Welcome to the June edition of the International Employment Committee Newsletter. Many thanks to all those who have contributed articles to make this a bumper edition.
The next issue will be published in September - please let me know if you are interested in submitting an article on an issue in your jurisdiction.
Helen Colquhoun
Dual qualified in NY and England & Wales
Withers Bergman LLP
Wednesday, June 20, 2012
Canada - Foreign Worker Class Action a Warning to Employers
Foreign
Worker Class Action a Warning to Employers
By: Sergio R. Karas, B.A., J.D.
_________________________________________________________________
Certified Specialist in Canadian Citizenship and Immigration Law by the Law Society of Upper Canada. He is Past Chair of the Ontario Bar Association Citizenship and Immigration Section, Past Chair of the International Bar Association Immigration and Nationality Committee, and Editor of the Global Business Immigration Handbook. His comments and opinions are personal and do not necessarily reflect the position of any organization. He can be reached at (416) 506-1800 or karas@karas.ca
_________________________________________________________________
An important case that could reshape the
recruitment and employment of temporary foreign workers is moving through the
courts. In a recent decision, the British Columbia Supreme Court certified a
foreign worker’s claim for damages as a class action, the first case of its
kind in Canada. The claim arose out of the foreign worker’s employment
relationship with a corporate defendant. Although the claimwill be decided at
trial, the certification as a class action should give employers some pause to
evaluate their dealings with foreign workers and the international agencies
they engage for recruiting them.
In the case ofDominguez v. Northland Properties Corp. (c.o.b. Denny’s Restaurants)[i]
the court must deal with allegations of systematic and repeated breach of
employment contract by a corporate defendant who had in its employ a large
number of foreign workers, mostly from the Philippines. The nature of the claim
to be decided by the court is that the breaches took place within an employment
situation where the foreign workers were under a significant disadvantage in
terms of protecting their own interests, and that the defendant sought to take
advantage of these vulnerable individuals, given their precarious status in
Canada. In its current phase, the issue was whether the case could be certified
as a class action on behalf of similarly situated foreign workers in the
defendant’s current and past employment. For that to be accomplished, the plaintiff
had to overcome significant hurdles that would allow her to become a
representative for that entire class of foreign workers.
The plaintiff, Ms. Dominguez, was a temporary
foreign worker who came to Canada in 2008 to work at one of Denny’s
restaurants operated by the defendant. She contends that the defendant employer
failed to provide her as much work as promised, failed to pay her overtime for
hours worked, and failed to reimburse her for expenses related to her
employment such as travel from the Philippines and agency recruitment fees. As
a result, she alleges that she suffered damages arising out of breach of
contract, including breach of duty of good faith and fair dealing, and breach
of fiduciary duty by the defendant. She also alleges that the defendant employer
was unjustly enriched by reason of nonpayment of these wages and other
expenses, and that the breaches were systemic in the sense that the defendant
failed to implement the necessary procedures to ensure that she and other
employees were appropriately compensated.
Ms. Dominguez sought to have the matter
certified as a class action proceeding on behalf of herself and all other
current and former employees who came to Canada under the Temporary Foreign
Worker Program to work for the defendant. There were approximately 75 people in
the putative class. The question for the court was to decide whether Ms.
Dominguez was the appropriate representative plaintiff in a class action
pursuant to the Class Proceedings Act[ii]
of British Columbia.
There was considerable background evidence
before the court. Ms. Dominguez was recruited by the defendant employeras a
temporary foreign worker and she initiated her application in order to join her
husband, who was already working for the defendant. As part of the process she
was required to send her resume to an agency in British Columbia, designated by
the defendant, which obtained the necessary approvals for the foreign workers. The
agency carried out its recruitment activities in the Philippines through a
counterpart. The vast majority of the foreign workers were recruited as a
result of the dealings between the agency in British Columbia and its
counterpart in the Philippines.
At some point the agency in Canada advised Ms.
Dominguez’s husband that he would have to pay an initial $3,000.00 in order to
proceed with his wife’s application. After that payment, Ms. Dominguez was
contacted in the Philippines by the agency’s counterpart and advised that a
positive Labour Market Opinion (LMO) had been issued by Service Canada relating
to her job with the defendant employer as a food and beverage server, and that
she would be paid $9.80 per hour for a 24 month period. The hours of work were
not specified in the LMO. However, in the case of other putative class members
the LMO specifically provided that the employees would work 40 hours per week.
