International Employment Committee Newsletter - Spring 2012

Dear all

Welcome to the Spring 2012 edition of the newsletter. Thank you to all those who contributed articles to this edition.

We look forward to seeing as many of you as possible in New York in April - please let me know if you would like to join our committee dinner on April 18, 2012.

Best wishes

Denmark: Retention Bonus Accepted by Danish Supreme Court

An employee was not entitled to a proportionate share of a retention bonus because the employee terminated his contract of employment before the retention period expired.

A major Danish energy company was to merge two control rooms for the electricity grid. In this regard, the company was to ensure that, until the merger, qualified staff remained in the control room that was to be shut down.The company therefore entered into an employment retention agreement with the employee with a retention bonus that would be payable if the employee was employed full time at the time when the merger was completed. The employee would also be entitled to his retention bonus if the company dismissed the employee during the retention period. However, the employee terminated his position before the employment retention period expired and believed that he was entitled to a proportionate share of the retention bonus under the Danish Salaried Employees Act. The Maritime and Commercial Court in Copenhagen agreed with the employee on this point.

The Supreme Court: No share of the bonus to the employee

The Supreme Court emphasised that the employee was remunerated in accordance with the applicable collective agreements that among other things provided for various pay supplements and the right to bonus on achievement of set objectives. Moreover the retention bonus would be payable regardless of the employee's and company's performance. The purpose of the retention agreement was also to retain qualified staff in order to secure energy supplies. Therefore, the Supreme Court concluded that the retention bonus was solely aimed at rewarding the employee to encourage him to stay with the company until the merger was completed. The retention bonus was not comparable to pay, and the employee was therefore not entitled to a proportionate share.

IUNO's opinion

With this decision, the Supreme Court has accepted the use of retention bonuses which are conditional on the employee not terminating his contract of employment for a specific period. It is, however, important to be aware of the very special circumstances of the case. The decision does not open up for a general acceptance of a retention bonus not being subject to the rule in the Danish Salaried Employees Act requiring payment of a proportionate share in case of termination of the contract of employment before expiry of the retention period. It is therefore uncertain when a company may award a retention bonus which does not give the employee a claim for a proportionate share if the employee leaves the company before expiry of the period. It is important to be aware of this risk when using retention bonuses and drafting employment retention agreements.

[Supreme Court judgment of 30 January 2012, case no. 243/2009]

Anders Etgen Reitz (aer@iuno.dk) and Julie Lindberg (jl@iuno.dk)

France: Recent Developments

The French Supreme Court limits the types of employees eligible for "cadre dirigeant- exempt" status under French wage & hour law

By a recent decision of the French Supreme Court dated January 31, 2012, the French Supreme Court has clarified its position with the practical effect of significantly reducing the type of employee eligible for "exempt" status.

As many may remember, the "35-hour-a-week law", voted in 1998 (and which created much debate), did not provide that everyone in France would work 35 hours a week! Rather, managers "cadre"--considered to have great flexibility in their schedule and autonomy in the performance of their duties-- would not benefit from a reduction in the hours per week worked. Instead, they work only 218 days a year. As a practical matter this meant that those persons considered as "cadre" would be entitled to approximately 10 extra floating holidays per year.

Yet another category of employee, the "cadre dirigeant", "managing directors" were not practically impacted by the 35 hour a week law as their working hours and days worked both remained intact. Indeed, persons in this category do not benefit from many of the wage & hour law protections such as overtime pay, as well as no limits on the number of daily or weekly hours, and no prohibition for Sunday work either. As a result, many employers allowed the highest paid and most autonomous of their managers to be in this third category.

The French Labor Code sets forth the four conditions necessary to fall within the "cadre dirigeant" category:

► great responsibility
► great latitude in the organization of working time
► ble to take decisions in a largely autonomous manner
► compensation amongst the highest levels

In a recent case, the High Court has proclaimed that even, if the employee satisfies the four conditions for the "cadre dirigeant" status set forth in the French Labor Code, only employees actually involved in decision making and defining the strategy of the company from a social, economic, and financial perspective may be deemed as "cadre dirigeant".

