The International Employment Lawyer: March 2013

Wednesday, March 27, 2013

International Employment Law Newsletter - Spring edition - March 2013

Dear All,

Welcome to the Spring edition of the International Employment Committee newsletter. This quarter we have a great issue with articles from a number of jurisdictions including Bahrain, Canada, China, France, Mexico and the UK.

Many thanks from the Committee to all those who have contributed to making this such a successful edition.

Roselyn Sands
Ernst & Young Société d’Avocats
Dual Qualified Attorney USA & France

Bahrain - U.S. Department of Labor hands down first labor rights report under 2006 U.S - Bahrain Free Trade Agreement

By Tequila J. Brooks

On December 20, 2012, the Office of Trade and Labor Administration (OTLA) in the U.S. Department of Labor issued its first report applying the Chapter 15 labor provisions of the U.S.-Bahrain Free Trade Agreement (FTA), which require member states to conform to the ILO Declaration on Fundamental Rights at Work. The report was the first to apply FTA labor provisions to a non-Latin American trade partner. The U.S.-Bahrain FTA (2006) is one of four FTAs the U.S. has with Arab nations. The other three are with Morocco (2006), Jordan (signed in 2000 and fully implemented in 2010) and Oman (2009). The U.S. also has an FTA with Israel (1985).

The report results from a petition filed by the AFL-CIO in April 2011 and accepted by the OTLA in June 2011. It arises out of facts related to the Arab Spring protests in Bahrain. A little over two years ago, Bahrainis poured into the Pearl Roundabout in Manama, the capital of Bahrain, to peacefully assemble for more democracy and equality. An island nation in the Persian Gulf with a large U.S. naval base in its territory, Bahrain is led by a monarchy and a small Sunni minority with a large Shi’a majority. In comparison to Egypt and Tunisia where unemployment continues to hover at the 60% level despite the Arab Spring two years ago, official estimates of unemployment for Bahrain are at 4.3% - though youth unemployment in Bahrain is estimated by international sources to be about 25%. According to the International Labor Organization (ILO), in 2009 close to 40% of the Bahraini workforce consisted of foreign workers. Women form 19% of the total workforce, 40% of them working for the government. It is unclear whether this figure includes the many foreign household workers in Bahrain.

In mid-February and mid-March 2011, the General Federation of Bahraini Trade Unions (GFBTU, established in 2002) and the Bahraini Teachers’ Society (BTS – a society since public workers do not have the right to organize trade unions under Bahraini law) called for general strikes in support of the demonstrators and to protest military crackdowns against the peaceful protests. On March 14, 2011, Gulf Cooperation Council (GCC) troops from Saudi Arabia and later Qatar and the United Arab Emirates entered the Pearl Roundabout to crack down on the demonstrators. Several demonstrators were injured and some were killed.

In the aftermath of the military crackdown of the Pearl Roundabout demonstrations, over 2,400 employees of public, private and parastatal entities as well as universities were suspended from work and/or terminated for having participated in the demonstrations and strikes. Trade union leaders in particular were targeted for termination. Over 1,200 of those terminated worked for the Ministry of Education. Petitioners alleged that the firings were unjustified and unlawful and resulted from discrimination based on political opinion and religion as well as retaliation for legitimate trade union activities. Many workers were questioned by their employers about Facebook postings, “Likes” on Facebook and their political leanings. The OTLA noted that in some cases dismissals were preceded by arrests and detention facilitated by employers, and that trade union leaders and others were tortured while in detention. For example, the Vice President of the BTS was arrested, tried and sentenced to 3 years in prison. The President of the BTS was sentenced to 10 years of prison and was still in jail when the OTLA’s report was issued. Both have been tortured while in prison.

In addition to arguing that Bahrain failed to comply with its Chapter 15 obligation to conform to ILO conventions on the freedom to organize and collectively bargain, petitioners argued Bahrain failed to comply with its obligation to prohibit discrimination in the workplace in conformance with ILO Convention 111. Almost all of the workers terminated in the wake of the Pearl Roundabout demonstrations were Shi’a, not Sunni – including some who did not participate in the demonstrations and who managed to not miss work despite the traffic pile-ups and chaos during the demonstrations. Although Bahrain has ratified ILO Convention 111 – unlike the ILO trade union rights conventions which the country has not ratified – Bahrain does not have a law prohibiting discrimination in occupation and employment.

In a departure from earlier U.S. DOL reports under FTA labor provisions arising in Mexico and Central America involving terminations for trade union activity, almost all of the workers terminated in the wake of the Pearl Roundabout protests have been reinstated as a result of international intervention – in particular, the organization of tripartite dialogue by the ILO between the GFBTU, the Bahrain Chamber of Commerce and Industry (BCCI) and Bahraini government authorities. This dialogue resulted in an agreement to reinstate workers. Not all of the workers were reinstated to their previous positions, however, and many still have negative marks on their employment records.

Despite the fact that many of the terminated workers have been reinstated, the OTLA called for ministerial consultations under the FTA, highlighting a number of areas of Bahraini labor law that do not conform to the ILO’s Declaration on Fundamental Rights at Work. This too is a departure from previous U.S. DOL jurisprudence, where the U.S. DOL has been reluctant to criticize labor legislative lapses of its trade partners. In particular, the OTLA condemned Bahrain for its ban on public sector unions, finding, “[T]he Government of Bahrain appears not to be fulfilling its commitments under Article 15.1 and 1.2 of the FTA.” Similarly, pointing to cases involving the imprisonment of the BTS President and Vice President, the OTLA also condemned a provision in Bahrain’s Penal Code establishing a prison term of up to one year for civil servants who join in groups of 3 or more to “not perform their duties,” finding Bahrain’s failure to comply with ILO recommendations to remove this provision to be inconsistent with the country’s obligations under its FTA with the U.S. The OTLA also found that the terminations conducted in the wake of the Pearl Roundabout demonstrations to “have been carried out in a discriminatory fashion, punishing workers for their religious … identity and/or political opinion.”

