Friday, November 19, 2010

Issue 19

Dear Committee members

Welcome to the 19th edition of the International Employment Lawyer. In this edition we have articles on important new legal developments in both England & Wales and in New Zealand. We also have an interesting article on labour reform in Vietnam.

The next issue will be published in February 2011, and we welcome submissions from committee members on key developments in their jurisdiction.

Wishing you all a Happy Thanksgiving.

Helen Colquhoun, Withers LLP



By Hang Nguyen, Baker & McKenzie, Vietnam

Vietnam’s labor and employment laws continue to play a crucial role in the creation of a sound legal system intended to attract foreign direct investment (FDI) and contribute to the country’s economic development and social stability. However, there remains room for further improvement in light of mounting domestic challenges and external pressures to comply with international standards.

As features of a new industrial relations regime have emerged, lawmakers have publicly acknowledged the need to update labor and employment regulations from those in place since late 1980s when the economic renovation known as “doi moi” was kick-started. They have realized that conventional labor regulations once adopted to regulate labor relations in state-owned enterprises (SOEs) under a centralized economy are no longer sufficient to govern the modern workplace where workers face modern production line systems and a capitalist corporate culture brought in by foreign investors. Labor and management are no longer a one-way “collective”, instead, divergent material interests have made relations increasingly antagonistic. Demands for unionization and better employment conditions have surged and been met with work stoppages and strikes. It was in this environment that the Trade Union Law was adopted in 1990, followed by the Labor Code in 1994. These two laws aimed to bring rules and orders to a new working class operating in a modern, foreign influenced workplace.

The Trade Union Law and Labor Code have achieved some results in the nearly two decades they have been in existence, however, many challenges remain unresolved. For instance, over the past few years, outbursts of unlawful strikes have destabilized workplaces and threatened to deprive Vietnam of FDI; and loopholes and feeble enforcement of labor laws have forced workers to resort to informal ways of negotiating better terms and standards of employment. Vietnam’s central union, the Vietnam General Confederation of Labor (VGCL), has plans to increase its strength by expanding and enhancing its membership in workplaces all over the country. However, enterprise-level unions are failing to protect their members in day-to-day confrontations with management. Spontaneous industrial actions marked by “wildcat” strikes and sabotage have inflicted huge damage on employers. The government response to these outbursts has been slow and at times interpreted symbolically, thus failing to tame a fire blazing from a piece of smoldering charcoal.

In addition to concerns arising from the chaotic domestic labor front, Vietnam is facing external challenges as the country integrates into the global economy and adjusts itself in order to play by international rules. Accession to WTO in 2007 officially put Vietnam on a playing field where giants and dwarfs scramble for bites of a common pie. In order to be recognized as a market economy, Vietnam must accept and adopt the principles of a free market economy imposed on it by its large trading partners, such as the European Union and the United States. Of particular concern is whether wages and salaries are freely negotiated between workers and employers. Vietnam has also been negotiating trade agreements with various partners to create a more favorable environment for further economic development, including negotiations on the Generalized System of Preferences (GSP) with the US, Free Trade Agreement (FTA) with the EU and a recent effort on Trans-Pacific Strategic Economic Partnership Agreement with eight different countries, including the US. In all of these negotiations, Vietnam’s willingness to adopt internationally recognized labor standards and enable workers and employers to negotiate wages and employment through their own representative organizations has been a primary concern.

To date, there has been little legislative movement to formally bring international labor standards and the expectation of labor negotiations into the fold. If Vietnam accepts all workplace upheavals as a fait accompli and takes no further action, a vision of a chaotic industrial setting will set in and the image of Vietnam as a secure and lucrative place for investment will fade. Therefore, there needs to be a strident call for comprehensive reform of the labor and employment legal system and concrete action taken to influence the undergoing revision of the Labor Code and the Trade Union Law. All areas of labor and employment are under consideration, including collective bargaining, enterprise-level unionization, wage, working conditions, occupational health and safety, foreign workers etc. This is expected to be the most all-encompassing and substantive overhaul of labor relation laws and regulations in Vietnam. It is widely hoped that such an overhaul will remedy deeply rooted problems and reinvigorate Vietnam as a magnet for FDI inflows. The new Labor Code and Trade Union Law are scheduled to be adopted by the upcoming Legislature of the National Assembly starting in 2011.



By Christina Morton, Withers LLP, UK

A long awaited statute aimed at consolidating and rationalising discrimination law in the UK received Royal Assent on 1st April 2010 and its main provisions came into effect on 1st October. UK lawyers expect its impact to be subtle rather than dramatic. It replaces existing discrimination legislation with a single Act that covers discrimination both within and outside the employment field on grounds of sex, race, disability, age, sexual orientation, religion or belief, pregnancy and maternity, marital status and gender reassignment (the ‘protected characteristics’).
Any change in the precise words used in legislation, even if it is not intended to change the substantive law, will have some unintended consequences. These however tend to emerge over time, and the impact is rarely felt in the first year after a new law comes into effect. But some of the Act's changes are substantive and potentially problematic for employers and employees.


The Act harmonises key concepts and definitions, such as indirect discrimination, justification, occupational requirements and the burden of proof. Technical and historic differences between the definitions in different statutes have resulted in confusion (and, some would say, unnecessary case law).

‘Because of’

Previous legislation addressed direct discrimination by prohibiting conduct that was ‘on the grounds of’ a protected characteristic. The new law uses the words ‘because of’. The Government has stated that it regards this as making no material difference to the law, but some commentators disagree, on the basis that past cases which consider the meaning of the words ‘on grounds of’ will not necessarily apply to the new wording. Only future case law will clarify this.

Perception and association

Direct discrimination will cover discrimination by association with someone with any protected characteristic (for example harassing an employee because they care for an elderly relative would be discrimination by association because of age).

The Act will also cover discrimination by perception (for example treating someone less favourably because you perceive them to be Muslim because of the way they dress). The employee will be protected from discrimination because of religion, even if he or she has no actual religious belief.

Third party harassment

The Act extends the protection available to employees who are harassed at work by third parties such as clients or customers. At present this protection is available in cases of sex-based or sexual harassment, but not in cases involving other protected characteristics. Employers will be liable where they have failed to take reasonably practicable steps to prevent harassment by third parties where the employer knows that this has taken place on at least two occasions.

Restriction on pre-employment questions about health

The Act restricts the ability of employers to ask questions relating to a job applicant’s health record. A question about health may only be put if, for example the employer needs to establish whether the employee will be able to carry out the functions that are ‘intrinsic’ to the job, or to establish whether any adjustment needs to be made for a disabled applicant who needs to undergo an assessment for the job. Whilst a person will not be able to complain of discrimination just because a question has been put when it should not have been, that person will be able to bring a claim about the way the employer acts on that information, for example by not offering an interview fir a job for which the employee is otherwise well qualified. The burden of proof will then fall on the employer to show that it has not used the information in a way that amounts to less favourable treatment under the Act.