In this recent case, the last condition was not fulfilled. As a result, the employee was deemed not be a “cadre dirigeant” and thus entitled to extra pay for overtime worked.

Based on the foregoing, companies should review whether the employees that are deemed as "cadre dirigeant" do satisfy the newly defined conditions set forth by the French Supreme Court in order to avoid legal risk and possibly litigation.

New French law further restricts the “lending” of employees even if not for profit (prêt de main d’oeuvre à titre gratuit)

In France, the lending of employees to another company with the intention or result of making a profit on these services is prohibited except in very limited cases (temporary work agency, etc.).

However, the lending of employees with no gain or profit has been accepted by French case law.

The lending of employees (with no profit purpose) is a common and frequent practice, especially within companies of the same group.

A recent decision of the French Supreme Court dated 18 May 2011, unexpectedly modified this long-standing practice by significantly restricting it.

On 28 July 2011, a new law was passed expressly providing for a definition of “lending with no profit purpose.” According to the new law, the lending of employees has no profit purpose when the “loaning” company only charges the “borrowing” company the paid salary, the related social security contributions and the business expenses relating thereto.

The law also adds new requirements for the validity of the lending of employees with no profit purpose:

► Prior written consent of the employee concerned and amendment to their employment contract (mentioning the place of work, the working time and the job position); the employee must also be re-instated within the loaning company with the same functions and remuneration at the end of the loan

► A written agreement between the loaning and the borrowing companies with specific details of the arrangement

► Information and consultation of employee’s representatives (works council or staff delegates and health and safety committee) of both companies concerned, prior to the implementation of the loan system

► A probationary period may be contemplated and is mandatory if the lending results in a significant modification of the employee’s terms and conditions of employment

Even though this new legislation secures the common practice of the lending of employees for no profit purpose, companies must comply with the new restrictive conditions to reduce risk, such as criminal sanctions, with respect to the works council information and consultation process.


Roselyn Sands / Giani Michalon, Ernst & Young Societe d'Avocats

Mexico: US Department of Labor Accepts Petition Under NAFTA

U.S. Department of Labor accepts first petition filed against Mexico under NAFTA labor side agreement since 2006

On January 13, 2012, the U.S. Department of Labor Office of Trade and Labor Affairs (OTLA) and the Canadian National Administrative Office (NAO) accepted for review a petition filed by a consortium of over 80 trade unions in Mexico, the U.S. and Canada alleging that the Government of Mexico violated the its obligations under the North American Agreement on Labor Cooperation (NAALC) with the 2009 forced closing of the Mexican power company Luz y Fuerza Centro (Central Light and Power). This dual-filed NAALC petition was the first filed in the United States since 2006 and the first filed in Canada since 2008. The petition, filed in Canada on October 27, 2011 and in the United States on November 14, 2011, is a test case for the much-critiqued labor side agreement to the North American Free Trade Agreement (NAFTA) as well as for the Obama administration’s resolve in enforcing labor provisions of free trade agreements. Both countries have 180 days from the acceptance of the petition to issue a report and recommendations as to whether the petition should proceed to the next stage of conflict resolution, which is comprised of Ministerial Consultations between the Labor Ministers of the 3 NAFTA member states. The NAALC requires each signatory country to designate a “National Administrative Office” (NAO) in its federal labor ministry to consider and accept complaints that another signatory has failed to comply with its obligations under the NAALC.

