Businesses across all sectors in Lebanon, and the employees that are at their foundation, are suffering under a weakening economy. Indicators of this reality are in full display across the country and include the long lines in front of banks most mornings, the “for rent” signs now vying with the “70 percent sale” signs for space on store fronts, the restaurants and bars that only operate four days a week or have closed down permanently, and the reduced working hours of many factories and offices in Lebanon.
All of which, according to those interviewed for this article, is just the beginning. Although there is no reliable data regarding the current rate of unemployment in Lebanon and the impacts of the unfolding crisis, the World Bank warned at the end of last year that “unemployment, especially among youth, is already high and could further rise sharply” and that the poverty rate could hit 50 percent of the population if the economic situation worsens.
Whether it is the executive who has to decide on tough measures to keep the company afloat or the employee who is bearing the brunt of those measures through pay cuts, reduced hours, or being laid off, it is clear that Lebanon’s economic challenges are taking their toll on the country’s workforce. Executive sat down with business owners, syndicate heads, and lawyers to better understand the complexities of the labor crisis facing Lebanon and how it can be handled in a manner that would safeguard the dignity and livelihood of employees.
Long in the making
The current labor crisis in Lebanon did not emerge out of nowhere. The most recent statistics come from the Labour Force and Household Living Conditions (LFHLCS) 2018-2019 survey, conducted by the Central Administration of Statistics in partnership with the International Labour Organization and funded by the EU delegations in Lebanon. While the timing of the survey meant it was unable to capture the effects of the financial crisis that hit in Q4 of 2019, it serves as the best available base for assessing the labor market reality upon which the current crisis has been unfolding. According to the LFHLCS, the youth unemployment rate in Lebanon was 23.3 percent, more than double the general unemployment rate of 11.4 percent. Among university graduates the unemployment rate was even higher, at 35.7 percent. The LFHLCS had the Lebanese labor force at 1.79 million people, of whom 1.59 million were employed and 203,600 were unemployed. There was also a stark difference in labor force participation between men and women, with the former making up just over 70 percent of all those working. Attempts by Executive to quantify how these numbers have changed since October 2019 were unsuccessful, what can be said for certain is that the ongoing financial crisis has already exacerbated poverty and unemployment levels in the country.
What has changed in the past few months is the nature of the challenges facing businesses, especially in light of the restrictive banking policies imposed on them amid a dollar liquidity crisis that first began to show its effects at the end of last September. Nicolas Chammas, chairman of the Beirut Traders Association, explains that prior to October—and the onset of a civil thawra (revolution) in large measure sparked by economic pressures—traders had already been dealing with slow demand brought on by consumers’ decreasing purchasing power. Since these twin economic and political crises took sway, the main challenge for traders has been the devaluation of the lira in the unofficial exchange market, which has effectively meant a 40 percent loss for businesses trying to secure the dollars they need for importing goods, as well as more recent capital controls causing immense difficulties for businesses that need to settle accounts abroad. “We are stuck between a rock and a hard place,” Chammas says. “Traders don’t export so they have no way of getting dollars except through sales, which have dropped even further. The drop in sales can reach 50 to 80 percent depending on the sector, with luxury and durable goods—which constitute two thirds of traders’ businesses [in terms of operations]—hit the hardest.”
Maya Bekhazi Noun, general secretary of the Syndicate of Owners of Restaurants, Nightclubs, Cafes, and Patisseries, says that the hospitality and tourism sector has been suffering from consumers’ low purchasing power since late 2017. The lack of dollars and unofficial rates have hiked the costs of most imported goods, including foods, and so F&B operators who were already struggling prior to the October uprising were hit hard, she says, with restaurants and cafés among the first businesses to shut down or take extreme measures with their employees.
Riccardo Hosri, CEO of security system supplier Sacotel and vice chairman of the board at the Family Business Network Levant, believes it was the abrupt halt of credit facilities that was the last nail in corporate Lebanon’s coffin. “Banks took this unilateral measure without considering the other sectors, thereby completely blocking the operation of many companies which rely on these facilities for their mobility,” he says. “In this context, business owners are sometimes being forced to pay out of their personal wealth to honor their commitments to their suppliers, others are closing down or reducing their staff number or giving pay cuts.”
No money, no jobs
Employees pressured to sign a document should write “with reservation” by their signature.
Given these financially challenging circumstances, business owners and managers are under pressure to cut down on their costs to stay afloat and minimize their losses.
