Friday, December 13, 2013

US Secretary of Labor issues report under CAFTA-DR

U.S. Secretary of Labor issues report under CAFTA-DR on child and forced labor in Sugarcane Industry in the Dominican Republic

On September 27, 2013, the recently confirmed Secretary of Labor of the United States Thomas E. Perez released a report resulting from allegations that the Government of the Dominican Republic had not complied with its CAFTA-DR Chapter 16 labor obligations with respect to protection of fundamental labor rights of Haitian migrant agricultural workers on Dominican sugarcane plantations. The original petition was filed by Catholic missionary Father Christopher Hartley on December 22, 2011 and was accepted by U.S. DOL's Office of Trade and Labor Affairs (OTLA) on February 22, 2012. The Haitian Migrant Sugarcane Worker report is significant because it is the first report issued by the U.S. DOL under a free trade agreement (FTA) that contains extensive findings and discussion related to forced labor and child labor. The report is also significant because it represents a procedural break from past practice under the NAFTA labor side agreement, where U.S. DOL utilized a primarily adjudicatory model placing the burden of producing factual evidence supporting a petition on the submitters, and instead utilizes an investigatory model in which the OTLA conducts an independent investigation of the allegations. The report was accompanied by the simultaneous announcement of a $10 million grant by U.S. DOL to its Dominican counterpart to combat child labor in agriculture.

While a large number of NAFTA labor petitions filed with the OTLA's Mexican counterpart about labor practices in the U.S. have dealt with migrant workers and agriculture (such as the Washington Apple and De Coster Egg petitions filed in 1998 and numerous petitions related to H2A and H2B visa programs filed in the 2000s), the new report on labor practices in the Dominican sugar industry is the first issued by the U.S. DOL under an FTA in the past 20 years to address labor issues solely in the agricultural sector of a U.S. trading partner. In 1998, the U.S. DOL declined to pursue a 1997 petition made by the Florida Tomato Exchange about child labor in Mexican tomato fields because the Tomato Exchange did not supplement its original complaint letter with additional facts. In a report on a 2005 petition filed under the NAFTA labor side agreement, the U.S. DOL's findings regarding allegations that a manufacturer in the Mexican state of Hidalgo utilized child labor to manufacture popular children's toys were ambivalent due to conflicting evidence related to birth certificates of potentially under-aged workers. Similarly, the U.S. DOL had been ambivalent in past findings related to forced labor claims in NAFTA labor petitions related to work in garment and other manufacturing plants in Mexico.

Haitians have been working in the Dominican sugar industry for over a century - through government recruitment programs since 1919 and government-to-government arrangements between Haiti and the Dominican Republic until 1986, when recruitment became more informal through independent labor smugglers and brokers called buscones in Spanish or passeurs in Haitian Creole. It is estimated that there are about 40,000 Haitian migrants working in the Dominican sugar industry and that a majority of those are undocumented, though official and unofficial statistics are unreliable. Haitian migrant workers in the sugar sector tend to live in worker communities referred to bateyes on or near their employers' property. Due to physical and cultural isolation, they are frequently required to purchase food and other staples at privately owned stores referred to colmados located in the bateyes. The Dominican sugar sector has been the subject of a number of international reports by the U.S. Department of State, the U.S. Department of Labor Child Labor Program, the ILO and non-governmental entities such as Verité. The Government of the Dominican Republic has a 10-year national strategic plan to eradicate the worst forms of child labor (2010-2016) and has committed to eliminate all child labor by 2020.

The OTLA's report discusses and addresses methodological and procedural shortcomings its delegation observed in the Dominican process of conducting labor inspections on sugarcane plantations. One of the primary concerns noted in the report is that while most of the workers on sugarcane plantations speak Haitian Creole, the Dominican labor department lacks inspectors who speak Creole and Spanish-Creole interpreters, making it difficult to effectively interview workers during inspections. Other shortcomings observed in the inspection process include conducting worker interviews in the presence of employer representatives, not discussing topics related to the fundamental rights to organize and collectively bargain and failing to follow up on worker complaints, conduct follow-up inspections or verify remediation of violations.

The report also sets a standard for what constitutes forced labor under the labor chapter of the CAFTA-DR and makes a number of observations about working and housing conditions in the sugar sector based on existing governmental and non-governmental reports and interviews the OTLA delegation conducted with workers, missionaries, employers and government authorities in 2012 and 2013. The OTLA noted that the minimum wage on sugarcane plantations is lower than in other sectors of the Dominican economy, and that workers often do not receive minimum wage or proper overtime compensation as employers tend not to keep records of hours worked due to use of a piece- or weight-based compensation system. The report cites an interview with a Haitian worker who has been working in the Dominican sugarcane industry for a decade who stated that he works from 4:00 am in the morning to 7:00 at night and that he must ask his mother in Haiti to send him money because he does not earn enough to survive, much less send money home to help out his family. In addition to observing inadequate wage and hour record keeping, the OTLA found that the weights and measures used to calculate the piece rate may not be accurate and that workers do not receive proper payment for other tasks performed on the plantation, such as clearing, planting and construction. Finally, workers' pay is reduced by deductions for the Dominican social system, though many workers are undocumented and it is unclear whether or not undocumented Haitian workers are entitled to pensions under Dominican law. While the OTLA noted that a few Haitian sugarcane workers with proper immigration had received pensions, in practice most documented and all undocumented Haitian sugarcane workers do not.

Using a 2012 Verité research study on forced labor in the sugar supply chain in the Dominican Republic as a guide, the OTLA found that extremely low wages, forced overtime and being placed in a position to purchase staples for inflated prices at colmados (often leading to incurrence of debt) were all indicators of forced labor. Other indicators include being threatened with loss of employment and housing if workers meet with one another, being threatened with termination and deportation for refusing to work illegal overtime, being subject to deceptive recruitment practices such as being told they would be performing different work (picking tomatoes, construction or working in an office) at higher pay and being specifically told by employers that they have no rights and cannot file complaints. The OTLA found, " Depriving workers of the ability to seek legal enforcement of their rights can contribute to worker isolation, disempowerment, and a culture of fear and employer control that makes workers particularly vulnerable to forced labor." In fact, the OTLA found that at least two workers were terminated as a result of speaking with the OTLA delegation - though the report indicates that they were rehired as a result of OTLA intervention.