Protection for disabled employees strengthened

The Act generally extends the protection available to disabled people, which has been narrowed as a result of recent case law in the UK. Disabled people will for the first time be protected from ‘discrimination arising from disability’, a new concept which covers unjustified unfavourable treatment ‘because of something arising in consequence of ..disability’. An example might be a decision not to appoint someone to a job because arthritis made it difficult for them to stand up to make presentations to clients. This new definition is very wide and it is not clear how close the connection between the disability and the ‘something’ will be have to be for an employer to be liable.

Disabled employees will also be protected from indirect disability discrimination for the first time.

Positive action rules extended

Positive action was lawful under the pre October 1st law in the UK, but was restricted to action such as training designed to encourage under-represented groups to apply for particular jobs. The Act makes provision for an extension in the law to allow employers to recruit or promote someone from an under-represented group, but only where they have a choice between two or more equally qualified candidates. This provision is not yet in force and the commitment of the new Government to bringing it into force is questionable. Arguably it represents a form of positive discrimination, although the Act calls it ‘Positive action: recruitment and promotion’. The question of what being ‘equally qualified’ means is not dealt with in the Act, which may make employers nervous of relying on the provision, if it is ever brought into force.

Protected discussions about pay

The Act will protect employees who discuss their pay with one another (or with others such as union representatives) with a view to establishing whether there is a connection between pay and one of the protected characteristics. Clauses in contracts prohibiting these discussions will be unenforceable. It is unclear how much of a pay related discussion must concern the possibility of discrimination for it to attract protection under the Act.

Gender pay reporting

The Act also contains proposals for gender pay reporting, aimed at reducing the persistent gender pay gap. However these provisions will not come into force until 2013 at the earliest.

Overseas employees

The Act apparently reduces the protection available to employees of UK companies who work overseas. At present those who do at least some of their work in the UK or have sufficient connection with the UK are covered by UK discrimination law. These old rules do not appear in the Act and it will be a matter for tribunals to decide whether the protection of UK law should apply.
Already then it is clear that there are significant areas where the meaning of the law and its effect on individuals is debatable. As always it will be for the courts to fill the gaps.

Public sector measures

The Act’s first section sets out an entirely new measure – a public sector duty regarding socio economic inequalities. This is a controversial provision and the new Coalition Government announced in November that it will not be bringing it into force. However existing public sector duties, in the fields of race, sex and disability have been preserved in the Act and protected characteristics that were not previously covered, namely age, sexual orientation and religion or belief, have been incorporated into a restated measure that requires public authorities, when exercising their public functions, to eliminate discrimination, advance equality and foster good relations between those who have and those who do not have particular protected characteristics.

Private sector organisations that are in the business of provide services to public sector bodies or that undertake contracted out functions, should be aware of the changes to the law affecting the public sector. The Act explicitly states that a person who is not a public body but is exercising a public function is under the same duties as a public body. Public bodies will be obliged to ensure that if they delegate their functions or enter into service contracts, they impose equality requirements on suppliers and contractors that mirror their own priorities. So companies in these fields of operation may need to improve or adapt their performance on issues such as training and monitoring of equality issues. They may find themselves asked to take very specific steps to address inequalities, such as implementing positive action programmes as part of the performance of a contract.



By Christina Morton, Withers LLP

The Pensions Act 2008 put in place a framework for the next stage of the UK government’s pensions reforms which takes the form of an ‘auto enrolment’ scheme for pensions, with mandatory employer contributions, beginning in October 2012. Regulations setting out the detailed requirements for employers began coming into force in July this year.

What will employers have to contribute and when?

The new regulations mean that employers will have a duty to arrange for eligible jobholders to be enrolled automatically into pension schemes. The rules will be introduced in stages, over six years, with larger employers being required to comply with them first. The very largest employers, with 120,000 or more employees, will be affected from 1st October 2012. The smallest, with fewer than 50 employees, will be affected from 1st March 2014 at the earliest. There will be delayed implementation provisions for new businesses.

Overall, employers will be required to pay contributions of 1% of a jobholder's qualifying earnings in the first four years, rising to 2% in the fifth year and the full 3% from the sixth year onwards. Employers will need to bear in mind these new obligations and the costs connected with them when assessing their finances and planning budgets.


The employer will be required to ensure that eligible jobholders are automatically enrolled into an occupational or personal pension scheme. It can use existing schemes, as long as they comply with certain quality standards, or else it can arrange for the jobholder to be enrolled in the government scheme called the National Employment Savings Trust (NEST).

The regulations contain tests to determine whether the employer’s existing pension scheme is of a high enough quality, with different tests applying to defined benefit and defined contribution schemes. If the employer has a high quality existing pension scheme it will be able to postpone the auto enrolment of new employees for up to three months.

Eligible jobholders

Eligible jobholders must earn at least £5,035 a year and be between 22 years old and state pension age. The definition of ‘jobholders’ includes not only permanent employees but also temporary employees and agency workers.

Opting out
Jobholders will have the right to opt out of the scheme but they will be automatically re-enrolled every three years. Employers will not be able to ask potential employees to opt out of enrolment as a condition of a job offer or induce employees to opt out in any other way.


NEST will be an occupational defined contribution scheme.

If an employer chooses to enrol its employees in NEST it will be required to make contributions of at least 3% on earnings between £5,035 and £33,540 and the jobholder will have to contribute enough to make the overall contribution at least 8% of earnings. The limit on contributions per year will be £3,600. These requirements will not come in straightaway, and will be phased in over a period of 5 years. At the moment transfers in and out of NEST are not permitted, but this rule will be reconsidered in 2017.

Consequences of not complying

Employers who fail to implement the new rules will face fines of up to £10,000 a day (for large employers). Where an employer wilfully fails to comply with its new duties it could face criminal penalties.

If a worker is subjected to any detriment because his or her employer breaches the regime, they will be able to bring a claim in the employment tribunal. Employers will not be permitted to contract out of or exclude any of their new duties, except when compromising an employment tribunal claim.

What will happen to stakeholder pensions?

The Pensions Act will also remove the statutory duty on employers to designate a stakeholder pension scheme. However employers which have designated existing stakeholder schemes (whether or not they contribute to them) can continue with these after 2012 if they wish, provided they satisfy the criteria for qualifying schemes and start to make contributions to them, if they do not already do so.

New Zealand


By Jennifer Mills and Anne Shirley, Minter Ellison Rudd Watts, New Zealand

Since March 2009, the law in New Zealand has allowed employers with 19 or fewer employees to employ new employees on a trial period of up to 90 days. The trial period must be in writing in the employee’s employment agreement. In contrast with the position where there is no trial period, or after one has ended, an employee who is dismissed during a trial period is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

Trial periods are intended to give employers confidence to take on new staff (especially people who might otherwise struggle to get work) without fear of facing a personal grievance should the employment relationship need to be terminated within the first 90 days. A recent survey by New Zealand’s Department of Labour indicates that the introduction of trial periods has worked well for small businesses. Many of them have taken up the option of trial periods and forty percent of those surveyed said they were unlikely to have hired the new employee without the trial period.

