Dear all
Welcome to the Spring edition of the newsletter. Many thanks to all of our contributors, and we look forward to seeing as many of you as possible in NYC next month!
Helen Colquhoun
Dual qualified in NY and England & Wales
Withers LLP
Thursday, March 13, 2014
PRC: New Interim Provisions on Labor Dispatch Rules: Increased Clarity and a Two-Year Grace Period
The PRC Ministry of Human Resources and Social Security (MHRSS) recently released the Interim Provisions on Labor Dispatch Rules (Interim Provisions). The Interim Provisions came into effect on March 1, 2014 and are intended to supplement and clarify the labor dispatch regime introduced by way of the PRC Employment Contract Law and its amendments which took effect on July 1, 2013 (ECL).
The Interim Provisions are identical in many respects to the draft Labor Dispatch Rules (Draft Rules), which were released by the MHRSS for public consultation on August 7, 2013. There are, however, some important differences.
This article provides an overview of the key features of the Interim Provisions and highlights the material differences between the Interim Provisions and the earlier set of Draft Rules.
Overview of the Interim Provisions
Which user entities and workers are affected?
The Interim Provisions apply to all staffing agencies that engage in the business of labor dispatch (labor dispatch agencies) and enterprises that use dispatched workers (user entities).
The term “labor dispatch” is not defined under the ECL or the Interim Provisions. It generally refers to the situation where a staffing agency dispatches a worker it employs to work for another entity, the “user entity”. Staffing agencies are required under the ECL to obtain approval from the MHRSS to engage in the business of labor dispatch.
The Draft Rules attempted to define labor dispatch, but the definition was removed from the Interim Provisions. This appears to give the authorities more flexibility to adopt a broader interpretation in the enforcement of the Interim Provisions. In fact, the Interim Provisions specifically state that where workers are hired in the name of contracting or outsourcing arrangements, but a labor dispatch arrangement in fact exists, the same rules will apply.
Unlike the Draft Rules, the Interim Provisions do not clarify whether they apply to workers being transferred or seconded between entities within the same corporate group. This again provides more room for the authorities to interpret on a case by case basis whether it is a labor dispatch arrangement.
However, the Interim Provisions do clarify that representative offices of foreign companies or financial institutions in the PRC, and entities that use dispatched workers as sailors, are not subject to the restriction on the number of dispatched workers they may use or the work which they may perform (see below for further details). In addition, government departments and institutions which use dispatched workers are excluded from the Interim Provisions entirely; employers which dispatch workers to work overseas or to work for families or individuals are also excluded.
What are the restrictions on labor dispatch arrangements?
Under PRC law, labor dispatch is permitted only as a supplemental form of employment for temporary, auxiliary or substitute positions (aside from representative offices, which as mentioned above are not subject to restrictions on the number of dispatched workers or the work which they may perform). These positions are defined in the ECL and the Interim Provisions as follows:
• Temporary position: a position that exists for not longer than six months.
• Auxiliary position: a position which is not part of the user entity’s core business but which supports the user entity’s core business.
• Substitute position: a position that becomes vacant due to an employee taking study or other leave, and as a result a substitute worker is needed to fill the position for a certain period of time.
The Interim Provisions limit the number of dispatched workers which can be used to 10% of the user entity’s total workforce (ie those entering into an employment contract with the user entity plus the dispatched workers). (This differs from the position under the Draft Rules, which capped only the number of dispatched workers in auxiliary positions, with no cap applying to other positions.)
If the user entity intends to use dispatched workers for auxiliary positions, then it is required to undergo the same consultation process under Article 4 of the ECL as it should for the implementation of new policies bearing on the vital interests of the employees. The Interim Provisions do not specify when the consultation must take place, but presumably, to the extent that a user entity intends to engage new dispatched workers into auxiliary positions, then the consultation should take place beforehand, and for those auxiliary positions which are already filled, consultation should take place before the end of the transition period (see below).
Will there be a transition period?
Helpfully for employers, the Interim Provisions provide for a transition period of two years, during which each user entity must decrease its labor dispatch ratio to comply with the new requirements. Critically, until a user entity has reduced its ratio of dispatched workers to total workforce to below 10%, the user entity may not engage any additional dispatched workers.
In addition, various requirements in the Interim Provisions (other than the requirement for equal pay for equal work) will not apply to contractual arrangements entered into before 28 December 2012 between user entities and labor dispatch agencies and dispatched workers; rather, these agreements may continue in force until their expiration.
The Interim Provisions are silent on whether user entities may return dispatched workers on the ground that: (a) the positions filled by the dispatched workers do not qualify as “temporary”, “auxiliary” or “substitute” positions, or (b) the percentage of the dispatched workers exceeds the permitted cap, or (c) the labor dispatch agencies failed to obtain government approval to provide the labor dispatch services. (The Draft Rules prohibited this.) Rather, user entities that exceed the 10% ratio as of March 1, 2014 are required to formulate a transition plan to reduce the number of dispatched workers to below 10% by March 1, 2016 and file the plan with the local branch of the MHRSS. The Interim Provisions are silent with respect to when a user entity must file the plan.
Given that labor dispatch agencies generally sign fixed-term contracts of two years with dispatched workers, the newly introduced two-year transition period under the Interim Provisions will, in many cases, allow the user entities to gradually reduce the number of dispatched workers whom they engage by simply letting their contracts expire within the transition period, unless the dispatched workers agree to work directly for the user entity.
What are the obligations of the user entity?
(Contract with labor dispatch agency) The Interim Provisions stipulate that the labor dispatch agreement between the user entity and the labor dispatch agency must contain certain minimum content. This includes the name and nature of the positions to be filled, the place of work, the number and term of dispatched workers required, the amount and payment method for the workers, determined in accordance with the equal pay for equal work principle, the amount and payment method of social insurance contributions, the working hours and leave arrangements, benefits for dispatched workers in relation to work-related injuries, maternity or illness, provisions regarding work safety, hygiene and training, severance and other expenses, the term of the labor dispatch agreement, the rate and payment method of the labor dispatch service fee, and provisions dealing with liability for breach of contract.
(Return of dispatched workers by the user entity) Under the ECL, dispatched workers must be engaged by the labor dispatch agency for a minimum term of two years. The Interim Provisions permit the labor dispatch agency to impose only one probation period in relation to each dispatched worker. This provision leaves open the question of whether a user entity engaging a dispatched worker for the first time may impose a probation period if the dispatched worker was previously subject to a probation period through the same labor dispatch agency but for a different user entity. If so, then user entities may find that they need to work with different labor dispatch agencies in order to ensure they can impose a probation period on a new hire.
The ECL limits the situations in which a user entity may return a dispatched worker to the labor dispatch agency and in which the labor dispatch agency may in turn terminate the employment of the dispatched worker. Helpfully for employers, the Interim Provisions added a few permitted situations in which a user entity may return a dispatched worker to the labor dispatch agency. Specifically, the new, key grounds for returning dispatched workers follow:
a. there is a material change which frustrates the engagement of the dispatched worker by the user entity or there is a mass redundancy at the user entity (except where the dispatched worker is sick, injured, pregnant, on maternity leave or in the nursing period);
b. the user entity is declared bankrupt, has its licence revoked, is ordered to close down or decides to dissolve or to discontinue its business upon the expiry of its operating period; and
c. the labor dispatch agreement expires.
In each of the above circumstances the labor dispatch agency may not terminate the employment of the dispatched worker, but must instead find the dispatched worker another assignment. During the period while no work is assigned to the returned dispatched worker, the labor dispatch agency may pay the individual the minimum wage applicable in the locality in which the labor dispatch agency is registered.
(Social insurance) Under the Interim Provisions the labor dispatch agency has primary responsibility for enrolling the dispatched worker in a social insurance scheme and making social insurance contributions in accordance with the regulations in the location where the dispatched worker is assigned to work. If, however, a dispatched worker is assigned to a user entity located in a region in which the labor dispatch agency does not have a presence, the responsibility for making the necessary arrangements for social insurance enrolment and contributions for the dispatched worker will fall to the user entity.
(Work-related injuries and occupational disease) The labor dispatch agency is primarily responsible for providing work-related injury insurance and applying for work-related injury examinations where a dispatched worker is injured at work. Under the Interim Provisions however, the user entity must assist in the investigation and verification of work-related injury examinations. Where a dispatched worker applies for a diagnosis or assessment in respect of an occupational disease, the user entity must handle the matter and provide accurate information to the assessor, for example, in relation to the employment history of the dispatched worker, his/her history of exposure to harmful materials and other risk factors in the workplace.
Likely impact?
As anticipated, the Interim Provisions expand upon and provide increased regulation of many aspects of the legal relationship between user entities, labor dispatch agencies and dispatched workers. User entities have increased responsibility to verify that the arrangements by which dispatched workers are engaged and assigned to them are compliant with the law and that their agreements with a labor dispatch agency fulfill minimum content requirements. In particular, user entities need to note that the 10% restriction on the ratio of dispatched workers now applies to all positions which a dispatched worker may fill, and not just to auxiliary positions. User entities which attempt to avoid their obligations under the labor dispatch regime by attempting to package labor dispatch arrangements as outsourcing or contractor arrangements may be subject to sanction by the MHRSS.
The Interim Provisions scaled back on some of the penalty provisions that appeared in the Draft Rules. Under the Draft Rules, one of the consequences of non-compliance by a user entity is that a direct employment relationship will be deemed to have been established between the user entity and the dispatched worker. This was removed from the Interim Provisions. Instead, the Interim Provisions simply provide that the penalties under the ECL will apply, eg where the position filled by the dispatched worker is not a temporary, auxiliary or substitute position, or the permitted cap is exceeded, the user entity may be liable to pay a fine of RMB5,000-10,000 for each dispatched worker. Notably, under the Interim Provisions, in the event that the user entity fails to follow the consultation process for the auxiliary positions as stated above, it will receive a warning from the labor authorities and be ordered to rectify the non-compliance with a specified period of time, and will also be liable for the damages caused to the dispatched workers.
Although the Interim Provisions scaled back the penalties, non-compliance with the new labor dispatch rules may result in reputational damage and undermine relations with the relevant authorities. Accordingly, all employers who use labor dispatch arrangements should pay careful attention to the contractual arrangements in place between themselves and the labor dispatch agency as well as between the labor dispatch agency and the dispatched worker. For some, restrictions on the use of dispatched workers will require careful consideration as to future resourcing for these positions.
What happens next?
The MHRSS has issued a notice to encourage its local branches to promote the requirements under the Interim Provisions, as well as supervise and guide entities to comply with the requirements. In the meantime, employers in the PRC using labor dispatch arrangements should, if they have not done so already, start developing and implementing plans to ensure compliance with the requirements of the Interim Provisions, including a plan to consult over the use of labor dispatch to fill auxiliary positions and a plan to submit to the local MHRSS.
Submitted by Lesli Ligorner, Shanghai-based partner at Simmons & Simmons LLP, and associates Johnny Choi (Beijing) and Gillian McKenzie (Hong Kong).
The Interim Provisions are identical in many respects to the draft Labor Dispatch Rules (Draft Rules), which were released by the MHRSS for public consultation on August 7, 2013. There are, however, some important differences.
This article provides an overview of the key features of the Interim Provisions and highlights the material differences between the Interim Provisions and the earlier set of Draft Rules.
Overview of the Interim Provisions
Which user entities and workers are affected?
The Interim Provisions apply to all staffing agencies that engage in the business of labor dispatch (labor dispatch agencies) and enterprises that use dispatched workers (user entities).
The term “labor dispatch” is not defined under the ECL or the Interim Provisions. It generally refers to the situation where a staffing agency dispatches a worker it employs to work for another entity, the “user entity”. Staffing agencies are required under the ECL to obtain approval from the MHRSS to engage in the business of labor dispatch.
The Draft Rules attempted to define labor dispatch, but the definition was removed from the Interim Provisions. This appears to give the authorities more flexibility to adopt a broader interpretation in the enforcement of the Interim Provisions. In fact, the Interim Provisions specifically state that where workers are hired in the name of contracting or outsourcing arrangements, but a labor dispatch arrangement in fact exists, the same rules will apply.
Unlike the Draft Rules, the Interim Provisions do not clarify whether they apply to workers being transferred or seconded between entities within the same corporate group. This again provides more room for the authorities to interpret on a case by case basis whether it is a labor dispatch arrangement.
However, the Interim Provisions do clarify that representative offices of foreign companies or financial institutions in the PRC, and entities that use dispatched workers as sailors, are not subject to the restriction on the number of dispatched workers they may use or the work which they may perform (see below for further details). In addition, government departments and institutions which use dispatched workers are excluded from the Interim Provisions entirely; employers which dispatch workers to work overseas or to work for families or individuals are also excluded.
What are the restrictions on labor dispatch arrangements?
Under PRC law, labor dispatch is permitted only as a supplemental form of employment for temporary, auxiliary or substitute positions (aside from representative offices, which as mentioned above are not subject to restrictions on the number of dispatched workers or the work which they may perform). These positions are defined in the ECL and the Interim Provisions as follows:
• Temporary position: a position that exists for not longer than six months.
• Auxiliary position: a position which is not part of the user entity’s core business but which supports the user entity’s core business.
• Substitute position: a position that becomes vacant due to an employee taking study or other leave, and as a result a substitute worker is needed to fill the position for a certain period of time.
The Interim Provisions limit the number of dispatched workers which can be used to 10% of the user entity’s total workforce (ie those entering into an employment contract with the user entity plus the dispatched workers). (This differs from the position under the Draft Rules, which capped only the number of dispatched workers in auxiliary positions, with no cap applying to other positions.)
