Cutting Costs Without Cutting Corners: 10 Practical Tips for Managing Legal Risk in Global Reductions in Force

Employment protections vary widely around the world. While at-will employment in the United States allows for relatively straightforward terminations (barring union involvement or statutory notice requirements), most jurisdictions around the world (including the majority of Europe, as well as Canada, Australia and Japan) provide mandatory protections against dismissal, which often include articulating a legally justified reason for the RIF as well as taking additional procedural steps before employees are impacted. When constructing plans for a global RIF, it’s helpful to be clear with business leaders who are not employment counsel that it’s essential to build alternate timelines and costs based on jurisdiction-specific requirements.

Along these lines, engaging with local counsel early to navigate procedural nuances is key. This helps mitigate the risk of unforeseen complications, such as delays due to mandatory consultation periods, unexpected severance obligations, or exposure to legal claims arising from non-compliance with jurisdiction-specific requirements. Timescales and costs for RIFs are likely to increase as a result of legislative changes in 2026, underscoring the importance of checking local requirements early on.

The starting point for analyzing reductions-in-force is understanding the legal threshold for a justified reduction (e.g., in Japan, there must be a strong economic justification for redundancies). Only very few international jurisdictions (e.g., Singapore and Switzerland) do not require employers to show specific grounds or justification for termination.

Where protection against dismissal exists, dismissal will be unlawful if the employer does not have appropriate legal justification. In many countries (e.g., Korea, France, Germany and Spain), mass dismissals may also be unlawful if the employer does not follow an appropriate process which can be quite elaborate and feel onerous from an outside perspective. The sanctions for unlawful dismissal can include increased compensation, reinstatement (with back pay from the time of termination in some countries), financial penalties, and, in limited cases, criminal fines and sanctions.

Legal defensibility hinges on a well-documented rationale, and the degree of justification required varies significantly from jurisdiction to jurisdiction from the requirement to explain the genuine business reason for redundancies (e.g., Malaysia) to the need to justify serious financial difficulties. For example, in some countries, such as Japan, the threshold for showing economic justification is so high (that is, the company must be on the verge of bankruptcy) that collective dismissals are rarely implemented. In other countries, such as China and India, even a justified dismissal may require union and government notification or even consent, such as in the Netherlands, which can deter companies from unilateral dismissal. In such instances, companies may choose to pursue different mechanisms to control headcount like attrition management, hiring freezes, or soliciting mutual separations in exchange for some ex-gratia on top of the statutory entitlements.

While it may seem obvious, a key strategy to minimize the likelihood of litigation risk for unfair dismissal is to make sure that management decisions are documented and vetted with legal counsel. This process will have to be tailored to the particular jurisdiction.

However, in all cases, having a process where managers are required to explain their rationale can help build a record to prove that legally defensible decisions were made. The process also ensures that managers are able to articulate the business case and it will help them in preparing them for discussions with employees. If employees can understand the business rationale for eliminating their position, this can go a long way to helping them accept the decision and move forward. While not legally required, it is advisable that sufficient preparations are taken to ensure that decisions are ultimately communicated clearly and respectfully to the workforce.

From a practical standpoint, especially in jurisdictions with strong employee protections or union presence, companies should plan for reputational impact before any termination plans are shared. It’s vital to align HR and management not only on legal requirements but also on carefully crafted communication strategies.

Selection issues can pose yet another trap for the unwary. In the United States, fair, nondiscriminatory criteria should be used in the selection process to mitigate discrimination claims. Performance, versatility, indispensability and seniority are common, permissible factors. (While salary is permissible under federal law, salary may not be used in California as a selection factor if salary correlates with age due to its adverse impact on older workers.) Once a tentative selection has been made, its impact on protected groups should be validated through an adverse impact analysis conducted under legal privilege, a uniquely US concept not seen internationally.

Outside of the US, numerous jurisdictions, such as the Germany, Italy, and China (the latter only for group layoffs), impose social selection criteria. In other jurisdictions, such as Malaysia, specific selection criteria are recommended such as the "last in, first out" principle. The Netherlands has a variation on the LIFO principle which first requires grouping employees in interchangeable positions by age groups.

Certain employees may also have additional protections from termination (e.g., works council members, employees on maternity/paternity leave, employees on sick leave, etc.). The type of employees who are protected varies by jurisdiction. In some instances, employees can extend the termination date by obtaining protected status (e.g., going on sick leave in the Netherlands or Switzerland).

