Wednesday, July 1, 2015

Welcome to the Summer edition of our newsletter. Many thanks to all of our contributors who have helped to make this a bumper edition. Please let me know if you are interested in submitting an article for a future edition.

Helen Colquhoun
Withers LLP
(Qualified in England & Wales and New York, Registered Foreign Lawyer in Hong Kong)

Canada - Constructive Dismissal in Canada - Legal Construct Clarified by the Supreme Court of Canada

By Theodore Goloff, Senior Partner, Chair Labour and Employment Practice Group Robinson, Sheppard, Shapiro LLP, Montreal, Quebec

Dynamic is an apt description of labour and employment law in Canada, particularly bearing in mind how these areas have been reshaped by the Courts in the past decade. While its bijural system of private law – Anglo-Canadian common law in nine (9) provinces and a distinctive civil law tradition in Quebec - might be expected to result in disparate solutions to common human resource issues, the Supreme Court of Canada, whose judges represent both traditions, has sought to harmonize employment law principles throughout the country . Where it felt useful, it is also borrowed from arbitral precedent of the unionized sector of Canada’s Labour Force, where reliance on precedent from other legal traditions has been more frequent. A review of the Supreme Court’s recent decision in Potter vs. New Brunswick Legal Aid Services Commission , in which numerous employment law principles were canvassed, reviewed, modernized and harmonized is a seminal case in point. The fact that it arose in a common law environment did not deter Mr. Justice Wagner, from, in part, using a comparative law framework to expand common law precedent to harmonize outcomes with norms already present in Quebec Civil Law. What results is not only needed clarification in various areas of employment law but a judgement which works effectively within Canada’s bijural system while remaining true to the principles of each legal system individually.


If “at will” is the bedrock of the employment relationship in United States, nowhere in Canada can an employer terminate without cause/serious reason unless appropriate statutory and “common law” notice and/or severance is tendered . Furthermore, recognizing the central role that employment has is in defining our self worth and dignity as well as the relative bargaining weakness of “labour” vs. “management”, the concept of “constructive dismissal developed within the civil and common law traditions, as a response to unilateral and prejudicial conduct by the employer that, even unintentionally, makes continued employment untenable or substantially changes working conditions. While the Supreme Court in Farber vs. Royal Trust Co. set down a principled framework for analyzing when “constructive dismissal” could be said to have arisen and what recourses might be available to the employee in such circumstances, several issues remain unresolved. It is in this context that the Potter Case is of seminal importance.


Plaintiff was employed as the Commission’s Executive Director for a fixed term of seven years. When mid-way through the relationship soured the parties began to consider a “buyout”. Before resolution, Plaintiff left on sick leave. Just prior to his expected return to work the Commission’s lawyer advised that Plaintiff was not to return to work until further direction. Unbeknownst to Potter, the Commission simultaneously advised the Minister of Justice that unless the “buyout” would be settled at a stated date prior to Plaintiff’s next expected date of return, he should be terminated for cause . When, before conclusion of the sick leave, the Commission, by separate letter, suspended him indefinitely with pay and delegated all his duties and powers to another individual, Potter resigned under protest and sued, submitting that he had been “constructively dismissed” and claiming inter alia the balance of salary and benefits under the fixed term contract. He advised that he would be drawing down his pension without prejudice to his claim. Having lost in both trial and appellate Courts the matter came before the Supreme Court of Canada.


The Court dealt with and resolved multiple issues and in particular: a) clarified the tests identifying a constructive dismissal and the shifting burdens of proof and/or adducing evidence between the parties; b) determined the admissibility and/or relevancy of information unknown at the time of cessation of employment; c) dealt with the parameters that characterize an administrative “suspension”, in effect a form of “garden leave”; d) clarified the authority of an employer to withhold work under both the common law and civil law systems; e) recognized that “garden leave”, without legitimate business interest justification could be the catalyst for constructive dismissal; f) refined the rules regarding whether or not the drawing down pension benefits reduce the employer’s exposure to contractual damages.


When an employer’s conduct evinces an intention to no longer be bound by the employment contract, the employee has the choice of either accepting that conduct or those changes made by the employer, or treating the conduct or changes as a repudiation of the employment contract itself and proceed to sue for wrongful dismissal.

“Constructive” indicates that the dismissal is a legal construct even though the termination is brought about by the employee’s leaving.


On the one hand, a constructive dismissal could be said to arise when an expressed or implied contractual term is (i) identified (ii) has been breached and (iii) is sufficiently substantive to permit a reasonable conclusion that its breach means that the employer does not intend to be bound by the original contract. Typically the breach involves changes to the employee’s compensation, work assignments or place of work and must be both unilateral and substantive.

On the other hand, an employee can be found to have been constructively dismissed without identifying a specific term that has been breached “if the employer’s treatment of the employee made continued employment intolerable” .

The burden rests on the employee to establish that he has been constructively dismissed.


In the first type of “constructive dismissal”, the review must be done in two (2) stages. First the Court must determine objectively whether a unilateral change or breach, in fact, has occurred.

“If an expressed or an implied term gives the employer the authority to make the change or if the employee consents to or acquiesces in it, the change is not a unilateral act and therefore will not constitute a breach”.

To qualify as a breach the change must necessarily be detrimental to the employee in some way.


The two (2) steps of this analysis are distinct.

The first part is purely objective. The test is “whether at the time the breach occurred a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed”;

The ignorance of Plaintiff of the employer’s decision to terminate for cause unless a buyout ensued was, therefore, irrelevant. The evidence that was led was both pertinent and admissible. Its exclusion by the Trial judge was both error in law and certainly not “wholly harmless”.

It is at the second stage of the analysis that perspective shifts to “what was known by the employee at the time of the breach and what ought to have been foreseen by a reasonable person in the same situation”.

The shift in perspective demonstrates the balance struck in the doctrine of constructive dismissal, recognizing the vulnerability of the employee vis à vis the employer. The reference point in the second branch of the test is that of a reasonable person in the same circumstances as the employee, but based on reasonable perceptions that existed then.

There is no requirement that the employer actually intend to no longer be bound by the contract, the question being whether given the totality of the circumstances a reasonable person in the employee’s situation would have concluded that the employer’s conduct evinced an intention no longer to be bound by it.

On this portion of the test, for the majority, perspective cannot be stretched so far as to allow the employee to rely on grounds that although real were unknown to him or her at the relevant time.