According to the petition, on Sunday, October 11, 2009, President Felipe Calderón issued a decree dissolving the government-owned power company Luz y Fuerza Centro, an electric company that had been in existence for over a century. Ownership of the electric company’s assets and operations was immediately transferred to Mexico’s other government-owned power company, the Federal Commission for Electricity (Comisión Federal de Electricidad or CFE), giving CFE a monopoly over electricity services in the entire territory of Mexico. The night before, on Saturday, October, 10, 2009, 27,000 federal soldiers and police, as well as state and local police, were dispatched to immediately terminate the employment of 44,362 employees. This action resulted in the immediate dissolution of the independent trade union Mexican Union Electrical Workers (Sindicato Mexicano de Electricistas - SME) which had been in existence and legally recognized for over a century. Despite a series of administrative and judicial cases and complaints, the 44,362 employees and the SME have been unable to secure a reversal of the presidential decree under Mexico’s Constitution or labor laws. While the stated reason for shutting Luz y Fuerza was the excessive cost to run the company, the petition cites government communiqués that indicate the primary reason for the dissolution of the company was to dissolve the independent union SME. The petition indicates that the amount of government funds previously allocated to Luz y Fuerza have been allocated to the budget of CFE. Petitioners also argue that the Government of Mexico could have negotiated a modification of the collective bargaining agreement between Luz y Fuerza and SME by following a simple procedure outlined under Mexican labor law, calling into question arguments that the only way forward for the government was to precipitously dissolve the state-owned entity.

One of the key issues at the heart of the case is that of SME’s successor rights under the collective bargaining agreement SME negotiated with Luz y Fuerza. Petitioners cite a clause in the prescient collective bargaining agreement that requires transfer of the agreement to the new entity should Luz y Fuerza be made part of CFE. Mexican labor law allows termination of employees for only a narrow set of reasons, such as inability to perform the position, financial hardship or employee misfeasance. Like U.S. labor law, Mexican labor law specifies a set of procedures governing large lay-offs and the dissolution of companies. Petitioners allege neither the successor rights provision of the CBA nor federal labor law provisions governing individual and collective dismissals were followed in the dissolution of Luz y Fuerza. In addition, petitioners note that SME’s bank accounts have been frozen and several members of the trade union’s executive committee have been jailed since October 2009. Since the 44,000+ Luz y Fuerza workforce was terminated without notice, CFE has utilized private subcontractors to run what was formerly Luz y Fuerza, resulting in an increase of serious worker injuries and fatalities due to the employment of untrained workers by subcontractors and the reluctance to hire former SME members. The petition points to worker deaths on January 19, 2010, September 9, 2010, October 14, 2010 and August 11, 2011. The 44,000+ former Luz y Fuerza employees and the SME have been unsuccessful in numerous administrative and court challenges to the actions taken on October 10, 2009 and the Presidential Decree issued on October 11, 2009. Over 16,000 former Luz y Fuerza employees and SME members have refused to accept a severance deal that eliminates their re-employment rights. Mexico does not have an unemployment compensation system. According to the petition, these former employees have resorted to living with their parents, entering the informal sector and migration to overcome financial hardship. Fewer than 8,000 have been able to secure employment with CFE or its private subcontractors.

Petitioners request that the Canadian and U.S. NAOs (referred to as OTLA in the U.S.) enter into ministerial consultations with Mexico to address violations of a number of obligations under the NAALC, and if no change is made or action taken, that the Canadian and U.S. governments call for an Evaluative Committee of Experts (ECE) to investigate and draft an independent report about the alleged NAALC violations. Primary among the provisions alleged to have been violated is the NAALC Article 2 requirement that countries strive to set high labor standards. Other obligations alleged to have been violated include the NAALC Article 3 obligation to effectively enforce labor and employment laws as well as obligations under Article 4, 5 and 6 to ensure that dispute resolution bodies empowered to address labor law violations are open, fair and transparent and that administrative decisions and laws are published and made available to the public. In addition, petitioners argue that the Government has violated its the obligation to recognize the fundamental right of freedom of association under ILO Convention 87 by dissolving the SME and interfering with the trade union’s internal affairs.

According to the U.S. and Canadian NAOs, reports and findings should be issued in mid-July 2012.

More about the petition can be found at the following website: http://www.dol.gov/ilab/programs/otla/MexicoSubmission2011.pdf

Tequila J. Brooks, Washington DC

New Zealand: Trial Periods and Tribulations

Trial Periods and Tribulations—More Unenforceable Trial Period Provisions

Since 1 April 2011, all New Zealand employers have been able to include trial period provisions in new employees’ employment agreements.