The government has introduced a number of proposed changes to employment law, including the extension of trial periods to make them available to all employers. At the time of writing, the Employment Relations Amendment Bill (No 2) 2010 was expected to come into force in April 2011. Assuming that the Bill is passed without significant change, the recent case of Smith v Stokes Valley Pharmacy (2009) Ltd [2010] NZEmpC 111, will become relevant to a far greater range of employers. The case clarifies when a trial period will be enforceable. It involved an employee whose employment was terminated, without notice, 70 days into a 90 day trial period.

Ms Smith had been employed by the previous owners of Stokes Valley Pharmacy from March 2007. When the business was sold, she became employed by the new owners (from 31 September 2009). The new owners had provided Ms Smith with an employment agreement on 29 September, and that agreement included a 90 day trial period. Ms Smith then attended work as usual on 1 October, and it was not until 2 October (the second day of employment with the new owners) that she signed the agreement.

Ms Smith’s employment was subsequently terminated during the trial period, when the new owners became dissatisfied with her performance. The Employment Court held that the trial period in this case did not comply. This meant that Ms Smith was able to pursue her personal grievance, and her dismissal was held to be unjustified.

One reason that the trial period in this case did not comply with the legislation was that a trial period must commence at the beginning of employment. Because Ms Smith did not sign the agreement until the day after her employment started, this requirement was not met. Secondly, Ms Smith was not given the notice of termination required under her employment agreement.

The case makes it clear that employers can only include trial periods for truly “new” employees, not existing or previous employees. It also highlights the importance of ensuring employees sign their employment agreements before they commence employment. In addition, employers must take care to give proper notice of termination. A failure to meet any of these requirements will result in the trial period being unenforceable.

Despite the restrictions that apply, trial periods do provide employers with more flexibility to try out employees and “insurance” against making the wrong recruitment decisions. As such, trial periods are likely to be widely adopted by employers when they become available.

Sunday, August 1, 2010

Issue 18

Dear committee members,

Welcome to the 18th issue of the International Employment Lawyer.International employment law covers many issues. In this newsletter we cover everything from issues of overtime to green cards.

With this issue I have the pleasure also to launch the new format of the newsletter, which has changed into an online format. The new format makes it possible to search the archives and will decrease e-mail trafic. We hope you appreciate the new format and will continue to support the publication.

Please welcome the new Editor in Chief, Helen Colquhoun as well as the new committee leaders for 2010/2011 listed in the back. In the future please e-mail Helen ( with questions or contributions to the newsletter.

We hope to see many of you at the Fall 2010 Meeting in Paris (

Best regards,
Anders Etgen Reitz
Immediate Past Editor in Chief


Extension of overtime eligible employees in Argentina

By Javier E. Patrón
Marval O’Farrell & Mairal

The Argentine Government has introduced a major amendment to the Argentine labor framework, as it has extensively broadened the universe of employees that, as of the current month and onwards, will be eligible to collect overtime.

Until such amendment, introduced by Law No. 26,597, published in the Official Gazette on 11 June 2010 and effective as of 20 June 2010, any employee who fell under the generic definition of“personnel of direction and supervision” was not entitled to collect overtime because such an employee was exempt from workday limitations.

Case law used to favor the defences made by companies on grounds of the broad concept of “personnel of direction and supervision” and the examples of exempt positions that emerged from applicable law (e.g. management assistants, team leads, inspectors and professionals, among others).
However, the amendment has minimized the scope of workday limitation exempt employees, and has limited them to those employees who render services as “Directors” or “Managers”. Any other employee would in the majority of the cases be entitled to overtime payments.

In Argentina, overtime is closely related to workday limitations, as it has been repeatedly held that only employees subject to workday limitations are entitled to overtime payments when they are required to work overtime. Under Argentine law, workday is limited to 8 hours per day or 48 hours per week.
Consequently, since the commencement date of the amendment, all employees are entitled to collect overtime when they exceed statutory shift limitations with the exception of directors and managers who perform actual duties as such. Other exemptions include team work and urgent needs.

The most critical part of the amendment is focused on the intermediate positions. Whereas directors and managers continue to be overtime exempt, and as low-rank employees always have been overtime eligible; intermediate positions - such as supervisors, team leads and similar positions such as those mentioned above - were arguably overtime exempt in the past and will now transfer into the overtime eligible category.

While the new wording of the law increases the costs of the employer because it broadens the number of employees subject to overtime, it may be noted that, as an advantageous aspect of the amendment, it allows a clearer definition of exempt and non-exempt employees.

In that context, employers would be in a better position to avoid doubtful scenarios that, under Argentine labor law, are required to be interpreted and decided by judges in favor of the employees.


Changes to employment law in Chile

By Pauline Miranda

Carey y Cía

Recent and future changes to employment law in Chile As in other countries, change has been always a key feature of Chilean employment law. Over the years, and particularly the last few ones, lawyers and clients have got used to even more frequent changes and adjustments to the employment law, both in minor and in material issues.

In many matters, these changes have brought better labor conditions, albeit at the expense of an increasing inflexibility in the labor market. We, as Chilean lawyers, have made up our minds that in labor matters long term planning is getting more and more difficult, since the law may change at any time.

Among the most significant recent changes in our labor system is the new labor law procedure. This new procedure dramatically changed the form in which the trials are conducted: from a mostly written to a mostly oral system. The new system has meant a significant reduction in the duration of the trials: from approx. 2 years to 2-3 months. Reduction in the duration of trials have implied in its turn, an increase in the lawsuits against employers, especially for unlawful termination under “business necessities”, a matter in which litigation was rather rare in the past if the employer was willing to pay the basic severance inherent to such termination.
A brand new procedure was also introduced: the Tutelage Procedure, designed to protect employees against violations by the employer of their “fundamental rights” meaning certain key constitutional and civil rights. Lawsuits for discrimination almost did not exist in Chile one or two years ago. Now it is one of the most frequent grounds for lawsuits against employers under the new Tutelage Procedure.

But that is not everything: New equal pay between women and men and the full week benefit (1/6 salary) for employees receiving salary and commissions are other examples of how labor conditions have changed in only a couple of years.

Current discussions on matters such as collective bargaining and the role of the unions, and the change in the definition of “employer” in order to expand its current scope so that all the companies forming part of a holding group can be deemed as one employer, are among the several significant changes that Chile may expect in the near future.

With the constant changes in the law, planning in employment law matters is becoming a significant matter for the clients, to whom the visionary role of the experienced employment lawyer is crucial.