Unlike Quebec Civil Law, there is, at common law, no pervasive legal obligation to provide work to an employee that does not, however, provide employers with unfettered discretion to withhold work “at will”.

The centrality of work as a fundamental aspect of one’s life, beyond providing a means of financial livelihood and support, as an essential component of one’s sense of identity, self-worth and emotional wellbeing means that the benefits of performing work are not limited to monetary or reputational benefits.

An employer cannot withhold work from an employee even while continuing payment of salary and benefits otherwise then for bona fide reasons relating to protecting a legitimate and identifiable business interest.

While some categories of employees may suffer proportionally more than others as a result of an employer’s decision to withhold work, giving rise to in the common law to an implied duty of providing work, employers do not have an unfettered right to put employees whose work does not provide them what are termed “reputational benefits” on “garden leave” without justifying such actions in terms of reasonable protection of a legitimate business interest.

To allow unfettered discretion would be inconsistent with the employer’s duty of good faith and fair dealing “gaining acceptance at common law”.

The notice sent by the Commission to the Minister of Justice could therefore be used by Potter on the first but not the second branch of the test. It could however be used as part of the evidence showing a broader male fides of the employer.


For the majority, above all else, it was “the indefinite duration of the “suspension”, its absence of candor in failing to provide Potter with any business rationale for it that demonstrated bad faith and amounted to substantial change to the essential terms of the contract that was imposed by the employer.”

An employer’s withholding of work, either in the form of “garden leave” or via a prohibition to attend the work place, both constitute a form of “suspension” which can be either disciplinary or administrative.

In most circumstances an administrative suspension renders it unjustified “… in the absence of a basic level of communication with the employee”, required by the overarching principle at Common Law that the Court had described the previous fall, drawing heavily from the civilian tradition in Quebec that “contractual dealings means being honest, reasonable, candid and forthright” .

Failing to provide an explanation for the suspension coupled with the letter to the Minister of Justice requiring termination for cause if settlement was not reached at a given date demonstrated that the employer was neither forthright nor candid.

While salary continuance is one factor that determines the legitimacy of any administrative suspension, in the face of its indefinite duration, the absence of any employer candor, the fact that the employer had already designated Potter’s replacement makes the suspension unauthorized. Since the employer failed to show it to be either reasonable or justified in the circumstances, save in circumstances where the suspension would have been exceptionally short, no employer could argue that it would be unreasonable to view its actions as “evincing an intention no longer to be bound by the contract”.

Because it viewed that there had thereby been already a constructive dismissal, the question of whether institution of the suit by him constituted his resignation and repudiation of the employment contract became moot.

Interestingly the Court recognized again that, as a derivative of the general duty to mitigate damages an employee could oppose a unilateral change to substantive working conditions by commencing legal action for constructive dismissal but without resigning where: (i) the employment relationship has not to become per se unsustainable and (ii) it was reasonable to remain in employment as a vehicle to mitigate damages.

In dealing with how the drawdown by Potter of pension benefits were to be dealt with, the Court applied IBM Canada Limited v. Waterman, and applied this so called “private insurance exception” to the general rule that “… contract damages should place the Plaintiff in the economic position that he or she would have been had the Defendant performed the contract” on the other hand “pension payments to which an employee has contributed and which were not intended to be an indemnity” for the type of loss that a breach of the employment contract engenders generally should not be deducted from the damages awarded in breach of contract.


Without discounting the importance of the suspension, the minority’s approach was not to focus on the prohibition to attend work as the catalyst, but rather to use broader. brush strokes holding that (i) as the Commission intended Potter’s termination come what may (ii) wanted him out of the workplace and “on the shelf” (iii) provided no assurance that it would honour all the terms of the contract until expiry, all of these evinced a clear and overarching intent not to be bound. The letter to the Minister was admissible, relevant and, indeed, determinate for all purposes because a non-breaching party claiming remediation (Potter) is entitled to rely upon any conduct, even unknown to him, that might with other elements demonstrate repudiative intention.


While the Farber Case may have arisen in a civil law environment the Supreme Court’s reference to similarities between Canada’s two legal systems as applied to “constructive dismissal” allowed the case to impact employment law throughout the country, in both common law and civil law provinces. No doubt, given the references of Mr. Justice Wagner to the principles of civil law, will allow the Potter Case although arising in a common law environment, to similarly impact employment law in Quebec. What is profoundly important is that the unifying force of a single bi-jural Supreme Court has not sacrificed one iota the purely of each system as it stands but has allowed each to grow and develop while harmonising and modernising employment law throughout the country.

China - Proving a Contract is a Forgery in China: The Ink Test Application

By Robin Gerofsky Kaptzan (Senior Foreign Counsel), Haworth & Lexon Law Firm (Shanghai).

After a General Manager of the Shanghai, China foreign invested business lost most of his claims for compensation from his alleged wrongful termination before the Shanghai Labor Arbitration Tribunal, he initiated litigation in the court. In support of his Appeal, the General Manager submitted a “smoking gun” – a document that clearly rendered the Employer 100% liable. In China, it is permitted to submit new evidence when a party has appealed and initiated litigation in the PRC court regarding a labor dispute. His new evidence miraculously supported every claim upon which he had lost at the Labor Arbitration. The outraged Employer, incensed by the fake contract authenticated by the Shanghai company chop (the seal/stamp in China is the equivalent to a signature in most countries), confidently said that the new evidence was a forgery with the chop used without authority and obtained through wrongdoing. The only route to prove the lack of integrity of the document was for the Employer to formally test the authenticity of the document. Although forensic tests confirming the date a document was signed (or chopped) have been used in the USA and other jurisdictions for a while, they are rarely used in China. After having the court imposed equivalent of a forensic test completed, justice was served when the People’s Court of Shanghai Huangpu District rendered a decision smoldering the “smoking gun”.

In China, the equivalent to a forensic test is called an “Ink Test” in order to prove the time when the document was printed, chopped or signed. During a dispute, a party has the right to request the authenticity of a document be tested if it claims the document is a forgery. When making the request, a party has the right to specifically identify the goal of the test – signature, chop, ink, print, etc. If the request is granted, the judge then liaises with a Chinese authentication institution approved by the government to conduct such test.

Before making the request, we were told that all environmental factors are considered and all possible measures available would be used in order to render the final conclusion. We were told there is a risk that the test will be inconclusive, although it is rare for documents allegedly signed more than one year prior to the test to have an inconclusive result. For a document alleged to have been signed within a year of the test, the risk of an inconclusive finding is greater.