Legislative recommendations made by the OTLA to Bahrain in the report include amending Bahraini labor law to explicitly prohibit employment discrimination (in particular discrimination based on political opinion and religion); removing the ban on trade union engagement in political activities as well as the ban on strikes and work stoppages in a wide range of government and private entities described as "strategic"; amending criminal sanctions for participating in or encouraging strikes by public servants; and repealing the ban on multi-sectoral labor federations. Recommendations tailored to the particular facts discussed in the petition include full implementation of the Tripartite Agreement on worker reinstatement negotiated with the assistance of the ILO; reviewing all criminal cases against trade union leaders and trade unionists that stem from participation in the March 2011 general strike; and investigating employer acts of intimidation and harassment of trade union leaders and members and other actions that weaken workers' organizations.

If the U.S. and Bahrain are unable to resolve the matters discussed in the OTLA's report through ministerial consultations, a Joint Subcommittee on Labor Affairs can be established as outlined in the Chapter 18 of the FTA on Administration of the Agreement and per Articles 15.4.1 the Labor Chapter. In contrast to dispute resolution provisions in the CAFTA-DR, under Article 15.6.5 of the U.S.-Bahrain FTA the signatories agreed that neither party may have recourse to the dispute resolution provisions of the FTA except those outlined in the labor chapter.

Resources:

OTLA Public Report of Review on Bahrain (December 2012): http://www.dol.gov/ilab/programs/otla/20121220Bahrain.pdf

AFL-CIO Bahrain Submission (June 2011): http://www.dol.gov/ilab/programs/otla/BahrainSubmission2011.pdf

The Carnegie Endowment (Laurence Clements) Impact of the Global Crisis on Bahrain Labor: http://carnegieendowment.org/2009/07/07/impact-of-global-crisis-on-bahraini-labor/b1xs

The International Labor Organization, Kingdom of Bahrain Decent Work Country Programme 2010-2013:

http://www.ilo.org/public/english/bureau/program/dwcp/download/bahrain.pdf

Chapter 15 (Labor Chapter) of the U.S.-Bahrain Free Trade Agreement: http://www.ustr.gov/sites/default/files/uploads/agreements/fta/bahrain/asset_upload_file73_6297.pdf

Canada - Important Direction On Restrictive Covenants From The Court Of Appeal For Ontario

By Frank J. Cesario and Samantha M Crumb, Hicks Morley Toronto Office

In a recent decision, Martin v. ConCreate USL Limited Partnership, the Court of Appeal for Ontario determined that the restrictive covenants included in sale of business agreements were unenforceable because they were drafted more broadly than was necessary to protect legitimate business interests.

This decision highlights three important points for employers: (1) it is important to have a fixed time limit on restrictive covenants; (2) the court will undertake an independent analysis of the reasonableness of restrictive covenants; and (3) overly broad restrictive covenants will be unenforceable and therefore will be unsuccessful in protecting an employer’s legitimate business interests. These points are discussed below.

FACTS AND CASE HISTORY

Derek Martin had worked for ConCreate and acquired a minority interest in it, as well as a related business, Steel Design & Fabricators (SDF) Ltd (“SDF”). ConCreate and SDF were sold to entities controlled by TriWest Construction Limited Partnership (“TriWest”). Martin retained his minority interest in ConCreate and SDF. When ConCreate sold its assets to ConCreate USL, an entity controlled by TriWest, Martin obtained 25% of the outstanding limited partnership units of TriWest. As part of the sale and his continued employment, Martin entered into agreements containing restrictive covenants relating to non-competition and non-solicitation, and relating to the use of confidential information.

The non-competition and non-solicitation covenants stipulated that they would end 24 months after Martin disposed of his interest in the partnership units of TriWest. However, he could not dispose of those units without gaining approvals from TriWest’s general partner and from the companies and their lenders.

Martin’s employment was terminated six months after the sale. He began a competing company eight days later. ConCreate USL and SDF sued Martin, claiming that he had breached the restrictive covenants and his fiduciary duties, and sought damages and injunctions against him. In response, Martin applied for a declaration that the restrictive covenants were unenforceable. The application judge dismissed his application.

The main issue on appeal was whether the non-competition and non-solicitation covenants in the agreements were ambiguous or unreasonable, and therefore unenforceable.

THE COURT OF APPEAL’S DECISION

Writing for the Court, Justice Hoy surveyed the legal framework relating to restrictive covenants, noting that they are prima facie unenforceable because they interfere with individual liberty and the exercise of trade. Justice Hoy also noted that restrictive covenants arising in a sale of business context may be necessary to protect the goodwill of the business, and the transaction is typically between two knowledgeable parties of equal bargaining power. Covenants in this context therefore attract a less rigorous test as compared with covenants in a purely employment relationship, but they must still be reasonable. In determining the reasonableness of a restrictive covenant in either context, courts will consider the same three factors: geographic scope, duration, and the extent of the activity prohibited.

The Court agreed with the application judge that the restrictive covenants were not ambiguous and that their geographic scope was not unreasonable.

However, the Court found that the duration of the restrictions was unreasonable because the duration was for an indeterminate period with no fixed, outside limit. The duration was not calculated from the time of the sale of the businesses or from when Martin ceased acting as an officer or director. Rather, the duration hinged upon Martin’s disposition of his partnership units – which was dependent upon the consent of third parties, who were unascertainable at the time the restrictive covenants were agreed to, and owed no duty to Martin to act promptly or reasonably. In that regard, the Court found that the onus was not on Martin to establish that these third parties would not give their consent, as had been suggested by the application judge.

The Court noted that Martin had been represented by legal counsel when he entered into the covenants, had agreed to this provision, and had acknowledged its reasonableness in signing the agreements. However, the Court noted that “while these are important factors, they do not entirely immunize the clause from scrutiny.” The Court therefore conducted its own independent analysis of the reasonableness of the restrictive covenants.

Finally, while not determinative of the appeal, the Court found that the scope of the restricted activities in the non-solicitation clause was unreasonable because it applied to business activities that were not carried on or in the parties’ contemplation at the time of the sale, or while Martin was involved with the businesses post-sale, or while Martin had an ownership interest in the businesses.

The Court concluded that the non-competition and non-solicitation covenants were unreasonable and therefore unenforceable.

WHAT ARE THE TAKE-AWAYS FROM MARTIN?

The enforceability of a restrictive covenant is a fact-specific inquiry. Still, we can look to Martin, and other previous decisions of the Court, for direction in assessing the enforceability of restrictive covenants included in current employment agreements and for best practices in drafting future covenants.

