retraining, voluntary early termination of employment for reasons of an economic,
retirement with appropriate income protection, restriction technological, structural or similar nature, consideration
of overtime and reduction of normal hours of work. should be given to providing income protection during
any course of training or retraining and partial or total
The Recommendation suggests that where it is thought reimbursement of expenses connected with training or
that a temporary reduction of normal hours of work retraining and with finding and taking up employment
would be likely to avert or minimize terminations of which requires a change of residence.
employment due to temporary economic difficulties,
consideration should be given to partial compensation www.ilo.org
for loss of wages for the normal hours not worked,
financed by methods appropriate under national law
and practice.
Page Eleven
Managing Retrenchment
» Less conflict. Selection from a volunteer be approved for retrenchment. If possible, the first
population will normally be much less damaging option is preferable as it avoids the morale
to morale and less likely to lead to individual or problems that arise when an employee volunteers
collective disputes than will compulsory but is then told that he or she cannot go and cannot
dismissals. receive a payment.
These guidelines apply to multinational enterprises On the specific issue of downsizing and retrenchment,
operating in or from the OECD countries, plus the guidelines state that ”in considering changes in their
Argentina, Brazil, and Chile. The chapter on operations which would have major effects upon the
employment and industrial relations contains much livelihood of their employees, in particular in the case
guidance relevant to socially responsible downsizing or of the closure of an entity involving collective lay-offs or
retrenchment. Examples include dismissals, [multinational enterprises should] provide
reasonable notice of such changes to representatives of
» respecting the right of workers to form and take part their employees, and, where appropriate, to the
in the activities of trade unions and engage in relevant governmental authorities, and cooperate with
collective bargaining the employee representatives and appropriate
» not discriminating among workers governmental authorities so as to mitigate to the
» providing facilities to employee representatives as maximum extent practicable adverse effects. In light of
necessary to assist in the development of effective the specific circumstances of each case, it would be
collective agreements appropriate if management were able to give such
» providing employee representatives with information notice prior to the final decision being taken. Other
needed for meaningful negotiations on conditions of means may also be employed to provide meaningful
employment cooperation to mitigate the effects of such decisions.”
» promoting consultation and cooperation between
employers and employees and their representatives The guidelines further suggest that employees should
on matters of mutual concern not threaten to move operations out of one country in
» providing information to employees and their order to influence the course of labor negotiations and
representatives that enables them to obtain a true also that the managers conducting labor negotiations
and fair view of the performance of the entity or, should have sufficient authority to make decisions on
where appropriate, the enterprise as a whole the issues to which the negotiations relate.
» observing standards of employment and industrial
relations not less favorable than those observed by www.oecd.org
comparable employers in the host country.
Page Twelve
Good Practice Note | August 2005 | Number 4
Page Thirteen
Managing Retrenchment
Page Fourteen
Good Practice Note | August 2005 | Number 4
Gender Considerations
in Retrenchment
Appeals and Grievances
Although the retrenchment process is a collective
In assessing the overall impact of retrenchment on exercise, each individual has the right to put
both the workforce and community, it is good forward reasons why he or she should not be
practice to consider the potential gender impacts of
selected for dismissal or to raise complaints about
the process to ensure that it does not It is important that
the way in which the process has been handled.
disproportionately disadvantage women. For
Having an appeal and grievance procedure ensures appeal hearings are
example:
the sense of fairness and consultation reaches down
to an individual level. It also means that the right
conducted fairly.
» Women may occupy lower grades within an
organization or may have less service compared people are more likely to keep their jobs and that
to men as a group overall. If this is the case, then the right people are selected for retrenchment. It
selection criteria dismissing lower paid workers or may also mean that other ways of avoiding job
those who have been with the company for the losses, or at least mitigating their effect, are
least amount of time may disproportionately identified.
affect women. The criteria should be evaluated to
decide whether they are appropriate and/or truly
Key elements of an effective appeal or grievance
the best way to carry out the retrenchment
procedure are as follows:
process.