With regard to the issue of child labor, the OTLA recounted observations made by workers and employers as well as in governmental and non-governmental reports and studies that children as young as 12 engage in sugarcane cutting, planting and other tasks in the sugar industry. One of the biggest complications in identifying and eradicating child labor in the Dominican sugar industry is the fact that many Haitian children born in the Dominican Republic do not have birth certificates and are not registered as citizens in either country. Lack of birth registration of Haitian children in the bateyes makes it difficult for employers and government authorities to properly address child labor on sugar plantations.

The OTLA's report recommended that labor authorities in the Dominican Republic conduct worker outreach and workplace inspections in Haitian Creole, train inspectors to identify forced and child labor and other workplace violations, formally and publicly commit to maintaining the confidentiality of workers who complain about labor law violations and strengthen enforcement of existing Dominican laws and policies prohibiting forced and child labor. The U.S. DOL plans on reviewing progress by Dominican labor authorities in the implementation of its recommendations in 6 months (March 2014) and 12 months (September 2014).

By Tequila J. Brooks, Esq.


Press Release, "US Labor Department issues report on labor concerns in Dominican sugar sector, announces $10 million project in agriculture," September 27, 2013:

U.S. Department of Labor Bureau of International Labor Affairs, Public Report Of Review Of U.S. Submission 2011-03 (Dominican Republic), September 27, 2013:

Verité, Research on Indicators of Forced Labor in the Supply Chain of Sugar in the Dominican Republic, Amherst, Massachusetts, 2012: Also in Spanish:

Thursday, December 12, 2013

Winter edition 2013

Dear all

Welcome to the last edition of 2013. Many thanks to all those who have contributed, both to this edition and throughout the year. We look forward to seeing as many of you as possible in New York in April, and in the meantime Happy Holidays!

Helen Colquhoun
Dual qualified in New York and England & Wales
Withers LLP

Germany - Rights of Trade Unions

In 2014 – between March and May – the regular works council elections are pending throughout Germany. The German Works Constitution Act expressly grants trade unions numerous initiation, participation, consultation and monitoring rights.

Initiation of the works council election

In the event that no election committee was appointed previously or a works council is to be selected for the first time, the relevant trade union can initiate the selection of the works council through invitation to an election meeting (Section 16(2), Section 17(3) Works Consti-tution Act). Formal requirements for the invitation to the employees meeting do not exist. Therefore, the invitation can be made by posting it on the bulletin board.
By submitting an application to the labour court, a trade union can also ensure that an elec-tion committee is appointed and a negligent election committee is replaced (Sections 16(2), 17(4), 18(1) Works Constitution Act). The union also has the opportunity to submit proposals for staffing the election committee.

A trade union can become involved with the company if at least one of the union’s members is employed in the company (Federal Labour Court in AuR 936, 88).

Trade union lists

In addition to the employees entitled to vote, the trade union represented in the company can also submit its own nominations, which are released from the requirement of supporting sig-natures (Section 14(3) and (5) Works Constitution Act). The Works Constitution Act ex-pressly differentiates between nominations by the employees and trade union nominations. According to Section 14(5) Works Constitution Act, the nomination by a trade union must be signed only by two representatives of the trade union.

Canvassing by the trade unions

No regulation is to be found in the Works Constitution Act on the topic of canvassing. Never-theless, it is generally presumed that the rights of the trade union are not only limited to can-didacy and simple voting. Recourse to the constitution is, however, required to properly as-sess the permissible scope of trade union canvassing (Federal Labour Court, 14 February 1967 - 1 AZR 464/65). Since Section 2(3) Works Constitution Act excludes the "autono-mous" trade union representation of interests from the Act, the trade union powers existing in this respect are derived directly from Art. 9(3) German Basic Constitutional Law.

The constitutionally guaranteed right of the trade unions to canvass for candidates of the respective trade union list in the course of the works council elections is also recognized. Trade union advertising for their own candidates is permitted even during working hours (Federal Constitutional Court, 14 November 1995 – 1 BvR 601/9z) if operational processes are not disturbed and no significant economic burden is imposed on the employer. Only the sustained disturbance of the workflow or the industrial peace is an obstacle (Schleswig-Holstein Higher Labour Court, 01 December 2000 - 6 Sa 562/99).

Advertising efforts for trade union nomination within the company must be carried out by the employee of the respective company, however. The trade unions not represented in the company, in the absence of candidates, have no interest worthy of protection in intervening in the election campaign. The trade unions represented in the company cannot lay claim to a right of access on grounds of electoral equality for canvassing. Trade union and open lists must have the same opportunities to canvass.

Permissible forms of action:

1) Conversations: Advertising through conversations – as the simplest and most direct form of communication – is considered generally permissible (Däubler, Gewerkschafts-rechte im Betrieb [Trade Union Rights in the Company], margin note 354).

2) Distribution of publications, leaflets: The distribution of advertising material is also recognized. The trade union cannot be relegated only to verbal communication (Fed-eral Labour Court 14 February 1967 - 1 AZR 494/65).

3) Poster advertising: The fact that the possibility of having a visual presence in the company by posting placards and posters must also be given to the trade unions is es-sentially uncontested (Federal Labour Court 14 February 1978 - 1 AZR 280/77). The provision of posting areas infringes upon the property right of the employer according to Art. 14 Basic Constitutional Law, however, in this case it is outweighed by the trade union interest in having a visual presence in the company. The employer is obligated to make areas available for placards.