If the user entity intends to use dispatched workers for auxiliary positions, then it is required to undergo the same consultation process under Article 4 of the ECL as it should for the implementation of new policies bearing on the vital interests of the employees. The Interim Provisions do not specify when the consultation must take place, but presumably, to the extent that a user entity intends to engage new dispatched workers into auxiliary positions, then the consultation should take place beforehand, and for those auxiliary positions which are already filled, consultation should take place before the end of the transition period (see below).
Will there be a transition period?
Helpfully for employers, the Interim Provisions provide for a transition period of two years, during which each user entity must decrease its labor dispatch ratio to comply with the new requirements. Critically, until a user entity has reduced its ratio of dispatched workers to total workforce to below 10%, the user entity may not engage any additional dispatched workers.
In addition, various requirements in the Interim Provisions (other than the requirement for equal pay for equal work) will not apply to contractual arrangements entered into before 28 December 2012 between user entities and labor dispatch agencies and dispatched workers; rather, these agreements may continue in force until their expiration.
The Interim Provisions are silent on whether user entities may return dispatched workers on the ground that: (a) the positions filled by the dispatched workers do not qualify as “temporary”, “auxiliary” or “substitute” positions, or (b) the percentage of the dispatched workers exceeds the permitted cap, or (c) the labor dispatch agencies failed to obtain government approval to provide the labor dispatch services. (The Draft Rules prohibited this.) Rather, user entities that exceed the 10% ratio as of March 1, 2014 are required to formulate a transition plan to reduce the number of dispatched workers to below 10% by March 1, 2016 and file the plan with the local branch of the MHRSS. The Interim Provisions are silent with respect to when a user entity must file the plan.
Given that labor dispatch agencies generally sign fixed-term contracts of two years with dispatched workers, the newly introduced two-year transition period under the Interim Provisions will, in many cases, allow the user entities to gradually reduce the number of dispatched workers whom they engage by simply letting their contracts expire within the transition period, unless the dispatched workers agree to work directly for the user entity.
What are the obligations of the user entity?
(Contract with labor dispatch agency) The Interim Provisions stipulate that the labor dispatch agreement between the user entity and the labor dispatch agency must contain certain minimum content. This includes the name and nature of the positions to be filled, the place of work, the number and term of dispatched workers required, the amount and payment method for the workers, determined in accordance with the equal pay for equal work principle, the amount and payment method of social insurance contributions, the working hours and leave arrangements, benefits for dispatched workers in relation to work-related injuries, maternity or illness, provisions regarding work safety, hygiene and training, severance and other expenses, the term of the labor dispatch agreement, the rate and payment method of the labor dispatch service fee, and provisions dealing with liability for breach of contract.
(Return of dispatched workers by the user entity) Under the ECL, dispatched workers must be engaged by the labor dispatch agency for a minimum term of two years. The Interim Provisions permit the labor dispatch agency to impose only one probation period in relation to each dispatched worker. This provision leaves open the question of whether a user entity engaging a dispatched worker for the first time may impose a probation period if the dispatched worker was previously subject to a probation period through the same labor dispatch agency but for a different user entity. If so, then user entities may find that they need to work with different labor dispatch agencies in order to ensure they can impose a probation period on a new hire.
The ECL limits the situations in which a user entity may return a dispatched worker to the labor dispatch agency and in which the labor dispatch agency may in turn terminate the employment of the dispatched worker. Helpfully for employers, the Interim Provisions added a few permitted situations in which a user entity may return a dispatched worker to the labor dispatch agency. Specifically, the new, key grounds for returning dispatched workers follow:
a. there is a material change which frustrates the engagement of the dispatched worker by the user entity or there is a mass redundancy at the user entity (except where the dispatched worker is sick, injured, pregnant, on maternity leave or in the nursing period);
b. the user entity is declared bankrupt, has its licence revoked, is ordered to close down or decides to dissolve or to discontinue its business upon the expiry of its operating period; and
c. the labor dispatch agreement expires.
In each of the above circumstances the labor dispatch agency may not terminate the employment of the dispatched worker, but must instead find the dispatched worker another assignment. During the period while no work is assigned to the returned dispatched worker, the labor dispatch agency may pay the individual the minimum wage applicable in the locality in which the labor dispatch agency is registered.
(Social insurance) Under the Interim Provisions the labor dispatch agency has primary responsibility for enrolling the dispatched worker in a social insurance scheme and making social insurance contributions in accordance with the regulations in the location where the dispatched worker is assigned to work. If, however, a dispatched worker is assigned to a user entity located in a region in which the labor dispatch agency does not have a presence, the responsibility for making the necessary arrangements for social insurance enrolment and contributions for the dispatched worker will fall to the user entity.
(Work-related injuries and occupational disease) The labor dispatch agency is primarily responsible for providing work-related injury insurance and applying for work-related injury examinations where a dispatched worker is injured at work. Under the Interim Provisions however, the user entity must assist in the investigation and verification of work-related injury examinations. Where a dispatched worker applies for a diagnosis or assessment in respect of an occupational disease, the user entity must handle the matter and provide accurate information to the assessor, for example, in relation to the employment history of the dispatched worker, his/her history of exposure to harmful materials and other risk factors in the workplace.
Likely impact?
As anticipated, the Interim Provisions expand upon and provide increased regulation of many aspects of the legal relationship between user entities, labor dispatch agencies and dispatched workers. User entities have increased responsibility to verify that the arrangements by which dispatched workers are engaged and assigned to them are compliant with the law and that their agreements with a labor dispatch agency fulfill minimum content requirements. In particular, user entities need to note that the 10% restriction on the ratio of dispatched workers now applies to all positions which a dispatched worker may fill, and not just to auxiliary positions. User entities which attempt to avoid their obligations under the labor dispatch regime by attempting to package labor dispatch arrangements as outsourcing or contractor arrangements may be subject to sanction by the MHRSS.
The Interim Provisions scaled back on some of the penalty provisions that appeared in the Draft Rules. Under the Draft Rules, one of the consequences of non-compliance by a user entity is that a direct employment relationship will be deemed to have been established between the user entity and the dispatched worker. This was removed from the Interim Provisions. Instead, the Interim Provisions simply provide that the penalties under the ECL will apply, eg where the position filled by the dispatched worker is not a temporary, auxiliary or substitute position, or the permitted cap is exceeded, the user entity may be liable to pay a fine of RMB5,000-10,000 for each dispatched worker. Notably, under the Interim Provisions, in the event that the user entity fails to follow the consultation process for the auxiliary positions as stated above, it will receive a warning from the labor authorities and be ordered to rectify the non-compliance with a specified period of time, and will also be liable for the damages caused to the dispatched workers.
Although the Interim Provisions scaled back the penalties, non-compliance with the new labor dispatch rules may result in reputational damage and undermine relations with the relevant authorities. Accordingly, all employers who use labor dispatch arrangements should pay careful attention to the contractual arrangements in place between themselves and the labor dispatch agency as well as between the labor dispatch agency and the dispatched worker. For some, restrictions on the use of dispatched workers will require careful consideration as to future resourcing for these positions.
What happens next?
The MHRSS has issued a notice to encourage its local branches to promote the requirements under the Interim Provisions, as well as supervise and guide entities to comply with the requirements. In the meantime, employers in the PRC using labor dispatch arrangements should, if they have not done so already, start developing and implementing plans to ensure compliance with the requirements of the Interim Provisions, including a plan to consult over the use of labor dispatch to fill auxiliary positions and a plan to submit to the local MHRSS.
Submitted by Lesli Ligorner, Shanghai-based partner at Simmons & Simmons LLP, and associates Johnny Choi (Beijing) and Gillian McKenzie (Hong Kong).
The Netherlands - Radical Changes in Dutch Dismissal Law Effective from July 1, 2015
In November 2013, a legislative bill for the Dutch Work and Security Act (Wetsvoorstel Werk en Zekerheid) was submitted to the lower house of the Dutch parliament. The proposal partly elaborates on the “Social Agreement” reached by the employers and unions in the spring of 2013 and relates to a radical reformation of Dutch dismissal law, an improvement of the position of fixed-term employees and the implementation of additional curbs on unemployment benefits effective from July 1, 2015. The lower house approved that bill on February 18, 2014, and the upper house (the senate) is expected to sign off on the plans soon.
I New Measures
The set of measures relates first to simplifying the procedural rules that govern the termination of employment contracts and setting a maximum on the severance payment in the event of such a termination. The measures also relate to the use of consecutive fixed-term employment contracts, probationary periods, and non-competition clauses and include an obligation for employers to inform fixed-term employees in a timely manner regarding whether their contract will be renewed. In addition, the legislation governing unemployment benefits will change.
The most important measures (some of which may be subject to minor changes) will be explained in more detail below.
II Flexible Labor Measures
Limitations on Fixed-Term Employment Contracts
The possibility of concluding successive temporary contracts with an employee will be limited. If successive temporary employment contracts are interrupted by no more than six months (currently three months), the last contract will be converted automatically into an open-ended contract (i.e. a contract for an indefinite term) if a) that contract is the fourth one in succession, or b) the temporary contracts have lasted a total of more than two years (currently three years).
Pursuant to a collective labor agreement, the maximum number of temporary contracts may be increased to six and the maximum duration to four years, but only in the case of temporary contracts through an employment agency or if the nature of the business operations in an industry make it necessary to deviate from the standard principle for certain jobs. However, it will not be possible for a collective labor agreement to deviate from the maximum interruption period of six months.
The provisions on successive fixed-term employment contracts will not apply in respect of employees who are under the age of 18 years who work fewer than 12 hours a week.
Duty to Inform
When a temporary contract or successive temporary contracts having a term of six months or more come to an end, the employer is obliged to inform the employee in writing, at least one month before the end date of the contract, whether the employer will extend the employment contract, as well as the conditions under which the contract will be renewed. If the employer fails to comply with this obligation, it will be required to pay one month's salary to the employee. If the employer does not inform the employee on time, the employee will be entitled to pro rata remuneration.
Non-Competition Clause
The employer will no longer be permitted to include a non-competition clause in an employee’s temporary contract unless it explains, in writing, the considerable business interests that make such a clause necessary. A non-competition clause that lacks such substantiation will be null and void.
Probationary Period
Temporary contracts for a period of six months or less may no longer stipulate a probationary period.
Transitional Provisions
The new provisions for successive temporary employments contracts will apply if, before or after the act comes into force, a temporary employment contract ends and, after the act comes into force, a new temporary contract is concluded within six months after the earlier contract expired. A temporary employment contract that has not yet been in force for two years when the act enters into effect but that was concluded for more than two years will not automatically be shortened to two years.
If an applicable collective labor agreement includes a deviation from the provisions governing successive contracts or the obligation to continue to pay salary, the former legislation will continue to apply in respect of employment contracts that are subject to that collective labor agreement if they were are concluded after the new legislation takes effect. The new legislation will apply as from the date on which the collective labor agreement expires, but in any event not later than 18 months after the legislation takes effect.
III Changes in Dismissal Law
Currently, an employer who wishes to terminate an employment contract is required to obtain permission (a dismissal permit) from the UWV benefits agency before it can give the employee notice. Another possibility is to seek to have the employment contract dissolved by the Cantonal Division of the District Court. The employer needs to show that there are reasonable grounds for termination, e.g. financial problems, in order to obtain a permit or have the Court dissolve the contract. The employer is free to choose whether to terminate via the UWV benefits agency or to opt for dissolution by the Court. Employees are usually awarded severance payments by the Cantonal Division of the Court in the event that their employment contracts are dissolved; the amount of the severance payment will depend on the employee’s age, the number of years of service at the company, and the salary (based on what is known as the “Cantonal Court Formula”).
This preventive dismissal assessment will remain in force. However, with effect from July 1, 2015, the “dual system” will be replaced with a “one-route system,” in which the route to be followed will depend on the grounds underlying the dismissal.
In summary, the following are the most important new procedural rules:
a. In the event of a dismissal for commercial reasons or on account of long-term disability, the employer should obtain a dismissal permit from the UWV benefits agency before giving notice of termination. In the event of a dismissal for other reasons related to the employee, and in the case of a severely impaired employment relationship, an employer will have to request the Cantonal Division of the District Court to rescind the employment contract. The employer will no longer be able to choose between termination by means of a permit from the UWV benefits agency or applying to the Cantonal Division of the Court to terminate an employment contract.
b. To obtain permission from the UWV benefits agency or the Cantonal Division of the Court, an employer will have to demonstrate that it has a reasonable ground for terminating the employment contract. A request for termination on the ground of unsatisfactory performance may be refused if the employer has not done enough to provide sufficient training for the employee.
c. The “proportionality principle” (afspiegelingsbeginsel, pursuant to which job terminations must affect all age groups of the employed staff equally) will continue to be the starting point for selecting the employees to be considered for dismissal for economic reasons. However, a collective labor agreement may deviate from that principle in respect of a maximum of 10% of the employees who would be considered for dismissal on the basis of that principle. To be eligible for such a deviation, an employee would have to perform at a level that is demonstrably higher than average or must have a future potential that is greater than average. If an employer is to be permitted to make such deviation, it must pursue a clear policy in advance so that the employees are given equal chances and know the consequences their performance may have on a possible future dismissal. This option does not apply to the age categories of 15-25 or 55 and up.
d. The dissolution of the employment contract by the Cantonal Division of the District Court will be the appropriate route if an employer elects to dismiss an employee for reasons that relate to the employee personally, such as unsatisfactory performance, culpable acts or omissions by the employee, an impaired working relationship, or refusal to perform work on account of serious conscientious objections. The Cantonal Division of the Court can also dissolve the employment contract if regular illness on the part of an employee has unacceptable consequences for the employer’s business operations. Finally, the Cantonal Division of the Court can dissolve an employment contract on account of other circumstances as a result of which the employer cannot reasonably be required to continue the employment contract.
