Restructuring, layoffs and litigation: form and substance in reporting operating income

Abstract

Purpose – The purpose of this paper is to discuss how a decision of restructuring and firing people in a Portuguese company was based on financial data, and how the interpretation of such data made the process quite complex. This complexity was particularly relevant in the litigation that followed. At the core of the restructuring decision was the evolution of the firm's operating income; and a central point in litigation was precisely what should be considered the operating income of the company under analysis, and how it could influence the case's court outcome.Design/methodology/approach – In 2008 a Portuguese company fired people in its finance department. The main reason presented by the management to the laid off persons was the evolution of the firm's operating income, which was negative for several consecutive years. The paper, after a background analysis of restructuring decisions and financial performance, will focus on this case and the correspondent issues, that are mainly related to the conce...