4) Use of email systems, Intranet: Trade unions are also entitled in principle, based on their constitutionally protected freedom of activity, to send emails for advertising pur-poses, even without the employer's consent and request by the employees, to the com-pany email addresses of the employees (Federal Labour Court 20 January 2009 – 1 AZR 515/08). The property right and the right to an established and operating business (Art. 2(1) Basic Constitutional Law) of the employer are less important than the free-dom of trade union activity, as long as the sending of the email does not lead to signifi-cant operational disturbances.

The freedom of action of the trade unions is exclusively limited by outweighing countering interests of the employer. Thus, it is naturally impermissible to prevent other colleagues from working as a result of the advertising activity or to address them against their will in the com-pany (Federal Constitutional Court, 14 November 1995 -1 BvR 601/9z). A barrier also exists where a trade union has to respect the freedom of choice. From this it follows that the trade union may also not exert any undue pressure on its members, which affects their freedom of choice (Federal Constitutional Court, 24 February 1999 E 100, 214, 221 et seq.).

Note: The employer may not in self-help do away with impermissible advertising efforts, un-less impermissible placarding is concerned. The employer is only entitled to legally assert a claim of injunctive relief against the trade union with regard to impermissible advertising.

Right of access of trade unions based on the Works Constitution Act

Pursuant to Section 2(2) Works Constitution Act, access to the company must be granted to the representatives of the trade unions represented in the company to maintain the tasks and powers mentioned in the Works Constitution Act. Some are of the opinion that Section 2(2) Works Constitution Act permits a general right of access of the trade unions. This view al-ready violates the wording. The right of access must always be tied to a specific works con-stitutional task and therefore exists in relation to the respective task (Richardi/Richard, Sec-tion 2 margin note 112 et seq.). For this purpose it is sufficient that the matter is inherently related to the works constitutional task of the trade union (Federal Labour Court, 26 June 1973 - 1 ABR 24/72).

The following are among the works constitutional tasks, for the purpose of which the trade union can demand access to the company:

1) Appointment and replacement of the election committee according to Sections 16, 17, 18 Works Constitution Act

2) Invitation to an employee meeting for the purposes of the election of the election committee (Section 17(3) Works Constitution Act). In this connection, the trade un-ions in particular are also entitled to access to the premises of the employer in order to post the invitation to such an employee meeting (Rhineland Palatinate Higher La-bour Court, 11 January 2013 – 9 TaBVGa 2/12).

3) Additional delegation of a representative belonging to the company as a non-voting member to the election committee, unless a voting member of the election committee belongs to it (Section 16(1) sentence 6 Works Constitution Act).

4) In operations with more than twenty employees, the court may also appoint external trade union members as members of the election committee (Section 16(2) sentence 3 Works Constitution Act).

5) Submission of its own nominations by the trade union represented in the company.


The right of access based on Section 2(2) Works Constitution Act is exercised by persons authorized by the trade union. The trade union is responsible for the selection of these per-sons. They may also be employees of a different company. The trade unions have to inform the employer in due time before the visit, however. In this connection, the right of access is not limited to specific operating areas, such as break rooms or the works council office (Hamm Higher Labour Court, 09 March 1972 – 8 BV Ta 2/72).


The barriers to the right of access initially arise from Section 2(2) Works Constitution Act it-self. The employer can accordingly refuse access to the trade union only in special excep-tional cases - in the case of unavoidable operational issues, due to mandatory safety regula-tions, for the protection of trade secrets. Unavoidable operational issues exist if serious im-pairments of the business operation, which are unacceptable to the employer, are envisaged (Fitting, Section 2 margin note 77). Disturbances and delays are not sufficient.

Domiciliary right of the employer

The right of access of the trade union does not eliminate the domiciliary right of the em-ployer, however, but restricts it only in a constitutionally unobjectionable manner (Federal Constitutional Court, 04 October 1976, AP No. 3 on Section 2 Works Constitution Act). An employer, however, cannot pronounce a ban on entering his premises to all trade union members. Only in especially justifiable exceptional cases can the employer issue a ban on entering his premises to individual trade union representatives for reasons related to that person individually, for instance, in the case of abuse of their powers or unreasonable at-tacks or insults to the employer (Aachen Labour Court, 08 November 2012 – 9 BVGa 11/12; Saxony Higher Labour Court, 27 March 2006 – 3 TaBV 6/06).
If access to the sessions of the election committee before the works council election is wrongly refused to a trade union representative by the employer for this reason, the trade union can enforce its right of access by means of an injunction.

Obligation of the employer to bear costs

According to Section 20(3) German Works Constitution Act, the cost of the election is to be borne by the employer (Federal Labour Court, 07 July 1999 – 7 ABR 4/98). In this connec-tion, among the costs of a works council election to be borne are also the costs of the trade union which it incurred through the commissioning of a legal representative in a decision-making process with regard to the legal appointment of an election committee. The law con-tains no restrictions in this respect (Federal Labour Court, 31 May 2000 - 7 ABR 8/99; Ba-den-Württemberg Higher Labour Court, 20 January 1999 - 2 TaBV 3/98).


The rights of trade unions have a substantial impact – particularly due to their extensive ac-cess and canvassing rights – on company operations. The position of the trade unions to-wards the employer is clearly strengthened because of this.

The employer must, however, be informed in advance in each case, in order to be able to take possible precautions, so that the visit does not disturb industrial peace or operations. Clear limits are placed on the rights of the trade unions by the requirements and the barriers of Section 2(2) Works Constitution Act.

Bernd Weller, Lawyer, Certified Specialist Lawyer for Employment Law and Partner at the law firm of Heuking Kühn Lüer Wojtek, Frankfurt am Main

India - the 2% CSR Provision in India's Companies Act 2013


Raising living standards in rural India has always been a challenge, and traditionally the heavy lifting has fallen to government and non-governmental organizations (“NGOs”). Now, another sector of society will share responsibility: India’s large profitable companies. With the Companies Act 2013 (“the Act”), passed by both houses of India’s parliament and assented to by India’s president (1), India is set to become one of the first countries in the world(2) to mandate business contributions to charity, normally a voluntary practice, part of what is known as corporate social responsibility (“CSR”)(3). Under the Act, certain large companies will be required to give 2 percent of their average net profits to CSR causes, or report why they did not contribute as required (4). The message from the Act is clear: India’s large, profitable companies will be expected to contribute a share of profits to charity, or they will be publicly shamed into doing so.