A more demanding workforce in the ‘Factory of the World’

By Andreas Lauffs
Baker & McKenzie

In late May, workers at a Honda factory in Foshan went on strike resulting in a shutdown of operations at the factory as well as shutdowns or significant impacts on production in other factories in the supply chain, with the main demand directed at increased wages.

The workers also demanded a more representative union and publicly condemned the local chapter of the Chinese Communist Party-controlled All-China Federation of Trade Unions (“ACFTU”) for ignoring employees’ rights and interests.

After the widespread publicity initially given to the Honda strike in the Chinese state-controlled press and the international media, many strikes followed in other parts of China.

Legal background

In China, independent union organizations are illegal. Instead, all union organizations that are established must be approved by and operate under the supervision of the ACFTU. The ACFTU has a pyramid structure, with a national congress and chapters at provincial, municipal, district, and oftentimes even at street level, with the lowest level being the company union, which is established among the employees at a particular company and whose establishment must be approved by the “upper-level” ACFTU chapter (either the street level or district level ACFTU in most cases). These company unions are the union organizations that companies would deal with on a day-to-day basis.

Company unions are given significant statutory powers, such as the right to demand collective bargaining with the company management, the right to be consulted on employment related matters, the right to attend meetings where employment related matters are discussed, and the right to be notified prior to any employee termination. However, one significant power that unions are not given is the right to lead a strike.

Political background and reaction to strikes

During the past year, the Government has repeatedly indicated that reducing the income gap and eliminating discriminatory treatment against migrant workers (who tend to be at the lower end of the income gap) are key policy goals. Against this background, the striking migrant workers’ main goal - to increase wages and thereby improve their living conditions- is supported by national policies.

On 5 May, the Government, the ACFTU and an employers’ association issued a “Rainbow Plan” notice, which called for all companies with unions to be covered by collective wage bargaining agreements by the end of 2012. It can therefore be expected that FIEs that have not yet unionized will come under renewed pressure to do so. Further, pressure to engage in collective wage bargaining will likely increase for all companies in China.

Companies will therefore need to consider whether to cooperate with the ACFTU’s unionization campaign and voluntarily help its employees establish a company union. In such cases, at least for the time being, companies may still be able to influence the process of union establishment and decrease the odds that it acts too aggressively. In addition, companies that already have unions may need to consider whether it would make sense to ensure that the union committees are more representative as to the employees’ concerns, since a company union without any credibility among the workforce will be ineffective or completely useless in helping the company to resolve a strike if one occurs, as seen in the Honda strike.

Czech Republic

Green cards - dual permit for foreigners working in the Czech Republic (CR)

By Martin Murad
Peterka & Partners

Green card (“GC”) represents a dual permit combining a Czech long-term residence permit with work permit.

GC also allows for free movement in the Schengen area for up to three months within a six months’ period (besides CR) starting from the first entry to a Schengen country. Only nationals of 12 countries (Australia, Bosnia and Herzegovina, Canada, Croatia, Former Yugoslav Republic of Macedonia, Japan, Korea, Montenegro, New Zealand, Serbia, Ukraine and USA) are eligible to apply for a GC. There are three types of GC: “A” (college graduates and key personnel, valid for three years), “B” (skilled workers, valid for two years) and “C” (others, valid for two years).

Each GC is issued for a particular work position listed in online database of positions kept by the Ministry of Labour and Social Affairs ( A position may be listed in this database if no Czech or EU national or their family members are hired within 30 days, or if this position is regarded as suitable for key personnel by the Ministry of Commerce and Industry.

Generally, applicants can apply for GC at the Czech Embassy abroad. In some cases (e.g. persons already holding a GC for a certain period), it is also possible to apply in the CR. The Ministry of Interior shall decide on (non)issuance of the GC within maximum 30 days. If an employment of a GC holder was terminated i.e. for so-called “organizational reasons” (e.g. if the employment or part of it is cancelled or transferred), the person concerned may find another job in the central database within 60 days and apply for a new green card. If a foreigner’s employment has been terminated for other reasons, he or she must leave the CR without delay.

One of the discussed issues is that the employer’s consent is not necessary for a GC to be issued. The issuance of a GC does not guarantee that its holder will be selected for the job. The final decision lies with the employer. He or she will usually decide after an interview with the foreigner. This may lead to a situation in which the employer rejects the GC holder. The Government has made a proposal for amendment to this pertinent act in order to eliminate this insufficiency, and should the Parliament adopt it, the issuance of the GC will be subject to i.a. the employer’s prior consent.


Once upon a time there was a promising young employee - who had many children 

By Roselyn S. Sands and Mathilde Truchot
Ernst & Young

The obligations upon employers to fight against discrimination are increasing every day under national and European legislation as well as through case law. One recent decision rendered by the Court of Appeal of Paris[1] is a striking illustration of this trend. 

In this case, Ms. N., a graduate from one of the most prestigious French schools was hired as a trader by a major French bank in 1982. In 1989, after several promotions, she went on maternity leave. Eventually, she returned to work eleven years later, after having given birth to five children and having combined several maternity and parental leaves. When she returned to work in 2000, she alleged that she had been assigned a less prestigious department of the bank (i.e. she went from the financial department to the retail banking department) and saw her career stagnate.

As a result, in 2007, she considered herself to have been constructively discharged and her employment contract terminated by fault of her employer, on the basis of discrimination related to her sex, her pregnancies and her family situation.

She alleged further that she estimated that her employer had not given her, after she returned, a position similar to that of before her departure, as required by French law; and that, consequently, her career progression had been impeded due to her eleven years of absence and her shift to a part-time job. Moreover, upon her return, her salary had not been readjusted in line with inflation and thus, she had never received a level of remuneration comparable to those employees of the company with equivalent length of service, experience and profile.

After relying on a comparative analysis carried out by experts from the French agency for combating discrimination and for equality (HALDE), the Court of Appeal ruled in favor of the employee and ordered the bank to pay her:

  • More than EUR 150,000 for prejudice resulting from discrimination (back pay);
  • EUR 7,000 for moral prejudice resulting from discrimination; 
  • In addition to EUR 150,000 for prejudice as a result of the constructive termination of her employment contract. 

Thus, in total EUR 307, 000 which is equivalent to nearly six years full-time salary of the plaintiff.

The decision highlights the increasing risks arising from discrimination claims and the significant financial exposure and damage to the reputation that may result from it. This is relatively new in France and suggests important preventive actions that smart employers should take.

[1] Court of Appeal of Paris, 6th chamber, 5 May 2010, GIE BNP Paribas vs. Ms. N.


New French law relating to redeployment of employees in case of lay-offs 

By Deborah Sankowicz & Stéphane Henry
Paul Hastings

Under French law, when a company terminates an employee for economic reasons (i.e. not linked to the person of the employee) without having valid grounds to do so, it may be held liable for damages for wrongful termination. Moreover, even when companies have good grounds, they remain exposed to payment of damages for wrongful termination in cases in which the court considers that they have failed to comply with their redeployment obligation. 