e. The act provides for the possibility to establish a committee to assess the request to terminate the employment contract instead of applying to the UWV benefits agency. The committee members must be independent of the employer and the assessment procedure must meet certain requirements: both sides must be interviewed, confidentiality must be observed, and reasonable reply periods must be allowed.
f. The employer may deduct the time actually required for the procedure conducted by the UWV benefits agency (which is currently fixed at one month) or the committee from the notice period, provided that the remaining notice period is not less than one month. The time required for the procedure runs from the day on which the UWV benefits agency or the committee receives the complete request for termination until the day of its decision. The decision must state the amount of time that was required for the procedure, so that the remaining notice period can be calculated.
g. If an employee accepts the notice that was given to him, he may retract his consent in writing within 14 days, without being required to state his reasons for doing so. In addition, if a settlement agreement containing the terms and conditions of the employee’s dismissal has been concluded, the employee may terminate that agreement 14 fourteen days without stating his reasons for doing so. These employee's rights may not be excluded.
h. The act provides for the possibility (unless the parties have agreed otherwise in writing) to terminate the employment contract without permission from the UWV benefits agency as of or after the day on which the employee reaches the state pension age (AOW) or an alternative agreed retirement age (which may be higher or lower). The state pension age is currently 65 years and 2 months but will increase up to 67 in 2023. If the contractual retirement age is lower than the state pension age, permission from the UWV benefits agency will not be required for a dismissal upon reaching that lower age, but such a dismissal may still be in conflict with the rules on equality. If the parties concluded an employment contract for an indefinite period after the employee reached the state pension age or another retirement age, permission from the UWV benefits agency will still be required.
i. If an employee is of the opinion that the UWV benefits agency has granted a dismissal permit on unfounded grounds, or if he was dismissed without permission from the UWV benefits agency, he will be able to apply to Cantonal Division of the District Court to reinstate the employment contract, or alternatively to award him fair compensation. The employee must lodge an objection against the UWV benefits agency’s decision within two months after the employment contract has ended. If the UWV benefits agency has refused to grant permission for dismissal, an employer may apply to the Cantonal Division of the District Court to dissolve the employment contract. The judge will assess the request based on the same criteria that the UWV benefits agency applies.
j. The act allows for an appeal against a decision to dissolve an employment contract, but the appeal procedure will not suspend the implementation of Court’s ruling. If the decision to dissolve the employment contract is rejected on appeal, the judge can order the employer to reinstate the employment contract or award the employee fair compensation in lieu.
IV Transition Payment
In the event that one or more consecutive employment contracts have been in effect for two years or more (both temporary and permanent contracts), if the employer terminates the contract prematurely or does not extend a temporary contract it will be required to pay a transition payment; the maximum amount of that payment is EUR 75,000 gross or one year’s salary if that amount is higher. The transition payment will be calculated as follows: one-third of one month’s gross salary per year of service for the first 10 years of service and one-half of one month’s gross salary for every year of service thereafter. For employees aged 50 or over who have been employed for at least 10 years, a more favorable transitional arrangement (i.e. one month’s gross salary per year of service as per the age of 50) will apply until January 1, 2020.
The monthly salary is deemed to be the gross monthly salary plus fixed salary components, such as the holiday allowance, a fixed ‘13th month’ bonus, habitual overtime pay, and a fixed shift allowance. In very exceptional cases the employer's part of the pension contribution, the company car, expense allowances, the employer's contribution to health insurance premiums, and incidental and non-agreed salary components can be included in the transition payment.
The costs for redeployment arrangements, training and education, etc. that are paid by the employer in the context of the dismissal may be deducted from the transition payment. No transition payment will be due if the employee is seriously culpable for the dismissal.
The Cantonal Division of the District Court may award additional compensation to the employee if the termination of the employment contract is due to serious imputable acts or omissions on the part of the employer. Conversely, the employee will not be entitled to the transition payment if there is serious culpability on his part.
No transition payment will be due in respect of the termination of an employment contract for less than 12 hours a week with an employee under the age of 18 or in respect of termination of an employment contract as of or after the day on which the employee reaches the state pension age or another agreed retirement age (whether higher or lower).
If an employee takes up the same or nearly the same work for the next employer, and if the next employer has been able to gain sufficient insight into the employee's skills, the employment contract with the former employer will also be taken into consideration in calculating the transition payment. The transition payment is subject to a maximum of EUR 75,000 or a maximum of one year’s salary for an employee who earns more than EUR 75,000 per year. The parties may agree on a higher transition payment when they conclude the employment contract.
V Unemployment Benefits
Limitation of the Unemployment Benefits Term
The period during which an employee is entitled to receive unemployment benefits will be reduced from the current 38 months to a maximum 24 months during the period from January 1, 2016 through January 1, 2019. Collective labor agreements can provide for an extension of this period of 14 months. During the first 10 years’ service, employees will accrue one month of unemployment benefits per year of service and thereafter half a month for each year of service.
Suitable Work
In anticipation of the limitations on unemployment benefits, the definition of suitable work will be limited as of July 1, 2015. At present, for the first six months of his entitlement to unemployment benefits a person may focus on work at the same level as the work he just lost. After six months, work for which a lower level of education is required is deemed to be suitable work as well, and after one year all work is deemed to be suitable. As of July 1, 2015, all work will be deemed to be suitable only six months after a person becomes unemployed.
By Dennis Veldhuizen
HDK Attorneys at Law and Tax Attorneys (Amsterdam, the Netherlands)
I New Measures
The set of measures relates first to simplifying the procedural rules that govern the termination of employment contracts and setting a maximum on the severance payment in the event of such a termination. The measures also relate to the use of consecutive fixed-term employment contracts, probationary periods, and non-competition clauses and include an obligation for employers to inform fixed-term employees in a timely manner regarding whether their contract will be renewed. In addition, the legislation governing unemployment benefits will change.
The most important measures (some of which may be subject to minor changes) will be explained in more detail below.
II Flexible Labor Measures
Limitations on Fixed-Term Employment Contracts
The possibility of concluding successive temporary contracts with an employee will be limited. If successive temporary employment contracts are interrupted by no more than six months (currently three months), the last contract will be converted automatically into an open-ended contract (i.e. a contract for an indefinite term) if a) that contract is the fourth one in succession, or b) the temporary contracts have lasted a total of more than two years (currently three years).
Pursuant to a collective labor agreement, the maximum number of temporary contracts may be increased to six and the maximum duration to four years, but only in the case of temporary contracts through an employment agency or if the nature of the business operations in an industry make it necessary to deviate from the standard principle for certain jobs. However, it will not be possible for a collective labor agreement to deviate from the maximum interruption period of six months.
The provisions on successive fixed-term employment contracts will not apply in respect of employees who are under the age of 18 years who work fewer than 12 hours a week.
Duty to Inform
When a temporary contract or successive temporary contracts having a term of six months or more come to an end, the employer is obliged to inform the employee in writing, at least one month before the end date of the contract, whether the employer will extend the employment contract, as well as the conditions under which the contract will be renewed. If the employer fails to comply with this obligation, it will be required to pay one month's salary to the employee. If the employer does not inform the employee on time, the employee will be entitled to pro rata remuneration.
Non-Competition Clause
The employer will no longer be permitted to include a non-competition clause in an employee’s temporary contract unless it explains, in writing, the considerable business interests that make such a clause necessary. A non-competition clause that lacks such substantiation will be null and void.
Probationary Period
Temporary contracts for a period of six months or less may no longer stipulate a probationary period.
Transitional Provisions
The new provisions for successive temporary employments contracts will apply if, before or after the act comes into force, a temporary employment contract ends and, after the act comes into force, a new temporary contract is concluded within six months after the earlier contract expired. A temporary employment contract that has not yet been in force for two years when the act enters into effect but that was concluded for more than two years will not automatically be shortened to two years.
If an applicable collective labor agreement includes a deviation from the provisions governing successive contracts or the obligation to continue to pay salary, the former legislation will continue to apply in respect of employment contracts that are subject to that collective labor agreement if they were are concluded after the new legislation takes effect. The new legislation will apply as from the date on which the collective labor agreement expires, but in any event not later than 18 months after the legislation takes effect.
III Changes in Dismissal Law
Currently, an employer who wishes to terminate an employment contract is required to obtain permission (a dismissal permit) from the UWV benefits agency before it can give the employee notice. Another possibility is to seek to have the employment contract dissolved by the Cantonal Division of the District Court. The employer needs to show that there are reasonable grounds for termination, e.g. financial problems, in order to obtain a permit or have the Court dissolve the contract. The employer is free to choose whether to terminate via the UWV benefits agency or to opt for dissolution by the Court. Employees are usually awarded severance payments by the Cantonal Division of the Court in the event that their employment contracts are dissolved; the amount of the severance payment will depend on the employee’s age, the number of years of service at the company, and the salary (based on what is known as the “Cantonal Court Formula”).
This preventive dismissal assessment will remain in force. However, with effect from July 1, 2015, the “dual system” will be replaced with a “one-route system,” in which the route to be followed will depend on the grounds underlying the dismissal.
In summary, the following are the most important new procedural rules:
a. In the event of a dismissal for commercial reasons or on account of long-term disability, the employer should obtain a dismissal permit from the UWV benefits agency before giving notice of termination. In the event of a dismissal for other reasons related to the employee, and in the case of a severely impaired employment relationship, an employer will have to request the Cantonal Division of the District Court to rescind the employment contract. The employer will no longer be able to choose between termination by means of a permit from the UWV benefits agency or applying to the Cantonal Division of the Court to terminate an employment contract.
b. To obtain permission from the UWV benefits agency or the Cantonal Division of the Court, an employer will have to demonstrate that it has a reasonable ground for terminating the employment contract. A request for termination on the ground of unsatisfactory performance may be refused if the employer has not done enough to provide sufficient training for the employee.
c. The “proportionality principle” (afspiegelingsbeginsel, pursuant to which job terminations must affect all age groups of the employed staff equally) will continue to be the starting point for selecting the employees to be considered for dismissal for economic reasons. However, a collective labor agreement may deviate from that principle in respect of a maximum of 10% of the employees who would be considered for dismissal on the basis of that principle. To be eligible for such a deviation, an employee would have to perform at a level that is demonstrably higher than average or must have a future potential that is greater than average. If an employer is to be permitted to make such deviation, it must pursue a clear policy in advance so that the employees are given equal chances and know the consequences their performance may have on a possible future dismissal. This option does not apply to the age categories of 15-25 or 55 and up.
d. The dissolution of the employment contract by the Cantonal Division of the District Court will be the appropriate route if an employer elects to dismiss an employee for reasons that relate to the employee personally, such as unsatisfactory performance, culpable acts or omissions by the employee, an impaired working relationship, or refusal to perform work on account of serious conscientious objections. The Cantonal Division of the Court can also dissolve the employment contract if regular illness on the part of an employee has unacceptable consequences for the employer’s business operations. Finally, the Cantonal Division of the Court can dissolve an employment contract on account of other circumstances as a result of which the employer cannot reasonably be required to continue the employment contract.
e. The act provides for the possibility to establish a committee to assess the request to terminate the employment contract instead of applying to the UWV benefits agency. The committee members must be independent of the employer and the assessment procedure must meet certain requirements: both sides must be interviewed, confidentiality must be observed, and reasonable reply periods must be allowed.
f. The employer may deduct the time actually required for the procedure conducted by the UWV benefits agency (which is currently fixed at one month) or the committee from the notice period, provided that the remaining notice period is not less than one month. The time required for the procedure runs from the day on which the UWV benefits agency or the committee receives the complete request for termination until the day of its decision. The decision must state the amount of time that was required for the procedure, so that the remaining notice period can be calculated.
g. If an employee accepts the notice that was given to him, he may retract his consent in writing within 14 days, without being required to state his reasons for doing so. In addition, if a settlement agreement containing the terms and conditions of the employee’s dismissal has been concluded, the employee may terminate that agreement 14 fourteen days without stating his reasons for doing so. These employee's rights may not be excluded.
h. The act provides for the possibility (unless the parties have agreed otherwise in writing) to terminate the employment contract without permission from the UWV benefits agency as of or after the day on which the employee reaches the state pension age (AOW) or an alternative agreed retirement age (which may be higher or lower). The state pension age is currently 65 years and 2 months but will increase up to 67 in 2023. If the contractual retirement age is lower than the state pension age, permission from the UWV benefits agency will not be required for a dismissal upon reaching that lower age, but such a dismissal may still be in conflict with the rules on equality. If the parties concluded an employment contract for an indefinite period after the employee reached the state pension age or another retirement age, permission from the UWV benefits agency will still be required.
i. If an employee is of the opinion that the UWV benefits agency has granted a dismissal permit on unfounded grounds, or if he was dismissed without permission from the UWV benefits agency, he will be able to apply to Cantonal Division of the District Court to reinstate the employment contract, or alternatively to award him fair compensation. The employee must lodge an objection against the UWV benefits agency’s decision within two months after the employment contract has ended. If the UWV benefits agency has refused to grant permission for dismissal, an employer may apply to the Cantonal Division of the District Court to dissolve the employment contract. The judge will assess the request based on the same criteria that the UWV benefits agency applies.
j. The act allows for an appeal against a decision to dissolve an employment contract, but the appeal procedure will not suspend the implementation of Court’s ruling. If the decision to dissolve the employment contract is rejected on appeal, the judge can order the employer to reinstate the employment contract or award the employee fair compensation in lieu.
IV Transition Payment
In the event that one or more consecutive employment contracts have been in effect for two years or more (both temporary and permanent contracts), if the employer terminates the contract prematurely or does not extend a temporary contract it will be required to pay a transition payment; the maximum amount of that payment is EUR 75,000 gross or one year’s salary if that amount is higher. The transition payment will be calculated as follows: one-third of one month’s gross salary per year of service for the first 10 years of service and one-half of one month’s gross salary for every year of service thereafter. For employees aged 50 or over who have been employed for at least 10 years, a more favorable transitional arrangement (i.e. one month’s gross salary per year of service as per the age of 50) will apply until January 1, 2020.