The agency in British Columbia was very
involved in the process to obtain LMOs for the foreign workers placed with the
defendant’s restaurants. The agency’s counterpart in the Philippines copied the
contents of the Human Resources and Skill Development Canada sample contract,
which specified that the employees shall work 40 hours per week and would
receive 50% more than the regular wages for any hours worked over that limit. In
addition, the contract specified that the employer shall not recoup from the
employee, through payroll deductions or any other means, any costs incurred in
recruiting or retaining the employee, including, but not limited to, any amount
payable to a third party recruiter. Further, the employer agreed to assume the
cost of two way air transportation for the employee and to abide by the
standards set out by all relevant provincial labour legislation. Ms. Dominguez
and most other foreign workers were required to sign the employment contract in
substantially the same fashion.
Shortly after the contract was signed, Ms.
Dominguez underwent a medical examination and a work visa was approved by the
authorities. At that point, she was advised by the agency’s counterpart in the
Philippines that she would have to pay an additional $2,750.00 to continue with
the hiring process as an “agency fee”. The court noted that all of the putative
class members applying for positions with the defendant through the agency and
its counterpart were similarly required to pay fees in order to complete the
hiring process. Employees paid between $6,000.00 and $7,000.00 in total depending
on currency conversion. In addition, Ms. Dominguez and other employees
purchased their airfare for travel to Vancouver from the agency’s counterpart
at a cost of approximately $1,000.00 and were not provided with a receipt for
this payment.
After arriving in Canada, Ms. Dominguez began
to work for the defendant as a food and beverage server at one of itsVancouver
locations. The problems started almost immediately and Ms. Dominguez complained
that she was often provided with less than 40 hours of work per week and was
not compensated for hours she did not work despite being able to do so. There
was evidence that other foreign workers were treated in a similar fashion. The
defendant contended that there was a shortage of work and that it chose to cut
the hours of foreign workers before reducing those of Canadian citizens or Permanent
Residents.
Ms. Dominguez alleged that she occasionally
worked over 8 hours a day, but she was not paid overtime, and that she lodged
numerous complaints with management. The lack of payment of overtime had
been the subject of a separate investigation by the Director of Employment Standards
in British Columbia, which had led to a voluntary settlement by the defendant
with other claimants. There was evidence that the fees charged by the agency
and its counterpart in the Philippines was also the subject of a prior
investigation by the Director, and other evidence disclosed that at least one
employee had filed a complaint with the Employment Standards Branch and was subsequently
terminated, apparently in retaliation for bringing that complaint. All these
factors made for a negative work environment.
The courthad to determine whether there was an
identifiable class of “two or more persons” as required by the British Columbia
legislation[iii]
to certify a class action.The court answered in the affirmative, dividing the
class into two subsets, one comprising all current and former employees with a
positive LMO allowed to work in Canada under the Temporary Foreign Worker
Program who were still in Canada, and another one of all the current and former
employees who had worked for the defendant as foreign workers with an LMO but were
no longer resident in the province.
The allegation in the caseto be tried is that
the defendant employer was in breach of employment contracts with the putative
class members. In this phase of the case, the court held that although each foreign
worker had a separate contract, there was sufficient commonality to deal with all
of them together as the issues arising were substantially similar, if not
identical in many cases.
A claim was advanced that there is a further
common issue, to be decided at trial, that the defendant acted as fiduciaries in
the context of the vulnerability of the temporary foreign workers and took
advantage of them.In that regard, the court accepted that there was sufficient
commonality of experiences of all the foreign workers who were employees of the
defendant to be part of the class action.
Considering all aspects of the case, the court
held that certification as a class action was warranted and would result in an
efficient use of judicial resources, since the experiences of all the foreign
workers in the class were substantially similar and the allegations were also
substantially the same, and there appeared to be systemic issues that would
best be dealt with in a class action.
While the merits of the caseare yet to be
decided, the certification of this case as a class action should sound the
alarm amongst employers with a large number of foreign workers. A defendant
employer faces the prospect of a very large monetary award against it in a
class action proceeding. This being the first case of its kind in Canada, it
will no doubt attract considerable scrutiny by employers and employees alike. In
addition to potential financial liability, employers should be reminded that
they may be subject to significant administrative sanctions by Service Canada
for breach of conditions set out in LMOs, which can result in a two-year
suspension from the Temporary Foreign Worker Program.