In our situation, the General Manager claimed the document (the “smoking gun”) was executed several years earlier as reflected by the printed date on the document. The Employer, however, alleged the fake was created within one month of the submission to the People’s Court. At the hearing authorizing the Ink Test, the People’s Court Judge ordered 1) the General Manager to submit to the Court the original “smoking gun”, and 2) the Employer to cooperate with the expert from the authentication institution to be appointed by the People’s Court Judge (as the authentication institution’s expert will be requesting a variety of the Employer’s original business documents). After the hearing, the Employer was contacted by the authentication institution’s expert conducting the Ink Test and was required to deliver original contracts, invoices, and other corporate documents that contained the company chop for several months before and after 1) the date on the alleged “smoking gun”, and 2) the date the Employer alleged the “smoking gun” was created (immediately after the Labor Arbitration Tribunal’s decision was rendered to the time the General Manager filed his Appeal, about 15 days). After obtaining authorizations regarding confidentiality clauses in some of the documents, the employer submitted the required documents.

The entire process from submitting the request to the Appellate Court Judge to the issuance of the decision was 3-4 months. We were contacted by the authentication institution’s expert 30 days after the Judge granted our request. We were told the test would take 30 to 60 days and it actually was conducted over a period of more than 60 days with the Employer providing additional documents as requested.

There is a basic fee that each authentication institution will charge, which is several thousand reminbi (a few hundred USD). An additional fee is also charged and is calculated based on the amount claimed in the case. If the result is inconclusive, only the basic fee will be charged. Although the cost of the test is paid for in advance by the party requesting the Ink Test, a result that the document is indeed a forgery will transfer the responsibility for the cost of the test to the other party with that amount being included in the final decision rendered by the judge.

As it was possible that the result of the Ink Test could have been inconclusive, we considered every factor that might affect the outcome of the Ink Test before making the Application. Even at the hearing, the General Manager, unsuccessfully, attacked the integrity of the test with arguments (i.e: the original business documents provided by the Employer were forged) that may be successful in a different case if one could not establish the authenticity of the documents provided. In China, the proof that a document is an original is critical in all cases. An Ink Test Application is a bold step in a China civil case but it is something that should be considered when you believe a forgery may have been submitted in your case.

This article is based on a labor dispute commenced in early 2012 before the Shanghai Labor Arbitration Tribunal. The General Manager alleged wrongful termination and claimed compensation for income, expenses, severance and commission in Shanghai. The Employer denied the claims and asserted the General Manager was not entitled to certain compensation requested as he abused the power given by the investor, it was never agreed, and it was non-China compensation. The dispute was tried in the Shanghai Labor Arbitration Tribunal with the Employer effectively succeeding on all financial claims except that the Arbitrator ordered the employee to return to work. This is a right of an employee under the PRC Labor Contract Law, which the General Manger asserted and which the Employer vehemently opposed due to the disruption to the office and fear of the employees. The General Manager initiated litigation in the People’s Court effectively appealing all of the Shanghai Labor Tribunal’s decision and the Employer initiated another litigation to the People’s Court only objecting to the portion allowing the General Manager to return to work. The People’s Court merged the two litigations. In early 2015, the People’s Court rendered the decision confirming that the Ink Test Application conclusively found the “smoking gun” a forgery. Before the time to appeal to the Shanghai Municipal First Intermediate People's Court expired, this matter was concluded through a settlement ad release agreement, a decision that minimized future expenses and risk of baseless claims being brought again in any court. This matter was handled by Keven Cheng (Partner) and Robin Gerofsky Kaptzan (Senior Foreign Counsel) from Haworth & Lexon Law Firm (Shanghai).

France - Recent Legal Developments

By Roselyn S. Sands, EY Société d’Avocats, Paris, France (with thanks also to Nicholas Etcheparre for his contribution)

Labor and employment law have been at the heart of the French legislative process since François Hollande’s socialist government was elected to power in May 2012. This is all the more true in 2015 as the French government submitted two new bills before French Parliament which considerably impact French labor and employment regulations: the bill for economic growth, attractivity and equal economic opportunities and the bill “social dialogue” and employment.

In addition, early in June the Government announced a “French small business act”, aimed at favoring employment in small and medium sized companies in France, whose provisions have been or will be amended into the above bills.

These new bills crystalize the paradoxical and precarious position in which France finds itself today - the continual high unemployment figures and burdensome labor & employment law regulations for companies.

In this complex political situation both bills have been the subject of long parliamentary discussions which are coming to an end. The Government has announced that both bills should be passed in the Summer 2015.

1. The bill for economic growth, attractivity and equal economic opportunities: the “Macron” bill

The bill is often referred to as being the “Macron” bill given that it was submitted to the French Parliament by the current Minister covers a variety of subjects which could have an impact on companies established in France. Its goal is to re-boost France’s economy: increasing consumption and decreasing unemployment.

• Brief overview of the parliamentary process

The plethora of subjects covered by the bill, as well as the controversy during 400 hours of debate, has made the passage of this bill difficult. To try to save the threatened bill, Prime Minister Manuel Valls made use of article 49-3 of the French Constitution, twice, to bypass the National Assembly and submit the vote directly to the Senate; the first no-confidence motion failed on February 19, 2015, and the second no-confidence vote failed on June 18, 2015. The bill will now be examined by the Senate, who will then pass it once more to the National Assembly in July.

• Measures aimed to increase flexibility

There is one key area in which the Macron law seeks to increase flexibility: working time matters. Initially, the bill also modified cumbersome rules on downsizing but the government has decided to drop these modifications.

To encourage increased consumption and employment, the new bill will allow certain businesses to open 12 Sundays per year (7 more than the current 5). Employees will be protected as Sunday work will be voluntary and a collective agreement must set increased remuneration for Sunday work.

The bill also relaxes the definition of night work in certain areas, and thus facilitates the ability of employers to open businesses from 7 a.m. to midnight. This expanded work day should encourage employers to hire new employees instead of simply resorting to the use of overtime work by existing employees, thus reducing unemployment. Employees will be protected in that night work will be voluntary and paid double.

• Measures related to tax optimized compensation

The bill also provides a series of measures which would encourage the delivery of compensation through tax efficient pension and profit-sharing schemes, by offering more optimized tax and social security treatment.

These measures could have a considerable impact on employee remuneration in France for the upcoming years. For instance, after implementing an optional profit-sharing a company should benefit from social security exemptions on all sums paid out through that vehicle for 3 years, and then benefit from a reduced 8% rate, instead of a 20% rate, for the following 6 years.