The monthly salary is deemed to be the gross monthly salary plus fixed salary components, such as the holiday allowance, a fixed ‘13th month’ bonus, habitual overtime pay, and a fixed shift allowance. In very exceptional cases the employer's part of the pension contribution, the company car, expense allowances, the employer's contribution to health insurance premiums, and incidental and non-agreed salary components can be included in the transition payment.
The costs for redeployment arrangements, training and education, etc. that are paid by the employer in the context of the dismissal may be deducted from the transition payment. No transition payment will be due if the employee is seriously culpable for the dismissal.
The Cantonal Division of the District Court may award additional compensation to the employee if the termination of the employment contract is due to serious imputable acts or omissions on the part of the employer. Conversely, the employee will not be entitled to the transition payment if there is serious culpability on his part.
No transition payment will be due in respect of the termination of an employment contract for less than 12 hours a week with an employee under the age of 18 or in respect of termination of an employment contract as of or after the day on which the employee reaches the state pension age or another agreed retirement age (whether higher or lower).
If an employee takes up the same or nearly the same work for the next employer, and if the next employer has been able to gain sufficient insight into the employee's skills, the employment contract with the former employer will also be taken into consideration in calculating the transition payment. The transition payment is subject to a maximum of EUR 75,000 or a maximum of one year’s salary for an employee who earns more than EUR 75,000 per year. The parties may agree on a higher transition payment when they conclude the employment contract.
V Unemployment Benefits
Limitation of the Unemployment Benefits Term
The period during which an employee is entitled to receive unemployment benefits will be reduced from the current 38 months to a maximum 24 months during the period from January 1, 2016 through January 1, 2019. Collective labor agreements can provide for an extension of this period of 14 months. During the first 10 years’ service, employees will accrue one month of unemployment benefits per year of service and thereafter half a month for each year of service.
Suitable Work
In anticipation of the limitations on unemployment benefits, the definition of suitable work will be limited as of July 1, 2015. At present, for the first six months of his entitlement to unemployment benefits a person may focus on work at the same level as the work he just lost. After six months, work for which a lower level of education is required is deemed to be suitable work as well, and after one year all work is deemed to be suitable. As of July 1, 2015, all work will be deemed to be suitable only six months after a person becomes unemployed.
By Dennis Veldhuizen
HDK Attorneys at Law and Tax Attorneys (Amsterdam, the Netherlands)
France - New French Law is a "Game-Changer" on the Redundancy Process
The new French law on the securization of employment (known as LSE) modified significantly the redundancy procedure starting July 1, 2013.
As the redundancy process is rather complex in France, this law aims at eliminating the uncertainty factor in the timing and costs of the redundancy process. Indeed, one of the key difficulties for employers in France has been managing the timeline of the Works Council process and its completion. This new law clearly defines the timeline for the Works Council process, a pre-condition to implementation of a redundancy project.
However, under the LSE, the role of the Labor administration is now key: no redundancies can take place without the approval of the Labor administration. So under the new law, both Works Councils and the Labor Administration must be presented with documentation explaining the project and make observations and proposals concerning the procedure or the social measures provided for by the redundancy plan (Plan de Sauvegarde de l’Emploi). The employer is obliged to take these observations or proposals into consideration.
Moreover, the process now gives the employer the option either to prepare these documents unilaterally or to prepare them in negotiation with the unions.
The LSE also changes the jurisdiction of the French courts: it is now the administrative court judge who has jurisdiction and only to challenge the Labor Administration’s decision to approve or reject the project. However, once approval has been given the administrative judge should, in principle, only verify that the process through which the redundancy plan was designed respects the law. In addition, when the closure of a company or establishment is considered, the employer must now search for a purchaser as soon as the announcement of the shutdown project is made.
It is too early to tell whether the changes brought in by the LSE will render the French redundancy process more easy or less so for employers. As of this writing, the timeline for the process appears simplified yet the process itself is more complicated.
Recent case law under the new LSE law
Recent case law has highlighted two interesting trends in the manner in which the French courts interpret the new law.
Firstly, certain commentators feared that the French civil courts, who previously had sole jurisdiction over issues related to the validity of redundancy plans and its process, would be reluctant to hand over its jurisdictional powers to the administrative courts. However, in two decisions dated October and November 2013, the French civil court of Nanterre applied the strict letter of the law and deemed that it had no jurisdiction over the matters brought forward by unions, over the validity of the process through which the redundancy plan was designed. It is therefore unlikely that civil court judges will search for means to circumvent the new law and declare jurisdiction over such issues.
Secondly, questions were raised regarding the manner in which the administrative courts would use its new-found powers. Most commentators were skeptical and feared that they would be overzealous in a subject they did not necessarily master, and thus would not be satisfied with a simple verification of the procedure and would therefore overstep the boundaries of their prerogatives. However, the first administrative decisions, rendered by the courts in December 2013, show that the administrative judges merely verify that the legal process has been respected by the employer. As such, once the redundancy plan is approved by the Labor Administration, it appears the administrative courts will simply verify that the legal process was properly respected.
Roselyn S. Sands
EY Société d’Avocats
Dual Qualified Attorney –at-Law US & France
As the redundancy process is rather complex in France, this law aims at eliminating the uncertainty factor in the timing and costs of the redundancy process. Indeed, one of the key difficulties for employers in France has been managing the timeline of the Works Council process and its completion. This new law clearly defines the timeline for the Works Council process, a pre-condition to implementation of a redundancy project.
However, under the LSE, the role of the Labor administration is now key: no redundancies can take place without the approval of the Labor administration. So under the new law, both Works Councils and the Labor Administration must be presented with documentation explaining the project and make observations and proposals concerning the procedure or the social measures provided for by the redundancy plan (Plan de Sauvegarde de l’Emploi). The employer is obliged to take these observations or proposals into consideration.
Moreover, the process now gives the employer the option either to prepare these documents unilaterally or to prepare them in negotiation with the unions.
The LSE also changes the jurisdiction of the French courts: it is now the administrative court judge who has jurisdiction and only to challenge the Labor Administration’s decision to approve or reject the project. However, once approval has been given the administrative judge should, in principle, only verify that the process through which the redundancy plan was designed respects the law. In addition, when the closure of a company or establishment is considered, the employer must now search for a purchaser as soon as the announcement of the shutdown project is made.
It is too early to tell whether the changes brought in by the LSE will render the French redundancy process more easy or less so for employers. As of this writing, the timeline for the process appears simplified yet the process itself is more complicated.
Recent case law under the new LSE law
Recent case law has highlighted two interesting trends in the manner in which the French courts interpret the new law.
Firstly, certain commentators feared that the French civil courts, who previously had sole jurisdiction over issues related to the validity of redundancy plans and its process, would be reluctant to hand over its jurisdictional powers to the administrative courts. However, in two decisions dated October and November 2013, the French civil court of Nanterre applied the strict letter of the law and deemed that it had no jurisdiction over the matters brought forward by unions, over the validity of the process through which the redundancy plan was designed. It is therefore unlikely that civil court judges will search for means to circumvent the new law and declare jurisdiction over such issues.
Secondly, questions were raised regarding the manner in which the administrative courts would use its new-found powers. Most commentators were skeptical and feared that they would be overzealous in a subject they did not necessarily master, and thus would not be satisfied with a simple verification of the procedure and would therefore overstep the boundaries of their prerogatives. However, the first administrative decisions, rendered by the courts in December 2013, show that the administrative judges merely verify that the legal process has been respected by the employer. As such, once the redundancy plan is approved by the Labor Administration, it appears the administrative courts will simply verify that the legal process was properly respected.
Roselyn S. Sands
EY Société d’Avocats
Dual Qualified Attorney –at-Law US & France
Ireland - Significant Protection to be Introduced for Employees who Blow the Whistle on their Employers
To tell or not to tell? That is the question that may well have tortured many employees on sleepless nights in the past. Our reluctance to be seen as an informer starts in the playground. Who wanted to earn the reputation of being a tell-tale? Later as an adult, did you want to be known as a “rat”, a “weasel” or a “snake”? Perhaps the general attitude to disclosure is best summed up in the title of a poem by the Nobel Prize winning Irish poet, Seamus Heaney, “Whatever you say, say nothing”.
In Ireland, draft legislation has recently been published which is aimed at protecting those who decide to blow the whistle on perceived wrongdoing by their employers. Whether or not the proposed legislation, when introduced, will lead to a shift in the way informers are viewed is uncertain. What is certain, however, is that an employee who decides to make a “protected disclosure” as defined in the forthcoming legislation will be entitled to an unprecedented level of protection under Irish law. In this article I examine a number of key issues arising from the Protected Disclosures Bill 2013 (the “Bill”), including who is protected, what is protected and what the protections are.
The approach to date
When the Bill is enacted in Ireland, it will provide a single framework of protection for whistle-blowers. Until now, statutory protection has been afforded to whistle-blowers only in certain specific sectors. This was an unfair and unwieldy system and, therefore, the new legislation will introduce a much needed and welcome consistency.
Who is protected by the Bill?
The Bill protects “workers” which is broadly defined to include not just current and former employees but also contractors, trainees and agency staff.
In Ireland, in order to be entitled to bring a claim of unfair dismissal, employees generally need to have one year’s continuous service with their employer. It is significant that the Bill does not confine its protections to employees who have one year’s service. Therefore, it is likely that many dismissed employees with less than one year’s service will attempt to argue that their employment was terminated for making a protected disclosure so as to benefit from the protection offered by the Bill
What is protected?
Employees who make a “protected disclosure” will come within the new legislation’s protections. The term “protected disclosure” is very broadly defined in the Bill. It means the disclosure of relevant information. This is information which firstly, tends to show a “relevant wrongdoing” in the worker’s reasonable belief and secondly, came to the worker’s attention in connection with his/her work. It is disappointing and unhelpful that that Bill does not define what precisely is contemplated by “reasonable belief”.
Employers will be particularly concerned by the fact that the motivation of the employee in making the disclosure is irrelevant to whether it is protected. Some comfort might be taken from the fact that an employee’s motivation may be relevant to the level of compensation payable in the event of dismissal for making a protected disclosure. If the employee’s sole or main objective in making the disclosure was not the investigation of the relevant wrongdoing, the compensation payable may be reduced by up to 25%.
So what is a “relevant wrongdoing”? Again, the definition is very broad and covers, the commission of an offence, a miscarriage of justice, non-compliance with a legal obligation, health and safety dangers, misuse of public monies, mismanagement of public affairs, damage to the environment, or concealment or destruction of information relating to any of the above. As regards a wrongdoing relating to non-compliance with a legal obligation, Ireland has learned from the UK experience, and issues raised relating to an individual employee’s contract of employment will not be protected.
Interestingly, the Bill provides that it is irrelevant whether or not the reported wrongdoing occurred in Ireland or elsewhere and this will be of particular note to international companies doing business in Ireland.
As regards the burden of proof in proceedings concerning a protected disclosure, the disclosure will be presumed to be protected until the contrary is proven.
Whilst the Bill has not yet been enacted, it specifically provides that disclosures made before it comes into law may be protected. Therefore, employers in Ireland who are currently considering terminating an employee’s employment would be well-advised to apply their minds to whether or not the employee could argue that the termination resulted wholly or mainly from his/her making a protected disclosure. The potential financial consequences of a breach of the new legislation when it is introduced, which are discussed below, render such consideration an absolute necessity.
What are the protections?
A range of substantial protections for employees who make a protected disclosure will be introduced. In the first place, an employee who is dismissed, wholly or mainly for making a protected disclosure, may potentially be awarded compensation of up to five years’ gross remuneration. This is two and half times the maximum level of compensation which may currently be awarded in an unfair dismissal claim. Those who are familiar with Irish employment protection legislation will be aware that only one other Act provides for a similar level of compensation to potentially be paid to an employee.
Employees who make a protected disclosure are also entitled to protection from penalisation or threatened penalisation and again the potential compensation is up to five years’ gross remuneration. This type of provision is seen in a number of other pieces of employment protection legislation, including that relating to employment equality and health and safety. Penalisation is very broadly defined as any act or omission that affects a worker to his/her detriment, including, for example, demotion, loss of promotional opportunity, unfair treatment and disadvantage.
An employee who is dismissed may make an application for interim relief to the Circuit Court. This was introduced in a recent amendment to the draft legislation and is designed to counteract the fact that there is likely to be a lengthy delay between the date of dismissal and any subsequent unfair dismissal hearing. One of the criticisms which had been levied at the Bill, following its publication, was that the delays in the Irish unfair dismissal system could act as a disincentive to employees making a disclosure. Ireland has learned from the experience in other jurisdictions by including a provision for interim relief in the Bill.
Employees are also entitled to civil and criminal immunity in making a protected disclosure and have a cause of action in tort where they or their family experience coercion, intimidation, harassment or discrimination at the hands of a third party for having made a protected disclosure.
What steps should employers take to prepare for the passing of the Bill?
Employers in Ireland should review their existing whistle-blower protection policies to ensure that they are robust. In any termination of employment, employers should also give careful consideration to whether or not there might be scope for an employee to argue that the dismissal was wholly or mainly because of his/her making a protected disclosure.
In my view, the potential financial implications of the new legislation, coupled with the lack of a service requirement and the breadth of the definition of the term “protected disclosure” make this one of the most significant changes in the employment protection regime in Ireland in decades. “To tell, or not to tell?”