China - The New Rules on Protection for Female Employees
by Gordon Feng and
Kay Cai of Paul Hastings LLP
I.
Introduction
On 28 April 2012, the State Council of the People’s
Republic of China (“China” or “PRC”) adopted the Special Provisions on
Occupational Protection for Female Employees (the “New Provisions”) which took effect on that same date and superseded
the previous Provisions on Occupational Protection for Female Employees
effective September 1, 1988 (the “1988
Provisions”).
There are about 137 million female employees in China, and
the Chinese authorities are New Provisions gave more benefits, strengthened certain protection mechanism
existing in current laws and regulations and made a breakthrough on preventing
and addressing sexual harassment in workplace, which will be discussed in
detail below.
II.
Maternity Leave
The New Provisions extended maternity leave from 90 days
to 98 days, in order to meet the international labor standards. It is unclear whether employees who are
already on maternity leave can be entitled to the extended leave. Some cities, e.g. Shanghai, have made it
clear that only employees who take maternity leave on or after the effective
date of the New Provisions will be entitled to the extended maternity leave of
14 weeks.
Female workers have more flexibility under the New
Provisions to start maternity leave at their own discretion. Under the 1988 Provisions, maternity leave
must start 15 days prior to the due date.
But, the New Provisions provide that maternity leave “may” start 15 days
prior to the due date. In other words, a
female employee may choose not to take any maternity leave until her due date
and thus have a longer post-delivery maternity leave.
Female workers also are entitled to extra maternity leave
in certain circumstances. For a
complicated delivery, female employees will receive an additional 15-days'
maternity leave. Employees who give
birth to multiple babies in one delivery (i.e., twins) will be entitled to an
additional 15-days' maternity leave for each additional birth. Women employees also are entitled to miscarriage
leave. A female employee who suffers a
miscarriage within the first four months of pregnancy is entitled to 15 days' leave. An employee who suffers a miscarriage upon or
after the fourth month of pregnancy is entitled to 42 days’ leave.
Besides the above standard maternity leave, a female
employee may be entitled to extra maternity leave for “late birth” as an
incentive for family planning under local rules. For example, a female employee in Shanghai or
Beijing who gives birth to her first child at 24 years old or later is entitled
to an additional 30 days of maternity leave.
In Guangzhou, a female employee who bears her first child at the age of
23 years old or later will receive an additional 15 days of maternity leave. In addition, a female employee in Guangzhou
is entitled to another 35 days’ leave if she complies with the Chinese “single
child” policy and gives birth to only one child.
III.
Maternity Pay and Maternity Insurance
Female employees receive maternity pay during maternity
leave. Under the PRC Social Insurance
Law, which took effect July 1, 2011, employers must enroll their male and
female employees in mandatory maternity insurance. Female employers will receive maternity leave
pay and reimbursement of medical expenses related to childbirth and family
planning. The New Provisions provide that
if an employer enrolls a female employee in the maternity insurance, the maternity
insurance fund will pay the employer a maternity leave pay during her maternity
leave, which equals the average wages of all of the employees of the employer
in the last calendar year (“employer average
wages”). If the employer fails to
enroll the employee, the employer must pay the employee itself during the
maternity leave, which is equal to her regular salary prior to the maternity
leave.
The New Provisions, however, fail to address one crucial
issue: if a female employee’s regular salary is higher than the employer
average wages, must the difference be made up by the employer? The Law
on the Protection of the Rights and Interests of Women (“Women’s
Protection Law”) requires that a female employee’s salary may not be lowered
during her maternity leave. Article 5 of
the New Provisions also provides that an employer may not lower a female worker’s
salary due to pregnancy, childbirth or breastfeeding. Therefore, the difference should be made up
under the law, but it is unclear whether the maternity insurance fund or the employer
should be responsible. We recommend that
employers make up the difference to comply with the Women’s Protection Law,
unless the local rules explicitly allows employer not to make the difference,
e.g. Shanghai’s.
The existing practice regarding this issue varies from
city to city in China. For example, Shanghai’s
local rules provide that the maternity insurance fund will pay a maternity
leave pay at the employer average wages.
