Friday, November 19, 2010
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.
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.
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.
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.
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 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.
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.
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  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.