In addition, the bill intends to modify the tax rules governing certain employee equity grants which could lead to more favorable tax treatments.

• Measures to accelerate employment dispute resolution

The bill seeks to correct existing deficiencies with respect to employment litigation: the process is too slow and damage awards are unpredictable. Three specific proposed changes can be highlighted.

First, the bill provides for enhanced opportunities for parties in a dispute to resolve their differences through alternative dispute resolution proceedings, such as mediation or arbitration, in lieu of the labor courts.

Second, French labor judges would have a mandatory scale applicable when deciding on the amount of damages to award in case of unfair dismissals. (These limits will not apply in the case of discrimination or harassment claims). This provision was announced by the Prime Minister through the “French small business act” and has been the object of as much praise as it has criticism.

Third, under the new bill, either party may request that the litigation follow two alternative and potentially accelerated routes.

2. The bill on “social dialogue” and employment: the “Rebsamen” bill

“Social dialogue” is a term coined in France to describe all interaction between an employer and the employee’s representative bodies. The plethoric amount of rules and obligations on this matter has been the subject of considerable criticism over the past years, with critics pointing out that the lack of clarity renders it somewhat ineffective.

Therefore, the bill on “social dialogue” and employment, which is referred to as the “Rebsamen” bill given that it was submitted to the French Parliament by the current Minister for Employment François Rebsamen, aims to simplify these rules for most companies.

The bill aims to simplify two key aspects of social dialogue in France: employee representative bodies and mandatory information/consultation and negotiations.

3. Simplification of the regulation on employee representative bodies

Initially, there had been discussions on whether or not the thresholds applicable for the implementation of employee representative bodies would be increased. However, the Government chose to keep them as is.

The Government chose an alternative route which aims to concentrate the existing employee representative bodies in a single body.

• For companies with less than 300 employees

Currently, employers who employ less than 200 employees have the right to merge the staff representatives and the Works Council into a sole representative body.

The bill provides that the threshold will be increased to employers who employ less than 300 employees, and that the Health and Safety Committee will also be merged into the sole representative body.

In addition, the new bill will clarify the procedural rules applicable to the sole representative body. In particular, the sole representative body will have a limited amount of time to render an opinion, after which the employer may consider that its approval will have been given.
These provisions should considerably simplify the management of representative bodies in companies with less than 300 employees.

• For companies with 300 employees or more

The bill provides that employers who employ more than 300 employees will be able to collectively bargain in order to create a new representative body, which could merge with any of the following representative bodies: the staff representatives, the Works Council, the Health and Safety Committee.

The impact of this measure is harder to evaluate as it requires that unions sign a collective bargaining agreement in order to be implemented, and that a priori they are unlikely to agree to conditions which are less favorable.

4. Simplification of mandatory information/consultations and negotiations

• Information/consultation of employee representative bodies

The bill plans to merge all 17 information/consultations of employee representative bodies into 3 main information/consultations on the following subject:

- The company’s strategic orientation
- The company’s economic situation
- The company’s social policy

A collective bargaining agreement can establish conditions under which the information/consultations take place.

• Mandatory negotiations

The bill plans to reduce the number of mandatory negotiations from 12 to the following 3:

- Remuneration, working time and the distribution of value added (yearly negotiation in principle, or every 3 years at least)
- The quality of life at work (yearly negotiation in principle, or every 3 years at least)
- Management of employment and professional training (every 3 years in principle, or every 5 years at least)

In addition, a collective bargaining agreement can decide how often the negotiation must take place.


In conclusion, these new bills illustrate the French government’s approach to labor and employment law. Their current goal is to increase flexibility of the labor market in order to favor employment. In addition, it favors collective bargaining by reducing regulations yet encouraging companies to negotiate specific rules through collective bargaining.

India - Changing Winds of Employment Laws

By Poorvi Chothani, Esq., LawQuest

With a view to improving the business environment in India, the current government that took power in India in 2014 has been announcing changes in various areas. In keeping with this, the government is eager to reduce the number of onerous labor laws in the country.

India does not have one law that governs employment and labor but works with a network of laws that regulate matters like conditions of service and work, wages and allowances, labor relations, social security and welfare. Under the Constitution of India, labor matters are regulated by the Central (Federal) Government and the State Governments. The labor laws consist of statutes, statutory regulations, administrative rulings, and judicial precedents. Government policies in this area have not been evolving fast enough in response to the changing needs of economic development and social justice, thus stifling business growth especially in labor-intensive industries. Several aspects of white-collar work are subject to contractual agreements with a limited effect of labor law.

At present there are roughly 200 labor laws in India, of which more than 40 are statutes enacted by the Central Government. Complying with these laws often proves an impediment to business. For example, a very significant regulation is the Industrial Disputes Act that requires certain organizations employing more than 100 workers to seek permission from the government in the state where they operate before restructuring or laying off workers. Another deterrent has been the stong provisions for collective bargaining by trade unions and the large number of the myriad warring trade unions. These are believed to have been a great deterrent to business growth and job creation as well as foreign direct investment in the Indian manufacturing sector.

Changes at the Central (Federal) Level

With a view to easing these restrictions, the current Indian government plans to replace 44 of of the labor laws with five codes relating to wages, industrial relations, small factories, social security and welfare. It appears that the proposed codes aim to (i) reduce Central Government control over the State Governments, making it easy and quick to introduce changes, (ii) reduce/streamline the number of applicable statutes, (iii) increase employer penalties for infractions, (iv) ease the restrictions on businesses that want to reduce work forces or close, and (v) curtail trade unions, among other things.

Each code will address specific issues and include or eliminate relevant statutes. For example several industrial safety and welfare laws such as the Factories Act, the Mines Act and the Dock Workers (Safety, Health and Welfare) Act, will be merged to create a single code on industrial safety and welfare; while the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act, the Equal Remuneration Act and a few others will be merged to create a “single legislation called the Wage Code Act”. In addition, several laws related to social security, including the Employees’ Provident Fund and Miscellaneous Provisions Act, Employees’ State Insurance Corporation Act, Maternity Benefits Act, Building and Other Construction Workers Act and the Employees’ Compensation Act will be merged to create a single social security code.

The fourth code, likely to be known as the Labor Code on Industrial Relations, will combine the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946.