Article L. 1233-4 of the French Labor Code imposes, on the employers, an obligation to search for an alternative redeployment position before terminating an employee. The company has to search for and propose any vacant position (equivalent job or, if not available, a job requiring lesser qualifications) within the company or within companies belonging to the same group, even if they are located abroad.

Under the pre-existing law, without being certain that the employee would be interested in an international redeployment, the employer had to search and propose any open positions, which were available all over the world. The search process was long and burdensome, all the more in large groups with multiple locations. As a result of such redeployment obligation, employers were required, in many cases, to propose jobs located in low cost countries at low salaries, which gave rise to public and media criticism as well as litigation, these offers not being considered as fair by the courts.

To facilitate employers’ redeployment search, a new law was passed (law n°2010-499 dated 18 May, 2010): employers are now required to send a questionnaire to the employees concerned by a termination for economic reasons in order to know if each employee would accept to receive redeployment proposals abroad, and the potential restrictions that he/she may have, notably in terms of location or compensation. The employee has six working days to answer this questionnaire. If the employee accepts to receive offers abroad, the employer has to send him/her a precise proposal in writing depending on the restrictions the employee has expressed, if any. If the employee refuses to be redeployed abroad, the employer is exempted from searching for open positions abroad.

It should be noted that the possibility to use a questionnaire does not alter the employer’s obligation regarding vacant positions available within any of its French legal entities, which must still be proposed in any case.

An administrative circular letter is still to be issued, in particular to specify the content of the questionnaire.


Employer's review of personal text messages found lawful 

By Anthony Oncidi and Jeremy Mittman
Proskauer Rose

On 17 June 2010, in City of Ontario vs. Quon, 560 U. S. (2010), the U.S. Supreme Court unanimously overturned a decision by the U.S. Court of Appeals for the Ninth Circuit in a case involving an employee’s assertion that a government employer had violated the Fourth Amendment by unreasonably obtaining and reviewing personal text messages sent and received on employer-issued pagers.

The employee in question, Jeff Quon, is a police officer for the City of Ontario who had received written policies from the City notifying him that he should have no expectation of privacy in electronic messages that he sent or received on City equipment. The City conducted an audit of his messages and discovered that many of them were not work-related and some contained sexually explicit content. The lower court had ruled that the City’s search of Quon’s messages could have been less intrusive and, therefore, it violated the Fourth Amendment, which prohibits unreasonable searches and seizures by the government.

The Supreme Court, however, disagreed, and held that the search was not excessive in relation to the City’s ultimate objective and was, therefore, reasonable. The Court also noted the City had “made it clear that pager messages were not considered private” through its written policies and practices.

Employers in the United States welcome the Court’s decision in Quon. Although this case involved a government employer, the decision nevertheless reinforces the importance for all employers to implement and disseminate written policies that govern electronic communications in the workplace, which makes clear that employees should not have an expectation of privacy with respect to any communications sent or received on company networks or equipment (including company-issued mobile devices). The decision also makes clear that courts will uphold an employer’s viewing and monitoring of such information when the parameters of and motives for the searches are reasonable.

Saturday, May 1, 2010

Issue 17

Dear committee members,

Welcome to the 17th issue of the International Employment Lawyer.

International employment law covers many issues. In this newsletter we cover everything from issues of democracy to stock option plans.

As with last issue, the financial crisis still affects the topics of the articles. This is also the case with the upcoming Spring Meeting, where post-crisis strategies and executive compensation in the banking sector.

We hope to see many of you at the Spring 2010 Meeting in New York (

Best regards,

Anders Etgen Reitz
Editor in Chief


The Law On Social Democracy: Is This The End of A French Paradox? 

By Roselyn S. Sands and Laurent-Paul Tour
Ernst & Young

Company-wide collective bargaining agreements (CBAs) are a fundamental source of employees’ rights in France. Their provisions often apply to all employees, whether unionized or not, and to all employees within an industry whether signatory to the CBA or not.

Since World War II and prior to the enactment of the Social Democracy law in August 2008, five unions benefited from an irrebuttable presumption of representation of the workers; other unions had to prove their representation.

Thus the well-known “French paradox”: while union membership in France is one of the lowest in the European Union (around 8% of workers), 95% of French companies are covered by a CBA. Thus, despite low union membership, unions remain a key player in the workforce and in any business transformation or redundancy.

The 2008 law now abolishes this irrebuttable presumption. From now on, unions must prove that they represent workers according to seven criteria defined by the law, including, among others, their score at the last works council’s elections, their independence, and the number of members.

In addition, a company-wide CBA will be enforceable only if signed by unions having obtained at least 30% of the vote at the last works council’s elections (without the opposition of unions representing 50% of such vote).

This reform is too recent to know its consequences on industrial relations. Will the necessity to establish representation weaken unions and thus, give employers an upper hand in collective bargaining in the future, or will it have the opposite effect: encourage employees to join unions, create more competition among unions, and thus strengthen the overall power of unions in France? Only the future will tell.


Stock Option Plans and the Condition of Presence: A Sensitive Matter under French Regulations 

By Katell Déniel-Allioux
Salans & Associés SCP

Generally, stock option plans stipulate a condition of presence within the Company for the beneficiary to be entitled to vest his/her options.

French case law admits the validity of these types of clauses, i.e. possibility to vest options on condition of being an employee of the Company at the vesting date. Then, subject to the terms and conditions of the stock option plan, employees made redundant before the vesting date may validly lose their related rights. To be enforceable vis-à-vis the employees concerned, the employers must have duly informed the potential beneficiaries of the terms and conditions of the Plan.

However, the French Supreme Court also considers that in case of unfair termination (as any termination of an employment contract, at the employer’s initiative, must be sustained by a “real and serious” cause under French law), an employee whose contract is considered as unfairly terminated is eligible for a financial compensation for the prejudice suffered due to the loss of non-vested options. Then, the delicate question for the Court is how to determine the relevant compensation…

The legitimate purpose of the presence clause (recognized as such by the French Supreme Court) is obviously for the companies to establish a strong link between the capacity of employee and the capacity of shareholder and to avoid that third parties without any contractual link become shareholders.

However, in a recent case law (Cass. October 21, 2009) involving an employee deprived of unvested options due to a termination for gross misconduct, the Supreme Court also recalls that the stock option plan must comply with the provisions of Article L1331‑1 of the French Labor Code which prohibits pecuniary sanctions. In the case at hand, beneficiaries of the plan would be deprived of their rights only in a case of termination for gross misconduct. The Judges consider that limiting the deprivation of the rights under the plan to termination for gross misconduct was obviously a pecuniary sanction. Concretely, the fault which justified the termination of the contract could not deprive the employee of any remuneration or even potential gain (options).

