Global employment, pensions and incentives newsletter

1. Africa: Africa: Measures against unlawful poaching

Most of the labour codes in force in francophone sub-Saharan Africa contain provisions which seek to prevent unfair competition practices among employers.

Former employers might claim damages against new employers on the grounds of poaching / unfair competition if, for example, the new employer:

• solicited the services of the employee while still in employment (by offering a more generous financial package) such that the employee terminates his/her contract without due process;
• recruited a person it knew to be already bound by an employment contract (including any post-termination restrictive covenants); or
• continued to employ an employee after becoming aware that he/she is already bound by an employment contract (including any post-termination restrictive covenants).

Under some labour codes, the new employer will not be liable in the third situation described above if, by the time it becomes aware that the employee was already bound by a contract of employment, either (a) the fixed term of that contract has expired, (b) the notice period under the contract has expired, or (c) a certain period of time (generally fifteen days) has passed since the purported date of termination.

Action for employers

Recruiting employers should keep records of relevant evidence to show (as a minimum) that:

• the employment contract with the former employer was terminated by the employee with due process and, if it was not, that the recruiting employer did not (directly or indirectly) induce the employee to terminate his/her contract with the former employer in breach;
• the recruitment process was fully transparent and compliant with local rules and practices; and
• the employee was hired at a time when he/she was no longer under any obligation towards his/her former employer (e.g. a non-compete obligation).

2. Australia: Federal Government to amend the Fair Work Act 2009 (Cth)

The Australian Federal Government has recently introduced the Fair Work Amendment Bill 2014 (Cth) (the FWA Bill), which amends theFair Work Act 2009 (Cth) (the FW Act) to give effect to a number of aspects of its pre-election Industrial Relations policy.

Among the key amendments are provisions which seek to:

• tighten right of entry rules for unions

The FWA Bill introduces new eligibility criteria to determine when permit holders (eg trade union officials) may enter work premises for the purposes of holding discussions with members/prospective members and amends the FW Act so that lunch rooms are no longer the default location for discussions. In addition, the new provisions will expand the Fair Work Commission’s (FWC) power to deal with disputes relating to the frequency of entry on to sites.

• introduce mechanisms to resolve deadlocks in bargaining for ‘greenfields agreements’

Employers will be able to apply to the FWC for approval of a greenfields agreement (i.e an enterprise agreement between a union and a potential employer for new enterprises which do not yet have any employees) if no agreement is reached within three months of the commencement of the negotiation period. The provisions also extend ‘good faith bargaining’ rules to greenfields negotiations.

• prohibit the FWC from making protected action ballot orders prior to bargaining commencing

The FWC will be prevented from making a protected action ballot order (authorising industrial action to be taken by employees) until after the employer initiates bargaining/agrees to bargain for a new enterprise agreement and has given notice to employees of the right to be represented by a bargaining representative.

• restrict the application of transfer of business provisions

A transfer of business will not be deemed to occur where an employee becomes employed by an associated entity after seeking out employment on their own initiative before their employment with their old employer is terminated. Accordingly, enterprise agreements, workplace determinations and awards will no longer be deemed to transfer to cover the new employer in these circumstances. (For information on employment issues in multi-jurisdictional business transfers see our guide here.)

Other areas addressed by the FWA Bill include consideration of requests for unpaid parental leave and individual flexibility arrangements.

Actions for employers

If the FWA Bill is passed, employers are advised to review carefully their internal policies in light of these amendments. Employers due to commence bargaining in the foreseeable future should also acquaint themselves with the proposed amendments relating to the enterprise bargaining process.

A table summarising the key provisions of the FWA Bill, and the Government’s future possible reforms, can be viewed here.

3. China: New labour dispatch regulations

New Labour Dispatch Regulations took effect on 1 March 2014. The new regulations set out detailed labour dispatch requirements for employers. Fines and penalties are specified for non-compliance with the regulations.