However, if the employer average wage exceeds 3 times local average
wages (“cap”), the fund will only pay up to the cap. The employer must make up the difference
between the employer average wages and the cap if the former exceeds the
latter. However, the employer is not
required to further make up the difference if the employee’s regular wages
exceed the employer average wages. As a
result, high-income female employees will receive less pay during their
maternity leave, which contradicts the Women’s Protection Law and the New
Provisions. In contrast, in Beijing and
Guangzhou, although the maternity insurance fund also pays up to the cap,
employers are required to make up the difference between the cap and an
employee’s regular salary if the employee’s regular salary exceeds the cap.
IV.
Protected
from Termination, Over-time and Night Shift
Under the Employment Contracts Law of 2007, a female
employee is generally protected from termination if she is pregnant, on
maternity leave or in the nursing period that is one year after
childbirth. If her employment contract
expires during her pregnancy, maternity leave or nursing period, the employment
contract will be extended automatically to the end of the nursing period by
operation of law. Nevertheless, a female
employee still can be terminated under some circumstances, e.g. termination by
mutual consent between the employee and the employer, for the employee’s
serious misconduct, or due to the employer’s winding-up or bankruptcy.
The New
Provisions also prohibit employers from requiring a female employee who is 7 months pregnant or more or is in her nursing period to work overtime or on any night shift (from
10 P.M. to 6 A.M. next day).
V.
Sexual Harassment Against Females in Workplaces
A significant
breakthrough under the New Provisions is that employers are required to prevent
and stop sexual harassment against female employees in the workplace. This is the first time that a national level
law expressly imposes such obligations on employers. However, the law still
fails to provide a definition of what constitutes “sexual harassment”. Also, due to the nature of the New
Provisions, the issue of woman-on-man or man-on-man sexual harassment still is not
addressed.
A.
Background
The term
“sexual harassment” was translated and introduced to China in the early 1990’s. Research showed that sexual harassment was
pervasive in China, and women suffered much more harassment than males
did. For example, Sina.com conducted an
online survey in 2003, among 8,282 participants of the survey, 59.36% confirmed
that they had been sexually
harassed. In July 2003, Sina.com and a
magazine called “Bi-weekly Dialogue” held another sexual harassment survey, in
which 5,469 males and 2,910 females took part.
17% of the female participants said that they were frequently harassed
(while only 3% male participants said they were), and 60% of the female
participants replied that they were occasionally harassed, while 18% males made
the same reply.
In response to sexual harassment against women and other
matters regarding protection of women’s rights and interests, the China’s national
legislature amended the Women’s Protection Law in 2005, which explicitly
prohibits sexual harassment of women. However, the Women’s Protection Law does not
impose any obligation on employers to stop and prevent sexual harassment. Indeed, in the first draft of the Amendment,
there was an additional clause providing that “employers must take measures to
prevent sexual harassment in workplaces.”
Having reviewed the first draft, however, some legislators and scholars
cast doubts on that clause and were concerned on what exactly were the
preventive measures employers must take.
As a result, that clause was removed from the final text of the
Amendment.
Nevertheless, the provincial implementing rules of the
Women’s Protection Law impose certain obligations on employers. The Women’s Protection Law authorizes
provincial legislatures to promulgate implementing rules. So far, 27 of 31 provincial-level
governments in the Mainland China have enacted their implementing rules of the
Women’s Protection Law, which contain anti-sexual harassment provisions. Although those implementing rules vary from
one to another, the common provisions are: (1) it is prohibited to harass
women, against their will, by means of verbal or written words, image,
electronic information, physical acts, etc., which have sexual content or are
related to sexual activity; and (2) employers must take measures to prevent and
stop sexual harassment against women. Today,
the New Provisions finally impose these obligations on employers nationwide.
B.
Employer’s Liability
Although there is no penalty on employers if they fail to
stop or prevent sexual harassment, they may be subject to direct liability if their
act or omission contributes to the harm to the victim of the sexual harassment
conduct under the PRC Tort Law. Employers
are required to take measures to stop and prevent sexual harassment in the
workplace. If an employer negligently
fails to establish preventive measures for sexual harassment conduct (e.g.,
adoption of an anti-sexual harassment policy and setup of a grievance
procedure), or negligently or intentionally fails to stop the sexual harassment
conduct when the employer knew or should have known it, the employer’s failure
to take actions is tortious, and can be considered to contribute to the harm of
the victim of sexual harassment. As a
result, the victim employee can sue the employer alone or jointly with the
harasser for damages.
C.