In light of this recent decision, employers should ensure that restrictive covenants are drafted with a reasonable and fixed time limit. Employers should also bear in mind that the court will engage in its own independent analysis of the restrictive covenant to determine if it is reasonable in the circumstances. Finally, and more generally, this case is a good reminder that employers should carefully consider the scope and nature of the restrictive covenants included in their employment agreements. Overly broad restrictions will unnecessarily put an employer’s legitimate business interests at risk.

China - New Development of Personal Data Protection

By K. Lesli Ligorner and Ying Li, Simmons & Simmons, (Shanghai)

Some recent cases involving the sale of personal information have catapulted the topic of data protection laws into the spotlight. Namely, one U.S. multinational in particular was raided by the PRC government and its employees were charged with criminal violations for collecting personal data of individuals from banks, insurance companies and government agencies, amongst others, allegedly through means such as public and commercial bribery, and selling or disclosing that data to third parties.

Currently, there is no single, comprehensive data protection legislation in the PRC despite draft regulations, the Personal Information Protection Measures, which were published in 2005. Rather, there is a patchwork of sector-specific and national laws such as the Service Outsourcing Business by Domestic Enterprises Provisions, PRC Tort Law, amendments to the PRC Criminal Law, and the Decision on Strengthening Protection of Network Information passed by the Standing Committee of the National People’s Congress《全国人大常委会关于加强网络信息保护的决定 》(issued and effective as of 28 December 2012), to name a few, which provide piecemeal data privacy protection in the country and a benign administrative regulation relating to employer's holding employees' personal data.

In terms of personal data protection in the employment law regime, going back to January 2008, the Regulation on Employment Service and Management specifically requires employers to keep employees’ personal data in confidence and to obtain employees’ written consent before publishing their personal data. There are no published consequences or penalties for noncompliance.

Meanwhile, in light of the lack of comprehensive personal data protection legislation at the national level, many provinces in the PRC have implemented or are considering implementing their own personal data protection regulations. Last January, Jiangsu Province was the first local jurisdiction to enact data protection regulations, which are comprehensive and include significant penalties for noncompliance. According to the Jiangsu Regulations, employers must disclose to their employees the purpose of their data collection and obtain the consent of their employees in relation to the proposed use of the collected data. Also, data collected may only be used for the purposes for which it has been collected and cannot be sold or disclosed to third parties. Potential penalties for breach of the Jiangsu Regulations include administrative fines of up to CNY500,000 as well as seizure of illegal proceeds and criminal penalties.

Recently, the Ministry of Information and Industry of China has issued new data protection guidelines, entitled “Information Security Technology – Guidelines for Personal Information Protection within Information System for Public and Commercial Services” (“Guidelines”). The Guidelines came into force on 1 February 2013. They apply to all entities in the PRC, except certain governmental bodies, but have no force of law. Rather, while the Guidelines are not binding, all relevant organizations and entities are encouraged – and expected – to follow them as a matter of best practice.

The Guidelines provide general guidance on protecting personal information handled in information systems, which include computer systems and the personnel who operate the computers, and do not specifically regulate employee data privacy issues. Nonetheless, the Guidelines will impact employers that currently do not have any formal policies or business practices relating to the collection, use, processing, transfer, retention and erasure of their employees’ personal information. Specifically, the Guidelines impose an obligation to obtain consent of the relevant employees whose data is being collected.

Scope of Application

The Guidelines apply to all organizations and entities that handle personal information through information systems, which include any type of computer systems (which is defined broadly to include computers, mobile communication terminals and associated equipment and facilities, including the Internet). Government bodies which exercise public administration functions are excluded.

Key Highlights

· Sensitive and General Personal Information

General personal information refers to all other information which is not sensitive personal information, and could effectively mean any type of data relating to an individual.

The definition of “personal information” under the Guidelines is defined rather broadly as compared to the definition of personal data in other jurisdictions. While this obviously affords a high degree of data protection to individuals, it is likely to prove challenging and costly for businesses who are expected to identify at the outset the types of data which fall under the framework of the Guidelines, and for which consent must be obtained before such data is used or transferred to affiliated entities outside the PRC, for example.

· Express and Tacit Consent

Express consent is required when collecting a data subject’s sensitive personal information or when transferring a data subject’s sensitive personal information outside the PRC. This means that the data subject must give unequivocal consent to the use of his/her data for the purposes for which it is collected by the data user, and if required, a data user must be able to evidence such consent. In the employment context, to establish unequivocal consent in the PRC, employers should obtain the written consent of the relevant employees (the data subjects).

Tacit consent means that the data subject will be deemed as having given consent to the collection of general personal information if he/she does not object expressly. If a data subject expressly objects to the use of his/her data for any particular purpose, then a data user is required to cease using such data and to erase it if it is no longer required for the purpose for which it was collected.

· Collection of Personal Information

Personal information must only be collected for specific and legitimate purposes. Prior to collection, the data subject must be notified of the following in a form and manner which is easy for the data subject to understand:

(1) Purpose of collection;

(2) Means of collection, specific data to be collected and retention period of the data collected;

(3) Scope of use of the personal information, including if the data is to be shared with any third party;

(4) Measures adopted by the data user to protect the personal information;

(5) Contact details of the data user (e.g. name, address and other related contact information);

(6) Possible risks for the data subject in providing his/her personal information;

(7) Possible consequences for the data subject if he/she refuses to provide the requested personal information;

(8) Response channel for the data subject to communicate any complaints to the data user; and

(9) Whether the personal information will be transferred to third parties, and if so, purpose of such transfer, specific types of data to be transferred, scope of use by the third party, and the third party’s contact information.

· Processing

If personal information is to be transferred to a third party for processing, then the data user must obtain the data subject’s prior express (written) consent before any such transfer. Such consent must, at a minimum, identify the third party by name and address as well as the scope and purposes of the transfer.

This will be of specific relevance to businesses which engage third party data processors (e.g. payroll agents, IT services suppliers, outsourcing service providers, etc.) as they will be required to inform data subjects whose personal information has been transferred to such third parties and obtain their consent in order for such third parties to continue using their personal information.

Further, while data processors located within the PRC are subject to the Guidelines, the Guidelines do make it incumbent on the businesses to ensure that data processors comply with the Guidelines and can do so by procuring their compliance in writing (by contract, for example).

