Restructuring

Restructuring is a term used to describe a wide range of different activities which lead to the reorganisation of an enterprise. Restructuring can have serious consequences for the workforce regarding levels of employment and the terms and conditions of employment offered to workers.

The European Monitoring Centre on Change (EMCC), set up by Eurofound in 2001 to promote an understanding of changes in the world of work, employment and restructuring, describes eight different types of restructuring:

• Relocation: when the activity stays within the same company, but is moved to another location within the same country. This differs from outsourcing insofar as the activities which are transferred do not belong to an ‘integrated system’ of a broader production – in other words, are not part of the supply chain.
• Outsourcing: when the activity is subcontracted or contracted out to another company within the same country. This can involve transferring some of the company’s recurring internal activities and powers of decision to outside providers.
• Offshoring/delocalisation: when the activity is relocated or outsourced outside the country’s borders – the offshored activity may either continue to be owned by the company or may be offshore outsourced.
• Bankruptcy/closure: when an industrial site is closed or a company goes bankrupt for economic reasons not directly connected to relocation or outsourcing.
• Merger/acquisition: when two or more companies decide to transfer their assets into a single company or when an acquisition involves internal restructuring to rationalise the organisation by cutting jobs.
• Internal restructuring: when a company undertakes a job-cutting plan which is not linked to another type of restructuring defined above.
• Business expansion: when a company extends its business activities and hires a new workforce.
• A restructuring that does not fit into one of the types described above.

The topic of restructuring has become increasingly prominent with the substantial rise in corporate reorganisation in the wake of the economic and financial crisis in Europe in 2008.

The EU has already adopted a number of measures to provide protection for employees and information and consultation rights in the event of the restructuring of enterprises. Directives relevant to restructuring deal with collective redundancy, transfer of an undertaking, European Works Councils, information and consultation and the European company. In addition, Regulation 4064/89, amended by Regulation 1310/97 and Regulation 447/98, requires the approval of the European Commission’s competition authorities in cases of concentrations with a community dimension. It also allows for recognised worker representatives in the companies concerned, if they apply, to be consulted by the Commission during its assessment.

As part of the process of social dialogue, the European Commission began consultations with the EU-level social partners in January 2002, under Article 138(2) EC, now Article 154 of the Treaty on the Functioning of the European Union (TFEU). The consultations centred on how to anticipate and manage the social effects of corporate restructuring, with the aim of concluding agreements on the issue at cross-industry or sectoral level.

The outcome of this was the joint text Orientations for reference on managing change and its social consequences (85 KB PDF), agreed in June 2003 by the EU level cross-sectoral social partners. This joint text contained guidelines to be followed in order to ensure successful change management, covering transparency, good-quality communication, and information and consultation at different levels.

However, the Commission believed that more needed to be done, particularly as the 2003 joint text contained no mechanism to ensure its implementation. Therefore, in early April 2005, the Commission initiated the second stage of formal consultations with the EU-level social partner organisations under Article 138(3) of the EC Treaty (now Article 154 (3) TFEU) on the related issues of handling restructuring and enhancing the role of European Works Councils.

The Commission published a Communication, Restructuring and employment (184 KB PDF), setting out measures to be developed or strengthened. The aim of the Communication was to facilitate a more robust ‘anticipation of change’ and ensure improved management of restructuring within the EU.

As proposed in this 2005 consultation paper, a Restructuring Forum and an ‘internal restructuring task force’ were put in place. The EMCC uses its monitoring instrument, the European Restructuring Monitor (ERM), to provide up-to-date news and analysis on company restructuring in Europe. Restructuring events involving European companies are often influenced by legal framework conditions.

In 2008, the Commission staff working paper Restructuring and employment: the contribution of the European Union, COM2008 (419) final (53 KB PDF) was published. This outlined the EU policies and instruments related to major restructuring events, referring to the European Employment Strategy, cohesion policy (ERDF and ESF), the European Globalisation adjustment Fund (EGF), as well as Eurofound and its EMCC.