Damages for Sexual Harassment
Since the first sexual harassment case appeared in the PRC
in 2001, there have been only a handful of workplace sexual harassment cases
reported by media, which appears extremely disproportionate with the sexual
harassment incidents actually happening in reality. One reason for such a lower number of the
lawsuits may be the culture, i.e. victims are concerned that public disclosure
of their sexual harassment experience is detrimental to their reputation in their
community. Another principal reason is that
the damages that a victim can receive through litigation are very low. In the
two reported sexual harassment cases where the plaintiff prevailed, the court
awarded RMB2,000 ($317) and RMB3,000 ($476) for emotional distress,
respectively. Damages for emotional
distress usually are awarded in an extremely conservative manner in
practice. For example, some courts have
the internal rule that damages generally should not exceed RMB50,000 ($7,937). Thus far, the highest amount of emotional
damages awarded was RMB300,000 ($47,619) and this was in a murder case. Therefore, many victims do not think it is
worth bringing the harassers to court, because the potential award is low, but the potential damage to reputation is huge.
This lack of appetite for litigation may change, however,
since now employees may sue or implead employers for failure to stop and
prevent sexual harassment, and thus may receive significantly higher
damages. Many employers may
choose to settle with the employees for reasons of potential injury to image
and reputation due to the sexual harassment in their workplace, and thus may decide
to pay a much higher amount in order to settle an employee’s sexual harassment
claim.
D.
Remedial Actions
The New Provisions and
the provincial implementing rules of the Women’s Protection Law are silent
regarding what appropriate measures an employer should take to prevent or
stop sexual harassment in the workplace.
This may make it difficult for a victim to hold an employer liable for
its failure to take the required measures.
The law on sexual harassment in the U.S. may be helpful on this
issue. For example, regarding preventive
measures, companies are generally required to have an anti-harassment policy
suitable to the employment circumstance.
Courts also have explained several factors determining what constitutes
an “effective” harassment-prevention policy.
These factors include 1) sufficient training for supervisors regarding
sexual harassment, 2) an express
anti-retaliation provision, and 3)
multiple complaint channels for reporting the harassing conduct, enabling the
victim to bypass his/her harassing supervisor.
VI.
Conclusion
The New Provisions not only give more benefits to female
employees, but they also impose more obligations on employers. It is, therefore, necessary for employers to
review their internal policies to ensure full compliance with the New
Provisions, including with respect to the extended maternity leave and the
overtime policy for female employees.
In order to fulfill the obligations imposed by the New
Provisions regarding the prohibition on sexual harassment, employers should
formulate an anti-harassment policy suitable to the employment circumstance, provide
sufficient training for supervisors regarding sexual harassment, and set up multiple
complaint channels for reporting the harassing conduct.
France - Liability of Parent Companies
Liability of Parent Companies for the Actions of their French Subsidiaries
By Roselyn Sands & Corinne Bourdelot –
Ernst & Young Société d’Avocats, Paris, France
When
there is a “confusion of interests, activities and management” between a parent
company and its subsidiary, resulting in the parent company interfering
directly with the running of the subsidiary, the parent company is deemed to be
a co-employer of the employees of this subsidiary, so ruled the French High
Court in a decision dated November 30, 2011[1].
The
case brought before the French High Court was the following: in 2004, the
French company MIC, which was indirectly controlled by the German company
Jungheinrich AG (“grand-mother” company), closed down its activities in France
and made all its employees redundant. The employees challenged the redundancies
and claimed for the payment of damages against the companies MIC and
Jungheinrich AG.
The
French High Court considered that there was a “confusion of interests,
activities and management” between both companies, for the following reasons:
- There was a common management between both companies, under the supervision of Jungheinrich AG,
- The decisions taken by Jungheinrich AG had deprived MIC of any industrial, commercial and administrative autonomy,
- Jungheinrich AG was the owner of all trademarks and patents of MIC,
- The strategic decisions were taken by Jungheinrich AG, which also dealt with human resources management and had decided the closing down of activities of MIC,
- The managing director of MIC had no real power and was entirely submitted to the instructions of Jungheinrich AG.
Consequently,
Jungheinrich AG was deemed to be co-employer of the employees of its subsidiary
and could be held directly responsible for the damages claimed by these
employees.
What is
the importance of this decision?
In
multinational companies involving complex decisional structure, it may be
difficult to determine who is the “employer” and who should take responsibility
for the obligations arising from labor & employment laws.