Labour dispatch practices involve a business outsourcing workers from third-party dispatch agencies rather than directly employing the workers. The dispatch agency remains the formal employer of the dispatched workers, but the business controls their workplace activities.

The new regulations introduce a number of changes to the rules already in China’s Labour Contract Law and related regulations:

• after an initial grace period of two years dispatched workers must not comprise more than 10% of a company’s total workforce. (This ratio does not apply to the China representative offices of foreign companies.)
• an employee consultation process is now required for a position to be designated as “auxiliary”, which together with “temporary” and “substitute” labour is one of three permissible forms of labour dispatch.
• employers now cannot discriminate against dispatched workers with respect to employment benefits. (“Equal pay for equal work” was already required by China’s Labour Contract Law.)
• arrangements that are in substance labour dispatch arrangements (whether or not they are labelled as such) will be subject to the new regulations. This means, for example, that the new regulations apply to arrangements in which a company outsources certain business functions (rather than individual employees) and the business functions are then performed by contractors working in the company’s premises or which are directly managed by the company.
• companies not complying with the new regulations may be ordered to comply within a fixed period or be subject to fines of between RMB5,000 and RMB10,000 per infringing dispatched worker.

Actions for employers

Employers should review dispatch arrangements in light of the new regulations. In particular:

• employers may need to directly employ more workers to ensure compliance with the 10 per cent dispatch worker ratio mentioned above.
• labour dispatch arrangements should also be assessed for compliance with the expanded “equal pay for equal work” requirement.

Further details can be found here.

4. EU: Protection of trade secrets to be harmonised across the EU

There are currently significant differences in the way trade secrets are protected across the EU with some member states lacking much protection. This has been identified by the European Commission as a key obstacle to innovation and economic growth in the EU. The European Commission has therefore approved a proposal for a Directive to provide a clear and uniform level of protection across the EU.

Under the draft directive a trade secret is defined as information that is secret, has commercial value because it is a secret and has been subject to reasonable steps to keep it secret.

Under the draft Directive, it will be unlawful to:

• acquire a trade secret intentionally or with gross negligence by unauthorised means or by any other conduct contrary to honest commercial practices;
• use or disclose a trade secret acquired unlawfully or in breach of a confidentiality agreement or other contractual duty;
• use or disclose the trade secret if the person disclosing the trade secret knew, or should have known, that it was obtained from a third party that was using or disclosing the trade secret unlawfully;
• put on the market, import, export or store goods which have significantly benefited from trade secrets unlawfully acquired, used or disclosed.

Member States will be required to put in place measures, procedures and remedies for unlawful acquisition, use or disclosure of a trade secret. These should be fair and equitable, effective and dissuasive and not unnecessarily complicated. No criminal sanctions will be available.

The proposed Directive is now with the Council of Ministers and the European Parliament for debate and adoption. The new measures are expected to be in place within three years.

Actions for employers

Once the Directive has been finalised employers should consider auditing their confidential information to make sure it falls within the definition of trade secrets.

For more analysis and information see our recent note written by Peter Frost, Mark Shillito, Christine Young and Rachel Montagnon.

5. France: New obligation for larger employers to seek to find a buyer for a site before closure

“Loi Florange” Law, in force from 1 April 2014, imposes an obligation for larger employers to seek to find a buyer for a site before closure.

Employers impacted:

• companies with 1,000+ employees;
• groups with 1,000+ employees and 150 employees in two or more Member States.

Companies in insolvency proceedings are excluded.

Employers must inform and consult with the works council over a 2-4 month period and must take active steps to find a buyer prior to closing a site, including:

• informing potential buyers of the desire to sell;
• preparing a presentation document;
• undertaking an environmental survey;
• giving access to all necessary information;
• reviewing any offers;
• responding (with detailed reasons) to the offers within 2-4 months.

The employer must also promptly notify the French Authorities and local Mayor of the proposed closure.

The works council must be informed of any offers no later than 8 days after receipt. They can give an opinion.

At the end of the 2-4 month consultation period, the employer must present a detailed Final Report to the works council.