Then, if a condition of presence in a stock option plan is still valid, the condition must be drafted carefully.


Germany’s Long Way to Tighter Employee Data Protection Laws 

By Ute Krudewagen
Baker & McKenzie

During the past year, several employee data protection scandals have caught the public attention in Germany. Deutsche Bahn, Germany’s state-owned railway company, got into the focus of the media as its headquarters automatically crosschecked all suppliers’ account data with the data of its employees to discover cases of bribery. 

In October 2009, the company agreed to pay a fine of more than Euro 1.1 million. Meanwhile, Deutsche Telekom, Germany’s telecom giant, received negative publicity for monitoring private telephone bills of several members of its supervisory board who happened to be employee representatives and union members. And in 2006, as a result of an internal investigation, Deutsche Telekom’s CEO Rene Obermann had to confess the loss of personal account data of 17 million clients. Another worst-case-scenario in data security was presented by Lidl, a German supermarket chain. The company got into the headlines for monitoring its employees by detectives at their workplace, in the dressing rooms, and in their private homes. The investigation reports included information about tattoos, possible love affairs among employees, and the cleanliness of employees’ underwear. The public outrage was immense and Lidl was fined to pay Euro 1.5 million. The company apologized to the public and promised to do better. However, a few months later, the company once again violated data protection laws. A woman had found dozens of files containing confidential employee data in a trash bin in front of a public car wash. The files contained information about sick days, illnesses, mental disorders, and the names, private addresses, and social security numbers of Lidl employees.

Sparked by the scandals and due to the fact that in 2009, federal elections were held in Germany, all public parties published their own proposal for modified employee data protection laws. As a first step, however, a new provision of the German Data Protection Act entered into force on 1 September 2009. Accordingly, employee personal data, including personal data revealed by applicants, may only be collected, processed or used if it is either necessary for the application procedure or for the execution or termination of an existing employment relationship. The Federal Agency for Data Protection emphasizes in a statement on its website that these provisions apply to all data carriers, including electronic files, paper files or hand written notes. Data that is irrelevant for the employment relationship may not be collected at all. Furthermore, employee personal data may only be collected, processed or used for the purpose of identifying criminal action committed within the context of the employment relationship if the employer has hard facts supporting a reasonable suspicion that the employee was involved in criminal actions. Employers not respecting these new rules face severe fines.

Despite the new provision, there are still a number of practical questions when it comes to employee personal data not yet sufficiently answered by the legislator: For example, under which circumstances is it legal that employers check the employee’s e-mail account? To which extent can an employer monitor the private use of the internet during working time? May data be used in court if it was collected non-compliant with data protection laws? Can company cars be tracked by GPS or company mobile phones by the service provider? How long may the data of a job applicant be stored?

The newly elected German government has agreed to a codification of specific employee’s data protection laws to enter into force presumably in autumn 2010. One thing is sure: The new legislation will bring about further limitations and sanctions for non-compliant employers.

United Kingdom

Religious Liberties and the Impact on Workplace Equality Issues; Dress Codes 

By Anna Birtwistle
CM Murray LLP

The Court of Appeal has held that a British Airways (“BA”) uniform policy which precluded a Christian employee from wearing a visible silver cross was not indirectly discriminatory under the UK’s Employment Equality (Religion or Belief) Regulations 2003 (the “Regulations”).

Religious discrimination has been a particularly dominant issue in the UK over recent months; the Pope himself even having intervened in the public debate as to how religious beliefs will be protected under the forthcoming Equality Act.

Eweida v British Airways plc follows a number of cases where Christian religious rights have been repeatedly trumped by discrimination protections of other groups of workers. They include the failed claims of the Christian relationship counsellor who did not wish to provide sexual counselling to gay couples; the Christian magistrate who did not wish to hear gay adoption cases; and most recently, the Christian Registrar who refused to officiate at gay civil partnership ceremonies. All felt that those aspects of their jobs went against their religious beliefs; and all failed.

In Eweida, E, a devout practising Christian, worked on BA’s check-in desk. BA’s uniform policy at the relevant time permitted employees to wear any jewellery they wished provided that it was not visible. An exception allowed for items deemed being a mandatory religious requirement which could not be concealed. E refused to conceal a silver cross she wore on a necklace and was sent home without pay.

Following the dismissal of her claims for direct discrimination, indirect discrimination and harassment at the first instance and appeal tribunals, E appealed the decision reached in respect of her indirect discrimination claim in the Court of Appeal. The Court observed that, for an indirect discrimination claim to be successful, there must be a provision, criterion or practice (“PCP”) applied to all employees which puts ‘or would put’ persons who shared the claimant’s religion or belief at a disadvantage compared to other persons. E, on the other hand, argued that it should have been sufficient for her to show that she alone suffered the disadvantage on the grounds of her religion.

The Court of Appeal rejected E’s appeal; in the Court’s view, there was no need to suggest that the word “persons” in the EU Equal Treatment Framework Directive (No.2000/78) was intended to include solitary disadvantage within the scope of indirect discrimination. The Court placed significant weight on the fact that the detriment was suffered by E alone, that her wish to wear the cross did not arise from any doctrine of faith and that it did not interfere with her observance of it.

This decision does not sit well with the general principle that protection from discrimination should be interpreted broadly and one might have expected the Court to have taken a more generous approach when interpreting the Regulations given that unlike other decisions concerning religious discrimination, the manifestation of E’s belief arguably had no discernable affect upon others.

Whilst it is correct that it was E’s personal decision to wear a visible cross (and was not one which was required by scripture or as an article of her faith like, for example, the Sikh turban), it is questionable why, when discrimination legislation has moved forward so as to encompass arguably non-traditional philosophical beliefs such as climate change, the law should look to the requirements of scripture as they pertain to religions rather than individuals’ own interpretation of their faith and subjective belief of how this should be observed. 


Former Compliance Auditors Properly Terminated for Leaking Information to Media

By Mo Syed 

The U.S. District Court for the Western District of Washington dismissed whistleblower claims brought by two former compliance auditors of a large aerospace company. The employees were auditors who performed testing on IT controls at the company. The tests being performed by the auditors were undertaken in compliance with the Sarbanes-Oxley Act’s (SOX) mandate that publicly traded companies review their controls over financial reporting. 

Both employees became “Audit IT SOX auditors” with the company in January 2007. During their employment, they made several complaints to supervisors about perceived auditing deficiencies, but eventually came to the conclusion that the company’s auditing culture “was unethical and that the work environment was hostile to those who sought change.” After making several complaints to supervisors about perceived deficiencies, the auditors provided information about the alleged deficiencies to a reporter at a daily newspaper.

When the company found out of the contact and disclosures made to the reporter, the employees were placed on suspension, and the matter was referred to a company Employee Corrective Action Review Board ("ECARB"). The ECARB voted unanimously to terminate both employees, and informed the men of these decisions. The employees filed whistleblower complaints with the Occupational Safety and Health Administration (OSHA). Faced with delays at OSHA, the employees decided to proceed in federal court. OSHA acknowledged the employees’ right to proceed in federal court.