BY DEIRDRE LYNCH, SENIOR ASSOCIATE, MATHESON, DUBLIN, IRELAND
In Ireland, draft legislation has recently been published which is aimed at protecting those who decide to blow the whistle on perceived wrongdoing by their employers. Whether or not the proposed legislation, when introduced, will lead to a shift in the way informers are viewed is uncertain. What is certain, however, is that an employee who decides to make a “protected disclosure” as defined in the forthcoming legislation will be entitled to an unprecedented level of protection under Irish law. In this article I examine a number of key issues arising from the Protected Disclosures Bill 2013 (the “Bill”), including who is protected, what is protected and what the protections are.
The approach to date
When the Bill is enacted in Ireland, it will provide a single framework of protection for whistle-blowers. Until now, statutory protection has been afforded to whistle-blowers only in certain specific sectors. This was an unfair and unwieldy system and, therefore, the new legislation will introduce a much needed and welcome consistency.
Who is protected by the Bill?
The Bill protects “workers” which is broadly defined to include not just current and former employees but also contractors, trainees and agency staff.
In Ireland, in order to be entitled to bring a claim of unfair dismissal, employees generally need to have one year’s continuous service with their employer. It is significant that the Bill does not confine its protections to employees who have one year’s service. Therefore, it is likely that many dismissed employees with less than one year’s service will attempt to argue that their employment was terminated for making a protected disclosure so as to benefit from the protection offered by the Bill
What is protected?
Employees who make a “protected disclosure” will come within the new legislation’s protections. The term “protected disclosure” is very broadly defined in the Bill. It means the disclosure of relevant information. This is information which firstly, tends to show a “relevant wrongdoing” in the worker’s reasonable belief and secondly, came to the worker’s attention in connection with his/her work. It is disappointing and unhelpful that that Bill does not define what precisely is contemplated by “reasonable belief”.
Employers will be particularly concerned by the fact that the motivation of the employee in making the disclosure is irrelevant to whether it is protected. Some comfort might be taken from the fact that an employee’s motivation may be relevant to the level of compensation payable in the event of dismissal for making a protected disclosure. If the employee’s sole or main objective in making the disclosure was not the investigation of the relevant wrongdoing, the compensation payable may be reduced by up to 25%.
So what is a “relevant wrongdoing”? Again, the definition is very broad and covers, the commission of an offence, a miscarriage of justice, non-compliance with a legal obligation, health and safety dangers, misuse of public monies, mismanagement of public affairs, damage to the environment, or concealment or destruction of information relating to any of the above. As regards a wrongdoing relating to non-compliance with a legal obligation, Ireland has learned from the UK experience, and issues raised relating to an individual employee’s contract of employment will not be protected.
Interestingly, the Bill provides that it is irrelevant whether or not the reported wrongdoing occurred in Ireland or elsewhere and this will be of particular note to international companies doing business in Ireland.
As regards the burden of proof in proceedings concerning a protected disclosure, the disclosure will be presumed to be protected until the contrary is proven.
Whilst the Bill has not yet been enacted, it specifically provides that disclosures made before it comes into law may be protected. Therefore, employers in Ireland who are currently considering terminating an employee’s employment would be well-advised to apply their minds to whether or not the employee could argue that the termination resulted wholly or mainly from his/her making a protected disclosure. The potential financial consequences of a breach of the new legislation when it is introduced, which are discussed below, render such consideration an absolute necessity.
What are the protections?
A range of substantial protections for employees who make a protected disclosure will be introduced. In the first place, an employee who is dismissed, wholly or mainly for making a protected disclosure, may potentially be awarded compensation of up to five years’ gross remuneration. This is two and half times the maximum level of compensation which may currently be awarded in an unfair dismissal claim. Those who are familiar with Irish employment protection legislation will be aware that only one other Act provides for a similar level of compensation to potentially be paid to an employee.
Employees who make a protected disclosure are also entitled to protection from penalisation or threatened penalisation and again the potential compensation is up to five years’ gross remuneration. This type of provision is seen in a number of other pieces of employment protection legislation, including that relating to employment equality and health and safety. Penalisation is very broadly defined as any act or omission that affects a worker to his/her detriment, including, for example, demotion, loss of promotional opportunity, unfair treatment and disadvantage.
An employee who is dismissed may make an application for interim relief to the Circuit Court. This was introduced in a recent amendment to the draft legislation and is designed to counteract the fact that there is likely to be a lengthy delay between the date of dismissal and any subsequent unfair dismissal hearing. One of the criticisms which had been levied at the Bill, following its publication, was that the delays in the Irish unfair dismissal system could act as a disincentive to employees making a disclosure. Ireland has learned from the experience in other jurisdictions by including a provision for interim relief in the Bill.
Employees are also entitled to civil and criminal immunity in making a protected disclosure and have a cause of action in tort where they or their family experience coercion, intimidation, harassment or discrimination at the hands of a third party for having made a protected disclosure.
What steps should employers take to prepare for the passing of the Bill?
Employers in Ireland should review their existing whistle-blower protection policies to ensure that they are robust. In any termination of employment, employers should also give careful consideration to whether or not there might be scope for an employee to argue that the dismissal was wholly or mainly because of his/her making a protected disclosure.
In my view, the potential financial implications of the new legislation, coupled with the lack of a service requirement and the breadth of the definition of the term “protected disclosure” make this one of the most significant changes in the employment protection regime in Ireland in decades. “To tell, or not to tell?”
BY DEIRDRE LYNCH, SENIOR ASSOCIATE, MATHESON, DUBLIN, IRELAND
Gulf Cooperation Council - The Year Ahead
2013 witnessed continued legislative developments in the labour and employment field with a strong emphasis across the GCC on eliminating illegal working, promoting the employment of nationals and regulating the provision of employee benefits such as health insurance. These trends are set to continue into 2014 and we examine below the key developments expected to take place in the coming months.
KINGDOM OF SAUDI ARABIA (KSA)
The aim of recent labour reform (starting with the introduction of the Nitaqat system in August 2011) is to ensure an integrated labour market where the gap between employing in the private sector and the public sector (certainly for KSA nationals) is closed. In return for opening up its markets, KSA is requiring foreign businesses (as well as Saudi employers) to invest in Saudi nationals and promote local employment. With 75% of the population being under 25 years of age, the imperative to create jobs and maintain job security for future generations is paramount.
Unlawful Working
Alongside, Nitaqat and other 'Saudisation' measures, KSA witnessed its biggest crackdown on illegal workers in March 2013, the subsequent six month Amnesty ended on 3 November 2013, during which three million foreign workers rectified their immigration status, voluntarily repatriated or were deported. Labour inspections continue amid a determination to reduce illegal working.
A draft ministerial resolution was announced in January 2014, providing for penalties of SAR 10 million and a five year prison sentence for employers falsifying their Saudisation targets by adopting measures such as employing shadow KSA national employees.
Unemployment Benefit
Legislation providing for unemployment benefit insurance was published on 1 July 2013 (expected to be implemented in the first six months of 2014), and provides for employer and employee contributions of 1% of basic salary and housing allowance to be made to GOSI, to cover unemployment allowance for up to 6 months.
Labour Law Amendment
In early 2012, over eighty proposed amendments to the Labour Law were published and have been debated at great length. Most recently on 17 December 2013, the Minister of Labour announced that within three months, the working week would be reduced to 5 days/40 hours.
Also in December 2013, the Shoura Consultative Council discussed and approved the following amendments to the Labour Law:
Unauthorised Absence
• Amendment of the Labour Law's article 80 with respect to termination for unauthorized absence. The current article provides for termination without notice and payment of end of service gratuity, if an employee is absent for 10 consecutive days (provided a written warning is issued after 5 days) or for 20 non consecutive days (provided a written warning is issued after 10 days). The amended provision provides for unauthorized absence of 30 non consecutive days (with a written warning issued after 20 days) and 15 consecutive days (with a written warning issued after 10 days).
Contracts
• Fixed term contracts will convert into unlimited term contracts upon the third renewal of a fixed term (currently this is on the second renewal) or if the total length of service under a series of fixed term contracts is 4 years (currently the period is 3 years).
Compensation for unjustified termination
• to provide a statutory formula for calculating compensation for unjustified termination of employment; the proposed formula being:
• 15 days' remuneration for each year of service where the employment contract was unlimited;
• Payment for the remainder of the term where the employment contract was for a fixed term; and
• Provided that in either case, the compensation is no less than 2 months remuneration.
Once discussed by the Shoura Council the measures require a Council of Ministers resolution followed by a Royal Decree to come into effect
Introduction of a Minimum Wage?
One of the key barriers sighted by private sector employers is the high wages Saudi nationals require in comparison to non nationals, particularly those from South East Asia performing more junior and manual roles. A structural impediment therefore to employing Saudi nationals is the absence of a minimum wage applicable across the private sector for all employees (meaning that the attraction of employing a non-national (ie the lower headcount cost) would not apply. To date, such a measure has not yet been discussed. However, the Ministry of Labour has published an intention to promote higher wages through Nitaqat through the following:
• A Saudi national on SAR 6,000 to 12,000 will count as 2 employees;
• The minimum wage under Nitaqat will be raised to SAR 4,000;
• The average total for applicable quotas will be calculated over a 26 week reference period.
Other legislative developments in 2014 will be:
• Continued transition of all immigration services to an electronic system;
• Continued implementation of the wages protection system with the second stage enforced on 1 December 2013;
• An increase in the bank guarantee for obtaining recruitment licences; the current requirement of SAR 300,000 every two years will increase to SAR 450,000 every year; and
• The replacement of Labour Committees and the Supreme Labour Appeals Committee with Labour Courts integrated into the Sharia Court system. Any complaint will first have to be raised with the labour office in the region in which the employee has been carrying out his work for a confidential pre-conciliation process. Once a complaint is submitted (whether in person or electronically) a dispute hearing should be scheduled within a week and the parties have 21 days to reach an amicable agreement, failing which the dispute will be referred to the courts. If an agreement is reached, it will be documented and enforceable within 5 days of the date of the settlement agreement.
The Ministry of Labour has also recently launched the 'together' or 'ma'an' on line portal which enables employers to submit feedback on proposals and recently lead to the Ministry delaying the implementation of a proposal to cap expatriate employees' work and residency authorisation to 6-7 years.
UNITED ARAB EMIRATES (UAE)
The Emirate of Dubai announced compulsory health insurance provision for employees in December 2013, to be introduced on a staggered basis according to the number of employees employed within an organisation
Minimum earning requirements were increased for individuals to sponsor parents or grand parents (AED 20,000 a month) with additional requirements to provide rental agreements to evidence an ability to provide adequate housing for dependants.
In January 2014, Sheikh Mohammed has made several announcements confirming his vision for 'Emiratisation' and a desire to increase the rate of UAE national's employment in the private sector tenfold by 2021. The Minister of Labour, Saqr Ghobash has also stated in interviews in January 2014, that legislative amendments to the UAE labour laws are being considered in order to enhance the attraction of the private sector for UAE nationals, including potential amendment of the regulation of working hours, the working week, leave entitlements and holidays.
On 20 January 2014, the UAE Cabinet endorsed a draft law providing for mandatory military service for all Emirati males between the ages of 18 and 30, for 9 months to 2 years. The details of the scheme for those in existing employment are yet to be announced, however, press reports state that time spent on military service will be counted for the purposes of calculating employee benefits, continuous service and pension entitlements.
In January 2014, there was also an announcement that the Government will introduce legislation providing for self employed UAE nationals to be enrolled in the state pension scheme. The aim being to encourage more UAE nationals to set up their own enterprises and SMEs.
STATE OF QATAR
In late 2013, Qatar announced the implementation of compulsory private health insurance for employees
Legislative changes in 2014 involve an overhaul of policy and implementation of immigration regulations; in particular the recognition of certain professions; experience and qualifications (engineering being a principle focus).
EMIRATE OF KUWAIT (contribution from Rob Little & Edlyn Verz of ASAR)
Deportation of Foreign Nationals
In common with KSA, 2013 saw the Government launch a concerted effort to crackdown on illegal workers. A crackdown by Kuwait authorities on foreign nationals illegally working or residing in Kuwait started in March 2013 when the Minister of Social Affairs and Labor, Thekra Al-Rasheedi, announced a plan to reduce the number of foreign expatriates by half, from 2 million to only 1 million by 2023, culling about 100,000 expatriates per year.
“This is part of the Ministry’s efforts to regulate the labor market, curb the phenomenon of marginal labor and restore the demographic equilibrium of the country,” Al-Rasheedi said in a statement to the Kuwait News Agency.
So far thousands have been arrested and forcibly deported for an array of violations. The campaign is being coordinated by a number of ministries and security departments, and is being spearheaded aggressively by Assistant Undersecretary for Traffic Affairs Major General Abdul Fattah al-Ali, with the objective of “cleaning” the country. This campaign has left Kuwait’s foreign labor force living in fear of deportation.
An easing of the arrests and deportations has been observed by the expatriate community in the last 3 months of 2013 as heated debate on the ethics and legality of the procedure adopted by Kuwait authorities raged in the media and in the diwaniyas of the local population.
Age 65 Limit; No Transfer of Employment; Non-Renewal of Contracts –
There is no mandatory retirement age for employees working in Kuwait. Generally, an employee's age is significant only as it relates to the benefits that may accrue to employees who contribute to the Social Security fund, which applies only to Kuwait nationals.
Regarding expatriate employees who are 65 years and above, who continue to work in Kuwait, for the same employer may renew their work permit/visa automatically without any issue. However, they cannot transfer sponsorship to another employer unless an exception is expressly obtained from Kuwaiti authorities. Similarly, expatriates from outside Kuwait who have reached the age of 65 or more will not be given a work permit unless an exemption is obtained from the Kuwaiti authorities.
There are quite a number of employees working in government departments and ministries and government owned and controlled corporations that are above the age of 65. Recently, there have been reports that the contracts of these “above-65” expatriate employees are no longer being renewed or that the employees are being asked to retire at age 65. This has given rise to the belief that expatriates working in government entities would no longer be allowed to work past the age of 65. However, no formal confirmation of this policy has been issued by the Kuwaiti authorities.