If no offers are received, or if the employer does not pursue any offers received, the works council may apply to the Commercial Court within 7 days of the Final Report, if it considers that the employer has not reasonably complied with its obligations.

The Commercial Court can take evidence from the works council, the French Authorities, the Minister and any other relevant individuals.

It must make a finding within 14 days. The validation of any social (i.e. redundancy) plan cannot take place until such decision is given.

In the event of a finding of breach, the employer may be ordered to repay any State aid received in relation to the business.

Actions for employers

Employers must comply with all obligations to actively find a buyer before considering a site closure.

Further details can be found here.

6. Hong Kong: Potential new rights for working fathers

As anticipated in our previous newsletter, a Bill which amends the Hong Kong Employment Ordinance to provide paternity leave to male private sector employees was gazetted on 28 February 2014.

The terms of the Bill entitle male employees to:

• three days of unpaid paternity leave if they are employed under a continuous employment contract for at least four weeks (with more than 18 working hours per week) prior to the date of leave; and
• three days of paid paternity leave if they are employed under a continuous employment contract for at least 40 weeks (with more than 18 working hours per week) prior to the date of leave. The rate of payment is 80% of the daily average of the wages earned by the employee during the 12 months preceding the commencement of the leave.

Male employees will be able to take the leave at any time during the period from four weeks prior to the expected birth, up to ten weeks after the actual date of birth and certain notification requirements must be met.

Actions for employers

Employers need to monitor the progress of this Bill. If it becomes law:

• employers will need to ensure that they adhere to the new requirements and provide paternity leave to their male employees as appropriate; and
• employers who already provide paternity leave to their employees should consider amending their paternity leave policies so that it is clear whether or not the new statutory paternity leave forms part of or is in addition to the contractual paternity leave which the employer already provides.

7. Japan: New rules for dispatch workers

In Japan, arrangements whereby workers are sent by one company to work under the supervision and direction of another company are generally prohibited unless it is a “labour dispatch” pursuant to the Worker Dispatch Law.

Under this law, dispatched workers are employed by dispatching agencies and supplied to client companies under a worker dispatch contract. There is no employment relationship between the dispatched worker and the client.

The maximum period for which a client may engage dispatched workers on a specific assignment is 3 years. Once the assignment has continued for 3 years, the client must offer direct employment to the dispatched workers working on the assignment in order to retain them. The client cannot avoid this restriction by engaging new dispatched workers in the same role after 3 years.

The maximum period does not apply to 26 prescribed types of professional assignments that require expert knowledge, technical skills or experience (e.g. newscasting and translating). On these professional assignments, dispatched workers may be retained indefinitely.

Amendments to this law have been proposed and a draft bill has recently been approved by the Cabinet. The following changes are expected to come into force in April 2015:

• there will no longer be a 3-year limit categorised by the type of work assignment. For all types of assignment, clients may retain dispatched workers indefinitely; however
• a 3-year limit per dispatched worker will be introduced. To retain dispatched workers indefinitely, client companies will need to replace the dispatched workers at least once every 3 years; and
• all dispatching agencies will require a licence.

Actions for employers

These amendments are expected to be welcomed by client companies, who will have more flexibility in the use of dispatched workers. However, dispatching agencies are likely to face more obligations under the new law. Dispatched workers in the current 26 prescribed types of professional assignments are concerned that the amendments would lead to fewer long-term opportunities.

8. Russia: Reforms imposing restrictions on “golden parachute” provisions

Employment contracts in Russia often contain ‘golden parachute’ provisions which entitle employees to compensation in the event of termination of their employment.

Under the Russian Labour Code a director is entitled to compensation equal to not less than three months’ average salary if their employment is terminated by the company prior to the expiry of the agreed term. Directors, deputy CEOs and chief accountants are entitled to compensation equal to not less than three month’s average salary if their employment is terminated due to a change of ownership of their employer. The Russian Labour Code also allows for similar compensation to be paid to other categories of employees.