· Transfer outside the PRC

No personal information can be transferred outside the PRC unless the data subject gives express consent, PRC laws or regulations expressly permit, or the responsible governmental authority approves such transfer.

This will have a significant impact on businesses in certain sectors (e.g. financial services, insurance services and conglomerates) which may have data residing with overseas affiliates, offshore data centers or in the ‘cloud’. The Guidelines appear to be more restrictive in this respect than other jurisdictions such as the EU which permit overseas transfers of personal data so long as the transferee’s jurisdiction affords equal or adequate protection.

· Erasure

The Guidelines require personal information to be deleted as soon as it is no longer required for the purposes for which it was collected. If continued use or processing is necessary for a different purpose and it involves the data subject’s sensitive personal information, then the data subject’s express consent must be obtained before any such use or processing.

Observations

While not binding, the Guidelines seek to plug some of the loopholes in the current vacuum of personal data protection in the PRC. Nonetheless, because they are meant to apply to commercial data handlers as well as employers, they appear to create some unique and significant administrative challenges to those employers who try to comply fully with them. For example, at the recruitment stage, an employer may not be able to identify for a job applicant all third parties which may receive the applicant's sensitive personal data with the specificity required in the Guidelines. Moreover, unlike in virtually every other jurisdiction which has enacted comprehensive data protection laws, where there are exemptions which ease the administrative burden of having to notify data subjects of every single disclosure of sensitive personal data to a third party, the Guidelines contain no exemptions or exceptions for employers' handling of employee data in the context of transfers to parent or affiliate entities within or outside the PRC, the use of third parties to screen employee complaints, the use of external accountants and payroll providers or other broad functions of human resources.

Finally, while the Guidelines do not have the force of the law, they provide a useful window into the likely content of more comprehensive data protection laws which we anticipate will be enacted in the PRC. Accordingly, it would be prudent for employers to carry out employee data protection audits and assess the impact of compliance with the Guidelines. Employers should also consider putting in place a means to obtain express written consent from current and future employees for transfers of sensitive personal data outside the employing entity. Employers should consider implementing such means sooner rather than later in order to minimize the disruption in future business operations before legal consequences may attach for the unauthorized transfer of sensitive personal employee data.

France - New Risk in French Law: “Co-employer”

By Roselyn S. Sands*

Ernst & Young Société d’Avocats

In France’s current economic and political climate, the French Courts search to protect France’s workforce, due notably to restructuring operations of groups or bankruptcy proceedings undergone by French companies. The notion of co-employment is one legal vehicle used by the courts as a means to reach this aim, as it obliges French or foreign parent companies to bear the costs and responsibilities for certain acts of their subsidiaries towards French employees.

According to a now consistent case-law of the French Supreme Court, when there exists a “confusion of interests, activities and management” between two companies, most often a parent and subsidiary, one company, most often the parent company, may be deemed to be the co-employer of the employees of the other company, most often the subsidiary.

In one of the main cases on this matter (case-law dated November 30, 2011), which was developed in a former ABA issue, the French company MIC, which was indirectly owned by the German company Jungheinrich AG, closed down its activities in France and made all its employees redundant. The employees challenged the redundancies and sued both MIC and Jungheinrich AG for the payment of damages.

The French Supreme Courts decided that given that there existed a “confusion of interests, activities and management” between both companies, Jungheinrich AG was deemed co-employer of all the employees and that hence, Jungheinrich AG was liable for the damages caused by MIC, the formal employer, in terminating its employees.

1. The elements that constitute co-employment as defined by the French Courts

Of particular interest is the fact that we are not dealing here with cases where the parent company exercised a subordination link with the employees. Indeed, the Courts largely ignore this element which is the classic legal standard for the definition of an employment relationship and therefore the status of “employer”.

The decisions decided since Jungheinrich AG were based on the existence of a “confusion of interests, activities and management”. An analysis of several recent cases may help clarify what this means.

In a case dated September 12, 2012 a French company, Metaleurop Nord, was a 99% owned subsidiary of another French company, Metaleurop SA; in the context of a restructuring operation, Metaleurop Nord was closed and 470 employees were made redundant. The redundant employees sued both companies under the theory of “co-employment” in order to obtain payment of their redundancy indemnities; the Courts deemed that Metaleurop SA had acted as co-employer of the employees since:

· Both companies belonged to the same group

· The decision to set into motion the restructuring operation came from the parent company’s management

· That both companies shared part of its management team and the subsidiary’s finances were managed by the parent company

· That the parent company had spoken in its subsidiary’s name during certain negotiations with trade unions

· That the parent company had hired its subsidiary’s managers, had direct hierarchical control over them and were to sole deciders regarding their bonuses; said managers also had to report directly and regularly, even regarding daily matters, to the parent company

In another case, dated August 22, 2012, the First Instance Court of Lons-Le-Saunier sentenced a parent company to pay 8 million euros worth of damages to the employees of its subsidiary, given that it had acted as their co-employer. In this case, the Manzoni-Bouchot Group (MBF) was taken over by the Arche Group, led by a company called Arche Industries. Following poor results, MBF aimed to reduce its workforce by 199 employees; a bankruptcy procedure was launched and the employees sued both MBF and Arch Industries in order to obtain the payment of sums necessary for a social plan. The Court considered that Arche Industries had acted as co-employer given that:

· MBF’s budged were prepared at group level, and that the group had total control over their orders, their production process and their stock;

· The accounting department and the whole of the IT platform had been centralized at group level;

· The group had control over numerous key HR issues, such as working hours or redundancies;

· Arche Industries interfered in the definition of the strategy to be followed regarding MBF’s financial difficulties;

· There existed common managers between both companies;

· MBF had no financial independence and could not survive without the help of Arche Industries

These two decisions perfectly reveal and illustrate the French Court’s actual trend regarding co-employment: the courts do not precisely define each element which constitutes co-employment; instead the Courts identify a body of consistent evidence and from a “totality of the circumstances” approach determine the existence of such “confusion of interests, activities and management”.

However, even if the Courts do not specifically point out one element as being a “confusion of interests” or a “confusion of activities”, it seems possible to outline the general definition of the three required elements.

