Friday, May 1, 2009


The German Board Member Remuneration Act 

By Thomas Griebe
Taylor Wessing

As a result of the global financial crisis the German Government wants to implement additional statutory regulations on the remuneration of board members (see Sec. 87 subsec. 1 German Stock Company Act, "Aktiengesetz").

Even though the German legislator does not plan to enforce any limits on the remuneration of the management the annual remuneration shall be reasonable and shall also be linked to the individual performance of each member of the board. The remuneration shall also be in line with comparable remuneration schemes in the concerned business or country and shall provide for long term incentives to the member of the board, as well. In this respect the minimum vesting period for stock options shall be extended to 4 years, too.

According to the law the Supervisory Board ("Aufsichtsrat") is still competent and responsible for the remuneration of the board members (see Sec. 116 and 93 German Stock Corporation Act). The members of the Supervisory Board are personal liable in case of a violation of the law (e.g. the remuneration would not be reasonable in terms of the Act). In order to ensure a reasonable remuneration all members of the Supervisory Board are obliged to participate in the appointment of the remuneration package and, thus, the decision cannot be delegated to a subgroup of the Supervisory Board anymore.

The Act provides for a authorization and an obligation of the Supervisory Board to reduce the agreed remuneration unilaterally (see Sec. 87 German Stock Corporate Act) if the financial situation of the Company would become critical and the continuation of the remuneration would be unreasonable for the Company (i.e. the Company cannot contribute any profits to the shareholders or is forced to initiate a redundancy process in order to save costs).

Finally, members of the board shall not become members of the Supervisory Board for a period of 3 years after their active membership in the board (“cooling off period”). 

Issue 13

Dear Committee Members,
Welcome to the 13th issue of the
International Employment Lawyer.

In a world of global financial crisis, a better understand of employment laws have proven to be an important factor when steering through the challenging times.

Several of the articles in this issue are in this context highly relevant, as they focus on different legal issues related to personnel cost reductions.

We are pleased to announce, that the program has been finalized and registration for the ABA-AIJA conference in Hamburg is now open:

Best regards,
Anders Etgen Reitz
Editor in Chief


New rules regarding the hiring of employees from outside the EU

By Carl-Fredrik Hedenström

New rules for labour migration to Sweden have just entered into force, constituting one of the most significant reforms of Swedish immigration policy in several decades. The new regulations aim at making it easier for employers to hire staff from non EU-countries.

No authority based labour market probation 

In the previous system, the Swedish Public Employment Office examined the need for recruitment of foreign workers from outside the EU based on a work offer that the potential employer had to submit to the agency. The new rules delegate it to the individual employers to assess whether labour is available within Sweden, other EU/EEA countries or Switzerland. The new rules are based on the assumption that an employer is best suited to decide the recruitment needs for his or her business and not a government agency. 

Under the new rules, the Swedish Migration Board has, however, taken over the responsibility from the Swedish Public Employment Office to control that Community preference is respected, i.e. that job vacancies are made available first to applicants in the other EU/EEA countries and Switzerland, before being offered to non-EU residents. An employer will fulfill his duties in this respect by posting a job offer at for instance the site for open positions at the Employment office before offering it to a non-EU resident. 

Requirements regarding terms of employment
The Swedish Migration Board examines whether the terms offered to the foreign employee, i.e. salary, insurance protection and other terms of employment, are in accordance with the conditions applying for employees already resident in the country. The terms of employment must thus be at par with those set out in relevant Swedish collective bargaining agreements or provided by common practice in the particular occupation or industry. This is to ensure that there is balanced competition for jobs in the labour market and that social dumping is avoided. 

Extended time limits for work permits
Work permits can be granted for the duration of the employment, but for a maximum of two years. The permit can be extended once or several times, if the person’s employment continues after the initial period. The total duration of the permit is limited to no more than four years, after which the person can qualify for a permanent residence permit. Applications for an extension of a work permit can be made while the employee is in Sweden. 

Three months period for finding a new job
Based on a job offer it will also be possible for potential employees to come to Sweden for interviews etc. and if the job is finally offered to the applicant, he/she will not have to leave Sweden while the permit is processed as was the case under the old rules. It may of course also happen that an employment is terminated during an ongoing permit period. To avoid a withdrawal of the residence permit in these situations, the employee will be free to stay in Sweden for an additional three months to apply for a new job. 

Applications by visiting students
Visiting students who have completed at least one semester in a postgraduate program at institutions of higher education are allowed to apply for a residence and work permit without having to first leave Sweden when the education is completed. 

Asylum seekers applying for residence and work permits
In certain circumstances, an asylum seeker whose application for a residence permit has been refused through a final decision will be able to apply for a residence and work permit while in the country. The asylum seeker must have worked for at least six months, have an offer for a permanent job or a job lasting at least one year, and otherwise fulfill the general requirements for being granted a work permit. The application has to be made to the Swedish Migration Board within two weeks of the final decision rejecting the asylum application. 