Once the company has identified the anticipated impacted headcount in each jurisdiction, it will need to carefully consider any advance notice and consultation requirements.

For collective or mass dismissals or redundancies, many countries impose specific notice requirements require time-consuming consultations with employee representatives, such as works councils or unions. These processes can be lengthy—lasting several months—and may require elections, social plans, or government approvals. Employers must avoid premature announcements, which give an appearance that a final decision on the RIF has already been made, that could violate consultation obligations. Here are several examples to demonstrate local differences:

• In the United States, the Federal Worker Adjustment and Retraining Notification Act (WARN Act) requires employers to provide advance written notice to employees before certain kinds of plant closings or mass layoffs. State mini-WARN Acts impose stricter requirements by potentially lowering the number of employees and layoffs needed to trigger notice (e.g. California’s WARN Act applies to employers with 75 or more employees while the federal WARN Act applies to employers with 100 or more full-time employees), increasing the notification period (e.g., New York’s WARN Act requires 90 days’ advance notice while the federal WARN Act requires 60 days’ advance notice), expanding coverage to more event types, and adding greater penalties for non-compliance.
• In the United Kingdom, if an employer proposes to dismiss 20 or more employees at one establishment within a period of 90 days for reasons that are not connected with the employees personally (e.g., because of a plant closure), the employer has an additional duty to inform and consult with employee representatives. The employer must provide certain information to, and consult with, appropriate representatives of the employees potentially affected before any final decision is made. This may be a recognized trade union or another representative body established for this purpose. If one does not exist, the employer must arrange for the election of employee representatives. Consultation must start a minimum of 30 days before the first redundancy takes effect if 20 to 99 employees are to be made redundant, or 45 days before the first redundancy takes effect if 100 or more employees are to be made redundant. Breaching this obligation triggers a penalty of up to 90 days' gross pay for each employee affected by the dismissals; it does not render the dismissals invalid.
• In Germany, if the employer has a works council, depending on the total headcount and the number of impacted employees, the employer may need to negotiate with the works council regarding the position which will be eliminated (reconciliation of interests proceedings) and the amount of severance which will be paid to individuals leaving the company to mitigate the impact of the RIF (social plan negotiations).
• In some jurisdictions (e.g., Korea), a consultation obligation with employee representatives or a union may exist even if there is one employee impacted by way of unilateral redundancy.

As you build your RIF playbook, experienced counsel can guide you in charting your timeline and corresponding communication obligations.

Buying peace of mind only works if the settlement agreement and release is fully compliant with local laws. There are traps for the unwary even in the United States. For example, as a starting point, US releases must be "knowing and voluntary," a concept that has resulted in extensive case law as to what is, and what is not, permissible. In addition, under the Age Discrimination in Employment Act, employees age 40 or older must be given 21 days in an individual layoff (and 45 days in a group layoff), to consider the release, 7 days to revoke after signature, be advised of their right to consult an attorney, and must expressly waive ADEA claims. In group layoffs, employees selected for layoff must also be provided with information about the age/position of the individuals retained and those terminated in the affected "decisional unit." California employers also should seek express waiver of unknown claims under California Civil Code §1542. Different states also have their own rules regarding the mandatory consideration periods under specific statutes.

Outside the United States, releases are generally considered best practice, but there are exceptions. Some jurisdictions do not technically permit releases or they are easily challenged with respect to the main labor and employment law protections (e.g., Brazil and Malaysia); in others, releases are subject to specific requirements. For instance, in the United Kingdom, an employee must be represented by a solicitor (commonly paid for by the employer) to sign a valid complete release. In France, a release can only be agreed upon after the employee has received formal notice of termination and it must be provided in French. In Mexico, releases need to be approved by the Ministry of Labor. Recognizing these distinctions (and any translation requirements!) in advance can avoid being struck with possible legal challenges, reinstatement claims or penalties from local authorities.

In the United States, different states have specific requirements regarding amounts that need to be paid on termination and when final paychecks need to be issued to employees (e.g., on the termination date in California).

In many jurisdictions outside the United States, employees are by law entitled to statutory notice, severance, accrued and unused vacation, and any other earned and unpaid amounts (e.g., earned bonuses and commissions). In some jurisdictions (e.g., Germany), employees also have the right to remain employed or on “garden leave” during their notice period. To incentivize employees to sign a release or a mutual separation agreement, the employer typically needs to offer an additional ex-gratia amount on top of any statutory and contractual entitlements.