The “confusion of management” seems to be in practice the key element required by the Courts. Such confusion is clearly identifiable in case of a confusion of the “decision makers” between several companies and the lack of decision-making autonomy by one company. It can be identified by the fact that one company has no independence regarding the management of its assets, its finance and accounts, or its human resources, or if its management either consisted partially of the management of another company, or dependent of another company’s management. In practice the Courts seems identify two cases of “confusion of management”:

· A confusion which lies in the interference of one company’s management with the other’s

· A confusion which lies in the capitalistic dependence of one company towards another

The “confusion of activities” should be identifiable whenever two companies are clearly united or clearly share the same activity; the key issue seems to be whether or not one company can be removed without profoundly impacting the other. For instance in the above mentioned case regarding MBF and Arche Industries, the “confusion of activities” lies in the fact that that MBF had no financial independence and dependent solely on loans and sums carried out by its parent company.

The “confusion of interests” seems to be the least important of the criteria yet the hardest to precisely define. Indeed it is difficult to understand how two companies which share the same management and the same activities could not share the same interests. This criteria could however, to some extent, allow the Courts to exclude co-employment in certain cases, for instance whenever two companies within a group are actually competitors on the market…

2. The expanding “co-employment” concept beyond redundancy claims.

The initial decisions on the subject of co-employment concerned companies undergoing financial difficulties and redundancies, yet this theory is also expanding to situations where no jobs were threatened, but where the parent company truly acted in the name of its subsidiary. Such is the case in a decision taken by the First instance Court of Paris dated December 11, 2012, against the company Alcatel Lucent France and its parent company Alcatel Lucent.

In this decision, during the Mandatory Annual Negotiations (MAN) with trade unions, the French subsidiary announced to its employees that the parent company had decided to freeze all salaries for 2012. The trade unions sued both the French subsidiary and its parent company and claimed that they had not respected the principle of good faith and fair dealings in salary negotiations. The parent company was sentenced to pay damages to the trade unions, together with its subsidiary, given that it had acted as co-employer of the French employees by announcing that all salaries were to be frozen.

Even if in this particular case the damages were relatively low (about 9.000 € overall) this decision is noteworthy. Indeed, the reasoning behind this decision could be extended to every negotiations between a company and its trade unions, meaning that parent companies need to be all the more cautious when communicating and discussing certain key employee related elements, both on an internal and external level.

Furthermore, the decisions taken regarding co-employment in France seem to expand the jurisdictional reach of the French Courts. Indeed, given that the French Courts have jurisdiction over issues arising during the execution of a work contract in France, through co-employment, the Courts now have a means to order any foreign company to pay damages to French employees. Indeed, in a decision taken on February 7, 2013, the Appellate Court of Toulouse declared that it had jurisdiction in a case against the American company Molex, Inc.; Molex, Inc. moved to dismiss the case for lack of jurisdiction. However, the Court deemed that Molex had acted as co-employer of the French employees and hence, was subject to the jurisdiction of the courts and liable to pay the damages pronounced by the First Instance Court.

This extended jurisdiction is all the more powerful for decisions taken against companies based in the European Union, given the mechanism of mutual recognition of legal decisions in the European Union. Indeed, obtaining payment of the damages owed will be all the more simpler if the co-employer is based in a member State. Indeed, actually obtaining payment of the sums owed by Molex, Inc. may be all but an easy task for the French employees.

The French Courts have thus confirmed their recent decisions on the subject of co-employment and have even begun to extend its application to domains other than restructuring and redundancies. This foray is likely to continue for several reasons. First of all, once again, given France’s current situation, co-employment is a powerful tool for the Courts, both politically and economically. Secondly, the benefits it grants to the Courts are threefold: the Courts have a means to protect vulnerable French employees, a means to encourage a French business’s independence from its parent company, as well as a means to extend their jurisdiction to companies based in foreign countries. In view of all these elements, case-law concerning co-employment is bound to proliferate.

* The author wishes to thank the precious help of Corinne Bourdelot and Nicolas Etcheparre

Mexico - The recently enacted changes to the Federal Labor Law of Mexico are truly a game changer

By Juan Nájera[1], Najera Danieli & Asocs

They bring more flexibility to the workplace but carry more compliance requirements

Overview

Labor matters such as individual employment contracts or collective bargaining, labor outsourcing, termination, salary and benefits, profit sharing, workers compensation, labor unions or strikes, are regulated in Mexico at the federal level by the “Ley Federal del Trabajo” (Federal Labor Law or “LFT”). These changes were enacted and entered into force on December 1st, 2012.

Key labor issues

The LFT is a public interest law very protective of workers or employees, irrespective of their national origin or residency status, and applies even if there are any contradictory provisions in the secondment, relocation or assignment agreement between the Company and the expat employee.

Under the LFT system, a labor contract or employment agreement is deemed to exist whenever a person renders his or her personal services to any other person[2], business or employer (including foreign embassies, consulates or offices of international organizations), even if an intermediary is used under an “independent contractor” or “labor outsourcing” agreement and regardless if the employee goes to work regularly or not.

Absent a written agreement, or if the current written agreement does not include a specific provision required by law, or its provisions are against the law, then the labor relation is governed by the LFT.

Total salary in Mexico must include payments for the following: i) 1 or 2 resting days per week; ii) Christmas bonus of 15 days each year (or fraction thereof); iii) annual vacations + a 25% vacation premium; iv) employee profit sharing.

Employment may be terminated for cause, provided that the employer has sufficient proof to support the cause of termination. Wrongful dismissals can be costly, as the wrongfully dismissed employee may be adjudicated with a mandatory severance payment of 3 months + 20 days of salary per each year of service, plus accrued unpaid salary while the lawsuit proceeds[3], among others.

Labor outsourcing

It is very common that Mexican subsidiaries of international companies use a dual corporate structure involving an operating company and a labor outsourcing company. By using this structure, the outsourcing company acts in fact as the employer of record and is responsible for the payment of salaries, fringe benefits and any other social obligations of all employees of the business in Mexico.