HR Cost Reduction in France: "Everything Old is New Again"

By Roselyn S. Sands

Ernst & Young Société d’Avocats

By all standards, the current global crisis has no precedent. In these turbulent times, companies are more than ever looking at reducing their HR costs.

HR cost reduction is most often thought of as headcount reduction. However, French regulatory constraints require employers to use best efforts to reduce HR costs through less drastic means first before resorting to forced redundancies. Moreover, given the current economic climate, employers are looking for quicker and more flexible means to reduce HR costs. It is in this context that many French employers are using the recently resurrected "chômage technique"or "furlough".

The notion of "chômage technique" was created in the late 1970s as a means of reducing HR costs by putting workers on "temporary unemployment". Subject to certain conditions, including works council process, this measure allows employers to cut back on their activities, such as closing a factory, on a temporary basis. Originally, this mechanism was limited to a maximum of 4 weeks and a maximum of 600 hours per worker. If conditions were met, employees were paid 50% of their salary. Government subsidies could also be requested to cover a portion of this partial salary.

Since January 2009, the French government has encouraged companies to use this old measure by rendering it more attractive. Thus,

  • the 4-week maximum has been extended to 6 weeks;
  • the hours per worker limit has been extended to 800 hours per worker (and 1000 hours in the automobile industry);
  • the amount paid to employees has been increased to 60% of their salary;
  • the Government is more lenient, when processing subsidy requests; and
  • the Government has increased the rates of its subsidies. 

As a result, "chômage technique" is living a renaissance as an efficient and more attractive way to temporarily cut HR costs, while ensuring that companies will be prepared to ramp up quickly and be ready when the economy recovers.

United States

Rules differ around the globe for reducing employee compensation 

By Anthony J. Oncidi and Jeremy M. Mittman
Proskauer Rose LLP

In response to the current economic crisis, and as an alternative or in addition to layoffs, many companies in the United States have begun instituting reductions in employees’ compensation. In fact, implementing such measures is a relatively simple process in the U.S. In other countries, such reductions in compensation can be more difficult to effect.

Absent the existence of a written employment contract or collective bargaining agreement, all jurisdictions in the U.S. permit employers to reduce prospectively the compensation of employees. Some U.S. states have stricter laws specifying the amount of advance notice that must be given to affected employees before changes can be made to their pay. Maryland, for example, requires at least one pay period’s advance notice before any changes can go into effect, while Missouri requires at least 30 days’ advance notice. Even in those jurisdictions in which there is no specific notice requirement, employers are advised to provide as much notice in writing as possible.

While the salaries of employees who are classified as exempt from overtime may be reduced in most instances, it is important to make sure that their compensation does not fall below the statutorily mandated minimum wage, so as not to jeopardize the employees’ exempt status. The U.S. Department of Labor takes the position that it is possible to reduce the hours of exempt employees and reduce their salaries by a corresponding amount (for example, by instituting a four-day work week and reducing salaries by 20%). On the other hand, California’s labor commissioner, for example, has expressly declined to follow the federal rule and has prohibited a partial work-week reduction in salary that is tied to a reduction in hours.

Reducing the compensation of employees in other countries can be more difficult. For instance, in Australia, in order to reduce an employee’s salary, an employer must first obtain the employee’s prior agreement to the change in writing. Unilaterally reducing compensation without prior agreement would be deemed a repudiation of the employment contract, permitting the employee to bring suit for damages for breach of contract.

In the United Kingdom, employees with one year or more of continuous employment may claim “unfair dismissal” if they do not agree to a change to the terms and conditions of their employment (such as a reduction in salary). Therefore, an employer that wishes to reduce the salary of a U.K. employee must carry out a special “consultation exercise” with the employee in which the company explains why the salary reduction is necessary for sound business reasons and considers the employee’s alternative suggestions. In the event the employee still refuses to agree to the reduction, the company may provide notice of dismissal and offer the employee a new contract to start immediately on termination of the old contract on the same terms (with the exception of the reduced compensation).

In France, an employer wishing to reduce an employee’s compensation must first inform the employee that the company intends to modify his or her contract, that the employee has one month to refuse the proposal, and should he or she refuse, the company may terminate the contract for a “valid economic reason.” If the employee does not respond, he or she is deemed to have accepted the change in salary; if the employee refuses to accept, however, the employment may be terminated on the ground that a valid economic reason for the termination exists. The employee, however, can challenge the termination, asserting that the “economic reason” is not a valid one under French law. As the global economic crisis continues to unfold, more multinationals will be looking for ways to cut their operating expenditures. Many companies already have reduced the number of workers they employ. An additional arrow in the quiver is the reduction of compensation, which is a further step companies may take with the assistance of counsel familiar with the varying jurisdictional limitations on such measures.