Changes at the State Level

With a view to attracting more business investments, a few states are modifying certain statutes. For example, the state of Rajasthan amended the law, applicable to specific organizations that engaged 100 or more employees, that required advance government permisssion before restructuring or closure. It has raised this threshold and advance permission will only be required from organizations that employ 300 or more workers. Other states like Madhya Pradesh and Maharashtra have followed Rajasthan’s initiative in a bid to attract more business and have made or are in the process of introducing similar changes.


Considering the above reforms, for the first time in decades, there appears the possibility of meaningful reform bringing Labor law into line with business needs and the possibility of a new era where government plays a facilitative rather than an antagonistic role in its dealings with business.

Ireland - The Employment Laws They Are a Changin'

By Deirdre Lynch, Associate, Byrnewallace, Dublin, Ireland


So far, 2015 has been a busy year for employment lawyers in Ireland. Legislation was passed in May which will overhaul the current employment dispute resolution system. Draft legislation has also been published recently which, when enacted, will introduce a number of important changes to Irish industrial relations laws. Finally, legislation has been drafted which will establish a Low Pay Commission which will make recommendations to the Minister in relation to the level of the statutory national minimum wage. Each of these significant developments is discussed below.


In Ireland employees are free to join a trade union of their choosing; however, there is no concomitant obligation on their employer to recognise or negotiate with any particular trade union unless, of course, the employer decides to do so. The Irish system of collective bargaining is therefore voluntary in nature, which, not unsurprisingly has been a source of much dissatisfaction for Irish trade unions for many years, which asserted that the system was at odds with international legal requirements.

In its Programme for Government published in 2011, the Irish government undertook to “reform the current law on employees’ rights to engage in collective bargaining… so as to ensure compliance by the State with recent judgments of the European Court of Human Rights.” This statement provoked much debate in Ireland regarding the precise nature of the reforms to the industrial relations system which would be proposed and eventually implemented. Employers were concerned that compulsory collective bargaining would be introduced. However, draft legislation published in May, namely, the Industrial Relations (Amendment) Bill 2015 (the “Bill”), falls short of introducing compulsory trade union recognition and has been generally welcomed by employers and trade unions.

As matters currently stand in Ireland, where it is not an employer’s practice to engage in collective bargaining with its employees, they have a statutory right to seek a binding determination from the Labour Court in relation to their terms and conditions of employment (subject to certain pre-conditions being met). There are few limits on the extent of the Labour Court’s discretion to determine wage rates and other terms and conditions of employment. However, it is not open to the Labour Court to make a binding determination in respect of trade union recognition. In other words, the Labour Court is not empowered to order an employer to engage in collective bargaining with a trade union.

Over the years, trade unions brought many cases before the Labour Court seeking binding determinations on pay and conditions in organisations which did not have a practice of engaging in collective bargaining. In 2007, the Supreme Court delivered a very significant judgment in a case involving the airline Ryanair, which was widely viewed as limiting the instances where trade unions could go to the Labour Court seeking a binding determination. In essence, the Supreme Court held that a company which did not engage in collective bargaining, but which did engage in negotiations with staff groups or representatives, should be exempt from the provisions of the legislation. This judgment meant that the legislative framework was much less useful to trade unions given that many employers in Ireland engage in negotiations with staff groups. As a consequence of the Supreme Court decision, the number of applications to the Labour Court for determinations on pay and conditions reduced dramatically.

The Bill was published on 14 May 2015 and it aims to provide an improved framework for workers who are working in an organisation which does not engage in collective bargaining to seek to enhance their terms and conditions of employment. The Bill does not oblige employers to engage in collective bargaining. Instead, it provides a mechanism through which employers which do not engage in collective bargaining may be brought before the Labour Court by trade unions for a binding determination to be made on terms and conditions. The primary changes proposed by the Bill are, as follows:

• The term “collective bargaining” had not previously been defined in the relevant legislation. Given that whether or not an employer engages in collective bargaining determines whether or not a binding determination may be sought from the Labour Court on terms and conditions, the absence of a definition of this term led to much uncertainty. “Collective bargaining” is now defined in the Bill as “voluntary engagements or negotiations between any employer or employers' organisation on the one hand and a trade union of workers or excepted body to which this Act applies on the other, with the object to reaching agreement regarding working conditions or terms of employment, or non-employment, of workers”. The inclusion of a definition of "collective bargaining" should go some way towards providing greater clarity as to which companies are covered and which are not.

• The Bill enhances the protections against victimisation available to workers who invoke their rights. It contemplates that workers may apply for interim relief where a dismissal is being challenged as unfair in circumstances where the worker believes that he/she is being victimised as a result of being directly involved in the investigation of a trade dispute by the Labour Court.

• The Bill also includes protections for employers which are facing disputes with an insignificant proportion of the workforce. In certain circumstances, the Labour Court can refuse to investigate a dispute involving an insignificant proportion of the workforce.

• The Bill introduces new matters which the Labour Court must consider in making a recommendation on terms and conditions of employment. For example, the Labour Court is not entitled to make a recommendation which improves remuneration and conditions of employment unless it is satisfied that the totality of the remuneration and conditions of employment of the workers in question provides a lesser benefit to them having regard to the remuneration and conditions of employment of comparable workers employed in similar employments. In addition, the Labour Court must have regard to the effect of any recommendation on maintaining employment and the long term sustainability of the employer’s business. The introduction of these additional factors to be considered by the Labour Court will provide significant comfort to employers in that they impose a level of control on the Labour Court’s discretion in making a recommendation on pay and conditions.


The Workplace Relations Act 2014 will come into operation on 1 October 2015 and will effect the most significant reform of Ireland’s employment dispute resolution system since the system was first established. It will transform the manner in which employment and equality disputes are processed in Ireland. The current system for resolving workplace disputes is unwieldy and requires different employment law rights to be enforced in different fora. This frequently results in multiple claims involving the same parties being dealt with by different fora, which is inefficient and not cost effective. The Act will create a new single framework for the processing of employment and equality disputes in Ireland, and, therefore, the new system will be more streamlined and straightforward.

The principal reforms include the following:

• A new body called the Workplace Relations Commission (“WRC”) will assume responsibility for hearing claims under Irish employment legislation which are currently heard by a number of different bodies.

• The WRC will have increased powers of inspection and will have novel compliance measures available to it, namely, a compliance notice and a fixed payments notice, both of which should promote higher levels of compliance with employment legislation by employers.

• A new two-tier structure will be created with claims being dealt with at first instance by the WRC, with a right of appeal to the Labour Court.