The most important effect of the labor reform on this dual corporate structure is that it now incorporates the concept of “outsourcing”, effectively outlawing it as commonly used in the Mexican structure and thus rendering the outsourcing companies useless for the purpose they were initially devised, since the law now imposes a number of obligations on employers with the purpose of preventing them from resorting to this strategy with the intention of avoiding certain “undesired” labor obligations. Now, if the mandatory requirements are not met, then the party receiving the outsourcing services is deemed to be jointly and severally liable, and it might be even considered as the employer of record, with full liability, since the ultimate beneficiaries of the work are now held liable for all salaries and benefits, including profit sharing, in favor of all employees within a workplace.

Under the new law, outsourcing all work positions to a related or unrelated third party:

• Is not allowed if its purpose is to reduce labor rights (i.e. to lower PTU).

• Must not include all work activities performed in the workplace (total outsourcing outlawed); it must be justified by reason of requiring specialized workers and cannot consist of the same or similar tasks performed by the rest of the workers employed by the company.

• The company must inspect at all times that the contractor permanently complies with applicable safety, health and environment at work laws and regulations, through a verification unit duly accredited and approved.

• Ultimate beneficiaries of the work are now held jointly liable for all salaries and benefits, including PTU, in favor of all employees within a workplace.

Although there is not a set deadline or final date for eliminating total outsourcing schemes, provided that the contracting company is in compliance with these new obligations, we recommend acting immediately on this issue, as any employer found using outsourcing in a “malicious way”, may be fined between USD$1,250.00 and USD$25,000.00 per each occurrence[4].

In any event, make sure that the outsourcing agreements with third party companies immediately incorporate the changes in the law regarding specialization, supervision, limitations of liability, etc. and that your company is prepared to continuously perform compliance supervision that these outsourcing contractors comply with all applicable environmental, health and safety at work laws and regulations or, in the alternative, select and hire a suitable government authorized “verification unit”.

Specific aspects of the Labor Reform

· Introduces new types of labor agreements:

· By season. - i.e. Christmas, summer, special campaigns, etc.

· Per time unit (hours).- Is now allowed, provided that the legal maximum hours are not exceeded, all labor rights are respected and social security is paid. Total salary, despite the number of hours worked, shall not be less than a day’s salary.

· Employees sent abroad ('seconded' from Mexico).- Living accommodations must be provided free of charge. The secondment agreement must be approved by the JFCA.

· Trial period.- Now allowed for a period of 30 days (180 days for employees for management positions, managerial and other persons involved in the management or administration), if the labor contract is for an indefinite period of time or for more than 180 days .

· Initial training period. - Now allowed for a period of 90 days (180 days for management positions, managerial and other persons exercising management or administrative duties), so that the employee acquires knowledge or skills required for the activity for which employee is to be hired.

· More data required. - It is now mandatory to include additional employee’s data, such as National Id and Tax Id information on the labor agreements. Employees are allowed to perform work or tasks related or complementary to their main line of duty. All forms of discrimination, including pregnancy are banned. The work done remotely using information technologies and telecommunications is now governed by the LFT.

· Employee Manuals.- Must be duly recorded for each workplace with the competent local Labor Board, which shall made copies of it available to any interested party.

· Fonacot. - Obligation to enroll employees in the National Fund for Employees Consumption (“Fonacot") and to enroll the workplace with Fonacot (before December 1st, 2013).

· Training.- Increased training obligations, e.g. mandatory Joint Commissions, for Training and Productivity when the workplace has more than 50 employees. This implies registration of Commissions and related Plans and Programs.

· Employees’ profit sharing (PTU). – All people performing work activities within the workplace of a company are now considered to be part of it for purposes of employees’ profit sharing.

· Mandatory application of regulations (NOMs) on safety, health and environment and for making adjustments for People with Disabilities. - When workplaces have more than 50 employees, it is mandatory to display those NOMs in a visible place.

· All forms of discrimination outlawed. - It is now expressly prohibited to ask for “certificates of non pregnancy” to all female applicants. If a female employee gets pregnant, or changes her marital status or has minor children, these factors shall not prevent her from being eligible for a promotion and does not give the right to the employer to terminate her employment.

· Additional grounds for termination for the benefit of Employer. - i) dishonesty or violence against customers or suppliers; ii) harassment or sexual harassment against any person in the workplace, and iii) lack of necessary documents for the service attributable to the employee in accordance with applicable regulations.

· Additional grounds for termination for the benefit of Employee. - i) when the employer, his family or any of its representatives, within the workplace, engage in harassment and / or sexual harassment against the employee, spouse, parents, children or siblings and ii) when the employer requires the performance of acts, conduct or behavior that undermine or is against the dignity of employees.

· Payment of salary and benefits by bank transfer now allowed. - At the prior request or consent of the employee, at the full expense of employer.

· Flexible maternity leave. - Transfer up to 4 of the 6 weeks of the pre-birth maternity leave to the 6 weeks post-birth period. Additional time shall be granted if the newborn has a disability or a serious disease. A 6 weeks post-birth time also applies in case of adoption of a child.

· Paternity leave.- Must be granted to all male employees for five days with full pay (also applies in case of adoption of a child).

· It is now mandatory to provide written or electronic notice of accidents occurred.- Within 3 days. In addition to this, it is now mandatory for all authorities exchange Information with the Department of Labor (STPS) and the Social Security Administration (IMSS).

· Employment of minors (less than 14 yrs. old) prohibited.- And is now punished with jail.

· POA requirements.- All employer’s representatives must now be licensed lawyers . All POAs shall include the authority to enter into a compromise binding his/her client;

· E-discovery now allowed.- Photographs, films, fingerprint records, audio and video recordings, or any other information and communication technology, such as computer systems, optical or electronic media, fax, email, digital documents signatures or passwords are now admitted as proofs in trial and are subject to electronic discovery if so requested.

· Punitive salaries in case of litigation when decided in favor of employee plaintiff now limited.- To no more than 12 months of full wages. If the litigation elapses for more than 12 months, interest accrues at the legal rate.

· New procedure for "Social Security Individual Conflicts".- A new, separate procedure to claim social security benefits, including Infonavit and Retirement Funds, as well as those are applicable under collective bargaining agreements.

· Disciplinary fines for lawyers, litigants or representatives.- Now set from USD$500.00 to USD$5,000.00, for any such person promoting any legal actions, exceptions, incidents, diligences, offer of proof, appeals or any other procedural motion which is deemed frivolous or grossly inappropriate, with the purpose of extending, delaying or impeding the proceedings, adjudication or resolution of a labor dispute.