Generally,
an employee has only one employer, the company with whom he/she signed the
employment contracts. However the facts may show a loss of autonomy of the
employer, the French subsidiary. In this case, the French courts are pragmatic:
they judge that an employee may sue the subsidiary and the parent company as
co-employers.
The
decision of the French High Court of November 2011 highlights that parent
companies, foreign and non-foreign, in multinational groups could be held
liable for the actions of their French subsidiaries towards the employees of
these subsidiaries. This may be the case, for example, in the context of
restructuring and economic redundancies if it can be prove that the parent
company closely interferes with the management and decisions of its French
subsidiary.
The financial consequences may be heavy for the parent
company, especially if the French subsidiary is winding up its operations in
the context of an insolvency. In a decision dated December 13, 2011[2],
a Court of Appeal ordered the parent company of a French group to pay EUR 12
million towards the financing of the collective redundancy implemented as part
of the winding up of its French subsidiary because the court considered that
the parent company had directly interfered with the management of its subsidiary
and “confused its interests” with the interests of the subsidiary company.
More recently, a Court of Appeal[3] went even
further in its reasoning, judging that the employees dismissed by a French
company that is winding up its operations are entitled to sue the parent
company controlling the French company on the basis of the general rules of
civil responsibility, even though the parent company is not considered as a
co-employer of the employees.
These
decisions show a trend of the French courts to make parent companies bear the
consequences of the actions of their subsidiaries.
This
trend now seems to extend to criminal law too: in April 10, 2012, the airline
company Air France as well as its chairman, Jean-Cyril Spinetta, were sentenced
by the criminal court of Bobigny (first instance court) to pay fines for
complicity of undeclared work (which is a French criminal offense) by its Irish
subsidiary, Cityjet, as well as damages to each of the 21 employees concerned.
A
warning for all multinational companies closely involved in the running and
human resources management of their subsidiaries…
[3]
Court of appeal of Pau, April 30, 2012, n°
1862/12, SAS Financière GMS Investissements et autres
Germany - Works Councils in International Matrix Structures
Works Councils in International Matrix
Structures
The Five Must-dos and Frequently Asked Questions
Matrix is the magic
formula when it comes to a group management structure, especially when a corporation's
top management is in another country (USA, UK).
Matrix structure - what
is it?
A matrix structure is a
term used in a corporation's / group's organizational structure in which two
reporting lines intersect. Each and every employee is integrated into two
reporting or instruction channels.
As relates to an
employee's responsibilities, the departments (Finance, Controlling, Marketing,
HR, Service, Manufacturing, IT, etc.) are typically arranged
on a vertical line. Here, the employee faces his disciplinary supervisor,
meaning the person in charge of human resources issues. The reporting channel
in place between the employee and his disciplinary supervisor is referred to as
a "solid line". This reporting channel is the responsible
authority for written warnings, terminations and salary increases as well as any
topics relating to bonuses.
On a horizontal level,
the employee is positioned face to face with a supervisor on the "dotted
line" who is responsible for a product or a region for several
departments.
It is not our intention
to review the objectives behind an organizational form of this kind. The fact
remains that each employee reports to two different supervisors. In
international matrix structures, generally one of the supervisors is in another
country, and in some cases both of them are. The special circumstances that
arise from these kinds of structures for the enterprise and for the works
councils are the subject matter of this report.
It is the nature of
international structures that there are many managers who are responsible for
employees from different cultural circles and different jurisdictions. Not only
does this lead to the many known and often discussed cultural
misunderstandings, but many times also to serious disputes with works councils.
Works councils insist,
and rightly so, that when foreign supervisors exercise their rights to issue
instructions to "German" employees that they must fully observe the
works council's rights to be informed, consulted and involved. If this does not
happen once, or even repeatedly, the situation will escalate. Despite how often
the foreign supervisors may argue they simply cannot be expected to know each
and every law of a specific country and that they would treat all of their
employees equally or that their actions would be common day-to-day practice in the USA,
the UK or elsewhere: Arguing in this manner is simply
wrong.
1st
Must-do: Train executives and translate works
council agreements
When foreign executives
supervise "German" employees, it should go without saying that they
must observe German law, the working hour limitations (despite problems with
time zones) as well as works constitution and employee termination laws. This includes
not only the mandatory German laws, but also company internal agreements with
the works council (works council agreements) that define the daily interactions
among the staff and the works council's rights to be informed, consulted and
involved in the operation. German executives observe these (at least as best
practice) as a matter of course when issuing instructions (e.g., with regard to
overtime).