• Certain complaints may be dealt with by written submission only. Where the Director General forms the opinion that a dispute or complaint can be processed in this manner, he may inform the parties of his intention not to hold a hearing. Either party may object within 42 days.

• Mediation may occur in certain cases, provided that neither party objects.

• The Act enables the Minister to prescribe fees for the provision of services by the WRC or the Labour Court. However, the Minister has publicly committed not to introduce fees, except possibly in the case of appeals by complainants who failed to attend the hearing before an adjudication officer and who then subsequently appeal the decision of the WRC to the Labour Court.

The Act will also make some changes to substantive employment law. In particular, employees who are absent from work for long periods because of illness will be entitled to accrue annual leave during their sick leave and, subject to certain limitations, to take that accrued annual leave after their sick leave ends.


In Ireland the statutory minimum wage is currently €8.65 per hour. Draft legislation, namely, the National Minimum Wage (Low Pay Commission) Bill 2015 has been published which, when enacted, will put the recently formed, Low Pay Commission, on a statutory footing.

The function of the Commission is to make annual recommendations to the Minister regarding the national minimum wage. In making its recommendation, the Commission will be required to have regard to a number of factors, including, changes in earnings, currency exchange rates and income distribution since its last recommendation, whether employment and productivity have been increasing/decreasing, international comparisons (particularly with Great Britain and Northern Ireland), the necessity for job creation and the likely effect that any change in the minimum wage would have on the cost of living, national competitiveness and levels of employment/unemployment.

The Commission has nine members, including, a chairperson, three members who understand the interests of low paid workers, three who understand the interests of employers and two with specialist knowledge of matters such as, statistics, employment law and proven competence in analysing and evaluating economic research and statistical analysis.


In light of recent legislative development in Ireland, it is certain that the employment laws they are a changin’ and that interesting times lie ahead for employment lawyers!

Thailand - Government Eases Work Permit Rules to Prepare for Asian Economic Community

By Roland Falder, Bangkok, Thailand


At the end of 2015, the Asian Economic Community (AEC) will create a common market of over 600 million consumers with the ultimate goal of a free flow of goods, services, investment, capital and skilled labour. While this is only the beginning of a true common market, local governments are already preparing for the future. Thailand has recently revamped its investment policies and created new regulations for International Headquarters (IHQ) and International Trade Centres (ITC). As part of the efforts, the employment and immigration rules for foreigners have been eased in order to attract more foreign investment.

1. New investment and employment rules for foreigners

a) General requirement of work permit

Generally, foreigners working in Thailand require a work permit. Since the introduction of the Alien Working Act in 2008, the success of a work permit application depends mainly on the registered and paid-up capital of the hiring company. The requirements for a Thai and foreign juristic person differ, further additional requirements such as the number of Thai employees are taken into account, but the ratio of 4 Thais is generally only relevant for a 1 year visa application.

b) New rules on work permit requirement for International Headquarters (IHQ) and International Trade Centres (ITC).

In order to promote the new IHQ and ITC schemes, the Department of Employment announced on March 6 2015 7 activities which are no longer considered as 'working' within the meaning of the Alien Act. The exempted activities are:

- Attending meetings and seminars
- Attending exhibitions and trade shows
- Visiting a client or business negotiations
- Attending lectures on academic matters
- Attending lectures on technical trainings
- Buying products / goods from exhibitions
- Attending board of director meetings of a subsidiary.

c) Online registration of foreigners working in Thailand

Foreigners who stay in Thailand over a period of 90 days must – regardless of their visa status - report to the immigration office every 90 days; however, as of April 1 2015 such report can be filed online. To utilize this service the applicant must submit his / her application within 15 days, but not less than 7 days prior to the end of a 90 day period. After submitting the online application the applicant can check his / her status on a website, the application should normally be approved within 7 working days. Once the application has been approved, the applicant receives a notification stating the due date for the next 90 days report. In case the application is not approved the applicant has to submit another application at the nearest immigration office, whereby he/she has to personally appear with his / her personal original passport, departure card and a completed 90 days report form.

d) New tax benefits

In the context of the new regulations for International Headquarters and Trade Centres the personal income tax regulations for foreigners working fulltime in International Trade Centres or International Headquarters have been modified. A flat tax of 15 % personal income tax is applicable, (instead of regular, progressive, tax rates of up to 30%).

2. Conclusion
Thailand prepares for an open ASEAN market. The free flow of skilled labour is part of the political agenda. The new laws help foreigners to do business in Thailand. It is expected that further legislative activities will strengthen Thailand’s position as one of the most attractive places to live and work in Asia.

UAE - ADGM Leads the Way in UAE with its New Employment Regulations

By Sara Khoja, Clyde & Co


On 14 June 2015, the Abu Dhabi Global Market (ADGM) published the final version of its first raft of regulations, including the Employment Regulations (the Regulations). In this article, we examine the Regulations and contrast them to the employment provisions in operation in the Dubai International Financial Centre (DIFC) and the UAE Labour Law (the Labour Law). The Regulations are available at

In 2004, the UAE amended its constitution to enable each of its Emirates to establish financial free zones in which the UAE civil and commercial laws would not apply. Dubai was the first to use Federal Law No 8 of 2004 to establish the DIFC in 2005 and Abu Dhabi established the ADGM free zone in 2013.

Since 2013, the ADGM has been working on putting in place its legislative framework and in January this year the Board of Directors (the Board) of the ADGM published initial drafts of various key regulations as part of a formal public consultation. Clyde & Co has engaged with ADGM to discuss these regulations and has submitted detailed comments on the regulations to the Board. Many of Clyde & Co's comments are reflected in the final versions of the regulations.


The first key point is that the ADGM have chosen to adopt the common law of England for all of its proposed regulations; subject to a number of caveats, including consideration of whether the common law "is applicable to the circumstances of the Global Market" and subject to any amendments to the provisions of the common law that are made "pursuant to any Abu Dhabi Global Market enactment". Like the DIFC, the ADGM will have its own Court and an Appeal Court. The decisions of the courts of England and Wales will have persuasive force in the ADGM Courts. In addition, a number of specified statutes (which are listed in the Application of English Law Regulations) "shall apply and have legal force in, and form part of the law of, the Global Market", subject to certain caveats and exceptions. However, none of the listed statutes are employment statutes.