· Increased compensation in case of death.- Now set at 5,000 days of minimum salary (equivalent to USD$25,000.00 at the current exchange rate). This will also have a direct and immediate impact on civil liability and the cost of insurance premiums. It is most important to update insurance coverage.

· Alimony.- The employer must withhold any such payments owed by any employee to his/her beneficiaries and must pay the withheld amounts to them as well as to report termination of an employee paying alimony to all competent authorities and beneficiaries, within five business days.

Key social security issues

Social security -IMSS-, housing -INFONAVIT- and retirement savings -SAR- are all regulated by federal law and enforced by federal authorities. It is important to mention that recently enacted amendments to the Social Security law impose strict reporting requirements (and penalties) upon labor outsourcing companies and their clients, which make it easier for the authorities to monitor compliance by primary and secondary employers.

Affiliation of employers and enrollment of all permanent or temporary employees is not optional. Lack of compliance may carry stiff fines and penalties.

There are useful ways to eliminate or minimize double taxation on Social Security or Pensions by requesting the issuance of coverage or transfer certificates under a current bilateral Social Security or Pension Transfer Treaty. There are also Social Security or Pension Transfer Treaties signed by Mexico with other countries, which are promoted by the International Labor Organization, an agency of the United Nations.

Please keep in mind that Mexican law expressly prohibits the procurement of insurance coverage from foreign insurance companies not licensed in Mexico and punishes this as a federal crime. Life or medical insurance may be procured locally to supplement social security coverage.

Key immigration issues

Visas, resident aliens and immigration matters are regulated at federal level by the brand new Migration Law (Ley de Migración). The competent authorities are the National Migration Institute (Instituto Nacional de Migración or “INM”) and the Mexican Consulates in more than 130 countries.

It is important to mention that it is no longer possible for a foreign person to enter Mexico as a tourist or with a temporary visa and then change it to a work or residency visa. All work or residency visas must now be granted through Mexican consulates outside Mexico, although the employer must process the visa application locally. Foreign persons not properly documented must leave Mexico and may only be readmitted upon obtaining a new visa.

Practical implications

The change with the most important financial effect is the employee’s profit sharing (PTU), which now has to be made among all employees of all of the company’s workplaces. This might turn into an additional cost of up to 10% of the gross taxable income of your business in Mexico, so it is important to consider this issue very carefully to minimize costs while securing full compliance.

These changes also imply that Mexican employers must start working immediately in the review of any and all documents used in labor management, including any other documentation that contains any reference to employer/employee relationships to make sure they are in conformity with the new law and to amend labor agreements to include additional employee’s data, such as National Id and Tax Id information and review the job descriptions to make them more flexible according to the new law.

It is also important to make sure that all Employees’ Manuals, Joint Commissions for Training and Productivity and related Plans and Programs are recorded with the JLCA of each workplace and that the company is enrolled with the National Fund for Employees Consumption (“Fonacot").

Other recommendations

· Identify any applicable regulations (NOMs) on safety, health and environment and required adjustments for People with Disabilities on all of the company’s workplaces.

· Properly report, record and document any dishonest act or violence against customers or suppliers; or harassment or sexual harassment against any person in the workplace.

· Provide written or electronic notice to the Ministry of Work (STPS) of any labor related accidents within 3 business days from their occurrence.

· Make sure that all employer’s labor representatives are licensed lawyers and that their POAs include the authority to enter into a compromise binding the grantor.

· Plan for e-discovery and confine or protect sensitive information.

· Update insurance coverage in case of death to 5,000 days of minimum salary (from 730) for all of the company’s facilities, equipment and vehicles.

· Give written notice of termination of any employee paying alimony to the competent authorities and to all beneficiaries, within five business days.

· Review all current outsourcing agreements with third party companies to incorporate the changes in the law regarding specialization, supervision, limitations of liability, etc.

· Plan for the transition

[1] JD, Universidad Iberoamericana -UIA-, Mexico. LLM UOL. Diploma in International Commercial Arbitration (ICC Mexico-ELD). LLD Universidad Panamericana, Mexico. Doctoral Researcher in Tax Law at the University of Salamanca, Spain. Member of the ICC Committees of Arbitration and International Trade, the Committee of the Diplomat in Foreign Trade of the ICC and the Escuela Libre de Derecho and the Committee for revision of Incoterms 2000-2010. Former teacher of “Labor Relations in Mexico” joint program between UIA and UCSD. Associate member of the ABA. Comments and requests are welcome to: info@nda.mx

[2] Domestic personnel is considered to be a worker under the LFT and the Social Security Law.

[3] However, this is not automatic, so be careful yielding to pressure to pay any such amount just by the mere threat of being sued.

[4] Regardless of any other infractions or measures, including the closure of buildings due to lack of compliance with disabled persons’ access and safety regulations, or mandatory distribution of profit sharing.

United Kingdom: Recent Cases on Discrimination in the Workplace

By Amity Farrar, Farrer & Co LLP

European judgment on right to religious expression at work

In mid-January of this year, the European Court of Human Rights ("ECHR") issued its judgment in

Eweida and others v United Kingdom, four cases from the United Kingdom which deal with employees' rights to manifest their religious beliefs at work.

One of those claims was brought by Ms Eweida, a Christian, who was a member of British Airways' ("BA") check-in staff.She was not permitted by BA to wear a visible cross as this was contrary to its uniform policy. The Airline's policy provided that "no other items are acceptable to be worn with the uniform" and that "any item of jewellery that does not conform to the above regulations" could not be worn.Ms Eweida felt she was discriminated against because male Sikh employees could wear a turban or Sikh bracelet and female Muslim staff were allowed to wear a hijab in BA-approved colours.After a series of negative media reports, BA relaxed its policy but, until it did, Ms Eweida chose to stay at home without pay rather than comply with the uniform policy.BA did not compensate her for loss of earnings for the period she was at home.

Ms Eweida lost her discrimination case in the UK and then brought her case to the ECHR, on the basis that UK law failed to protect her right, under Article 9 of the European Convention on Human Rights ('the Convention'), to manifest her religion or beliefs.