Commercial Visit Visas; Processing of Work Authorizations and Work Permit
Foreign nationals who enter Kuwait on business or commercial visa of a corporate sponsor had previously been allowed by Kuwaiti authorities to stay in the country while processing their work permit for the same sponsor. This process was suspended by Kuwaiti authorities. As such all foreigners seeking to work in Kuwait would have to undergo the standard process of entry; they would have to remain outside of the country while their work authorizations are processed at Kuwait’s Ministry of Social Affairs & Labor (MOSAL).
After receipt of the work authorization, the sponsor on behalf of the foreign national will apply to the Ministry of Interior (MOI) for a working (no-objection) visa. It generally takes up to 2 weeks to receive a working visa. Before arriving in Kuwait the foreign national will be sent two originals of the working visa in his/her home country. The foreign national will contact the Kuwait Embassy in their home country and will be directed to undergo medical tests. He/she then submits the results of these tests to the Kuwait Embassy along with a copy of his/her passport. If the medical tests are in order, the Kuwait Embassy will stamp the working visa. This may take from 2 to 3 weeks to complete.
Upon the foreign national’s arrival in Kuwait, the sponsor may begin the process of applying to the MOSAL and subsequently to the MOI, to obtain a work permit and residency stamp to enable the foreign national to legally work and reside in Kuwait.
SULTANATE OF OMAN (contribution from Alessandra Zingales of Jihad Al Taie)
In common with the rest of the GCC, promoting the employment of nationals continues to be a major objective of the Ministry of Manpower, with an announcement that, in various business sectors, no further approvals for the employment of foreigners would be granted between November 2013 and April 2014; with the exceptions of those working on government projects or employers classed in the top category of employer (for compliance purposes and employment of nationals). To further support the employment of nationals, the Ministry of Manpower issued a decision which allows employers in the private sector to hire Omani employees on a part time basis. Subject to certain conditions, up to 10% of the Omanisation rate applicable to the employer may be filled by part-time workers.
Additional requirements have been introduced to obtain labour clearances to employ foreign staff and the application process has been modified by limiting the possibility to convert visas in country (e.g. from tourist visa to resident visa).
Problems have been reported in obtaining labour clearances for female expats. No official decision has been published in this respect but the Ministry of Manpower appears to have adopted a rather strict policy and has been reported to reject rather consistently labour clearance applications for female expats. Some exceptions are being made for female professionals.
From 1 July 2013, the minimum salary for Omani nationals has been increased from RO 200 to RO 325 (at least RO 225 as basic salary and RO 100 as allowances).
It has been announced that, in accordance with a joint project of the Ministry of Manpower and the Central Bank of Oman, during the course of 2014 Oman will be gradually introducing a Wage Protection System. This will apply to the banking sector first and gradually be extended to all employers in Oman in accordance with their grade as per the Chamber of Commerce classification (starting with Excellent Grade companies).
It has also been reported that the Shura Council proposed the introduction of a 2% tax on remittances by workers to their home countries. Members of the State Council have officially declared that – for the time being - they are not in favour of such proposal.
KINGDOM OF BAHRAIN (contribution from Steve Brown of ASAR)
The Kingdom of Bahrain has continued in its efforts to fully roll out ministerial orders contemplated in the 2012 Bahrain Labour Law. We anticipate further ministerial orders to issue during the course of 2014.
LMRA Fees
The Bahrain government lifted the stay on collection of monthly Labour Market Regulatory Authority (“LMRA”) fees during 2013; however, a discount on monthly fees (to BD5) for the first 5 expatriate employees has been instituted while full monthly fees of BD10 would apply to each additional expatriate employee has been imposed indefinitely.
Working While Under Travel Bans
Under existing regulations, an employee whose work permit has been canceled for more than 30 days may not mobilize to a new employer without exiting Bahrain. This has complicated the circumstances of many expatriate employees facing travel bans (e.g. arising from loan defaults) who are unable to exit Bahrain and cannot obtain lawful employment since work permits may not process prior to an exit from the Kingdom. During the later half of 2013 and through 2014, the LMRA and immigration officials have reportedly agreed to mechanisms to permit new work permits to issue to expatriates facing travel bans. This cooperation is expected to decrease instances of illegal employment while facilitating repayment of creditors by expatriates facing such bans (and ultimately seeing those bans lifted).
Sara Khoja, Clyde & Co
KINGDOM OF SAUDI ARABIA (KSA)
The aim of recent labour reform (starting with the introduction of the Nitaqat system in August 2011) is to ensure an integrated labour market where the gap between employing in the private sector and the public sector (certainly for KSA nationals) is closed. In return for opening up its markets, KSA is requiring foreign businesses (as well as Saudi employers) to invest in Saudi nationals and promote local employment. With 75% of the population being under 25 years of age, the imperative to create jobs and maintain job security for future generations is paramount.
Unlawful Working
Alongside, Nitaqat and other 'Saudisation' measures, KSA witnessed its biggest crackdown on illegal workers in March 2013, the subsequent six month Amnesty ended on 3 November 2013, during which three million foreign workers rectified their immigration status, voluntarily repatriated or were deported. Labour inspections continue amid a determination to reduce illegal working.
A draft ministerial resolution was announced in January 2014, providing for penalties of SAR 10 million and a five year prison sentence for employers falsifying their Saudisation targets by adopting measures such as employing shadow KSA national employees.
Unemployment Benefit
Legislation providing for unemployment benefit insurance was published on 1 July 2013 (expected to be implemented in the first six months of 2014), and provides for employer and employee contributions of 1% of basic salary and housing allowance to be made to GOSI, to cover unemployment allowance for up to 6 months.
Labour Law Amendment
In early 2012, over eighty proposed amendments to the Labour Law were published and have been debated at great length. Most recently on 17 December 2013, the Minister of Labour announced that within three months, the working week would be reduced to 5 days/40 hours.
Also in December 2013, the Shoura Consultative Council discussed and approved the following amendments to the Labour Law:
Unauthorised Absence
• Amendment of the Labour Law's article 80 with respect to termination for unauthorized absence. The current article provides for termination without notice and payment of end of service gratuity, if an employee is absent for 10 consecutive days (provided a written warning is issued after 5 days) or for 20 non consecutive days (provided a written warning is issued after 10 days). The amended provision provides for unauthorized absence of 30 non consecutive days (with a written warning issued after 20 days) and 15 consecutive days (with a written warning issued after 10 days).
Contracts
• Fixed term contracts will convert into unlimited term contracts upon the third renewal of a fixed term (currently this is on the second renewal) or if the total length of service under a series of fixed term contracts is 4 years (currently the period is 3 years).
Compensation for unjustified termination
• to provide a statutory formula for calculating compensation for unjustified termination of employment; the proposed formula being:
• 15 days' remuneration for each year of service where the employment contract was unlimited;
• Payment for the remainder of the term where the employment contract was for a fixed term; and
• Provided that in either case, the compensation is no less than 2 months remuneration.
Once discussed by the Shoura Council the measures require a Council of Ministers resolution followed by a Royal Decree to come into effect
Introduction of a Minimum Wage?
One of the key barriers sighted by private sector employers is the high wages Saudi nationals require in comparison to non nationals, particularly those from South East Asia performing more junior and manual roles. A structural impediment therefore to employing Saudi nationals is the absence of a minimum wage applicable across the private sector for all employees (meaning that the attraction of employing a non-national (ie the lower headcount cost) would not apply. To date, such a measure has not yet been discussed. However, the Ministry of Labour has published an intention to promote higher wages through Nitaqat through the following:
• A Saudi national on SAR 6,000 to 12,000 will count as 2 employees;
• The minimum wage under Nitaqat will be raised to SAR 4,000;
• The average total for applicable quotas will be calculated over a 26 week reference period.
Other legislative developments in 2014 will be:
• Continued transition of all immigration services to an electronic system;
• Continued implementation of the wages protection system with the second stage enforced on 1 December 2013;
• An increase in the bank guarantee for obtaining recruitment licences; the current requirement of SAR 300,000 every two years will increase to SAR 450,000 every year; and
• The replacement of Labour Committees and the Supreme Labour Appeals Committee with Labour Courts integrated into the Sharia Court system. Any complaint will first have to be raised with the labour office in the region in which the employee has been carrying out his work for a confidential pre-conciliation process. Once a complaint is submitted (whether in person or electronically) a dispute hearing should be scheduled within a week and the parties have 21 days to reach an amicable agreement, failing which the dispute will be referred to the courts. If an agreement is reached, it will be documented and enforceable within 5 days of the date of the settlement agreement.
The Ministry of Labour has also recently launched the 'together' or 'ma'an' on line portal which enables employers to submit feedback on proposals and recently lead to the Ministry delaying the implementation of a proposal to cap expatriate employees' work and residency authorisation to 6-7 years.
UNITED ARAB EMIRATES (UAE)
The Emirate of Dubai announced compulsory health insurance provision for employees in December 2013, to be introduced on a staggered basis according to the number of employees employed within an organisation
Minimum earning requirements were increased for individuals to sponsor parents or grand parents (AED 20,000 a month) with additional requirements to provide rental agreements to evidence an ability to provide adequate housing for dependants.
In January 2014, Sheikh Mohammed has made several announcements confirming his vision for 'Emiratisation' and a desire to increase the rate of UAE national's employment in the private sector tenfold by 2021. The Minister of Labour, Saqr Ghobash has also stated in interviews in January 2014, that legislative amendments to the UAE labour laws are being considered in order to enhance the attraction of the private sector for UAE nationals, including potential amendment of the regulation of working hours, the working week, leave entitlements and holidays.
On 20 January 2014, the UAE Cabinet endorsed a draft law providing for mandatory military service for all Emirati males between the ages of 18 and 30, for 9 months to 2 years. The details of the scheme for those in existing employment are yet to be announced, however, press reports state that time spent on military service will be counted for the purposes of calculating employee benefits, continuous service and pension entitlements.
In January 2014, there was also an announcement that the Government will introduce legislation providing for self employed UAE nationals to be enrolled in the state pension scheme. The aim being to encourage more UAE nationals to set up their own enterprises and SMEs.
STATE OF QATAR
In late 2013, Qatar announced the implementation of compulsory private health insurance for employees
Legislative changes in 2014 involve an overhaul of policy and implementation of immigration regulations; in particular the recognition of certain professions; experience and qualifications (engineering being a principle focus).
EMIRATE OF KUWAIT (contribution from Rob Little & Edlyn Verz of ASAR)
Deportation of Foreign Nationals
In common with KSA, 2013 saw the Government launch a concerted effort to crackdown on illegal workers. A crackdown by Kuwait authorities on foreign nationals illegally working or residing in Kuwait started in March 2013 when the Minister of Social Affairs and Labor, Thekra Al-Rasheedi, announced a plan to reduce the number of foreign expatriates by half, from 2 million to only 1 million by 2023, culling about 100,000 expatriates per year.
“This is part of the Ministry’s efforts to regulate the labor market, curb the phenomenon of marginal labor and restore the demographic equilibrium of the country,” Al-Rasheedi said in a statement to the Kuwait News Agency.
So far thousands have been arrested and forcibly deported for an array of violations. The campaign is being coordinated by a number of ministries and security departments, and is being spearheaded aggressively by Assistant Undersecretary for Traffic Affairs Major General Abdul Fattah al-Ali, with the objective of “cleaning” the country. This campaign has left Kuwait’s foreign labor force living in fear of deportation.
An easing of the arrests and deportations has been observed by the expatriate community in the last 3 months of 2013 as heated debate on the ethics and legality of the procedure adopted by Kuwait authorities raged in the media and in the diwaniyas of the local population.
Age 65 Limit; No Transfer of Employment; Non-Renewal of Contracts –
There is no mandatory retirement age for employees working in Kuwait. Generally, an employee's age is significant only as it relates to the benefits that may accrue to employees who contribute to the Social Security fund, which applies only to Kuwait nationals.
Regarding expatriate employees who are 65 years and above, who continue to work in Kuwait, for the same employer may renew their work permit/visa automatically without any issue. However, they cannot transfer sponsorship to another employer unless an exception is expressly obtained from Kuwaiti authorities. Similarly, expatriates from outside Kuwait who have reached the age of 65 or more will not be given a work permit unless an exemption is obtained from the Kuwaiti authorities.
There are quite a number of employees working in government departments and ministries and government owned and controlled corporations that are above the age of 65. Recently, there have been reports that the contracts of these “above-65” expatriate employees are no longer being renewed or that the employees are being asked to retire at age 65. This has given rise to the belief that expatriates working in government entities would no longer be allowed to work past the age of 65. However, no formal confirmation of this policy has been issued by the Kuwaiti authorities.
Commercial Visit Visas; Processing of Work Authorizations and Work Permit
Foreign nationals who enter Kuwait on business or commercial visa of a corporate sponsor had previously been allowed by Kuwaiti authorities to stay in the country while processing their work permit for the same sponsor. This process was suspended by Kuwaiti authorities. As such all foreigners seeking to work in Kuwait would have to undergo the standard process of entry; they would have to remain outside of the country while their work authorizations are processed at Kuwait’s Ministry of Social Affairs & Labor (MOSAL).
After receipt of the work authorization, the sponsor on behalf of the foreign national will apply to the Ministry of Interior (MOI) for a working (no-objection) visa. It generally takes up to 2 weeks to receive a working visa. Before arriving in Kuwait the foreign national will be sent two originals of the working visa in his/her home country. The foreign national will contact the Kuwait Embassy in their home country and will be directed to undergo medical tests. He/she then submits the results of these tests to the Kuwait Embassy along with a copy of his/her passport. If the medical tests are in order, the Kuwait Embassy will stamp the working visa. This may take from 2 to 3 weeks to complete.