» The process should be transparent and
» Where there is a predominantly male workforce, communicated to workers in writing.
there are still substantial gender impacts to be » All workers should have the right to initiate the
considered. The loss of income from a large- procedure.
scale retrenchment will have major impacts on » The process should be completed promptly.
families and communities. It may be that there » Where possible, a manager other than the one
are issues related to spouses that need to be who effected the dismissal should hear the
considered. For instance, there are some
appeal or grievance.
examples of ensuring that spouses know the full
amount paid to workers in severance payments;
of the payment being made to a joint account of
Appeal hearings, like dismissal interviews, must be
both the worker and the spouse; and of training conducted fairly. It is often useful to make sure
being made available to spouses as well as another person is in the room in addition to the
workers to promote economic development, new manager and the worker. The appeal process
skills, and job opportunities. should involve reviewing the decision to select the
individual for retrenchment and checking the way
the selection criteria were applied to the worker. It
should also consider any factors that the employee
puts forward against his or her selection for
dismissal.
Page Fifteen
Managing Retrenchment
Page Sixteen
Good Practice Note | August 2005 | Number 4
together with accrued earnings, in some cases may » Is the way in which the payments have been
add up to a substantial amount of money—more calculated fully transparent to each worker?
money than workers have ever had in their hands » Are workers' spouses aware of the amount of
at one time. The temptations associated with large money that has been paid and when it has been
sums of money—particularly where there are a paid?
number of individuals in the locality who have been
paid severance money—can be great. Recipients
may spend the money in a way that does nothing Beyond Compensation: It is good practice
to alleviate the impact of the retrenchment on
families and communities. Additionally, the danger
Assisting Workers to ensure that
exists of their being exposed to possible fraud and Companies may take a range of steps that go
payments are
theft. The following are important questions to bear beyond severance payments and compliance with received by the
in mind: basic legal requirements to demonstrate corporate
employee on his or
» Is there a secure method for paying the money social responsibility in relation to retrenchment.
to workers? Whenever a worker is dismissed, his or her ability her last day of
» Do workers have bank accounts? If not, are to find new sustainable routes to livelihood is work.
there financial institutions that can assist workers essential to cushion the effects of retrenchment on
set up accounts? both the individual and the community. Companies
» Is counseling available to advise workers on the are often in a good position to use some resources
best ways to invest or spend their money? to seek to improve the work and life chances of
those workers that they have placed in precarious
developing training
Training
programs which On occasion, the type of work a retrenched Southern Africa aimed at mitigating the impact of
provide the worker has been doing is readily available at mine closures, retraining and business development
another employer within the locality. Most often, were also made available to the partners of mine
employee with new however, this is not the case. Therefore, workers (see p. 24). This approach takes into
skills and consideration should be given to developing training account the fact that in the communities where the
programs that provide the employee with new mine workers' families live there may be greater
opportunities.
skills, hence widening the opportunities potentially opportunities available to women than to the male
available to him or her. Consultation with trade mine workers. Good practice would be to make
unions, other stakeholders, and the employees such training and counseling available to workers
themselves will indicate the types of training most and their partners.
demanded. Local government authorities and other
agencies may be able to indicate what assistance is Financial Counseling
available for training. The loss of income and livelihood, coupled perhaps
with a relatively large severance payment, can
Kinds of training that may be considered include amount to a real shock to many retrenched
» training in new skills that fit available job workers. They may be receiving more money than
opportunities they have ever had at one time yet their longer-
» training in small business development term financial outlook may be bleak. Therefore, it is
» basic literacy and numeracy training. important to find ways to counsel workers on how
to manage their finances. Examples of actions could
Most commonly, the person who receives include
retraining or counseling on establishing micro- » employing an independent advisor or NGO to
enterprises or other ventures is the worker who work with employees to explain financial matters
has been let go. In some instances, however, it may » supporting a local advice center
be appropriate to offer this training option to a » supporting trade union financial advice projects
proxy who will receive the training or advice as a » working with local banks and community-based
way to reduce the impact on communities and financial projects.
families. For example, in a Care Project operating in
Page Eighteen
Good Practice Note | August 2005 | Number 4
» Launch assistance programs early. Evidence » Foster competition and efficiency in the
shows that workers are much more likely to use delivery of services. Bring in a wide range of
counseling and retraining facilities if they are institutions, including trade unions and non-
available before contracts are terminated. governmental and private institutions to offer
» Ensure that redeployment services are driven services. Use performance-based contracting
by demand rather than by supply. This arrangements, where appropriate, to improve
approach may give workers a choice between incentives and efficiency.
