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.


Remuneration of managing board members

By Martin Reufels
Heuking Kühn Lüer Wojtek

 On 5 August 2009, the law concerning the appropriateness of the remuneration of managing board members (“Gesetz zur Angemessenheit der Vorstandsvergütung” or “VorstAG”), changing the German Stock Companies Act (“AktG”) and the Commercial Code, entered into force.

According to the German government, the financial crisis showed that the current remuneration scheme did provide the wrong incentives for the managing board by focusing too much on short-term goals instead of a sustainable corporate development. Therefore, the VorstAG provides for more rigorous rules concerning the establishing and reduction of the remuneration, the responsibility of the board of supervisors, and the conditions of D&O insurances.

The performance of the member of the managing board has been added as criterion regarding the appropriateness of the remuneration. Further, the remuneration shall not exceed the usual scope in the relevant sector and country without specific reasons. The board of supervisors must adjust the remuneration scheme especially regarding variable elements of the remuneration in order to achieve a sustainable corporate development by implementing a multi-year assessment basis as well as caps for extraordinary developments. Furthermore, the conditions for the reduction of the remuneration according to sec. 87 (2) AktG have been eased, and the scope of application has been widened to pension payments. Moreover, the board of supervisors now must (instead of may) reduce the remuneration if the economic situation of the company deteriorates and it would be “unfair” to continue to grant the previous remuneration. The general shareholder meeting has been given the right to express its disapproval with the remuneration scheme (see sec. 120 (4) AktG).

The increased responsibility of the board of supervisors is expressed in several ways: According to sec. 107 (3) AktG, the decision on the remuneration has to be taken by the board of supervisors as a whole and cannot be delegated to a committee. Liability for damages in case of inappropriate remuneration has been explicitly inserted in sec. 116 AktG, and members of the managing board may not be elected as members of the board of supervisors during the first two years after leaving office unless elected by shareholders representing 25% of the voting rights.

Last but not least, regarding the D&O insurance, sec. 93 (2) AktG now provides for a deductible (10% of the damage, capped by 1,5 of the fixed annual salary) of the member of the managing board.


Employment of foreigners: Key legislative developments

By Svitlana Kheda
Sayenko Kharenko

This year, the Ukrainian authorities introduced a number of new important and sometimes confusing provisions in the area of work permit and exit/entry procedures for foreign employees of Ukrainian companies. In particular, the newly adopted governmental Resolution No. 322 has brought much attention and its implementation has already created problems for many foreigners working in Ukraine. The Resolution replaced the work permit procedure of 1999 and is viewed by many as a protectionist reaction of the Ukrainian government to the massive layoffs of local employees due to financial crisis.

One of the major novelties of the Resolution No. 322 is that the documents submitted for issuance of work permits are now subject to consideration by specially created commissions at the respective local Employment Centers to include representatives of various state agencies, including of the state security service.

The Resolution No. 322 also introduces a number of additional important requirements with respect to employment of foreigners, including the employer’s obligation to (i) notify the Employment Center on the actual commencement of work by a foreigner, (ii) register a foreigner’s passport with the local department of the Ministry of Internal Affairs and (iii) notify in writing the appropriate body of the Ministry of Internal Affairs, State Frontier Service and the Employment Centre on the foreigner’s failure to start working without a good reason, etc.).

Under Ukrainian law, all foreigners working in Ukraine after obtaining respective work permits must apply for a work (IM-1) visa. However, the past practice suggests that that this rule has been extensively ignored and many foreign employees holding work permits have been entering Ukraine using business visas (i.e. they never changed their business visas for work visas). The Resolution No. 322 obliged Ukrainian employers to send copies of the work permits for each of their foreign employees to the Ukrainian consulate offices located in a country of permanent residence of each foreigner concerned. Therefore, the foreigners and their Ukrainian employers could now become more obedient to the work visa requirement, especially considering that if an immigration officer discovers that a foreign employee violates a visa regime this foreigner can be banned from entering Ukraine for a period from six months to 5 years. 

United Kingdom

Environmentalism protected by discrimination legislation

By Christina Morton

Withers LLP

The UK’s Employment Appeal Tribunal (EAT) has held that a belief in man-made climate change is capable of being a philosophical belief protected by the UK’s Employment Equality (Religion or Belief) Regulations 2003 (‘the Regulations’). 

The EAT also set out helpful guidelines on what constitutes a ‘philosophical belief’ as opposed to a conventional religious belief. In the case in question, Grainger Plc and Ors v Nicholson, the EAT held that Mr Nicholson’s belief that carbon emissions must be cut to avoid catastrophic climate change, was capable of being a protected philosophical belief, if it was genuinely held and of a similar cogency or status to a religious belief.

Grainger plc claimed that Mr Nicholson’s employment was terminated on grounds of redundancy; Mr Nicholson claimed that his dismissal was unfair and that he was discriminated against because of the environmentalist beliefs he had asserted. He said these were not merely opinion but amounted to a philosophical belief that affected how he lived his life including his choice of home, how he travelled, what he bought, ate and drank and what he did with his waste. He claimed that Grainger’s Chief Executive showed contempt for his concerns.

The EAT agreed with the first instance employment tribunal that Mr Nicholson’s beliefs led to him adopting a code of conduct similar in some respects to those of established religions. It rejected Grainger Plc’s argument that limits should be placed upon what could amount to a philosophical belief protected by law. Instead it set out the following guidelines:

  • The belief must be genuinely held.
  • It must be a belief and not simply an opinion or viewpoint
  • It must be a belief as to a weighty and substantial aspect of human life and behaviour.
  • It must attain a certain level of cogency, seriousness, cohesion and importance analogous to that of a religious belief.
  • It must be worthy of respect in a democratic society, not be incompatible with human dignity and not conflict with the fundamental rights of others (as would racism or homophobia).
  • It does not have to be a belief shared by others.
  • It could be a belief such as pacifism or vegetarianism, which do not govern the entirety of a person’s life. It does not need to be ‘a fully fledged system of thought’.
  • A belief that is based on science, as opposed to religion, will not be disqualified from protection.