Upon the foreign national’s arrival in Kuwait, the sponsor may begin the process of applying to the MOSAL and subsequently to the MOI, to obtain a work permit and residency stamp to enable the foreign national to legally work and reside in Kuwait.
SULTANATE OF OMAN (contribution from Alessandra Zingales of Jihad Al Taie)
In common with the rest of the GCC, promoting the employment of nationals continues to be a major objective of the Ministry of Manpower, with an announcement that, in various business sectors, no further approvals for the employment of foreigners would be granted between November 2013 and April 2014; with the exceptions of those working on government projects or employers classed in the top category of employer (for compliance purposes and employment of nationals). To further support the employment of nationals, the Ministry of Manpower issued a decision which allows employers in the private sector to hire Omani employees on a part time basis. Subject to certain conditions, up to 10% of the Omanisation rate applicable to the employer may be filled by part-time workers.
Additional requirements have been introduced to obtain labour clearances to employ foreign staff and the application process has been modified by limiting the possibility to convert visas in country (e.g. from tourist visa to resident visa).
Problems have been reported in obtaining labour clearances for female expats. No official decision has been published in this respect but the Ministry of Manpower appears to have adopted a rather strict policy and has been reported to reject rather consistently labour clearance applications for female expats. Some exceptions are being made for female professionals.
From 1 July 2013, the minimum salary for Omani nationals has been increased from RO 200 to RO 325 (at least RO 225 as basic salary and RO 100 as allowances).
It has been announced that, in accordance with a joint project of the Ministry of Manpower and the Central Bank of Oman, during the course of 2014 Oman will be gradually introducing a Wage Protection System. This will apply to the banking sector first and gradually be extended to all employers in Oman in accordance with their grade as per the Chamber of Commerce classification (starting with Excellent Grade companies).
It has also been reported that the Shura Council proposed the introduction of a 2% tax on remittances by workers to their home countries. Members of the State Council have officially declared that – for the time being - they are not in favour of such proposal.
KINGDOM OF BAHRAIN (contribution from Steve Brown of ASAR)
The Kingdom of Bahrain has continued in its efforts to fully roll out ministerial orders contemplated in the 2012 Bahrain Labour Law. We anticipate further ministerial orders to issue during the course of 2014.
LMRA Fees
The Bahrain government lifted the stay on collection of monthly Labour Market Regulatory Authority (“LMRA”) fees during 2013; however, a discount on monthly fees (to BD5) for the first 5 expatriate employees has been instituted while full monthly fees of BD10 would apply to each additional expatriate employee has been imposed indefinitely.
Working While Under Travel Bans
Under existing regulations, an employee whose work permit has been canceled for more than 30 days may not mobilize to a new employer without exiting Bahrain. This has complicated the circumstances of many expatriate employees facing travel bans (e.g. arising from loan defaults) who are unable to exit Bahrain and cannot obtain lawful employment since work permits may not process prior to an exit from the Kingdom. During the later half of 2013 and through 2014, the LMRA and immigration officials have reportedly agreed to mechanisms to permit new work permits to issue to expatriates facing travel bans. This cooperation is expected to decrease instances of illegal employment while facilitating repayment of creditors by expatriates facing such bans (and ultimately seeing those bans lifted).
Sara Khoja, Clyde & Co
International Sourcing and Offshoring: An Employment Law Checklist
Belgium’s Roger Blanpain, perhaps the world’s preeminent professor of international employment law, once declared that “we live in an information society, driven by knowledge in action.…[Services] can be provided via the information highways from anywhere, even from the other side of the globe…. We are in a New World. It immediately becomes clear why developments in the globalized, non-material market economies are totally transcending the nation-state and its political authorities.” (The World of Work in the 21st Century: Challenges and Opportunities, paper presented at Oxford, October 2008) Pulling Blanpain’s observation down to the multinational human resources level, today’s high-tech and globalized workplace spawns two vital trends in cross-border HR: International telecommuting and international outsourcing. In one sense, international telecommuting is the microscopic half of this issue—an employer in one country arranges for one of its own employees to work from a home overseas. Meanwhile, the macroscopic half of this same issue is international outsourcing—an employer in one country contracts for products made or services rendered by employees of an unaffiliated employer business in some other country.
To Alan Blinder, former vice-chairman of the Federal Reserve, international outsourcing amounts to the “third Industrial Revolution”—“we have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering.” (New York Times, April 4, 2007) Even if not a “revolution,” cross-border outsourcing is an increasingly vital if sometimes controversial business strategy. Undeniably, tapping expert providers to handle tasks that fall outside an organization’s core strengths maximizes efficiency. That said, outsourcing jobs internationally can be devisive: “there has been plenty of bad press over outsourcing and offshoring and the effect [these] practices have on employees and communities.” (Mary Pratt, “Is Your Outsourcer an IT Sweatshop?” Computer Work Management, April 21, 2008) Further, international outsourcing can be legally complex and heavily regulated, particularly as to employment issues. In one extreme case, a Brazilian company got fined US$1.5 million for illegally outsourcing work that, under Brazilian law, should have gotten done by the company’s own employees. (Brazil TRT, 15th region, decision of Apr. 2, 2013, case no. 0002007-98-2011.5.15.0013 RO)
To “outsource” means to reassign a task formerly (or logically) done by in-house employees, transferring it over to an independent contractor or the staff of an outside business that specializes in that particular task. Outsourcing reaches both production and services:
• Outsourcing production means buying big orders of components or even finished goods from specialty fabricators, often made to the principal/customer’s specifications. For example, an automobile manufacturer outsources production of tires to tire companies and production of radios to audio equipment makers. Meanwhile, clothing, sneaker and computer device retailers often outsource production of their entire product lines to specialized manufacturing factory companies, often in the developing world. For example, employees of The Gap, Nike and Apple do not make most (or any) Gap jeans, Nike sneakers or Apple iPads—outsourcers’ employees do.
• Outsourcing services means engaging an outside vendor or provider (contractor or company) to handle business services like janitorial work, mailroom, equipment repair, payroll, call centers, information technology, technical support, whistleblower hotline or any of a myriad of other “business processes.” Outsourcing of services is sometimes well-integrated with the principal’s day-to-day operations; some outsourcing of services means an independent contractor comes in and works at the principal/ customer’s own site, like an outsourced plumber or adjunct professor teaching courses on a university campus. Other outsourcing of services gets done by a separate business vendor’s employees coming onto the customer/principal’s site—think of outsourcing of mailroom services and janitorial services. But at the other extreme, outsourcing services can be physically remote from a principal’s core operations, such as offshore business process outsourcing (BPO) of technology, payroll, call centers, or whistleblower hotlines.
Remote outsourcing can either be local/domestic or international. The more legally complex outsourcing arrangements tend to be the international ones. There are two types of international outsourcing: offshoring—a job now done by company employees in one country moves to an outside provider overseas, and foreign domestic outsourcing—a job now done by the company at an overseas location away from headquarters shifts to a supplier in that same foreign country. These days, big outsourcing arrangements can involve many countries at the same time, with the customer/principal outsourcing a task to a multinational vendor across a pool of jurisdictions.
International outsourcing inevitably raises vital human resources and employment law issues, because cross-border outsourcing is fundamentally an international HR strategy (getting work done overseas by employees on someone else’s payroll).
Principals that outsource production or services need to be sure their outsourcing complies with employment laws. Obviously international outsourcing requires compliance with employment laws internationally. Indeed, international outsourcing sometimes opens a Pandora’s box of HR and employment law compliance issues for the customer/principal doing the outsourcing. So when embarking on international outsourcing, in addition to attending to all the outsourcing transactional issues, account for this checklist of cross-border employment law challenges:
Employment contracts: Collective labor agreements often contain outsourcing provisions, and even individual employment agreements sometimes have clauses that can affect an employer proposal to outsource. Be sure to check for these provisions, and to comply with them.
Consultations and negotiations: Trade unions are common outside the U.S. and, in addition, parts of Europe and Asia also have “works councils” and other employee representatives that operate right alongside unions. Worker representatives often enjoy a legal right to be “informed” and “consulted” about management proposals that would materially change terms and conditions of employment—and of course a proposal to outsource work is a quintessential subject of bargaining, because outsourcing takes work away from the principal’s workplace. Indeed, outsourcing can be a bête noir to worker representatives.
Even where worker reps do not have enough power to stop an employer from outsourcing, they might have the leverage to impose conditions on outsourcing, such as demanding outplacement services for displaced staff or reining in the scope of work outsourced. Failing to bargain or consult can give worker reps a wedge to get an outsourcing arrangement nullified. So start any mandatory consultation/bargaining early enough in the outsourcing process. Involve local company labor liaisons on the front lines (the management representatives who talk to the worker groups).
This said, though, in practice principals are often reluctant to disclose outsourcing arrangements to their employees until the arrangements become more or less final. Therefore, many outsourcing agreements get signed without minimum revenue commitments or “go-live” dates, subject to employee consultation that starts immediately after signing.
Co-/dual-/joint-employer exposure: In Spain, Latin America and many places beyond, an outsourcing customer/principal can easily become secondarily liable for employment claims, including contractor/consultant classification claims, as a co-/dual-/joint-employer. For example, an employee of a vendor might have a viable claim against not only his boss, the vendor, but also against his boss’s customer (the principal) for, say, overtime or severance pay, on the theory that the vendor’s customer was the employee’s beneficial or de facto co-/dual-/joint-employer. This co-/dual-/joint- employer scenario is most likely to arise where the vendor is an independent contractor or small business dedicated to just one customer/principal, and might be less likely where the vendor is a viable free-standing business with its own site and large pool of customers. But these claims do sometimes arise even in that context.
The threat of co-/dual-/joint-employer liability can be acute in jurisdictions like Costa Rica and Mexico. Mexican labor law articles 12 to 15 hold a customer/principal jointly liable for employment claims of staff hired through an “intermediary.” Indeed, the Mexico Labor Reform Law effective December 2012 requires a customer/principal to conduct “permanent compliance supervision” to ensure its outsourcers/ services providers comply with employment, health/safety and other workplace laws. Especially in a captive (one-customer) relationship, if a vendor fails to meet payroll or violates wage/ hour laws, its staff may have an easy claim against the boss’s customer, the principal. So do due diligence.
While the customer/principal cannot shift this legal risk, it might shift the financial risk. Consider negotiating into an international outsourcing contract indemnities, set-asides or a hold-harmless provision to fund possible employment claims brought by vendor employees. And where the vendor is a local subsidiary of a bigger conglomerate, consider backing up the indemnities with parent company guarantees, bonds or letters of credit.
Local outsourcing employment law restrictions: There is a widespread perception that customer/principals treat their staff better, and pay more, than outsourcing vendors do. And there is a widespread perception that offshoring in a given country loses more outbound jobs than it gains inbound jobs. So outsourcing can be politically unpopular. Some legislatures have even taken affirmative steps to rein it in. Some jurisdictions (Argentina, Brazil, Columbia, Mexico, Panama, Peru, Turkey, Vietnam, others) impose outsourcing-restrictive laws designed to protect jobs at the customer/principal and to curb vendors’ perceived abuses of employee rights. Be sure to comply with these sometimes-draconian rules.
Acquired rights: “Acquired rights” (also known as “transfer of undertakings” or “TUPE”) rules, especially in Europe and Australia, can require that employees of a customer/principal retain their vested rights in their jobs in an outsourcing arrangement. This means that by operation of law, a customer/principal employee’s job rights actually transfer over to the vendor along with the outsourced work. And so when a domestic outsourcing happens (in countries with acquired rights laws broad enough to reach outsourcing), affected employees automatically get jobs with the same pay and benefits, only now working for the vendor. Then, after the domestic outsourcing ends, this same acquired rights doctrine springs back up and applies yet again, requiring the customer/principal to rehire the staff now working for the vendor. To temper the effect of these laws, in acquired rights jurisdictions a customer/principal should always consider including post- contract-termination re-hire provisions in its outsourcing agreements. Account for the scenario of the employee who refuses the transfer, and also for the scenario of the vendor that designates its poorest performers as its employees subject to the transfer.
All this said, though, some jurisdictions outside Europe impose more limited acquired rights laws (aimed at asset-sale business transfers) that do not necessarily reach outsourcings. Be sure to check.
The effect of acquired rights rules on offshoring remains murky. What happens when a customer/principal’s employee in acquired rights jurisdiction A loses his job because his tasks get outsourced to a team at a vendor operating in country B? Country A’s acquired rights rules may be unclear in this context.
Reductions-in-force: Where acquired rights rules do not reach an international outsourcing arrangement, some of a customer/principal’s current employees may be in danger of losing their jobs when their tasks get outsourced. Craft a realistic restructuring/redundancy, lay-off or “social” plan that complies with both local law and with lay-off provisions in individual and collective employment agreements.
Data protection laws: When an outsourcing arrangement implicates cross-border transfers of employee (or customer or other) personal data, be sure to comply with the data protection laws of the jurisdiction where the personal information is sourced. Data law compliance can be a real challenge where customer/principal personal data originates in jurisdictions like the EU, Hong Kong, Israel or Mexico that impose tough omnibus data laws, and where the outsourcing work will then get done in jurisdictions with looser data laws—say, Africa, Arab countries, India or the United States. This issue is vital, for example, in offshore payroll outsourcing and cross-border outsourcing of whistleblower hotlines.
Personnel control: By definition, an outsourcing customer/principal relinquishes control over who does its tasks and how the responsible worker does the work. This can mean quality problems related to vendor employee performance. What if a services vendor fails to train its staff adequately, or assigns insufficient, incompetent or non-English-speaking personnel? For example, outsourcing a call center to handle customer service puts the vendor’s employees out front as the customer/principal’s “face to the public.” What if service problems emerge? How can the customer/principal correct specific vendor employees who consistently do a bad job?