In their lawsuit they claimed that the company wrongly fired them as whistleblowers and that they were protected under Section 806 of SOX.

The court noted that Section 806 of SOX, 18 USC § 1514A(a)(1), prohibits employers of publicly traded companies from "discriminat[ing] against an employee in the terms and conditions of employment" for "provid[ing] information . . . regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders." However, it noted that the protection exists when the information or assistance is provided to or the investigation is conducted by—

(A) a Federal regulatory or law enforcement agency;

(B) any Member of Congress or any committee of Congress; or

(C) a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct)

Since none of these three cover a reporter or media outlet, the whistleblowers were not protected.

The employees took the position that the company’s reliance on the media disclosures to fire them was merely a pretext and that they were fired allegedly protected activity such as the complaints to their supervisors. The employees argued they relied on company’s policies and procedures relating to sharing company information with outsiders that permitted disclosure of information protected under Section 7 of National Labor Relations Act (NLRA). The company took the position that media leaks are a violation of confidentiality rules and are not privileged by the NLRA. The court agreed that Section 7 of the NLRA did not apply because it related exclusively with the formation of labor unions and the practice of collective bargaining. The court went on to find that the company had demonstrated that the employees would have been fired even in the absence of activity protected under SOX – thus the reliance on media disclosures was not a mere pretext.

The court ruled that leaking information to the media is not protected activity under SOX, and the company was within its rights to terminate the auditors on this ground.


Compliance with Pay Discrimination Laws 

By Donald C. Dowling
White & Case LLP

In the push to launch cross-border rewards, multinationals can too easily overlook pay-related discrimination laws in each affected country. In this context, "discrimination" is a broad concept—pay discrimination laws can encompass not only U.S.-style "protected group" discrimination but also a distinct type of "job category" discrimination unknown in the United States. We examine both.

"Protected Group" Pay Discrimination
Most jurisdictions impose general employment discrimination laws that protect specified traits or groups, such as gender/race/religion, in hiring, firing, and terms of employment. Examples include: Brazil constitution art. 7 items XXX-XXXI; European Union (EU) Equal Treatment Directives 76/207/EC and 200/78/EC; South Africa Employment Equity Act 55/1998; Spain labor code arts. 4.2 (c), 17.1; and U.S. Title VII/Age Discrimination in Employment Act/Americans with Disabilities Act. Because rewards like pay, benefits and equity grants are vital terms of employment, discrimination in rewarding employees can violate these protected-group employment discrimination laws. Many countries include as illegal discrimination a concept of "adverse impact" (called in Europe "indirect discrimination"), by which a facially-neutral compensation system may be held illegal if it disadvantages employees in some protected group.

Gender: In addition, many countries impose separate gender discrimination laws specific to the pay/benefits/equity context. Examples include: EU Treaty article 141 and EU Equal Pay Directive 75/117; the Ontario Pay Equity Act; the United Kingdom (U.K.) Equal Pay Act of 1970; and the U.S. Equal Pay Act of 1963. (Plus there are gender discrimination laws like Korea's Gender Equality Employment Act that reach—but are not specific to—compensation). Some gender pay discrimination laws impose what in the United States used to be called "comparable worth" analysis and what in the U.K. is called "work of equal value." These laws require equalizing pay across job categories traditionally worked by one gender or the other (for example, an employer's janitors might argue that they contribute the same "comparable worth/equal value" as its secretaries, and therefore deserve the same pay). Ontario's Pay Equity Act requires employers affirmatively to run comparable worth/equal value analyses, and Ontario's increasingly-proactive Pay Equity Commission launches unannounced enforcement audits.

Local citizenship: Beyond gender, another specific group subject to special protection under some countries' pay-specific discrimination laws is local citizenship. Some developing countries prohibit compensating aliens more generously (the policy here is to keep multinationals from rewarding their expatriates more than comparable locals). For example, Bahrain labor law art. 44 mandates that "wages and remuneration" of "foreign workers" not exceed pay for local "citizens" with "equal skills" and "qualifications" unless necessary for "recruitment," and Brazil labor code art. 358 requires that "salary" of a local citizen not be "smaller" than the pay of a "foreign employee perform[ing] an analogous function." Watch for these laws in structuring expatriate packages.

"Job Category" Pay Discrimination
Beyond these protected-group discrimination laws, many countries outside the United States impose separate "job category" pay discrimination laws by which every employee enjoys a legal right to be rewarded equally to co-workers in equivalent jobs—even if everyone concerned is in the same protected-group. As applied to a single job, these laws are conceptually simple: Two people doing the same work have a right to the same pay, even if both are white Christian men or even if both are black Muslim women. Where job-category discrimination laws get tricky is where they enter the realm of "comparable worth/equal value"—equating different jobs that purportedly contribute equal value to an organization.

For example, France's job-category pay discrimination law allows for comparable worth/equal value theories, subject to employer defenses based on different length of service, performance, responsibilities, and affirmative action/"positive discrimination" for nationality See 15 Employees v. Renault, Cour de Cassation chamber social (France) [CCcs] case # 92-42.291 (10/29/96); Meier v. Alain Bensoussan, CCcs case # 05-45.601 (2/20/08); Pain v. DHL, CCcs case # 07-42.675 (7/1/09); Cour d'appel de Montpellier chamber social case # 09/01816; Fornasier v. Sermo Montaigu, CCcs case # 06-46.204 (6/26/08).

Other countries that impose job category discrimination rules include: 

  • Brazil: Brazil labor code article 461 mandates equal pay among employees who perform "identical" work of the "same value." Article 461 appears to link this mandate to protected group status Fisch v. Unibanco, 2d App. Trib. #00530-2007-201-02-00-4. 
  • China: China's recent Employment Contract Law, at articles 11 and 18, mandates that "the principle of equal pay for equal work shall be observed" (absent a union agreement to the contrary), and does not link "equal pay" to gender or other protected group status. Implementing regulations are silent on equal pay; Chinese law on this point remains undeveloped. 
  • Finland: In a June 2009 decision under the Finnish Employment Contracts Act 2001, Finland's Supreme Court mandated equalizing employee benefits across two very different job categories. See Finland Sup. Ct. case # KKO:2009:52. A special type of job-category discrimination law addresses irregular—temporary/part time/contingent—status. European Union member states expressly prohibit pay discrimination on irregular status, meaning that (contrary to a practice widespread across the United States) European employers cannot deny temporary/part-time/contingent workers benefits under insurance and retirement plans. See EU Directive 97/81/EC. These same laws can also require European employers to credit part-time service as full time for years-of-service requirements.

Monday, February 1, 2010

Issue 16

Dear committee members,

Welcome to the 16th issue of the International Employment Lawyer.