Coordinating with the local payroll provider and benefit plan providers is imperative to ensure employees timely receive their payouts and that calculations are made in line with applicable law. Often, additional time needs to be factored into formulating the separation packages and instructing the local payroll provider on how to calculate payouts, particularly if employees earn variable compensation pay.

In some jurisdictions (e.g., Singapore and Hong Kong), the company may need to withhold the final paycheck until it obtains a clearance from the local tax authority with respect to certain employees (e.g., employees on a visa or work pass).

Likewise, the company may need to coordinate with the payroll provider if it will be splitting up the ex-gratia payments into installments, which is often recommended in certain countries as a risk mitigation strategy (e.g., Malaysia and Singapore). Final ex-gratia installments are only paid assuming the employee has not filed a claim with the court or government authority.

As you build your RIF playbook, experienced counsel can partner with you to conduct a cost analysis (taking into account notice and severance entitlements) and to set a realistic timeline for each jurisdiction.

The treatment of equity compensation is a key concern for companies and employees during a RIF, as equity often represents a significant part of total pay. If the existing equity award terms do not provide for specific treatment of awards upon a RIF or other involuntary termination without cause (as is often the case for non-executive awards), then generally, any unvested awards will be cancelled on termination and there will be a short period post-termination during which the employee must exercise any vested stock options.

To facilitate the RIF and enhance the company’s ability to obtain a release of claims, companies often wish to provide terminating employees with accelerated or continued vesting of their equity awards and/or an extended post-termination exercise period in which to exercise vested stock options. To do this, the company will need to confirm that any such acceleration or extension of awards is permitted under the governing equity plan, including in view of any minimum vesting requirements. Additionally, the company will need to consider the tax and legal aspects of the award amendment for each impacted jurisdiction.

From a United States’ tax perspective, to avoid adverse tax consequences under Section 409A of the Internal Revenue Code, any change in the timing of payment of restricted stock units or similar awards must be permitted and appropriately structured under Section 409A, and any extension of in-the-money stock options must not extend the option term beyond the option’s original maximum term, or if earlier, 10 years. If US-qualified incentive stock options (ISOs) are extended, it will typically result in the options losing their ISO status, and to preserve ISO status for employees who do not wish to accept the extension, any offer to extend the ISO should not be open for more than 29 days. For employees outside the United States, vesting acceleration may impact the tax treatment or tax-qualified status of awards in countries that require a minimum vesting period for certain tax benefits (e.g., France, Germany and Romania) and offers to amend awards may have other tax or regulatory consequences that need to be vetted by jurisdiction.

To the extent that a company does not accelerate (or fully accelerate) the vesting of equity awards held by the terminated employees, it should confirm whether the right to equity awards was included in the employment contracts of non-US employees, as if so, employees may have grounds under local law to challenge the forfeiture of their awards on termination (at least to the extent they do not provide a valid release of claims on termination). Additionally, if awards have been included in local employment agreements, it may increase the risk that the value of equity compensation must be included in mandatory local law severance payable to employees impacted by the RIFa risk that is already quite high in certain countries (e.g., Canada, Italy and Spain).

When awards cease vesting and are forfeited upon termination, a key question is whether under local law or the applicable award terms, the vesting must continue through the end of any applicable notice period or garden leave period, or if vesting ceases as of the date active employment ends. Award agreements of US companies often purport to cut off vesting as of the end of active employment. While the enforceability of this language may vary by jurisdiction, it is important for companies to understand their award terms in this regard and determine the appropriate implementation approach.

Finally, any amendment of outstanding awards needs to be properly approved to be legally effective, typically by the compensation committee of the company’s board of directors. The financial accounting implications, and for any impacted US executive officers, SEC disclosure implications may also need to be considered.

All in all, the handling of equity awards in a RIF is complex and requires close coordination among legal, stock administration, HR, payroll, and tax teams across jurisdictions. Proactive planning can help avoid unexpected costs, compliance failures, and litigation risk.

