Employee Suspensions As a Recourse Before Layoffs

Employee suspensions due to a lack or decline of work have become the most widely used resource to deal with stagflation.

Published in El Cronista on November 28, 2018
The shortage of loans with interest rates over 80%, the sharp fall in demand, the break in the chain of payments, the high tax pressure, and the increase in utilities rates, social security costs and taxes have transformed the domestic market.

Companies are forced to cut their budgets according to the fall in sales, and the level of employment is a direct reaction to business outcomes.

Work suspensions are the prelude to layoffs based on economics or a part of a combined strategy of employee suspension and voluntary retirement or individual isolated cases of employment termination (gradual RIF).

The Employment Contract Act [Ley de Contrato de Trabajo] accepts employee suspensions based on the lack or decline of work for reasons beyond the Employer’s control, for financial force majeure based on reasonable grounds, for a defined period of time and with notice in writing.

However, terms are short: 30 days in the case of lack or decline of work, and 75 days for force majeure, both with a cap of 90 days.

As a matter of fact, case law is very restrictive to justifying suspension without pay due to a lack or decline of work. Except for a few cases, any action based on financial reasons arising out of market vicissitudes, such as the plain and simple decrease in sales, is rejected.

To some extent, many industries claim that the reasons for employee suspension are the so-called “sovereign acts”, in the words of Niccolò Machiavelli, referring to the actions taken by the National Government that led to a fall in sales. That is why paid suspensions were established under Section 223 bis of the Employment Contract Act accepting (partial) payment of a non-salary amount for as long as the work suspension lasts for employees to meet their living expenses. The reason should be the lack or decline of work beyond the employers’ control, with the involvement of the representative Union and the respective approval by the enforcement authority. In general, this kind of suspensions, for which there is no statutory term, usually last between 15 and 30 days and may be renewed.

Some collective bargaining agreements provide paid suspensions for up to 6 months.

In everyday life there are many different kinds of employee suspensions. At small companies workers may be suspended for one or two days per week, rotating in such a way that they all take part in the daily business.

At medium-sized companies, paid suspensions are used as a cost-cutting plan, together with voluntary retirement programs and selected employment terminations.

Big corporations are usually undergoing a permanent RIF process, not only in times of crisis but also to keep up with technological advances, the subsequent productive reorganization and the gig economy.

Those who analyze variables and their future effects say for the umpteenth time that reactivation will be seen in the second half of 2019. Even though this seems to be a new prognosis typical of magical thinking making unfounded forecasts, the truth is that the fall in markets have not reached its floor yet and is still on a downward trend. Suspensions are a sort of palliative, but if used for a long period of time, they tend to surpass their own limits and may lead to abuse.

The only way to change this trend is through mechanisms and actions that can promote economic reactivation, investment, with an emphasis on labor-intensive industries.

By Julian A. de Diego
Director of the postgraduate course on Human Resources at the School of Business at UCA.