training and severance pay, and may build in a » Give workers access to information about
cost-sharing element through the use of vouchers training and other service providers’
and other instruments. performance. This information can help workers
» Target services to workers for whom such make better selection among courses and
services are most cost-effective. Younger services. Allowing workers to make their own
workers with basic educational levels and skills choices increases the likelihood that programs
are most likely to benefit and improve their selected will be more relevant and demand-
chances in the labor market. Effective targeting driven.
requires taking a survey of workers to obtain a » Provide support to help workers set up their
clear profile of worker characteristics and needs. own small businesses. This approach will
» Develop a good understanding of the labor empower workers to be more self-sufficient
market that workers will be entering. A labor instead of merely equipping them with skills for
market survey and consultation with other parties jobs in the formal sector.
need to be undertaken as early as possible. » Engage effectively with stakeholders.
» Develop good counseling and advisory Consultation is critical for success.
services. Such services help match workers to
relevant retraining and other programs.
Page Nineteen
Managing Retrenchment
Page Twenty
Good Practice Note | August 2005 | Number 4
impacts and assisting communities during the or countries and may need assistance in
transition. Issues to be considered as part of an SIA returning home. Additionally, the effect on
may include the following: communities dependent upon remittances sent
» Range and severity of retrenchment or by these workers (coupled with the return of
closure impacts on local communities. A large numbers of community members without
good social assessment process will identify and obvious means of subsistence) can be significant.
engage key stakeholder groups and identify (See box on p. 22.)
impacts that might otherwise be overlooked. » Impact of a sudden and large injection of The SIA can be an
Having a comprehensive picture of the scope cash into the local economy as a result of important planning
and degree of impacts allows a company to severance payments. The risks associated with
prioritize and target mitigation and assistance workers receiving large lump sums of cash need
tool for companies
efforts. to be considered and measures put in place, seeking to manage
» Impacts on vulnerable groups including where feasible, to promote sustainable outcomes.
the process in a
women, older workers and migrant » Level of dependency of communities on
workers. Certain groups within a community social infrastructure and services socially responsible
may be affected differently and may require provided by the company. This is most manner.
special assistance or consideration. For example, common in “one industry” towns, remote areas,
migrant workers who comprise a significant or situations where companies have taken on
portion of the workforce may often come from government roles or responsibilities due to lack
a cluster of towns or villages in particular regions of capacity at the local level.
» Food security. In some rural areas, it is not
Outsourcing Functions uncommon for workers to give up agriculture or
to Retrenched Workers fishery for cash wages. This may decrease food
security and self-sufficiency in the medium to
In a beverage company in Latin America, IFC helped
long-term as communities use cash incomes
promote sustainable business practices in several
from company employment to purchase part of
ways. The impacts of closing less efficient plants
their food supply externally. The impacts of
were mitigated by outsourcing the logistics,
distribution, sales and marketing functions to closure in this context may need to be assessed.
retrenched workers in order to alleviate the effect of
job losses on the affected communities. Seed capital For more information on Social Impact Assessment, refer to
IFC's Good Practice Note: Addressing the Social Dimensions of
for these micro-enterprises came from severance
Private Sector Development, December 2003. www.ifc.org/enviro
packages provided by the company which also hired
an external expert to provide the training the
retrenched workers needed to set up and manage
What Companies Can Do
their own businesses. The program has created » Extend eligibility for skills training and
direct employment for over 100 persons and indirect entrepreneurship development
employment for nearly 8 times that number. The opportunities to family members of
company too has benefited by outsourcing functions retrenched workers or, where feasible, the
that can be undertaken more efficiently and at a
community at large.
lower cost by these micro-enterprises.
Page Twenty-one
Managing Retrenchment
» Extend eligibility for financial counseling economic use of the land and facilities.
regarding savings and the use of severance » Avoid and limit dependency by considering
payments to the spouses of retrenched workers. post-closure sustainability of services and
Promoting the facilitation of savings and infrastructure provided by the company to local
investment in alternative livelihoods can be a communities at the earliest stages of planning. In
valuable service for affected communities. industries where closure or downsizing can be
» Convert company facilities, predicted in advance, it is critical to build ongoing
Where there is a infrastructure, and land post-closure to capacity within local government, NGOs, and
large-scale productive economic and social uses for communities to enable them to take over
the community and, in conjunction with local responsibility for infrastructure and services.