The Companies Act 2013 has generated a great deal of controversy, and many companies and commentators wonder how certain provisions of the Act will be interpreted and implemented in the years to come. These inevitable clarifications present an opportunity to encourage companies to more closely align their CSR spending with the development priorities of the country, and to boost employment prospects for women in India’s rural areas.

I. The 2013 Act

The recent revisions to the Companies Act, found in clause 135, require that companies of a certain size or profitability (5) contribute at least 2 percent of their average net profits made during the three preceding financial years to CSR projects (6). Eligible companies must form CSR committees, composed of three or more directors, one of whom must be an independent director. The CSR committees must then develop company-wide CSR policies, which will include proposed CSR spending and monitoring (7).

The company’s board must then approve of the CSR policies, monitor progress and compliance with the law, and prepare a report concerning the company’s CSR activities (8). If a company fails to spend according to the priorities of the Act, the board as a whole will be required to report on the reasons for this failure (9). Many interpret this “comply or explain” provision as an indication that the CSR spending is voluntary: companies can either spend the required amount to comply with the law, or they can spend nothing at all and explain their inaction to the government, without suffering a financial penalty (10). Although the reporting provision is mandatory – with financial (11) and even criminal penalties (12) for non-compliant companies and their officers – the spending provision appears to be voluntary (13).

In Schedule VII, the Act offers guidance on where companies should focus their CSR spending, in areas that mirror the widely-accepted U.N. Millennium Development Goals (14). Along with “ensuring environmental sustainability and eradicating extreme hunger and poverty, Schedule VII encourages companies to use their spending to “promote[] gender equality and empower[] women.”(15)

The law also requires that companies spend only on CSR projects in India (16), and urges companies to develop or contribute to projects in the areas where their operations are based (17). It also allows companies to spend by funding local non-profits (18). As many of India’s largest companies are mining and energy companies operating primarily in rural, underdeveloped areas, this small provision could dramatically improve the lives of India’s rural poor (19).

II. Responses to the Act

a. Positive Responses

Many commentators have welcomed the new Companies Act, viewing it as a mechanism to provide focus and stability in a fractured CSR environment with unpredictable funding (20). Harsh Goenka, Chairman of industrial conglomerate RPG Enterprises, believes that the Act will lead companies to spend according to the needs of the country, not according to their own personal or family preferences, as has traditionally been the case in India (21).

Others have praised the bill for creating jobs (22) and for encouraging large companies to invest in underserved areas of the country (23). Others are optimistic that corporate expertise could be used to benefit society by, for example, having an oil company’s engineers focus on environmental cleanup activities (24).

b. Negative Responses

Some critics of the Act say that the CSR spending requirement is a tax, and it thus reduces efficiency (25). Some say the requirement forces business to do the job government should be doing (26). Other commentators say that the requirement jeopardizes the flexibility of the normally- voluntary CSR process, and disrupts a system of broader voluntary guidelines that encourage companies to also minimize their negative societal and environmental impact (27). Although it seems clear that the Act does allow companies to merely explain in a report why they did not comply (28), the Act does not in any way require that companies seek to minimize their environmental impacts (29).

III. Opportunities for Clarification and Progress

a. Practical Considerations

In addition to the principle-based concerns above, other commentators have more practical questions about the Act, concerns which could prompt the government to improve the Act through rulemaking. First, some believe that the CSR provisions are effectively toothless, as there are no penalties for non-compliance beyond the reporting requirement(30). Second, other analysts wonder about the scope and enforceability of the Schedule VII guidelines (31). In response, the Indian Minister for Corporate Affairs, Sachin Pilot, recently told the press that “the government would not like to say where [companies] must spend.” (32)

Another issue worthy of clarification is potential “greenwashing.” (33) Vedang Mishra and Hrishikesh Datar noted that, absent further clarification of the Schedule VII categories, companies could meet the spending objectives by categorizing normal business spending as “employment enhancing vocational skills” and “social business projects”, two of the Schedule VII categories (34). A. Didar Singh, the Secretary General of a leading Indian business advocacy organization, recently stated that he hopes the Act’s final rules permit companies to count government-mandated environmental remediation as CSR spending (35). The government could use regulation to guard against such double-counting.


India’s Companies Act, 2013 introduces mandatory CSR reporting for India’s largest companies, and encourages them to spend 2 percent of their average net profits on CSR. Many commentators have expressed concerns about the Act which could require the government to clarify through rulemaking. The government could take this opportunity for further clarification to also encourage companies to focus on employment and educational opportunities for India’s rural women. Such a focus could have a dramatic impact on the development prospects of India’s rural areas.

By Robert B. Fitzpatrick and Andrew J. Hass, Robert B. Fitzpatrick, PLLC (Washington DC)