In a RIF, a company may offer voluntary severance benefits on top of local statutory termination and notice entitlements, so it is imperative to have a current inventory of benefits obligations. When evaluating the voluntary severance benefits remember to look beyond severance plans and policies and also review any additional local entitlements under collective bargaining agreements, works council agreements, local work policies, employment contracts and other types of arrangements. For example, it is relatively common for deferred compensation arrangements (e.g., elective deferral programs, deferred stock programs, performance stock awards, executive bonus programs) to provide for the payment of benefits upon a “separation from service” and it is not uncommon for executive benefits to be enhanced upon a “termination without cause.” The cost of all these benefits should be evaluated when calculating the cost of the RIF.

Review existing company voluntary severance plans and policies as soon as possible, to evaluate if any changes are desirable, allowable, and feasible within the desired RIF timeframe. Since severance outside the United States often ends up being individually negotiated, companies that currently offer a voluntary global severance program may want to consider either carving out the United States or confirming that country specific provisions do not extend beyond the intended population (e.g., in the United States COBRA and Code Section 409A). In the United States making changes is generally fairly straightforward and involves minimal risk as long as the benefits are provided under an ERISA severance plan or, the company replaces a prior severance policy with an ERISA severance plan. In other jurisdictions, assuming the change is permitted, a longer timeline may be needed to allow for any local notice, consultation (e.g., with employee, works council or the CBA) or employee consent requirements.

Companies should carefully assess the impact of a RIF on voluntary benefits provided in each jurisdiction for both terminated and continuing employees. Understanding when voluntary benefits will cease (for example, on the termination date, at the end of the month, or following garden leave), as well as any available conversion rights, is essential for informing affected employees and many assist with structuring voluntary severance packages. In certain jurisdictions, it may be feasible to negotiate an extension of voluntary benefits with the carrier for an additional cost, enabling companies to offer enhanced severance packages or potentially reduce cash expenditures by providing benefit extensions. For instance, in jurisdictions such as India, premiums for voluntary benefits are frequently paid on an annual basis, which may allow a company to negotiate extended benefit period without incurring extra costs. In the United States, employees typically have the right to continue specific group health plan benefits under COBRA at their own expense; however, if the company opts to provide a COBRA subsidy as part of a voluntary severance plan or policy, it must also consider the related tax and nondiscrimination issues. Additionally, turnover should be evaluated from a voluntary retirement plan perspective, as a RIF may trigger vesting, funding, and/or reporting obligations in some jurisdictions. Companies must also note that changes in headcount can increase coverage premiums or, in jurisdictions with small post-RIF workforces, result in populations falling below minimum requirements for group coverage.

When implementing reductions in force, employers must carefully evaluate the impact on foreign national employees who hold employer-sponsored visas, or work and/or residence permits. These individuals may face severe impacts to their legal status and ability to remain in-country. The same applies to accompanying family members who depend on the employee’s immigration status.

Layoffs can trigger immediate immigration consequences, including the loss of legal status and the need for repatriation. These outcomes may also affect the remaining local workforce by shifting operational burdens and impacting morale. Employers must act swiftly to comply with immigration requirements associated with the sponsored work or residence authorization for terminated employees. This may include amending, transferring, or canceling visa documentation and sponsorships, as well as notifying relevant immigration authorities.

For example, in China, employers are required to immediately cancel a work permit for a terminated employee. Failure to comply with permit cancellation and exit requirements can result in penalties to an employer including fines and adverse impacts to future eligibility to sponsor foreign nationals for work / residence permits, in addition to potential difficulty for the foreign national to secure visas later on. In the United States, when an employment relationship ends with an H-1B visa holder, employers are legally required to notify U.S. Citizenship and Immigration Services (USCIS) to notify USCIS of the end of the H-1B visa holder’s employment and withdraw the associated Labor Condition Application (LCA) filed with the Department of Labor (DOL). Additionally, employers must offer reasonable return transportation costs to the employee’s home country if the termination is involuntary. Failure to properly withdraw an H-1B petition can result in ongoing wage obligations for the employer even though the H-1B visa holder no longer works for the company.

Foreign national employees who seek to transfer their visa or permit to another employer may face delays, as the process can take several weeks or months. Missing lead times for new sponsorships or work permits may result in temporary lapses in work / residence authorization. The uncertainty surrounding ongoing status in country makes RIFs particularly difficult for impacted foreign nationals.

Employers are strongly advised to factor immigration-related obligations into workforce planning and cost assessments when terminating or transferring foreign national assignments or local hires. A strategic, people-centric approach can help mitigate legal and operational risks, ensure compliance, and preserve business continuity, while remaining empathetic to the concerns particular to foreign national employees.