When no amount of cost reduction can make up for losses incurred, however, Lebanese business owners are increasingly turning to reducing salaries in parallel to a reduction in working hours or—when that is not enough—laying off employees. According to Hosri, Stronger Together—an organization of 150 Lebanese CEOs that formed after the crisis to try and mitigate its effect on their businesses—estimates there will be 300,000 job losses by end of Q1 2020. This figure that does not seem unreasonable given the current situation. Hosri also says that, based on his conversations with CEOs in Stronger Together, there is an average of 40 to 50 percent reduction in salaries across the private sector balanced with a reduction in working hours.
Chammas tells Executive that paying employees’ salaries in Lebanese lira—when their contract is in dollars—is already a 30 percent pay cut because of the difference between the official exchange rate and the market. But, in the many cases where businesses are almost at a standstill, he says, more drastic measures are being taken, including laying off employees—he estimates that thousands of employees have been laid off so far in the trade sector. “Simply put, when you cannot pay your supplier, your supplier will stop sending goods to Lebanon and you cannot keep your staff doing nothing,” he says. “Inventories are being slowly depleted and we will reach a point whereby many businesses will just go bankrupt.”
Paul Abi Nasr, CEO of Polytextile and member of the board of directors at the Association of Lebanese Industrialists, says some sectors have been so severely impacted by the crisis that even reducing salaries was not enough to make ends meet. “Some companies, especially manufacturers in the construction sector, went down to 20 percent sales and so had no choice but to let go of some of their employees,” he says. “It is unfortunate but they don’t have another solution and are on life support today.”
To reduce or to let go?
To some, a temporary reduction in salaries coupled with less working hours is a far better solution than laying off employees as it allows those employees to get at least some consistent income and to remain in the National Social Security Fund (NSSF). “I reduced the hours of the whole company by 20 percent,” Abi Nasr says. “This way I am being fair to everybody. Instead of having some being taxed at 100 percent, which in this case would mean being let go, and others still being paid 100 percent. This is actually better because you also reduce costs that are not related to salaries such as electricity.”
He says that by retaining employees but reducing their hours, a company can recover more quickly once this crisis is mitigated. “The second we find a solution, bringing back those 20 percent [working hours lost] is as easy as flipping on a switch,” Abi Nasr says. “But if you let go of these employees, bringing them back is very difficult if not impossible. Either they will have moved on somewhere else, or, if they do come back, they won’t identify with the company as a safe haven for them because they will think that if they let me go once, they may do so again.”
Chammas points out to the time investment loss when employers are forced to lose staff. He explains that companies have spent years training their employees and developing their skills and so, for those who have made staff cuts, it would mean starting all over again with a new team once conditions stabilize.
While few disagree that reducing salaries and hours is more favorable than termination, the argument would be to work toward a solution that would not involve either, if at all possible. “At the end of the day people would rather work and earn their full salary then stay at home and do nothing, earning half their salary,” Hosri says.
The business owners and managers Executive spoke to voiced genuine frustration and sadness over having to lay off or reduce the pay of team members and it is evident that it was not an easy decision for many of those in charge of a company’s bottom line to take.
“The situation is that many companies, including ours, have been losing money for at least two years now.”Riccardo Hosri, CEO of security system supplier Sacotel and vice chairman of the board at the Family Business Network Levant
Yet, it cannot be denied that some companies are using the economic situation as an excuse to downsize and let go of employees. “At the end of the day, corporations are run by humans and not computers and humans tend to be abusive” Hosri says. “But we cannot generalize, because there are a lot of decent people as well and I hope they constitute the majority.”
Karim Nammour, lawyer and member of Legal Agenda, says he has seen several cases of companies that have either fired a sizable number or all of their employees, using the excuse of the current economic situation—but he believes that not all cases were justified. “Nobody can argue that the economic situation is bad but it doesn’t mean the company’s situation is bad,” he says. “A lot of companies have the bulk of their business abroad, while many companies were not affected by the economic situation [in terms of of needing imports]. I cannot assume that just because the economic situation is bad then ipso facto all companies are doing badly.”
Hosri asks those who express their surprise that some companies that have been making money for years crumbled so early into the crisis to remember that the economy has been suffering for years. “Company owners and management are burdened from taking these measures but they are necessary,” he says. “The situation is that many companies, including ours, have been losing money for at least two years now. But back then, we had regular inflows and outflows and so could plan to get out of the crisis. Now it is different from two years ago.”
Here is where the law should step in to distinguish between companies that are really losing money and need to take these measures to survive and those who are just abusing the situation.