However, no real progress was made regarding social partner activity in the area of the anticipation and management of restructuring, apart from the organisation of 27 seminars by the social partners in each Member State  during 2003–2009, summarised in a BusinessEurope assessment (140 KB PDF) published in January 2010.

The overall lack of tangible action by the social partners, along with pressure from the European Parliament, pushed the Commission to re-launch a general political debate on the issue. The discussions would focus on change and restructuring in the light of the lessons learned from the crisis ‘in order to promote employment, growth and competitiveness’ and ‘to contribute to improving synergy between all relevant actors in addressing challenges related to restructuring and adaptation to change’. The Commission stressed that social dialogue and collective bargaining had played a crucial role in adapting production, work organisation and working conditions to fast-changing and demanding circumstances during the crisis.

The Green paper was accompanied by a Staff Working Document Restructuring in Europe 2011 (2.8 MB PDF) that gave an in-depth overview of the different aspects of the Commission’s policy on restructuring. The Green Paper ‘strongly’ recommended measures supporting the reallocation of resources between firms and sectors. The Commission said it regretted that practices in this field were:

...sometimes reactive rather than anticipative and proactive; they can happen too late in the decision-making process and may not involve external entities early enough for them to play a role in attenuating the social impact of restructuring.

In January 2013, the European Parliament endorsed a report drawn up by MEP Alejandro Cercas (EU1301021I) calling on the European Commission to submit a proposal for a legal act on anticipation and management of change and restructuring and for the Commission to consult with the social partners before coming back with its proposal.

The Parliament’s text covers rules on the long-term strategic anticipation of employment and skills needs, early preparation of restructuring operations and management of concrete restructuring processes and contains 14 recommendations.

The Parliament’s report was welcomed by the European Trade Union Confederation (ETUC). There was no official reaction from the employers’ organisation BusinessEurope, but its overall view is that there is no need for an EU-level instrument to manage restructuring.

The Commission continued its work in this area, culminating in December 2013 in the publication of a quality framework to manage change and restructuring. The aim of the framework is to encourage employees, social partners and regional and national agencies to follow best practice in anticipating company change and restructuring. It covers issues such as the strategic long-term monitoring of market developments, continuous mapping of jobs and skills needs, and measures to help individual employees, such as retraining and assistance in finding new jobs. It sets out a range of obligations for employers, employee representatives, individual employees, the social partners and national and regional authorities.

The framework is based on guidelines and best practice and is not legally enforceable – a fact that has disappointed trade unions, but has satisfied employers. Overall, it states that:

The ETUC is sceptical about the practical effects of the guidelines and reiterates its call for legal action. This quality framework can only strengthen frustration and deception amongst the workers of Europe which experience restructurings not as an exception but as part of their daily life

By contrast, in a February 2014 position paper on the quality framework, BusinessEurope states that the framework ‘should not be understood as a rigid list of tasks to be implemented by all stakeholders, but rather as a 'source of inspiration and guidance'. Its application should be ‘appreciated on a case by case basis’.

While any EU-level binding action on restructuring now looks unlikely, the Commission has left the door open to possible legislation by stating that the revision of the quality framework in 2016 will establish whether further action is necessary, ‘including a legislative proposal’.

Eurofound is also continuing its work in this area. As national legislation can differ, even when based on EU Directives, Eurofound introduced an ERM database on restructuring-related legislation in 2013. The database provides comparative information on over 300 regulations in EU Member States and Norway which are explicitly or implicitly linked to anticipating and managing change. Together with the ERM restructuring events database and the ERM support instruments database, it aims to provide relevant restructuring information at national level.

Related dictionary terms

Acquired Rights Directive; Central management of the enterprise; collective redundancy; Consultation in the enterprise; Dismissals; European Globalisation Adjustment Fund; European Monitoring Centre on Change; European Restructuring Monitor; Information in the enterprise; Merger Control.