Restructuring & Transformation

Case Study | A client in financial difficulties, a militant works council and a trade union calling for a strike.

That was the situation confronting our client and us, right in the middle of the pandemic.

Painstaking care and good project planning are key to the success of any restructuring project

Although our client was eager to move quickly, we persuaded them that commencing negotiations with the works council on a reconciliation of interests and social plan only made sense after drawing up a coherent employment law strategy and being confident that the redundancies will ultimately stand up to scrutiny in court. Working closely with the client, we drew up a plan by asking specific questions and leveraging our extensive expertise. We assessed our client’s financial situation at the same time to establish the parameters for negotiating a social plan. The aim was to set out the various options, such as early retirement or the use of a transfer company, and to compare the cost in each case. Supported by our insolvency law experts, we also had to analyse whether insolvency would involve less risk and be a more economically attractive option. Throughout all this, we had to keep the works council – which in the meantime was seeking a court order from a labor court – in check and fend off the trade union’s demands. This included convincing our client that asking the labor court for an injunction to block token strikes would be unlikely to succeed. We also wanted to deny the trade union the platform it was hoping to gain.

Change process

Don’t neglect the paperwork

Careful project planning includes preparing the necessary documents. Accordingly, we drew up a schedule for our client showing the steps to be taken, along with draft versions of a reconciliation of interests and social plan, and Q&A lists to deal with questions the works council, workforce and the press were likely to raise. The documentation required by the Federal Employment Agency in all cases of collective redundancies was also created.

Conciliation board or collectively agreed arbitration panel as a dispute resolution tool

It soon became apparent that the demands being made by the works council and the trade union for a severance payment multiplier of 1.5 were completely unrealistic. Our client could at best afford a multiplier of 0.2, based on the company’s own financial resources. The works council was relying on the financially strong shareholder in the US being willing to pay. As such, we considered at an early stage whether the parent company’s assets could be tapped to fund the social plan. To be on the safe side, our early advice therefore included amending a letter of comfort provided by the parent company to avoid our client’s insolvency, such as to exclude social plan payments. It nonetheless quickly became apparent to us that the works council would not budge from its demands. This made it inevitable that the case would be taken to the conciliation board or, in this specific case, to the collectively agreed arbitration panel due to the special agreement in place within the industry. Through skilful negotiation, we therefore made sure that the attempt to reach a reconciliation of interests and agree on a social plan at company level failed. This ultimately saved us a considerable amount of time, which allowed us to ensure that redundancies were made within the required timeframe. The arbitration outcome ended up being roughly what we had anticipated. Our client’s shareholder recognised that a voluntary increase in the size of the social plan and thus a speedy end to negotiations made more economic sense than losing another month before being able to issue redundancy notices. 

Legal tech as an essential component of any restructuring

Prior to implementing the chosen measures, we worked together with our client, aided by our CMS Select redundancy selection tool, to determine which specific employees would be affected by the measures and which adjustments were needed to ensure that the employees our client wanted to keep could be retained.

Germany

CMS Select (redundancy selection criteria)

Support from the CMS project team

Since our client’s HR department had been reduced to one person due to staff quitting, we provided on-site support for several days via our legal consultants. They worked on preparing the works council hearing documents, drawing up termination letters and liaising with the transfer company and Federal Employment Agency.

Restructuring a success on all counts

The outcome was that the restructuring was implemented within the anticipated timeframe, within budget, and almost all affected employees left the company voluntarily or moved to the transfer company, so that we only had to deal with a small number of unfair dismissal actions.

In many restructurings and rescues, it’s not just employment law expertise that is required. Our interdisciplinary cluster enables us to offer clients expertise in insolvency and corporate law as well, all from a single source.

Germany

Corporate / M&A

Germany

Restructuring and Insolvency

Germany

CMS Advisory – business restructuring advice