1) Umakanth Varottil, Companies Act, 2013 Receives Presidential Assent, INDIACORPLAW (Sept. 3, 2013, 10:53 AM),
2) See, e.g., Introduction to Corporate Social Responsibility, GOV'T OF MAURITIUS, 2009, at 1, available at TO CORPORATE SOCIAL RESPONSIBILITY.pdf (last visited Dec. 1, 2013).
3) See Shreyasi Singh, India’s Companies Act: Legally Enforced Social Responsibility, THE DIPLOMAT, Aug. 27, 2013,; India Soon to Enact Corporate Social Responsibility Requirements, ASIAN PHILANTHROPY FORUM, June 18, 2013,
4) See infra text accompanying notes 6-14.
5) For the Act to apply, a company must have either (1) a net worth of rupees 500 crore (approximately $90 million) or more; (2) a turnover of rupees 1,000 crore (approximately U.S. $180 million) or more; or (3) a net profit of rupees 5 crore (approximately U.S. $900,000) or more. The Companies Act, 2013, No. 18, § 135, Acts of Parliament (India), 2013, available at
6) Id. Ernst & Young has estimated that the Act will cover more than 2,500 companies in India. ERNST & YOUNG, Corporate Social Responsibility in India, July 9, 2013, at 22, available at
7) The Companies Act, 2013, No. 18 at § 135.
8) Id. Neither the Act nor the draft rules proposed by the Ministry of Corporate Affairs address what the precise contents of these reports must be.
9) Id.
10) See NISHI DESAI ASSOCS., Corporate Social Responsibility & Social Business Models in India, Nov. 2013, at 10-11, available at
11) See The 2% CSR Clause: New Requirements for Companies in India, KORDANT PHILANTHROPY ADVISORS, 2013, at 2, available at (last visited Dec. 1, 2013) (“[O]fficers who default on the reporting provision could be subject to up to three years in prison.”).
12) The Act allows for sentences of up to ten years for auditors who engage in fraud. See The Companies Act, 2013, at § 447 (p. 227).
13) Id. § 135.
14) Millennium Development Goals: Background, UNITED NATIONS, 2013, (last visited Nov. 26, 2013); Towards Achieving Millennium Development Goals, India 2013, GOV’T OF INDIA, Oct. 17, 2013, at 14-17, available at
15) The Companies Act, 2013, at Sch. VII (p. 294).
16) See GRANT THORNTON INDIA LLP, Implications of Companies Act, 2013, Corporate Social Responsibility, (last visited Nov. 24, 2013).
17) Id. at 4.
18) Id.
19) See Krishna Kant & M. Saraswathy, Listed Companies Liable to Put Aside Rs 8,100 cr in FY13 for CSR, BUS. STANDARD (Oct. 7, 2013, 12:50 PM),
20) Subaskar Sitsabeshan, Indian Businesses Will Soon Have to Spend 2% of their Earnings on CSR by Law, THE CLIMATE GRP. (Oct. 30, 2013),
21) Harsh Goenka, Op-Ed, Why It Is a Good Idea to Mandate Corporate Social Responsibility, THE ECON. TIMES (Sep. 1, 2012, 4:48 AM),
22) CSR to Make Available 50,000 More Jobs in the Sector: Experts, BUS. STANDARD, Oct. 13, 2013,
23) See PARTNERS IN CHANGE, Section 135 (the New Companies Act 2013) CSR Spending Estimates - BSE Top 100, 2013, at 7, (last visited Nov. 25, 2013).
24) See Syed Mafiz Kamal, The “2%” Impact of India’s Companies Bill: “Creative Capitalism” for Development, INDEP. SKIES MAG., Sept. 16, 2013,
25) See Aneel Karnani, Mandatory CSR in India: A Bad Proposal, STANFORD SOC. INNOVATION REV., May 20, 2013,
26) See Shashank Sharma, Making CSR Mandatory in India - A Flawed Approach, 3 INT’L J. OF SOC. SCI. & HUMANITY 33, 33 (2013), available at; Mark Hodge, Two Elephants in the Indian CSR Room: Time to Focus on Business Impacts and State Duties, INST. FOR HUMAN RTS. & BUS., Aug. 20, 2013, (“The stark truth is that human rights abuses … require the state to do more than mandate corporate philanthropy.”).
27) See Poonam Madan, CSR Law Too Narrow in Scope, HINDU BUS. LINE, Oct. 16, 2013,; see alsoAm. Bar Ass’n Int’l L. Comm., Corporate Responsibility (White Paper) 7 (2007) (“It is not realistic to expect corporations to incur significant economic losses or abandon valuable properties or opportunities in circumstances where the character of governmental policy is controversial and perhaps even ambiguous.”).
28) See supra notes 10-13 & accompanying text.
29) India’s environmental laws do make such requirements, however. See, e.g., The Environment (Protection) Act, 1986, No. 29 of 2003, India Code (2012), vol. 1, available at
30) See Kamal, supra note 24.
31) See, e.g., KPMG, Companies Act 2013: New Rules of the Game, 2013, at 23, available at (last visited Nov. 27, 2013).
32) Puja Mehra, Government Clarifies on CSR Spending, THE HINDU (Nov. 6, 2013, 11:28 AM),
33) “Greenwashing” is the marketing tactic of claiming that a product or practice is environmentally sound when in fact the product or practice is no better for the environment than an alternative, and could be much worse. See Greenwashing, INVESTOPEDIA, (last visited Nov. 27, 2013).
34) See Vedang Mishra & Hrishikesh Datar, New Company Law: Doing Business with the “Compulsory” Corporate Responsibility, YOUR STORY, Aug. 14, 2013,
35) A. Didar Singh, Op-Ed, CSR: A Winning Proposition, HINDU BUS. LINE, Sept. 15, 2013,

UK - More scope to justify employee terminations in a TUPE transfer

In a case concerning a soccer club, the UK Court of Appeal has ruled on where employee dismissals can be justified in the context of a TUPE transfer. The question was whether the reason for the dismissals was primarily to make the business more attractive to a seller (which would have fallen foul of the TUPE protection), or whether it related to the efficient running of the business in the period before the sale (which falls within the ETO exception justifying dismissals, under TUPE).

TUPE and dismissals

The European Acquired Rights Directive is implemented in the UK by way of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). Dismissals connected with a TUPE transfer will be automatically unfair, provided employees have sufficient seniority (1 year’s seniority for employees joining before 6 April 2012; 2 years for employees who joined after that date). Statutory unfair dismissal entitles employees to compensation of up to the lesser of one year’s pay, or £74,200, plus a basic award of up to £13,500 based on seniority.
Dismissals can however be justified where the sole or principal reason for the dismissal is an economic, technical or organisational (“ETO”) reason entailing changes in the workforce. This exception requires the employer to show an objective need to change the workforce as part of the day to day running of the business, and would not encompass positioning the business for a sale further down the line.