The intention behind this wholescale adoption of English common law is to give increased certainty to parties who find themselves before the courts in the ADGM. However, this could give rise to a number of issues. For example where a judicial decision is made in the UK on public policy grounds; if a similar issue arises in the UAE, wholly different public policy decisions may apply. The English courts are also required to interpret UK legislation in accordance with European Union legislation and judicial decisions which could complicate matters further.

Employment Matters

The Regulations themselves are more detailed than the draft regulations published in January. They cover almost all aspects of the employment relationship from the recruitment phase through to termination and include provisions relating to:

• Contracts of employment;
• Protection of wages;
• Working time and leave (including sick leave);
• Maternity and paternity rights;
• Employer and employee obligations; and
• Discrimination.

Like in the DIFC Employment Law, there are no provisions specifically relating to post-termination restrictions. However, with the ADGM proposing to adopt English common law, it is likely that efforts to enforce any such restrictions will be made in front of the ADGM courts with reference to the principles and guidelines developed by the English courts.

Another notable omission from the Regulations is the lack of any provisions relating to how the Regulations will be enforced. It is understood that initially employment disputes will be brought in the ADGM court; however a dedicated employment tribunal system is likely to follow with its own set of procedural rules.

Key provisions

Some of the key points to note are as follows:

• Settlement agreements (Regulation 1): Regulation 1(1) makes it clear that any agreement to waive or exclude the requirements set out in the Regulations will be void. Regulation 1(2) provides that employees and employers can waive any claims they may have against the other in an agreement provided that the agreement is in writing, is signed by both parties and "valid consideration" is provided to the party waiving their right to bring any such claim. This provision can be contrasted with the DIFC Employment Law and the Labour Law which prevent parties from contracting out of the minimum statutory requirements and do not provide for binding settlement agreements.

• Written contracts (Regulation 5): employees are entitled to a written contract (in English) a signed version of which must be provided to the employee within 2 months. The contract must contain certain specified information, including confirmation of the start date, salary, working time, leave entitlement, notice provisions, job title, work location and applicable grievance/disciplinary rules.

• Right to an itemised pay statement (Regulation 7): employees must be provided with an itemised pay statement (or electronic access to one), confirming the amount payable to them and the amount of any deductions.

• Probation (Regulation 9): this provides for a probation period not exceeding six months. During the probationary period, either party can terminate the employment with or without cause on one week's notice.

• Employees' duties (Regulation 10): employees are expected to be diligent and careful in the exercise of their duties, obey lawful and reasonable orders from their employer (in particular those relating to health and safety), take reasonable care of their employer's property, not to accept any gifts or other "advantage" in return for the performance of their duties, not to compete with the employer and not to disclose any confidential information. It is clearly stated that "to the extent practicable" these provisions will be interpreted in accordance with English common law.

• Employment records (Regulation 11): employers are required to keep detailed records about their employees (in English) and are to maintain those records for two years after the employment terminates.

• Maximum weekly working time (Regulation 16): employees' working time is not to exceed an average of 48 hours for each seven day period, unless prior consent (to work in excess of this) is obtained from the employee.

• Reduced hours during Ramadan (Regulation 18): Muslim employees observing the fast shall be required to work no more than six hours a day (with normal remuneration to be maintained).

• Rest breaks (Regulations 19-21): the Regulations provide breaks of 11 hours in each 24 hour period; 24 hours in each seven day period and a one hour break (for food and prayer) where daily working time is six hours or more.

• Vacation leave (Regulations 22 & 23): paid vacation leave of 20 days (exclusive of national holidays) for any employee who has been employed for 90 days or more. A maximum of five days' accrued but untaken leave can be carried over into the next calendar year and an employee is entitled to a payment in lieu of accrued but untaken leave on termination. A carry forward of five days contrasts with the DIFC Employment Law, which allows 20 days to be carried forward, and the Labour Law, which prevents an employee from losing their entitlement.

• Sick leave (Regulations 29 - 31): employees (with more than one month's service) are entitled to paid sick leave not exceeding 60 working days in any 12 month period, subject to their compliance with the notification requirements. Employees whose sick leave exceeds 60 working days can be dismissed immediately with written notice.

• Pro-rata entitlements for part-time employees (Regulation 33): this provision expressly provides for the holiday leave, sick leave and maternity/paternity leave entitlements to be pro-rated for part-time employees. This is a significant development and provides employers and employees flexibility to agree varied work patterns. There are no similar provisions in the DIFC Employment Law or the Labour Law.

• Maternity leave and pay (Regulations 33 & 34): maternity leave (or adoption leave where a child under 3 months' old is being adopted) of 65 days is provided for; if the employee has been employed for 12 months or more and complies with notification requirements the leave will be paid (in full for the first 33 days and at half pay for the remainder). Annual leave continues to be accrued during maternity leave.

• Paternity leave and pay (Regulation 35): male employees are entitled to 5 days' paid paternity leave. This is an innovative statutory benefit in the UAE and does not appear in the DIFC Employment Law or the Labour Law.

• Employers' Obligations (Regulations 37 – 46): employers have a duty to ensure the health and safety of their employees which includes protection against harassment. Employers must also ensure enclosed workplaces are well ventilated, of a reasonable temperature, well lit, clean, sufficiently large, properly equipped (reflecting the nature of the work) and that employees have access to bathroom facilities and clean drinking water.

• Liability for work-related injuries (Regulations 48 and 49): employers are to take out medical insurance for any employees who suffer an injury sustained in the course of their employment and employers are also liable to pay compensation to employees who are injured or die in the course of their employment.

• Health insurance (Regulation 50): employers are required to obtain and maintain health insurance for employees which must be in accordance with the Health Authority Abu Dhabi requirements.

• Data Protection (Regulation 51): there are some relatively comprehensive data protection provisions set out in the Regulations. Although the DIFC Employment Law does not contain data protection provisions, there is a stand-alone data protection law in the DIFC. In the absence of a stand-alone law in the DIFC, the Board has chosen to include comprehensive provisions in the Regulations.

• Discrimination (Regulation 55): discrimination on grounds of sex, marital status, race, nationality, religion, age and/or mental or physical disability is prohibited. This applies to direct discrimination, indirect discrimination and harassment. There are also provisions relating to a "failure to make reasonable adjustments" in respect of disabled employees. Whilst the DIFC Employment Law also contains anti-discrimination provisions, the inclusion by the ADGM of protection from discrimination on the grounds of age is a new development and it will be interesting to see how this is managed by employers in the ADGM.