Closed circuit television (CCTV) 

By Christina M. Eggspuehler
Walder Wyss & Partners Ltd.

Technical improvements of CCTV are fast-paced and open employers numerous possibilities to monitor employees such as by way of assessing patterns of behaviour respectively deviations thereof. Such technical advance increases the risk of an infringement of the personality of an employee. In order to avoid any civil and/or penal liability, if any, it is important to ensure full compliance with the provisions and principles of the Swiss Code of Obligations, the 3rd Decree of the Swiss Labour Act and the Federal Law on Data Protection. 

CCTV shall not be used to monitor the employees’ behaviour and it must be ensured that that the health and free moving space of the employees is not affected thereby. Further, an employer may use data on the employee only as far as the qualification in relation to the employment is concerned or if the data is required with regard to the performance of the employment. Data collected for other reasons, however, needs to be justified according to the principle of lawfulness, i.e. the approval of the person concerned is required, the employer must demonstrate a preponderant private or public interest or there must be a specific statutory provision. Depending on the circumstances, the avoidance of burglary, the security of staff or the function control of machines may qualify as so called preponderant private interests entitling an employer to use CCTV.

According to the principle of proportionality, CCTV shall be appropriate and required in view of the envisaged purpose. CCTV may be used only if other measures with less impact are not sufficient or practical. As an example, the function control of machines could be made by an electronic monitoring system instead of using CCTV or a metal detector could be installed at the entrance of a jewellery store in order to avoid thievery. In addition, the employees shall not be permanently filmed and the faces of the employees shall not be covered by the cameras. Further, data collected shall be deleted within a short period of time as thievery or safety issues may be discovered immediately or within a few hours.

Pursuant to the principle of good faith, the employees shall be fully informed about the position of the cameras, the reasons of the use of CCTV or the period after which data will be deleted. In addition, the data shall be protected by adequate technical and organizational measures against any unauthorized handling (safety of data) and the data can be used with regard to the purpose as indicated to the employees only (principle of purpose limitation).

To implement CCTV, it is highly recommended to discuss its use with the competent cantonal Labour Inspectorate in advance in order to avoid any rebuilding after the cameras have already been installed. 


Mass Layoffs and Labor Cost Reductions in China 

By Andreas Lauffs and Joseph Deng
Baker & McKenzie LLP

In response to the global economic downturn, many companies in China have begun to implement reductions in force to cut their labor costs, or have taken other measures to reduce their labor costs. According to the All-China Federation of Trade Unions (ACFTU) nearly twenty million migrant workers alone have lost their jobs since the second half of 2008. According to the Ministry of Human Resources and Social Security (MOHRSS), the official urban unemployment rate in the fourth quarter of 2008 increased by 560,000, to 4.2% at the end of 2008. 

Although the official numbers are relatively low by international standards, the sharp rise in urban and rural unemployment has created concern among some government officials. As a result, several authorities have recently issued guidelines and opinions to restate the statutory requirements on implementing mass layoffs, and encourage companies to avoid or reduce mass layoffs by adopting alternative measures to reduce labor costs.

In a joint opinion issued by MOHRSS, ACFTU and the China Enterprise Association on January 23, 2009, employers are encouraged to avoid mass layoffs by adopting alternative cost cutting measures, such as wage reductions, work adjustments, holiday and annual leave rotations, and other flexible working arrangements.

In the January 23 opinion, MOHRSS and ACFTU urge their local counterparts to implement the “Rainbow Plan” designed to expand the use of collective contracts. The “Rainbow Plan” encourages enterprises with “operational difficulties” to use collective contracts to adopt measures to cope with the economic difficulties such as arranging for flexible working hours and related wage reductions.

In a Shanghai guideline dated January 12, 2009, employers are required to conduct “collective consultations” with employees when reducing salaries or headcount. A week later, the Shanghai branch of the ACFTU issued guidelines to urge district level unions to pursue collective consultations when they are aware that company management may suspend operations, reduce wages, adjust employee benefits, reduce workforce, etc.

Thus, companies in China may now have greater flexibility in implementing cost reduction measures because these guidelines explicitly permit employers to use collective contracts with unions or employees to adopt cost reduction measures. Many local labor authorities have been supportive of companies that take alternative measures to avoid mass layoffs. In addition, some non-salary benefits can be reduced without individual employee consent, such as a change in a bonus plan, incentive plan or other benefits policies. However, such changes will normally require consultations with a labor union, works council, or similar employee representative body in accordance with the PRC Employment Contract Law.[1]

[1] Law of the People's Republic of China on Employment Contracts (中华人民共和国劳动合同法), adopted by the Standing Committee of the National People's Congress, effective January 1, 2008.