retrenchment and » Work with local and regional
government and communities, plan the
large numbers of rehabilitation of the area around future governments as important partners in assisting
migrant workers,
there will inevitably Migrant Workers
be some degree of
One of the most vulnerable groups of workers, in to try to consult with either the workers or
social dislocation terms of susceptibility to the negative effects arising representatives of their community to determine the
from retrenchment and to labor rights violations in appropriate measures in these circumstances. For
and a need for
general, are migrant workers. Where there is a example, it may be that the focus of efforts should
remedial action. large-scale retrenchment and large numbers of be to enable the migrant workers to regularize their
migrant workers, there will inevitably be some degree situation in the country. This may involve working
of social dislocation and a need for remedial action with local or national governments to ensure that an
to help those workers find new jobs in the locality or appropriate safety net is put in place to keep these
to relocate back to their countries of origin. workers from drifting into unregulated, poorly paid
work and living in substandard housing.
Wherever a substantial number of migrant workers Alternatively, the best response may be to establish
are employed within a project, a retrenchment plan training and job search arrangements within the
should take this into account and look to develop countries of origin of the migrant workers and assist
support mechanisms to ensure that migrant workers them with the cost of traveling home.
have adequate housing, health care, and other
social support if they are remaining in the country; One situation where there will almost inevitably be a
or that they are given sufficient logistical and large number of either internal or international
financial support to return to their countries of migrants is where there is a large-scale construction
origin. There are many examples of employers project in operation. At the end of a construction
carrying out this kind of activity, and there are also phase, even though this will not strictly amount to a
organizations such as the International Organization retrenchment under the IFC labor policy, good
on Migration, which can provide programmatic and practice would be to seek to ensure that the migrant
financial support. workers are able to return home should they wish to
do so and that this is done in an orderly, safe, and
Where an employer is developing a plan to deal socially responsible manner.
with issues related to migrant workers, it is important
Page Twenty-two
Good Practice Note | August 2005 | Number 4
Konkola Copper Mines (KCM), an Anglo- generated and services provided by the mine. considered to have the potential to increase
American project, was formed as a result of KCM agreed to a dialogue with government and diversify their business. These SMEs were
the privatization and splitting up of the state- and civil society to look for ways to lessen the engaged in supplying business to KCM in the
owned mining company Zambia effects of retrenchment and reduce areas of mining, metallurgical, engineering,
Consolidated Copper Mines (ZCCM) in dependence on mining. This included safety and horticulture.
2000. Prior to vesting, ZCCM retrenched a encouraging the retrenched workers to
considerable number of employees from the establish their own commercial enterprises The following were amongst the program’s
operations now owned by KCM who and/or use their skills to enhance the achievements:
subsequently had to undertake further capacity of established local businesses.
downsizing. » Employment increased from 2142 to 3084,
The KCM SME Supplier Development an increase of 44%.
Rather than return to their home districts, Program » Total turnover for the SMEs participating in
many ex-employees opted to remain on the the program doubled from US$9.5 million
Copperbelt, especially due to the sale of KCM and the Africa Project Development to US$19.0 million.
mine houses by ZCCM to local employees. Facility (APDF) of the IFC forged a » KCM Procurement of services/commodities
This resulted in retrenchment having greater partnership, in November 2002, establishing grew from US$5.3 million to US$11.4
localized impacts on the communities in the a pilot supply chain linkage program for million, an increase of 115%.
immediate vicinity of the mining operations. SMEs doing business with KCM. Under the » SMEs' Service/Commodity business to other
partnership, the IFC through APDF would companies other than KCM grew from
Apart from their retrenchment packages, undertake capacity building in business US$4.2 million to US$7.6 million, an
most workers had no alternative sources of management skills and KCM would provide increase of 80%.
income and became increasingly dependent the market for SME services and » During 2003-2004 the SMEs recapitalized
on family support and subsistence farming. commodities. to US$2.5million and total asset base
Given the economically depressed situation increased by 118%.
in the Copperbelt, neighboring communities Twenty-three participants in the pilot program » Over 200 people were trained in business
were highly dependent on the revenue were selected from SMEs that were management.