Properly implemented, a trial period can stop an employee who is dismissed during their first 90 days of employment from bringing an unjustified dismissal claim. In practice, however, introducing and relying on trial periods has proved more complicated than many expected.

Trial period provisions have been considered by New Zealand’s Employment Court twice. On both occasions, the provisions failed to withstand the Court’s scrutiny. The latest trial period provision to trip and fall at this judicial hurdle was considered in the Employment Court’s November 2011 decision in Blackmore v Honick Properties Limited [2011] NZEmpC 152.

Facts

Mr Blackmore was employed as a farm manager for Honick Properties Limited (“HPL”). On 5 October 2010, he was formally offered employment in a letter setting out the proposed basic terms and conditions. The letter made no reference to a trial period, but said that upon Mr Blackmore’s acceptance of the position, an employment agreement would be filled out reflecting the same basic terms and conditions. Mr Blackmore accepted the offer by email on 10 October.

Mr Blackmore started work at 7 o’clock in the morning of 15 November. Just over an hour later, he was handed an intended employment agreement to sign. New Zealand employers are required by statute to have written employment agreements in place.

Mr Blackmore’s employment agreement included a trial period provision. Mr Blackmore was given the impression that since there was much work to be done, he should sign the agreement there and then, and get on with the job. Mr Blackmore did just that, despite being uncomfortable about the trial period provision.

Around 31 January 2012, HPL told Mr Blackmore that his employment would not be continued after the end of the 90-day trial period. On 6 February, Mr Blackmore was given two weeks’ notice of dismissal. Mr Blackmore then raised a personal grievance.

Issue

The issue for the Employment Court was whether the trial period relied upon by HPL complied with the Employment Relations Act and prevented Mr Blackmore bringing a personal grievance claim arising from his dismissal.

Trial periods can only be used for people who have not been “previously employed” by the employer. For HPL to be able to rely on the trial period, this meant it needed to show that Mr Blackmore was not already one of its employees when he signed the employment agreement containing the trial period provision.

Decision

The Court held that Mr Blackmore became an HPL “employee” in terms of New Zealand legislation on 10 October when he accepted the offer of employment by email. This meant that when he signed the employment agreement on 15 November, he had been “previously employed” by HPL. The trial period was therefore invalid.

Continuing with its strict approach to the validity of trial periods, the Court went on to find that even if Mr Blackmore hadn’t become an employee on 10 October, the trial period would have been invalid because he worked (and so was “previously employed”) for an hour before he signed the employment agreement.

As a third ground for the trial period’s invalidity, the Court found that the trial period provision had been unfairly bargained for by HPL. The company was found to have failed to meet its obligation under New Zealand law to provide Mr Blackmore with a copy of the intended employment agreement, advise him of right to seek independent advice in relation to it, and give him a reasonable opportunity to seek independent advice about it.

Practical Issues

In practice, the Blackmore decision means that:

• 
  
  Where an employment agreement is to contain a trial period, it must be provided to the prospective employee at the same time as, and as part of, the initial offer of employment.


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  A trial period agreed after the employee has accepted employment (even if the offer and acceptance is oral) is unlikely to be enforceable.


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  A trial period agreed without the employee having been provided with a copy of the intended agreement, advised of his or her entitlement to seek advice about it, and given a reasonable opportunity to obtain that advice, is also unlikely to be enforceable.

Comment

As noted in an earlier article, the Court has made it clear that the legislation relating to trial periods will be interpreted “strictly and not liberally”. That approach continues in the Blackmore decision, meaning that successfully institute and rely on trial periods is a somewhat exacting exercise. Until the dust settles, specialist assistance should be obtained.

As also previously noted, trial periods are different in law from the similarly-named probationary periods. Both have strict rules as to their introduction and implementation.

Michael Quigg and Tim Sissons, Quigg Partners