Nammour explains that article 50 of 1946 Lebanese Labor Code outlines the procedure to be followed if a company needs to lay off some of its employees due to economic difficulties or because it wants to restructure. “The article basically says that if employers want to fire employees for economic reasons, they should notify the Ministry of Labor (MoL) one month before they plan to terminate the contracts and agree on a program or procedure with the ministry that creates a framework for the restructuring of the company or the terminating of the employees,” he explains. “This is very important because it grants the MoL authority to overlook whether or not this step that the company wants to take is legal and justified.” He explains that, for example, the law would not consider it justified for a company that has suffered small operational losses for a year to claim it is not making profit and fire its employees.
If the law is followed, then an inspector would go through the company files case by case to see why particular employees were selected for termination, according to Nammour. This would ensure that companies do not use this as an excuse to fire employees who have been with them for a long time and whose indemnities would be very high otherwise. If the MoL agrees to laying off employees, they do not get any compensation, only the guarantee that they would be rehired within a year if the company reopens job positions, he explains.
In Nammour’s legal analysis, companies independently deciding to reduce employees’ pay by reducing working hours is also a violation of article 50. “If employers reduce salaries without going through the mechanism of informing the MoL and making a program, they would be changing a substantial condition of the labor contract and thus [this] can be considered a form of termination and the employee can then sue for arbitrary termination, which means they can ask for up to 12 months of compensation,” he says. “As an employee, I am working for my salary and I am expecting a certain amount, so when the salary is changed it is a substantial amendment to my contract and as such is considered by jurisprudence to be an unlawful termination.”
Malek Takieddine, lawyer at firm Al Jad, notes that, even without resorting to article 50, breaking a significant term of an employment contract—in this case working hours and pay—is against the law. Whether these legalities are understood or followed by business owners is less clear. Hosry tells Executive there is no transparency around the labor law, which makes it difficult for companies to know what is expected from them in this crisis. “How will the public institutions deal with corporations once this crisis is over?” he asks. “Now we are all on survival mode and no one cares if you make mistakes or not, but at some point things will settle down. When we make a decision [regarding our staff], we have to really consider the repercussions because we might pay the price later.”
Takieddine says that although the Lebanese labor law generally protects employees well, what lies between the letter of the law and the situation on the ground is a thousand shades of grey. He says many companies do not resort to article 50 because they have not paid their dues to the MoL or the NSSF and are not in good standing with them. Although he does not have precise figures, Nammour says there is a big discrepancy between the number of people fired, which he says is close to 160,000, and the submissions for termination received at the MoL.
What is happening on the ground, according to Takieddine, is that employers are not involving the ministry but instead agreeing on a pay cut with their employees—often by playing on their emotions and their fear of losing their job. “In principle, the contract signed by both parties should be honored,” he says. “But companies say we will either have to lay you off or close down, or you have to bear with us in this tough period.”
Labor cases take on average three and a half years.
In the case of termination, Takieddine says it is hard to prove that it is illegal. “Companies should not be biased against any specific employee but practically this is open to discretion and interpretation and we cannot assume that it will be fair in terms of which employees get terminated,” he says. “If an employee feels he has been wrongfully terminated, he can sue but it is hard to prove especially if the company followed all legal procedures.”
Even if an employee had a strong case for wrongful dismissal against an employer, Nammour says that the labor courts are overwhelmed and that labor cases take an average of three and a half years to be processed, which is very problematic for someone who has been unlawfully laid off. Moreover, even if more companies do follow the letter of the law and submit employee termination claims, Nammour says the MoL does not have enough inspectors to go around the businesses. “It is not enough to have a good law, you need it and the judiciary to be effective,” he says.
A black hole
All those interviewed for this article agree that this is just the beginning of a labor crisis that threatens to topple Lebanon’s already fragile economy and—arguably more importantly—its social fabric. “My biggest worry as a Lebanese is the social impact of the crisis, not now, but in June or July when we will have an unemployment rate exceeding 40 percent,” Hosri says. “When we have hunger—and we will have hunger—when the crime rate will shoot up because people will find themselves in a situation where they have to be aggressive to feed themselves and their children, when people will be out of schools and universities because their parents will be unable to pay tuition. When education is hit, the future of the country will be hit, and we would have eliminated the possibility of any real growth. If nothing happens very fast, at least for our generation, we can forget seeing a country we can live in.”
Facing the labor crisis is like standing at the edge of an abyss but there is time to avoid free falling into a pit of bottomless despair if action is taken fast. The government needs to formulate a strategy that would create jobs to reintroduce those who have been laid off to the work force and to provide opportunities for fresh graduates within their own country. And it needs to do so fast.