Liability for pre-transfer liabilities, including unfair dismissal, usually passes to the purchaser by operation of law. Ordinarily this is dealt with by way of indemnities between the buyer and seller under the sale agreement, but these are typically not forthcoming where the business sold is insolvent.


The case concerned a soccer club, Crystal Palace FC, which was put into administration as a result of its financial troubles. Under UK law, the administrator appointed to run the Club had a primary responsibility to the Club’s creditors, either to rescue the company as a going concern, or to realise a higher repayment for them than if it were immediately liquidated and its assets sold off. The administrator tried to secure a sale of the Club as a going concern over a period of five months. At the end of that time, and entering the end of the soccer playing season, the administrator decided to ‘mothball’ the Club with the aim of reducing its staffing costs and helping it survive until it could be sold. All non-core staff, some 29 in total, were made redundant.

The sale of the Club was subsequently agreed the following month, and completed two months later.

The Claimants brought claims for unfair dismissal.

History of the litigation

The case was initially heard by the UK Employment Tribunal, which found in favour of the administrator and upheld the dismissals. The decision was then reversed by Employment Appeal Tribunal before being restored by the Court of Appeal, which is the second most senior court of England and Wales. This decision then carries significant weight, making it more useful for employers. The series of appeals shows however that these cases tend to be finely balanced, and will depend heavily on the particular facts.

The Court of Appeal’s decision

The key question for the Court was whether the sole or principal reason for the dismissals was the TUPE transfer, or whether it was an ETO reason relating to the operation of the business.

In a previous decision of a lower court, the Employment Appeal Tribunal, the dismissal of a CEO was held unfair because its main purpose was “to make the business of the company a more attractive proposition” to prospective buyers (Spaceright Europe Ltd v Baillavoine and another [2012] IRLR 111). For dismissals to be justified in the context of a TUPE transfer, they needed to be primarily grounded on a need to change the workforce as part of the ongoing operation of the business.

Spaceright concerned an employee dismissed on the same day that a business entered administration. The business was supported by its main lender so did not need to dismiss the employee in order to stay afloat. Although a buyer had not been identified, it was clearly the plan that the business would be sold and that given his position, the CEO would then be surplus to requirements. On these facts, the employee’s dismissal was mainly motivated by a potential sale of the business, which would entail a TUPE transfer, and was not justified on ETO grounds.

In the case of Crystal Palace, a sale was far more clearly in prospect - a sale agreement with a prospective buyer had in fact been finalised, although completion was still subject to the separate negotiation and sale of the stadium used by the Club. However, there was no evidence that the dismissals were designed to make the Club more attractive to a prospective buyer. There was however clear evidence that there was an immediate need to reduce the Club’s wage bill in order for the Club to survive until a sale could be concluded. Although a fairly fine line, the Court held that the primary driver was the immediate survival of the business rather than to facilitate a future sale. This meant that the dismissals fell within the ETO exception under TUPE, and were not unfair.

The fact that the administrator had always had the ultimate intention to sell the Club, either as a going concern or to liquidate it did not mean he could not rely on the ETO exception. The purpose of an administration is always to dispose of assets and realise maximum value for creditors, which will inevitably trigger the TUPE transfer of any employees who are (or should have been) employed at that point. If the ETO exception did not apply where there was the prospect of a sale of the business, no administrator could ever rely on this exception and any dismissals they made would inevitably be unfair.

Where a business is insolvent, there is a difficult balancing exercise between TUPE (which is designed to protect employees where a business changes hands) and the UK insolvency regime (which aims to secure maximum value for creditors, with only limited “guaranteed” payments to employees). The Court of Appeal has struck a sensible balance between the employees’ right not to be dismissed simply to maximise the value of any sale, against the creditors’ priority over the sale proceeds. The decision recognises the fact that administrators usually need to “reform and economise” the way a business is being run while negotiating a sale, where the aim is to sell the business instead of liquidating it.


The principles of this case are not limited to insolvent businesses. Dismissals in the context of a TUPE transfer are always liable to challenge, and will typically have the dual purpose both of helping the business survive in the short term, and positioning it for a sale in the longer term. This decision confirms that provided the immediate reason for the terminations is to keep the business afloat day to day, dismissals can be justified on ETO grounds even where a sale of a going concern is the ultimate objective.
Outside the insolvency arena, employers may also need to rely on ETO grounds when justifying dismissals either before or after a TUPE transfer. This case confirms that where there is an immediate business case for those terminations, whether for financial or wider organisational reasons, they can potentially be justified even in the context of a sale or other TUPE event. Particular care needs to be taken where sale negotiations are already underway - whether or not a likely buyer has been identified - to ensure there are clear reasons to show any dismissals were required as part of the day to day running of the business, independent of any sale.

By Georgina McAdam and Tessa Cranfield, Seyfarth Shaw (UK) LLP

EU Bankers' Bonus Caps - What will this mean for US banks and their advisers?

According to data compiled from their quarterly reports at the end of September 2013, nine of the world’s largest banks in the US and Europe had set aside a combined total of $51.4 billion for their bankers overall pay. This represents an overall decrease on the previous year of approximately five percent. (Hall, December 2013) and is indicative of a global decline in both the numbers and overall remuneration of bank employees. So what are the challenges currently facing European banks and how are these likely to impact on their counterparts in Wall Street.

The new European Landscape

Following the financial crisis of 2008, the regulatory landscape of remuneration in financial services in the EU has undergone a rapid evolution. The European focus has been towards tighter regulation and a reduction of bankers’ variable remuneration in order to steer banks away from a culture which rewards risk.

The European Capital Requirements Directive III brought about the introduction of the Financial Services Authority’s Remuneration Code in 2011, which implemented restrictions on variable remuneration for senior managers and ‘risk takers’ in banks and credit institutions. Since then, the climate of regulation has escalated still further. The European Parliament has sought to clamp down severely on bankers’ bonuses through the introduction of the Capital Requirements Directive IV (“CRD IV”), which is due to be implemented by member states by 1 January 2014.