The ECHR found that the Court of Appeal had accorded too much weight to BA's desire to project a particular corporate image, and the fact that BA subsequently changed its uniform policy to allow employees to wear symbolic religious jewellery suggested that the issue of religious jewellery was not ultimately that important to BA.The ECHR concluded, therefore, that Ms Eweida's Convention rights had not been protected sufficiently under UK law.

However, the ECHR rejected the complaints of the other three employees, agreeing with the decisions of the UK courts in relation to their discrimination claims:

The Chaplin v Royal Devon & Exeter NHS Foundation case had some similarities to the BA case. Ms Chaplin, a nurse, had been prevented from wearing a cross on a chain at work due to her hospital employer's health and safety regulations. Like BA, the hospital had a uniform policy.Unlike the BA situation, however, this policy was designed to "minimise the risk of cross infection".To reduce the risk of injury when dealing with patients, necklaces were prohibited.Ms Chaplin refused to comply with the policy and was transferred to a temporary, non-nursing position. Shortly after the transfer, she resigned.

Ms Chaplin brought discrimination proceedings in the UK but was unsuccessful.The ECHR found that the aim of protecting the health and safety of staff and patients was 'inherently of a greater magnitude' than BA's desire to manage its corporate image, and that managers at the hospital where Ms Chaplin worked were better placed to make decisions about clinical matters than a court.

The other two cases dealt with religious beliefs and same-sex couples.In Ladele v London Borough of Islington and McFarlane v Relate Avon Ltd, the ECHR found that the UK courts were entitled to reject the Claimants' discrimination claims following their dismissals for refusing to perform certain aspects of their jobs on religious grounds.

Ms Ladele refused to officiate at civil partnership ceremonies (which have been legal since the 2004 Civil Partnership Act), and Mr McFarlane refused to counsel homosexual couples.Ms Ladele argued that she felt forced by Islington, which had an equality and diversity policy, to choose between her faith and her job.Islington initially allowed Ms Ladele to switch duties with colleagues on an informal basis so she did not have to conduct civil partnership ceremonies.However, two colleagues raised concerns that her refusal to conduct the ceremonies was discriminatory.

Mr McFarlane, a relationship counsellor, refused to advise gay couples.He said that his Christian faith prohibits him from supporting homosexuality.His employer, however, is a member of the British Association for Sexual and Relationship Therapy and follows an ethics code that provides that therapists "must…avoid discrimination, for example on grounds of…sexual orientation…"He was eventually dismissed for gross misconduct.

In both the Ladele and McFarlane cases, the employer's aim to provide services to the public without discrimination was found by the UK courts to outweigh the employees' rights to manifest their religious beliefs. The ECHR found that these decisions fell within the UK's margin of appreciation in seeking to balance competing Convention rights.According to the judgment, it was "evident that the aim pursued by the local authority was legitimate."

This judgment in relation to these four cases is the latest in a long line of decisions at the ECHR on freedom of religion and discrimination.It serves as a reminder of the UK's obligation to secure Convention rights for individuals, and to strike a fair balance between the competing interests of the individual and the community as a whole. While freedom of religion remains important in Europe, the ECHR has decided that at work there can be restrictions on this freedom, depending on the facts.It is, however, possible that this case could be appealed further; for three months after the judgment, any party may request the referral of the case to the Grand Chamber of the Court.

UK's obligation to give employees greater legal protection against dismissal on grounds of political beliefs

Like under US federal law, under English law, there is no specific protection for employees who are dismissed or subjected to a detriment because of their political beliefs.Employees may bring claims for unfair dismissal if they have sufficient qualifying service (two years for those starting employment on or after 6 April 2012 and one year for those starting before that), and in some circumstances political beliefs may qualify for protection under the religion and belief discrimination legislation.For example, in 2010, a genuine and strongly held belief in climate change was held to qualify for protection.

However, cases where employees have argued that membership in a specific political party is a protected ground have so far failed, leaving employees who have less than either one or two years' service (depending on their joining date) unable effectively to challenge a decision to dismiss them which arises from their membership in a particular political party.

In Redfearn v United Kingdom, the European Court of Human Rights suggested that this violates the European Convention on Human Rights.Mr Redfearn was employed by Serco Ltd as a driver, providing transport services for disabled adults and children.Most of his passengers, like Mr Redfearn's manager, were Asian in origin.In June 2004, Mr Redfearn was elected as a local councillor for the British National Party ('BNP').At that time, the BNP only allowed white people to become members, and was opposed to any form of integration between British and non-European peoples.

On 30 June 2004 Mr Redfearn was summarily dismissed by Serco on the basis that continuing to employ him would present a risk to the health and safety of employees and passengers, cause considerable anxiety to passengers and their caregivers and jeopardise Serco's reputation.Serco was also concerned that Mr Redfearn's political activities could potentially endangering Serco's contract with the Council to provide transport services.

As he had been with Serco for less than a year, Mr Redfearn did not have sufficient length of service to bring a claim for unfair dismissal.Instead he brought a claim for race discrimination.His claim was ultimately rejected by the Court of Appeal, which found that Mr Redfearn was not dismissed 'on racial grounds' but because he was a member of the BNP.

Mr Redfearn argued that discrimination on grounds of membership of a political party contravened various Convention rights, including Article 10 (which protects freedom of expression) and Article 11 (which protects freedom of association).He applied to the ECHR for a declaration that UK law is not compatible with the Convention in this respect.

Late last year, the ECHR found that there had been a violation of Mr Redfearn's rights under Article 11 and that UK law had erred in failing to provide sufficient protection against detriment on grounds of political opinion or affiliation.The Court noted that Article 11 applies to all associations and organisations, even those which are regarded as holding offensive views, and Mr Redfearn should have been given the opportunity to challenge the decision to dismiss him based on his membership of the BNP.

Following this judgment, it is likely that the current law will need to change to allow individuals who are dismissed because of membership of a political party to bring claims for unfair dismissal regardless of their lengths of service (although it is anticipated that such dismissals may still be fair if they can be justified for "some other substantial reason").The government recently has tabled some important amendments to the Enterprise and Regulatory Reform Bill 2012-2013, one of which is an amendment in response to this case.

For now, private sector employers are not affected by the ECHR's decision, but public sector bodies are required to act in a manner which is compatible with the Convention, so public sector employees who are dismissed because of their political affiliations could bring claims under the Human Rights Act 1998 even if they cannot bring claims for unfair dismissal.