There is currently no restriction on the maximum amount of such compensation. As a result employment contracts, especially with senior managers, often provide for generous compensation.

On 2 April 2014 the President of the Russian Federation signed the Federal Law “On Amending the Labour Code of the Russian Federation by Imposing of Restrictions on the Size of Severance Benefits, Compensation and Other Payments in Connection with the Termination of Employment Contracts for Certain Categories of Employees” which amended the current rules.

In particular it provides that:

• compensation is prohibited (for all categories of employees) where the employment has terminated as a result of misconduct or the imposition of disciplinary sanctions; and
• the maximum amount of compensation is restricted to a sum equal to three months’ average salary for CEOs, deputy CEOs, chief accountants and members of collective executive bodies (management bodies) employed by state companies, other state entities or agencies, including commercial companies in which more than 50 per cent of the share capital is owned by the state. No compensation may be paid to these employees where the employment is terminated by mutual agreement.

Actions for employers

The Law comes into force on 13 April 2014.

Employers hiring new employees after this date will need to take these reforms into account when drafting employment contracts. Moreover, any provision of an employment contract (entered into before that date) which contradicts to the abovementioned rules will not be enforceable and relevant provisions of legislation shall be applied.

9. Singapore: Recent case on discretionary bonuses

The High Court of Singapore has confirmed the proposition that discretionary bonuses are exactly that: discretionary. Employees do not have a contractual entitlement to a discretionary bonus.

In the case of Seow Hock Hin v MF Global Singapore Pte Ltd [2014] SGHC 42 the Plaintiff claimed a contractual entitlement to accrued bonuses totaling USD$224,624.19. He argued that where deductions for a specified purpose were made from a bonus pool, if the specified purpose ceased to exist (or attracted a lower liability), write-back sums should be added back into the bonus pool and distributed accordingly.

The High Court disagreed: the Defendant was only obliged to distribute the sum it had declared. The fact that the actual deduction the Defendant needed to make from the bonus pool for the specified purpose was significantly lower than anticipated mattered not; the Defendant retained an absolute discretion to declare the bonus amount and the Plaintiff had no entitlement to a sum that had not been declared.

By deciding the case on the basis of declaration, the High Court avoided grappling with the thornier issue of whether a sum deducted for a specified purpose could only be withheld from the bonus pool for that specified purpose.

Actions for employers

Employers should ensure that discretionary bonus clauses are drafted in the broadest possible terms, allowing employers the discretion not only to determine whether a bonus should be paid, but also how it is to be calculated, and deductions for a specific sum and purpose should be avoided where possible.

10. Spain: Tax reform and employment implications

In July 2013 the Spanish government commissioned an Expert's Committee for Tax Reform to conduct an analysis of the Spanish tax system. In February 2014 the Experts' Committee published a reportdetailing its findings. If they are implemented, a number of the proposals outlined in the report could have significant implications for employers.

The report analyses certain labour and social security aspects of the current tax system and proposes, amongst other things, the following changes:

• that the maximum income tax bracket rate is reduced from 54-56% to 50%;
• that the tax exemptions on employers' contributions to pension schemes are reduced to bring them in line with other European countries;
• that the current cap on employer and employee social security contributions is removed, with contributions being calculated as a fixed percentage of the employee's full monthly salary;
• that the percentage rate of employers' social security contributions is reduced; and
• that the corporate income tax rate is reduced from 30% to 20%, such reduction to be implemented in gradual phases.

These amendments, if implemented, would have an impact on employers' staffing costs. The removal of the social security contribution cap, for example, would increase the staffing costs associated with employees on high salaries. However, the reduction in employers' social security contribution rates would reduce the staffing costs associated with employees on lower salaries.

The proposals could also make pension benefits a less attractive option for employees because the tax exemptions on those benefits would be reduced. They may opt for other fringe benefits instead.

It is expected that the government will finalise its proposed tax reforms by the end of June 2014 and that the reforms will be implemented later this year.