CRD IV, apart from tightening capital and liquidity requirements for banks, introduces a cap on bankers’ bonuses of 100 per cent of annual salary. Exceptionally, bonuses of up to twice annual salary may be authorised by a 66 per cent shareholder majority, or a 75 per cent majority if less than half of the shares are voted.

CRD IV has presented something of a major challenge to the UK in particular. Figures released by the European Banking Authority (EBA) for 2012 remuneration suggest that the UK had some 2,714 bankers who earned in excess of €1m, while Germany had just 212, and France 177. It is no surprise that the UK government has opted to pursue the fairly risky strategy of siding with the wealthy banking community in mounting a legal challenge to the European Parliament’s interference with the ability of UK banks to compete for talent. The inevitable result if they lose is a greater emphasis on fixed remuneration (which is likely to increase dramatically) and a steady flow of migrating talent to Wall Street.

What does CRD IV entail?

The model adopted by investment banks has traditionally favoured variable remuneration as a reward for performance. Top bankers usually receive bonuses well in excess of their fixed salary. Banks pass on such annual bonus rewards using a mixture of discretionary and deferred bonuses (including cash and equity elements) which are based on both individual and overall financial performance. This has arguably led to the rewarding of risk and it is this which has motivated the regulatory clamp-down. However, the measures are also apparently driven by perceived public pressure; Philippe Lamberts, MEP, comments that “EU-wide curbs on the excessive bonuses paid to bankers would mean the EU is finally, if belatedly, responding to public interest and demand regarding the sometimes obscene level of bankers’ remuneration.”

For all EU based banks and US banks to the extent they operate local branch offices in the EU CRD IV bankers’ remuneration will entail the following:

• Variable pay will be capped at a ratio of 1:1 fixed to variable remuneration. The first bonuses to be affected will be those paid in 2015 in respect of performance in 2014.

• This ratio can be raised to a maximum of 2:1, if a quorum of shareholders representing 50% of shares participates in the vote and a 66% majority of them supports the measure.
(If the quorum cannot be reached, a 2:1 ratio can also be approved if it is supported by 75% of shareholders present.)

• The local regulators must be informed of recommendations to shareholders and of the result of any shareholder vote, which must not conflict with an institution’s obligations to maintain a sound capital base.

• Additional transparency and disclosure requirements have been put in place relating to the number of individuals earning more than one million EURO per year.

• Fifty per cent of variable remuneration must be in shares or other capital instruments, such as contingent convertible debt instruments, and at least forty per cent of variable remuneration must be deferred for three to five years. This deferred remuneration can benefit from a discounted valuation for the purposes of the cap, and deferrals of more than five years are incentivized by a slightly preferable discount factor.

• Long-term instruments must be capable of being ‘clawed-back’ or subject to bad-leaver or ‘malus’ provisions.

Who will be affected?

CRD IV will apply to credit institutions and investment firms operating in the EU.

The firms affected are those who operate within the scope of the Markets in Financial Instruments Directive and which are regulated by the Prudential Regulation Authority under BIPRU. It is not yet clear whether there will be an exemption for smaller institutions.

The bonus cap will apply to senior management within banks, ‘risk-takers’, staff engaged in controlled functions, and any employee receiving total remuneration that takes them into the same pay bracket as senior management and risk-takers, and whose professional activities have a material impact on the bank’s risk profile. This means the cap will apply to the following bank staff:

(i) those whose total remuneration exceeds €500,000;

(ii) those remunerated within the top 0.3 per cent of an institution;

(iii) those whose total remuneration exceeds that of the lowest member of senior management; and,

(iv) whose variable remuneration currently exceeds €75,000 and 75 per cent of their fixed remuneration.

The provisions are wide-reaching. They apply to all banking staff working within Europe regardless of where the bank is headquartered, and, in addition, to all of the staff employed by of a European bank regardless of where in the world they work.

What will this mean for institutions and their staff?

The immediate issue of concern is that EU-based financial institutions will struggle to compete for top talent in the US and Asian markets. (The European Commission has agreed to carry out an impact assessment of the extra-territorial effect in June 2016.)

In an effort to compete EU banks will have to increase their fixed salaries in line with the 1:1 ration of fixed to variable pay. One UK bank, Barclays has already indicated that it will both increase fixed salaries from some of its top earners and alongside this it plans to introduce a fixed monthly “seniority” payment which it will revise annually. This payment, although fixed, will not impact on pension or other benefit entitlements in the same way as salary.

Several other firms are likely to follow Barclays lead provided the FSA (the local regulator) approves this scheme. Moreover, firms are likely to seek shareholder approval to raise the cap to twice the fixed remuneration. Firms might even designate dividend payments to certain bankers (the cap does not currently apply to dividends) provided that the bank’s shareholders were willing to approve the scheme

What is the likely impact on US institutions?

In terms of the international framework, the regulatory restrictions on remuneration applying to European countries will from January 2014 be more onerous than those adopted by every other G20 nation. CRD IV goes further than the requirements for Financial Stability Board’s Principles for Sound Compensation Practices which was put forward in 2009. Regulation outside of Europe more directly reflects the FSB standards, with Asia having the most relaxed regulatory standards.

This means that for US institutions greater competition for talent is likely to come from Asia in future rather than from the UK. The top earning bankers will in all likelihood drift West or East as the impact of the bonus cap is felt.

An indirect effect is also likely to be an increase in fixed remuneration across the banking community as EU-based firms increase salaries of senior employees operating in world-wide markets.

Local advisers in the US and elsewhere will need to become familiar with the EU bonus provisions which will bite on European banks operating in their jurisdictions. The solutions adopted in the UK will also most likely work in the US market. Therefore, its very likely that in future employment practitioners who advise banks in the US will gain exposure to drafting and advising in relation to monthly “seniority” payments which are set at the outset of each financial year and which will operate much like fixed monthly drawings do in a partnership.