Page Twenty-three
Managing Retrenchment
Page Twenty-four
Good Practice Note | August 2005 | Number 4
In 2001, IFC invested in equity and finance for Tigar The SEED interventions can be categorized as
Michelin Holding in Serbia, in a joint venture with follows:
Michelin, the region’s largest producer of tires and
rubber goods. In order to turn around the poor » New SME Development—including mini livestock
performing divisions, it was anticipated that some farming, medicinal herb processing, and laundry
800 workers would be made redundant. Therefore, operation.
Southeast Europe Enterprise Development (SEED) » Outsourcing—splitting non-core activities into
was engaged to provide technical assistance by individual business units to minimize the social
developing feasibility studies for several new impact of restructuring.
» Tire distribution—creation by the holding
business ideas to help Tigar's redundant employees
company of a separate legal entity to perform this
seek alternative income replacement opportunities.
operation because the joint venture did not take
SEED is a $25 million initiative managed by IFC to
over the domestic retail operation. SEED worked
strengthen small and medium-size enterprises (SMEs)
with Tigar to improve its operation to sustain
in Albania, Bosnia and Herzegovina, FYR
continued employment.
Macedonia, Serbia, and Montenegro. » Feasibility studies—undertaken for projects such
as herb plantations, picking wild herbs, and mini
cattle farms.
Southeast Europe Enterprise Development (SEED) and their ideas discussed and decided upon. Rather,
has worked on programs to try to ensure that large- the company, supported by SEED, sponsors a series
scale retrenchment exercises lead to positive results of feasibility studies on a range of projects with the
and generate sustainable new business. For potential new businesses being narrowed down from
example, with one company in FYR Macedonia, it a long to a shortlist. These projects are then
was decided that it was necessary to effect considered further and their prospects assessed in
redundancies following privatization. A consultant terms of both financial viability and potential
from SEED looked at the business to determine the employment impact. Once it is felt that any of the
optimum structure. The consultant took the view that projects are likely to be both sustainable and
in addition to restructuring some parts of the beneficial, then discussions are opened with the
business, it would be possible to build a logistics workforce to determine whether employees wish to
function that did not previously exist, therefore, engage in developing the projects as new businesses.
redeploying some workers who would otherwise For example, for Tivkes Winery in Macedonia, which
have lost their jobs. expects to lay off a few hundred employees,
feasibility studies are being conducted for such
SEED also has tried to develop a systematic way of projects as snail farms, eco-tourism, egg trays,
developing new business ideas with several souvenir shops, and a bed-and-breakfast facility.
companies. Part of the program is aimed at training
local consultants to enable them to deliver advice in Once the businesses are established, there are
a sustainable manner on the establishment of new defined modules that support and provide training
businesses. The most innovative part of the program on a range of subjects and issues related to
is that money is not simply made available to workers establishing and developing businesses.
Page Twenty-five
Managing Retrenchment
Page Twenty-six
Good Practice Note | August 2005 | Number 4
A retrenchment plan prepared for IFC may address some or all of the various aspects of the retrenchment process given below depending
on the nature and scale of the situation. Clients are normally expected to report periodically on the implementation of the plan.
1. Description of Anticipated Retrenchment and » legal role of trade unions or other representative bodies in the
Rationale retrenchment process
» anticipated magnitude, rationale, and timeframe » relevant agreements with labor unions or other labor
» characteristics of the labor force (number of men and women representatives
employed by skill level and type of contract) » compliance of planned retrenchment with applicable legislation
» adequacy of current staffing levels and need for retrenchment and agreements
from a business point of view » coverage of retrenched workers by unemployment insurance or
» size of the planned retrenchment (number of men and women any other welfare programs
to be retrenched by skill level and type of contract) » eligibility of part-time or contract workers to receive benefits or
» retrenchment schedule. assistance.
Page Twenty-seven
Managing Retrenchment
Acknowledgments
Disclaimer
The purpose of the Good Practice Note series is to share information about private sector approaches for addressing a range of environmental and social issues. This Good Practice Note provides
guidance and examples of basic good practice approaches that businesses have successfully applied in their operations. IFC has not financed all the projects or companies mentioned in the Good Practice
Note. Some of the information in the Note comes from publicly available sources such as company websites. IFC has not verified the accuracy of such information nor the companies' practices.
This Good Practice Note does not represent a commitment by IFC to require projects it finances to take certain or all of the actions specified in the Good Practice Note. Instead, any issues arising in an
IFC-financed project will be evaluated and addressed in the context of the particular circumstances of the project.
Page Twenty-eight