11. UK: Amended regulations impacting on business transfers

Where there is a business transfer or change of service provider, the Transfer of Undertakings (Protection of Employment) Regulations 2006 provide certain protections for employees working in the business or service and impose information obligations on the employers. Employers should therefore be aware of reforms to TUPE which came into effect on 31 January 2014.

Changes to information requirements will impact on the timetable for transactions; other reforms ease the requirements for transferees planning to make redundancies, relocate, or (to an extent) change employment terms. Pensions regulations have been amended to broaden the options for transferees in relation to the minimum pension arrangements offered to transferring employees following a TUPE transfer.

Actions for employers

The key points for employers are as follows.

• the deadline for provision of employee liability information by the transferor to the transferee has increased from 14 days to 28 days prior to the transfer (for transfers taking place on or after 1 May 2014).
• the transferee can negotiate (transfer-related) changes to contractual terms derived from a collective agreement after one year post-transfer, provided the overall terms are no less favourable to the employee;
• where employment terms are derived from collective agreements, transferees will not be bound by post-transfer collective bargaining between transferor and union.
• change of location redundancies qualify as ETO dismissals and therefore are no longer automatically unfair, although transferees will still need to follow a fair process.
• where a transferee plans to make collective redundancies affecting the transferring workforce following the transfer, consultation by a transferee prior to the transfer will count for the purposes of the transferee’s collective redundancy consultation duties, provided that the transferee makes such an election on or after 31 January 2014 and the transferor agrees to it. 
• micro-businesses (with fewer than 10 employees) will not have to elect employee representatives and, if there are none already in place, can instead inform and consult with the individual affected employees (for transfers taking place on or after 31 July 2014).
• where the transferor provided an occupational money purchase scheme pre-transfer, the transferee may provide transferring employees with a DC occupational pension scheme or a stakeholder pension scheme to which can match the contributions made by the transferor immediately before the transfer (rather than – as was previously the case - matching the contributions made by the transferring employee up to 6% of base pay). This option, available from 6 April 2014, has been made available (in addition to the existing options for transferees to provide a minimum pension arrangement) in light of the auto-enrolment regime, to limit the scope of a two-tier workforce being created (e.g. where transferring employees become entitled to a higher employer contribution rate than the rest of the transferee’s workforce).

For more detail on these changes please see our briefing. A copy of the regulations is available here and the guidance issued by the Government can be accessed here.

12. US: Whistleblowing: internal investigation documents may not always be privileged

In a controversial decision, US ex rel Harry Barko v. Halliburton Company, et al, a US District Court ordered an employer to disclose documents generated during an internal investigation into a whistleblower’s complaints.

A whistleblower had complained of corruption and violations of the False Claims Act to Kellogg Brown & Root Services Inc. (“KBR”). KBR therefore conducted an internal compliance investigation under the supervision of its in-house corporate attorneys. Company investigators conducted interviews, reviewed documents, and obtained witness statements. They then wrote reports which were transmitted to supervisors in the Law Department for review and further action.

The whistleblower challenged KBR’s designation of 89 documents generated during that investigation as protected from disclosure under the attorney-client privilege and work product doctrine. In a surprising opinion, the Court ruled that because KBR conducted its internal investigation pursuant to regulatory law and internal compliance policies rather than for the express purpose of obtaining legal advice, KBR was not protected by the attorney-client privilege. Further, the work product doctrine did not apply because KBR did not yet know litigation was a real possibility when the corporate investigation occurred. The Court distinguished KBR’s investigation from an investigation conducted by in-house counsel in close coordination with outside counsel.¹

The decision is subject to an emergency appeal, in which the US Association of Corporate Counsel and US Chamber of Commerce, as friends of the court, expressed great concern about the impact of the potential erosion of traditional privileges on internal compliance and investigation programs.

Actions for employers

Companies and in-house counsel should monitor this case for its impact on (a) pre-litigation whistleblower complaints, and (b) the retention of outside counsel to ensure protection of the results of internal investigations.