Translations of the most important German laws can be
found online (www.gesetze-im-internet.de)
and in several books. At most, there may be some
internal policies why these translations would not be made available to
executive overseas (especially after problems have occurred). Where works
council agreements are concerned, what needs to be considered is that the
content of these agreements must either be explained to foreign executives in
English as to their core clauses, or these works council agreements should be
composed in a bilingual version from the start. In the process, it is certainly
possible to differentiate between separate operations and works council
agreements for economic reasons - depending on the international relevance. Of
course, the works council does not have a right to have the agreement
translated; it can "only" demand the German version.
At the very least,
however, those executives with a notable number of "German" employees
should not be left alone with the complex array of subjects that play a role in
German law. In addition to the - in part obligatory - cultural awareness
training, they should also be given a crash course in German labor laws. After
all, in most of the larger German companies it is customary that German
executives receive this kind of training - and for good reason.
2nd Must-do:
Distance creates a void with no works council involvement
When foreign executives
are trained, the works council only has a right to be consulted and involved if
the supervisor in question is in fact integrated in the German operation. He is
not automatically so just because he can issue instructions to the German
employees. In order to be employed in an operation within the meaning of Section
99 German Works Constitution Act, and therefore to be considered an operation
employee with (active and passive) voting rights in the works council elections,
there is one more thing that needs to apply: the supervisor must be in the operation
on site on a regular basis and he must remain there. A regular (monthly, for
example) visit is not sufficient. One full day of work a week at the German
location, however, does come with its own set of opportunities and risks of
being integrated into the operation.
Warning:
Frequently working on location will make a foreign executive an employee of the
German operation (irrespective of the contractual employer)!
Once a
"foreigner's" presence in a German operation is as frequent as this
and he is thus considered employed there, then he will at the same time be
fully subject to the German employee co-determination rules. "Fully"
in this example means that the works council must not only be consulted and
involved on matters of relocation or hiring (or replacement), but that its
co-determination rights would also apply to the foreign supervisor with regard
to his "foreign" activities. In practice, this has only
rarely been a problem because German works councils do not feel responsible for
the foreign supervisor - according to the principle of no plaintiff, no judge. There
have, however, been examples when works councils have used this knowledge as
leverage to push through their interests in Germany.
Keeping a healthy
distance from the German operation, therefore, not only keeps the foreign
executive from having to deal with complex tax-related issues, it
also limits the extent of the works council's rights to be informed and
involved. With regard to employees – regardless of whether they supervise
thousands of "German" employees – that are not integrated in the German
operation, there are in fact no rights to information, to be consulted or to be
involved. These rights are limited to the German operation and the employees
working there. Thus, it is only logical that the rights of the works council
only apply to the effects of "foreign" decisions relating to German
operations.
3rd Must-do:
Bundle communication - create one central point of contact
One of the greatest
challenges facing those trying to make a matrix structure work properly - and
one issue that is known to be the greatest weakness of the matrix concept - is
communication between the horizontal and vertical supervisors. As regards works
constitution issues, there is yet another matter that complicates communication:
just as in purely "German" operations, the Human Resources Department
should always be firmly integrated in the flow of information and remain solely
responsible for communicating with the works council. This is already quite
difficult when it comes to German operations. The degree of complexity
increases manifold in an international matrix structure. After all, how is a
foreign executive expected to reliably know, even after training, whether and
to what extent his decisions affect works constitution issues? How should
someone who is only responsible for a specific product line in a diversified
group be expected to know that his decisions might have legal consequences in
operations and for other product lines? The employer side often wears
"blinders" of its own making in this regard. Oftentimes only the
works council sees the whole picture and keeps various bits of information bundled
on its own desk.
If the employer on the
one hand demands to negotiate with the works council and on the other hand
wants to avoid actions that violate the works constitution, then it simply
needs to accept the high degree of expense and effort required to communicate
properly. There is no other way. There must be at least one office where
information is bundled. Even if this does to a certain extent contradict the matrix
structure, it is highly recommended that "social partner contacts" be
installed at a central position. Only this office should communicate with the
works council. To the extent possible, this office should be informed about all
plans.