Anticipate potential quality and “talent” problems connected to individual employee performance. Use a risk management model or “service-level paradigm” to set measurable standards and service levels. Quantify damages. Consider retaining a right to train, interview and test vendor employees. Consider retaining a right to force the vendor to reassign specific poor performers to some other customer.
Social responsibility: Since the 1990s, clothing and products retailers and now computer devices/tech brands that outsource production to the developing world have drawn fierce criticism for partnering with so-called “sweatshops.” The Bangladesh Rana Plaza factory collapse of 2013 spotlighted the enormity of this problem. Outsourcer/principals respond by appending supplier codes of conduct to their outsourcing contracts and actively monitoring vendor compliance.
Offshoring services can raise the very same social responsibility issues. In 2008, Computer World Management ran an article asking “Is Your Outsourcer an IT Sweatshop?” According to that article, Ron Kifer, Chief Information Officer of Applied Materials, Inc. in Santa Clara, California insists that his company’s “IT outsourcing apply the same ideals” as his California headquarters, “giving back to community, supporting the economies in which we live and work, and green initiatives.”
When offshoring either production or services, particularly to developing countries, consider imposing on the vendor a code of labor standards or supplier code of conduct that addresses:
– Basic labor standards and employment law compliance
– Distribution of the code to vendor employees, and translation
– Code compliance monitoring conducted by the customer/principal or its agents
– Penalties for code violations
– Right to revise/amend the code
Visas: Particularly in big outsourcing arrangements, managers from an outsourcing customer/principal often need to travel to the vendor site to oversee a new outsourcing relationship. Start early applying for visas/work permits in the host country and arranging expatriate assignments.
Communications: A decision to outsource work can be controversial. And a decision to offshore work can be divisive. Outsourcing decisions require a proactive communication strategy—not only external public relations, but also internal employee communications. Proactively explain potentially controversial outsourcing and offshoring decisions to all the stakeholders, including all the affected principal’s employees. Get in front of the issue before bad press or workforce blowback.
Donald C. Dowling, Jr., Partner White & Case, New York
To Alan Blinder, former vice-chairman of the Federal Reserve, international outsourcing amounts to the “third Industrial Revolution”—“we have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering.” (New York Times, April 4, 2007) Even if not a “revolution,” cross-border outsourcing is an increasingly vital if sometimes controversial business strategy. Undeniably, tapping expert providers to handle tasks that fall outside an organization’s core strengths maximizes efficiency. That said, outsourcing jobs internationally can be devisive: “there has been plenty of bad press over outsourcing and offshoring and the effect [these] practices have on employees and communities.” (Mary Pratt, “Is Your Outsourcer an IT Sweatshop?” Computer Work Management, April 21, 2008) Further, international outsourcing can be legally complex and heavily regulated, particularly as to employment issues. In one extreme case, a Brazilian company got fined US$1.5 million for illegally outsourcing work that, under Brazilian law, should have gotten done by the company’s own employees. (Brazil TRT, 15th region, decision of Apr. 2, 2013, case no. 0002007-98-2011.5.15.0013 RO)
To “outsource” means to reassign a task formerly (or logically) done by in-house employees, transferring it over to an independent contractor or the staff of an outside business that specializes in that particular task. Outsourcing reaches both production and services:
• Outsourcing production means buying big orders of components or even finished goods from specialty fabricators, often made to the principal/customer’s specifications. For example, an automobile manufacturer outsources production of tires to tire companies and production of radios to audio equipment makers. Meanwhile, clothing, sneaker and computer device retailers often outsource production of their entire product lines to specialized manufacturing factory companies, often in the developing world. For example, employees of The Gap, Nike and Apple do not make most (or any) Gap jeans, Nike sneakers or Apple iPads—outsourcers’ employees do.
• Outsourcing services means engaging an outside vendor or provider (contractor or company) to handle business services like janitorial work, mailroom, equipment repair, payroll, call centers, information technology, technical support, whistleblower hotline or any of a myriad of other “business processes.” Outsourcing of services is sometimes well-integrated with the principal’s day-to-day operations; some outsourcing of services means an independent contractor comes in and works at the principal/ customer’s own site, like an outsourced plumber or adjunct professor teaching courses on a university campus. Other outsourcing of services gets done by a separate business vendor’s employees coming onto the customer/principal’s site—think of outsourcing of mailroom services and janitorial services. But at the other extreme, outsourcing services can be physically remote from a principal’s core operations, such as offshore business process outsourcing (BPO) of technology, payroll, call centers, or whistleblower hotlines.
Remote outsourcing can either be local/domestic or international. The more legally complex outsourcing arrangements tend to be the international ones. There are two types of international outsourcing: offshoring—a job now done by company employees in one country moves to an outside provider overseas, and foreign domestic outsourcing—a job now done by the company at an overseas location away from headquarters shifts to a supplier in that same foreign country. These days, big outsourcing arrangements can involve many countries at the same time, with the customer/principal outsourcing a task to a multinational vendor across a pool of jurisdictions.
International outsourcing inevitably raises vital human resources and employment law issues, because cross-border outsourcing is fundamentally an international HR strategy (getting work done overseas by employees on someone else’s payroll).
Principals that outsource production or services need to be sure their outsourcing complies with employment laws. Obviously international outsourcing requires compliance with employment laws internationally. Indeed, international outsourcing sometimes opens a Pandora’s box of HR and employment law compliance issues for the customer/principal doing the outsourcing. So when embarking on international outsourcing, in addition to attending to all the outsourcing transactional issues, account for this checklist of cross-border employment law challenges:
Employment contracts: Collective labor agreements often contain outsourcing provisions, and even individual employment agreements sometimes have clauses that can affect an employer proposal to outsource. Be sure to check for these provisions, and to comply with them.
Consultations and negotiations: Trade unions are common outside the U.S. and, in addition, parts of Europe and Asia also have “works councils” and other employee representatives that operate right alongside unions. Worker representatives often enjoy a legal right to be “informed” and “consulted” about management proposals that would materially change terms and conditions of employment—and of course a proposal to outsource work is a quintessential subject of bargaining, because outsourcing takes work away from the principal’s workplace. Indeed, outsourcing can be a bête noir to worker representatives.
Even where worker reps do not have enough power to stop an employer from outsourcing, they might have the leverage to impose conditions on outsourcing, such as demanding outplacement services for displaced staff or reining in the scope of work outsourced. Failing to bargain or consult can give worker reps a wedge to get an outsourcing arrangement nullified. So start any mandatory consultation/bargaining early enough in the outsourcing process. Involve local company labor liaisons on the front lines (the management representatives who talk to the worker groups).
This said, though, in practice principals are often reluctant to disclose outsourcing arrangements to their employees until the arrangements become more or less final. Therefore, many outsourcing agreements get signed without minimum revenue commitments or “go-live” dates, subject to employee consultation that starts immediately after signing.
Co-/dual-/joint-employer exposure: In Spain, Latin America and many places beyond, an outsourcing customer/principal can easily become secondarily liable for employment claims, including contractor/consultant classification claims, as a co-/dual-/joint-employer. For example, an employee of a vendor might have a viable claim against not only his boss, the vendor, but also against his boss’s customer (the principal) for, say, overtime or severance pay, on the theory that the vendor’s customer was the employee’s beneficial or de facto co-/dual-/joint-employer. This co-/dual-/joint- employer scenario is most likely to arise where the vendor is an independent contractor or small business dedicated to just one customer/principal, and might be less likely where the vendor is a viable free-standing business with its own site and large pool of customers. But these claims do sometimes arise even in that context.
The threat of co-/dual-/joint-employer liability can be acute in jurisdictions like Costa Rica and Mexico. Mexican labor law articles 12 to 15 hold a customer/principal jointly liable for employment claims of staff hired through an “intermediary.” Indeed, the Mexico Labor Reform Law effective December 2012 requires a customer/principal to conduct “permanent compliance supervision” to ensure its outsourcers/ services providers comply with employment, health/safety and other workplace laws. Especially in a captive (one-customer) relationship, if a vendor fails to meet payroll or violates wage/ hour laws, its staff may have an easy claim against the boss’s customer, the principal. So do due diligence.
While the customer/principal cannot shift this legal risk, it might shift the financial risk. Consider negotiating into an international outsourcing contract indemnities, set-asides or a hold-harmless provision to fund possible employment claims brought by vendor employees. And where the vendor is a local subsidiary of a bigger conglomerate, consider backing up the indemnities with parent company guarantees, bonds or letters of credit.
Local outsourcing employment law restrictions: There is a widespread perception that customer/principals treat their staff better, and pay more, than outsourcing vendors do. And there is a widespread perception that offshoring in a given country loses more outbound jobs than it gains inbound jobs. So outsourcing can be politically unpopular. Some legislatures have even taken affirmative steps to rein it in. Some jurisdictions (Argentina, Brazil, Columbia, Mexico, Panama, Peru, Turkey, Vietnam, others) impose outsourcing-restrictive laws designed to protect jobs at the customer/principal and to curb vendors’ perceived abuses of employee rights. Be sure to comply with these sometimes-draconian rules.
Acquired rights: “Acquired rights” (also known as “transfer of undertakings” or “TUPE”) rules, especially in Europe and Australia, can require that employees of a customer/principal retain their vested rights in their jobs in an outsourcing arrangement. This means that by operation of law, a customer/principal employee’s job rights actually transfer over to the vendor along with the outsourced work. And so when a domestic outsourcing happens (in countries with acquired rights laws broad enough to reach outsourcing), affected employees automatically get jobs with the same pay and benefits, only now working for the vendor. Then, after the domestic outsourcing ends, this same acquired rights doctrine springs back up and applies yet again, requiring the customer/principal to rehire the staff now working for the vendor. To temper the effect of these laws, in acquired rights jurisdictions a customer/principal should always consider including post- contract-termination re-hire provisions in its outsourcing agreements. Account for the scenario of the employee who refuses the transfer, and also for the scenario of the vendor that designates its poorest performers as its employees subject to the transfer.
All this said, though, some jurisdictions outside Europe impose more limited acquired rights laws (aimed at asset-sale business transfers) that do not necessarily reach outsourcings. Be sure to check.
The effect of acquired rights rules on offshoring remains murky. What happens when a customer/principal’s employee in acquired rights jurisdiction A loses his job because his tasks get outsourced to a team at a vendor operating in country B? Country A’s acquired rights rules may be unclear in this context.
Reductions-in-force: Where acquired rights rules do not reach an international outsourcing arrangement, some of a customer/principal’s current employees may be in danger of losing their jobs when their tasks get outsourced. Craft a realistic restructuring/redundancy, lay-off or “social” plan that complies with both local law and with lay-off provisions in individual and collective employment agreements.
Data protection laws: When an outsourcing arrangement implicates cross-border transfers of employee (or customer or other) personal data, be sure to comply with the data protection laws of the jurisdiction where the personal information is sourced. Data law compliance can be a real challenge where customer/principal personal data originates in jurisdictions like the EU, Hong Kong, Israel or Mexico that impose tough omnibus data laws, and where the outsourcing work will then get done in jurisdictions with looser data laws—say, Africa, Arab countries, India or the United States. This issue is vital, for example, in offshore payroll outsourcing and cross-border outsourcing of whistleblower hotlines.
Personnel control: By definition, an outsourcing customer/principal relinquishes control over who does its tasks and how the responsible worker does the work. This can mean quality problems related to vendor employee performance. What if a services vendor fails to train its staff adequately, or assigns insufficient, incompetent or non-English-speaking personnel? For example, outsourcing a call center to handle customer service puts the vendor’s employees out front as the customer/principal’s “face to the public.” What if service problems emerge? How can the customer/principal correct specific vendor employees who consistently do a bad job?
Anticipate potential quality and “talent” problems connected to individual employee performance. Use a risk management model or “service-level paradigm” to set measurable standards and service levels. Quantify damages. Consider retaining a right to train, interview and test vendor employees. Consider retaining a right to force the vendor to reassign specific poor performers to some other customer.
Social responsibility: Since the 1990s, clothing and products retailers and now computer devices/tech brands that outsource production to the developing world have drawn fierce criticism for partnering with so-called “sweatshops.” The Bangladesh Rana Plaza factory collapse of 2013 spotlighted the enormity of this problem. Outsourcer/principals respond by appending supplier codes of conduct to their outsourcing contracts and actively monitoring vendor compliance.
Offshoring services can raise the very same social responsibility issues. In 2008, Computer World Management ran an article asking “Is Your Outsourcer an IT Sweatshop?” According to that article, Ron Kifer, Chief Information Officer of Applied Materials, Inc. in Santa Clara, California insists that his company’s “IT outsourcing apply the same ideals” as his California headquarters, “giving back to community, supporting the economies in which we live and work, and green initiatives.”
When offshoring either production or services, particularly to developing countries, consider imposing on the vendor a code of labor standards or supplier code of conduct that addresses:
– Basic labor standards and employment law compliance
– Distribution of the code to vendor employees, and translation
– Code compliance monitoring conducted by the customer/principal or its agents
– Penalties for code violations
– Right to revise/amend the code
Visas: Particularly in big outsourcing arrangements, managers from an outsourcing customer/principal often need to travel to the vendor site to oversee a new outsourcing relationship. Start early applying for visas/work permits in the host country and arranging expatriate assignments.
Communications: A decision to outsource work can be controversial. And a decision to offshore work can be divisive. Outsourcing decisions require a proactive communication strategy—not only external public relations, but also internal employee communications. Proactively explain potentially controversial outsourcing and offshoring decisions to all the stakeholders, including all the affected principal’s employees. Get in front of the issue before bad press or workforce blowback.
Donald C. Dowling, Jr., Partner White & Case, New York
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