2010 may prove to be the year where the effects of the global financial crisis change to the positive. In a post-crisis situation, companies are facing many global challenges of restructurings and retention of key and senior employees.

Several of the articles in this issue are in this context highly relevant, as they focus on different legal issues related to employment benefits and retention issues.

We hope to see many of you at the Spring 2010 Meeting in New York (

Best regards,
Anders Etgen Reitz
Editor in Chief


New government policy promotes employment of seniors

By Philippe Desprès and Gide Loyrette Nouel
Gide Loyrette Nouel A.A.R.P.I.

Like most European countries, France is currently experiencing a major demographic challenge due to its ageing population. With the baby boomers now reaching retirement age and with young people entering the labor market later on in life, the French social security system is at risk.

In particular, the phenomenon of population ageing threatens the equilibrium, and in the long term, the sustainability of the French pensions system, as the latter is mainly financed by social security contributions paid on income from employment.  The necessity to reconcile ageing with the need for longer working lives so as to preserve the social system has led the French government to adopt a new policy designed to promote the employment of seniors.

In application of Article 87 of the social security finance act n°2008-1330 for 2009, all companies located in France and with at least 50 employees were required to enter into an agreement on the employment of seniors before January 1, 2010

This agreement or action plan must namely include a figured objective to maintain employees aged 55 and over in employment and/or to hire individuals aged 50 and over. This is an obligation of results for the companies concerned.

The agreement must be entered into according to the standard rules of collective negotiations.  Failing such an agreement, the company is required to conclude an action plan, to be submitted to its staff representative authorities before filing it at the latest on December 31, 2009.  Small and medium-sized companies were granted an additional three months to implement, without penalty, such agreement or action plan.

Failure to have an agreement or action plan compliant with the applicable regulations may result in the offending companies being liable to pay a penalty of 1% of their total payroll to the French Social Security authorities (URSSAF) for the periods during which they are not covered by such agreement or action plan as provided for by law.

At the same time as promoting longer careers and increasing the employment of seniors, French legislation has created a mandatory mechanism, which consists in pushing back the retirement age to 70. Indeed, since January 1, 2009, employers can no longer impose retirement on their employees who have reached the age of 65 without their prior consent.  However, they recover the right to impose retirement as from the employee’s 70th birthday.


Non-salary benefits under attack by the Supreme Court

By Juan Martín Dighero

The Supreme Court of Justice (SCJ) of Argentina ruled in a recent case that non-salary benefits, as regulated by Section 103bis of the Contracts of Employment Act (CEA), are unconstitutional, pursuant to Section 1 of the I.L.O. Convention 95. Obiter dictum, the SCJ said that all benefits granted to employees form part of their “salary”, and therefore are subject to social security contributions, among other effects. 

To support this conclusion, the SCJ declared that Section 103bis of the CEA (passed by Congress in 1974 and subsequently amended on many occasions) was unconstitutional because all forms of consideration paid in exchange for personal work are part of a salary, by nature, and not even Congress may rule against the nature of things; in essence, if it flies, it ought to be a bird.

In 1996, the CEA was amended to allow payment by employers of certain “non-salary benefits”, therein described as “welfare or social contributions”, and therefore, not part of an employee´s salary. Said “non-salary” status means that the employer does not have to pay social security contributions or make any withholding from the employee´s salary in connection with those benefits; likewise, these benefits are not computed either in calculating other salary-related benefits, such as the Christmas Bonus (an additional salary paid in two installments in June and December), or statutory indemnification for wrongful termination.
Although the SCJ´s decision referred to a case involving only luncheon checks or tickets, which in fact had been excluded by Congress as social benefits two years before, following I.L.O. pressures, the legal reasoning of the highest court extends to all social benefits currently allowed by the CEA and routinely granted mostly by international companies in Argentina.


Time control and overtime

By Hercules Celescuekci and Luciano A. Malara
Baker & McKenzie LLP

Many U.S. multinational employers are well familiar with the challenge of properly classifying employees as exempt or nonexempt, and significant exposure stemming from “getting it wrong.” Unfortunately, they may be less familiar with similar, but often more restrictive rules outside the United States. 

Brazil is an example of an emerging and fascinating market with labor and employment rules that appear unfamiliar from a U.S. perspective.  For instance, in order to engage employees in Brazil, a local corporate presence is legally required (i.e., a U.S. company cannot simply engage an employee in Brazil), every employer in Brazil is subject to a national collective bargaining agreement, and detrimental changes to terms and conditions of employment (e.g., as part of a cost-cutting exercise) are not permissible in Brazil (even with employee consent).

When it comes to wage and hour issues, according to the Brazilian Labor Code (“CLT”), companies with more than 10 employees are obligated to register the employees’ entrance and leave time, through manual, mechanical or electronic registries.

It is the employer’s obligation to register the employees’ work time and, in case of litigation, the unjustified lack of presentation of time cards will generate the assumption that the overtime alleged by the employee has in fact been worked.  Regular working hours are limited to 8 hours per day and 44 hours per week, and hours exceeding these limits are deemed overtime.  The overtime rate is at least 50% of the employee’s regular rate.  Work on Sundays and holidays requires a permit from the Ministry of Labor, and is usually subject to a 100% overtime pay, unless the Collective Bargaining Agreement sets forth a different rate.

The CLT sets forth only very specific cases of employees that may be considered not subject to time control and, thus, are exempted from overtime:

a) Those discharging functions out of the premises of the company whose activities are not compatible with fixed working hours, such as outside sales employees.

If the employer can, however, by any method, control the employee’s work time, he/she will not be included in the exception.

b) Those performing management functions, such as managers and chiefs of department. 

These employees must have a position of trust within the company’s organization and be empowered with true managerial authority.

True managerial authority can be verified when the employee (i) has a high level of compensation (40% more than the employees who report to him/her), (ii) has the ability to formally discipline the employees who report to him/her; (iii) has a significant level of independent financial approval; (iv) has the ability to individually decide on the termination and hire of other employees; (v) has power of attorney to represent and bind the company in relevant obligations; (vi) has the authority to decide on relevant business matters; (vii) exercises more managerial activities, rather than technical ones; and/or (viii) has the authority to represent the company.

The items outlined above are just a reference of what is analyzed to confirm if the employee holds a position of trust, i.e., not all elements must be present. Each case must be analyzed by the employer and when compared to the U.S. exempt/non-exempt distinction, fewer employees are exempt from overtime requirements in Brazil than in the United States.

Like in the U.S., however, in Brazil substance prevails over form for labor matters, thus, it is not enough to grant an apparent authority or title to the employee if, in reality, he/she is not empowered to act on behalf of the employer without requested authorization.

If the company misclassifies an employee, it could be subject to: (i) a labor claim filed by the employee requesting overtime payment, and (ii) labor assessment by the Public Labor Department (“SRT”) for non-compliance with the CLT.