4th Must-do: Consult
and involve the German HR Managers in matters relating to bonus negotiations
The more people are involved
in decisions about compensation, the more difficult it becomes to pay fair
compensation. If not only German, but also foreign executives are involved in
setting target objectives, in defining which targets should be achieved and the
bonus sums to be paid, this is one lesson that most definitely holds true.
Typically, the compensation schemes, including the target agreement components,
are governed with the involvement of the works council in works council
agreements. In order to assure they are complied with, it is recommended that a
foreign supervisor has a German HR manager at his side - at least as needed -
who can provide support in the decision making process.
5th Must-do:
Make use of the limits within an operation and within an enterprise
The usual differences
between an enterprise ("legal entity") and an operation as defined
under German law have in the past at times created huge problems for matrix
organizations. Their organization almost always exceeds traditional limits as
found in Germany. On the other hand, though, it is these limitations that can
be of great benefit to a matrix organization. A works council's limits end
within the operation, those of the joint works council (“Gesamtbetriebsrat”) and
the economic committee end in the enterprise. Only the corporate works council
(“Konzernbetriebsrat”), provided there is a separate corporation in Germany
within the meaning of the German Stock Corporation Act, may in fact exceed
these limits. According to mandatory provisions in the German Works
Constitution Act, in cases of doubt the employee representation that is
regionally the closest is always the responsible authority, thus more often
than not the works council as opposed to the joint works council.
Matrix structures can,
and in fact should, take advantage of this.
Frequently Asked Questions
Most of the time, the
questions asked about matrix structures are more or less the same.
1. Can a works council
insist on traveling to a foreign country in order to meet there with foreign
executives who bear responsibility for German employees? Works council expenses - which include travel
expenses - would in such cases only be reimbursed if they are necessary for the
work of the works council in accordance with Section 40 German Works
Constitution Act. Typically, this does not include travel to a foreign country.
After all, the works council can make use of telephone conference calls or it
can wait until the executive visits the operation in Germany.
2. May the works council
/ economic committee request information about foreign business issues? A works council's rights to information end within
the operation, those of the economic committee end in the enterprise. As such,
all rights to information and for the works council to be consulted are limited
per se. So the joint works council / economic committee only has a right to
information about activities or financial data in a foreign company if an
enterprise (thus the legal entity) comprises both German and foreign business
activities. Moreover, in
these cases any corporate success (or lack thereof) in another country or
investments in the foreign business activities would obviously also be of
significance to the German business activities. Consequently, the (joint) works
council and the economic committee may then also demand information about
foreign activities - in some cases in an arbitration committee
(“Einigungsstelle”). If the company is limited to German business activities, however,
these rights do not apply. This is because the German Works Constitution Act
does not recognize a "corporate economic committee." At most, the
European works council would need to be notified of information of this nature.
3. Must the works
council be consulted and involved when a foreign executive is being replaced? Generally, the works council does not have a right to
be consulted, informed and involved according to Section 99 or Section 105 German Works Constitution
Act. If, however, the foreign executive does work in the German operation on a
regular basis so that one would assume he had been integrated into the German operation,
then neither his nationality nor the contractual employer or the foreign focus
of the activity will have any limiting effect on the works council's
responsibility.
4. To what extent does the
works council need to be consulted and involved in "re-hanging"
various departments?
In matrix structures especially, often there is a "musical chairs"
type game being played. The game typically involves entire departments being
"re-hung" from division 1 to division 2. Alternatively, German
executives are replaced with foreign executives as a result of a regional
decision or a decision to consolidate that concerns a business division. The
works council is only involved if this means any changes to the activities and
the jobs of the German employees concerned. If they stay intact as a team and
their activities remain (for the most part) unchanged, the works council does
not have a right to be consulted and to be involved.
5. May the works council
take legal action against activities by foreign decision makers? Naturally, the works council does not need to
tolerate a violation against its rights to be consulted, informed and involved
only because such violations occurred in a foreign country. The works council
cannot sue foreign employees or a corporation's holding company in a foreign
country directly. The German business management / executive board must,
however, allow claims to be asserted against it. For example, if the foreign
office conducts an employer survey that violates the works council’s
co-determination rights, then the right to cease and desist is directed against
the German executive board. The fact that, from the standpoint of the matrix,
the board itself had neither been informed nor consulted is irrelevant. In this
case, the German CEO represents the international group.
Subscribe to:
Posts (Atom)