There is the potential for future litigation in relation to this issue, particularly given the need to defer bonuses for long periods and the likelihood that bonus awards will be tied into loyalty and will lapse if the employee leaves before they receive the payment. The potential for restraint of trade arguments (already ripe in the UK) is likely to become much more common in the US.

By Michael McCartney and Rebecca Johns, London office, Fasken Martineau LLP

USA - Employers Need to Care About Bounty Awards

What is perhaps the most controversial section of the Dodd-Frank Wall Street Reform and Consumer Protection Act (commonly referred to as “Dodd-Frank”), the whistleblower bounty provision, just exploded. On October 1, 2013, the Securities and Exchange Commission (the “SEC”) announced a payment of more than $14 million to an unidentified whistleblower. Under the Dodd-Frank whistleblower provision, individuals who report information to the SEC relating to a securities law violation may be entitled to a monetary reward.

To date, three bounty awards have been announced. The first award in August 2012 was for less than $50,000 and was largely ignored, as was a second award a year later for approximately $125,000 that was shared by three individuals. During 2012, the first full year the bounty program was in effect, the SEC reported receiving approximately 3,000 whistleblower submissions as well as more than 3,000 hotline phone calls. With the announcement of this latest, substantial award, however, employees and plaintiff’s lawyers are now paying attention to the bounty program.

Employers, with good reason, are (and if not, they should be), concerned that employees will be lining up to provide the SEC with information pertaining to financial violations and regulatory failures in the hopes of obtaining a large payout. The SEC is encouraging employees to come forward with incriminating evidence to assist its mission to protect investors and enforce federal securities laws with the promise of big cash awards. Here’s generally how it works: An individual, or two or more individuals acting jointly, who voluntarily provides the SEC with original information relating to a securities law violation, which information leads to a successful enforcement action recovering a monetary penalty of more than $1 million, qualifies as a “whistleblower” entitled to receive a financial award between 10 and 30% of the ultimate recovery. Even if the SEC is already aware of the issue or is in the process of investigating, or both, the individual may still be eligible for an award provided that the information supplied materially adds to what is already known. Confidential complaints are allowed as long as the whistleblower has counsel submit and verify the information provided.

In an effort to maximize the willingness of employees to step forward with information, and to protect those who do, the SEC has coupled the bounty provision with robust anti-retaliation provisions. Thus, the SEC is broadcasting to employees the message that it wants their help to root out corruption, will pay generously for their assistance—and the employees will have job protection if they help. The SEC has the power to bring a complaint of retaliation on an employee’s behalf, and its representatives have indicated that they are looking for appropriate test cases.

Dodd-Frank’s anti-retaliation protections have teeth. Retaliation is defined broadly, and covers discharge, demotion, threats, and direct and indirect harassment as well as any other discriminatory conduct. There is, however, active debate as to whether or not foreign nationals can receive protection here – certainly some recent court cases have said no.

It is frightening for employers to contemplate this scenario, but employees may choose to use anti-retaliation protections as a sword rather than a shield, meaning that an employee who anticipates termination, demotion or an adverse employment action for whatever reason may bring information to the SEC in order to immunize him or herself from an adverse action with the protection afforded whistleblowers under the law. Employees do not have to recover a bounty to be protected. Nor do they have to provide information relating to an actual securities violation. Rather, employees simply have to have a “reasonable belief” that the information relates to a “possible” securities violation, a fairly low standard.

However, a small ray of hope for employers is that if employees only complain about alleged violations internally, without going to the SEC – and are then fired or subjected to other adverse employment actions – Dodd Frank’s anti-retaliation provision may not protect them in that situation. Current courts also seem split on this.

Because of that loop hole, however, the fear is that employees will bypass any internal mechanisms and go directly to the SEC. The rules, however, anticipate a hybrid approach to put the employer on notice first. An employee who raises an issue internally first, and then goes to the SEC within 120 days (as required for award eligibility), is supposed to get a higher percentage payout than one who goes straight to the SEC. Nonetheless, unless the award differential is quantified and communicated, it may not have much impact.

What can employers do to counteract the allure of Dodd-Frank’s rewards and protections? There are measures that could hopefully slow down any trend towards circumventing the internal reporting mechanisms and heading straight to the SEC. First and foremost, employers must establish and maintain a culture in which ethics and accountability are valued and rewarded. The workforce should receive training in corporate compliance and where to report concerns about misconduct or compliance lapses. Management should be trained on how to respond to questions, concerns and complaints about ethics, financial irregularities and any other questionable practices and ensure that employee complaints about these issues are treated seriously and not ignored by the mangers receiving them.

Companies must have robust policies and procedures, in multiple languages where appropriate, for employees to make complaints, including anonymous complaints. The complaint procedure should be accessible 24/7, if appropriate. Additionally, employers must establish clear, written procedures for prompt, comprehensive, objective internal investigations. All such policies and procedures must be communicated in writing, at least on an annual basis, to employees. All complaints, and actions taken to investigate and respond to complaints, should be documented, and the investigations should be conducted in an impartial manner. Employees should be encouraged in writing and in periodic training sessions to raise questions and concerns with management. An obligation to report legal violations or compliance lapses should be included in a company’s Code of Conduct. Moreover, a demonstrated commitment to compliance and ethics should be assessed in performance reviews and rewarded as appropriate. Lastly, the commitment towards ethical conduct, compliance, integrity and transparency must be demonstrated at the highest levels of the organization or employees may look elsewhere for relief.

While there is no guarantee that employers can avoid having employees go directly to the SEC with real or imagined violations, taking these actions and creating a culture where ethics and compliance are expected, and respected, could go a long way to helping to protect the company.

By Joel J. Greenwald, Esq., managing partner of Greenwald Doherty, LLP, an Employment and Labor law firm, representing exclusively management.