• Termination (Regulations 56 – 58): the minimum notice to be given by either party where the employee has been employed for less than three months is seven days, 30 days if the employee has been employed between three months and five years and 90 days if the employee has been employed for more than five years. The parties cannot contract out of these minimum notice periods but are free to agree increased notice periods. Both parties are free to terminate "for cause" in specified circumstances. Employees are entitled to a written statement of reasons for dismissal (upon request and subject to a minimum service requirement of one year).

• Pension and end of service gratuity (Regulations 59 & 60): employees are entitled to an end of service gratuity unless they are an UAE or GCC national who has been enrolled in an appropriate pension scheme (unless the employee has written approval from the applicable national pension authority not to participate in the pension scheme). Otherwise (i.e. for non-UAE or GCC nationals) an employer may establish a pension scheme for their employees and must give the employees a choice between participating in the pension scheme or receiving an end of service gratuity payment. No end of service gratuity is payable where the employee has been terminated for cause.


Although at first sight, the Regulations introduced by the ADGM appear to be similar to the DIFC Employment Law, the Board has taken the opportunity to make interesting and innovative alterations to the employment statutory regime. With its introduction of paternity leave, age discrimination and an ability to offer part-time roles (with adjusted statutory benefits), the ADGM may become the standard to aspire to in the UAE.

When is a Contractor not a Contractor? A Cross-Border Approach to Classification

By Donald C. Dowling, Jr., Partner, K&L Gates LLP, New York City

Independent contractors play a big role in the cross-border business context, particularly when a multinational tiptoes into a new overseas market. Often a multinational takes baby steps into some new market by engaging an in-country representative as an independent contractor (or “consultant,” “freelancer,” “entrepreneur” or “agent”). This approach is especially attractive where the multinational still has no local subsidiary entity or other in-country corporate presence positioned to issue a legal local payroll. The default way to classify these non-traditional work relationships is by using some type of arrangement that, under law, amounts to an independent contractor, and so the independent contractor alternative is an attractive and popular structure in jurisdictions around the world. But contractor classification can be dangerous: Contractor status is fragile and is constantly under attack in courts and agencies from Europe to Latin America to Africa, Asia/Pacific and beyond.

But the overseas independent contractor classification conundrum bedevils even major multinationals. Engaging an independent contractor overseas (rather than hiring a foreign services provider as an employee) may on the front end seem to offer attractive advantages. But dubiously classified foreign contractor arrangements open up a Pandora’s box of legal problems. Challenges are frequent and liabilities can run surprisingly high. And where a multinational principal is not registered to do business in the overseas jurisdiction, the challenges extend beyond classification under employment law and trigger the corporate and tax problem of permanent establishment.

Figure out when, under local foreign law, a nominal independent contractor is likely to get classified a “subordinated” (dependent) de facto employee (or, in special jurisdictions like Canada and Colombia some unique local breed of services like a “dependent contractor” or “independent worker”). Where necessary, hire the services provider up front as an actual employee, or at least engage him as a leased employee (secondee on someone else’s payroll). Or else engage him as a “business-to-business” contractor through his own closely held corporation.

Address the threshold question in international contractor classification analysis: When can a multinational legitimately engage an overseas services provider as an independent contractor or so-called consultant, freelancer, entrepreneur? That is, under applicable foreign law, what separates a genuine independent contractor from a de facto employee? In short, when is a contractor not a contractor?

Obviously this central question turns on local law―the law of the place where the service provider works. Be sure to look to local host-country law as well as any legal regime set out in a choice-of-law clause in the independent contractor agreement. Choice-of-foreign-law clauses in independent contractor agreements rarely divest the mandatory application of local host-country employment laws, because employee classification analysis implicates the public policy of protecting fundamental employee rights. Choice-of-foreign-law clauses do bring the selected regime’s laws into the analysis, but they are usually powerless to turn off host-country employee protections or to stop the mandatory application of a host jurisdiction’s more protective employee classification rules. (E.g., Ruiz v. Affinity Logistics Corp., 667 F.3d 1318 (9th Cir. 2012)

Most every jurisdiction’s local law offers up a list of factors (in Australia called a “multi-factorial test”) distinguishing genuine independent contractors from de facto employees. (Cf. Tattsbet Ltd. v. Morrow, 2015 FCAFC 62 (May 2015), ¶¶ 5, 53) These lists of factors differ from jurisdiction to jurisdiction—even within a single country, lists of contractor-versus-employee factors can differ. For example, the U.S. IRS test has 20 factors (IRS Revenue Ruling 87-41) while American common law is usually said to impose 6 to 13 factors in a so-called “economic realities test.” (See, e.g. Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318 (1992)) Speaking broadly, countries’ lists of contractor-versus-employee factors end up looking surprisingly similar across jurisdictions. In fact, contractor classification might be the only area of international employment law where we can actually offer some useful generalizations about substantive legal rules across most all jurisdictions of the world. The overarching legal issue behind all the various tests and factors is the core concept that overseas gets called “subordination”—whether the contractor is dependent. Most every country would uphold the parties’ designation of independent contractor status if the would-be contractor is independent (not “subordinate”) enough truthfully to answer “yes” to these ten questions:

1 Exclusivity and independence: Can you, and do you, have other paying clients—and do you market your services to the public? (Exclusive independent contractors pose a special risk in jurisdictions like Myanmar, Nicaragua and Taiwan. Peru applies a rebuttable presumption that a full-time exclusive contractor is a de facto employee. In Germany, contractors should avoid becoming “economically dependent” on the principal.)

2 Short-term: Is your relationship explicitly temporary and short term? (In Sweden a contractor relationship of more than six to nine months risks challenge. In the Dominican Republic, serially renewed independent contractor agreements risk challenge.)

3 Self-supervision: Do you have the power to perform your tasks the way you want to—free from the principal instructing you on process, free from discipline, free from work rules, free from performance evaluations and free from other supervision and control?

4 Self-scheduling: Are you free to set your own schedule and work hours, with no attendance requirement?

5 Self-starting: Are you free to determine the order and sequence of your tasks, with no requirement to make regular progress reports to the principal?

6 Supplies and tools: Do you provide your own office and supplies, pay your own business expenses and hire your own assistants? (This factor is particularly important in jurisdictions including Canada and Romania.)

7 Task pay: Do you get paid only for work you actually do, such as hourly pay or task pay, with no paid vacations or holidays? (In the Dominican Republic, for example, a contractor should never receive a salary.) Is your pay free from employee-benefit executive compensation elements like bonuses, health/life/disability insurance and equity awards?

8 Business risk: Do you take business risks and bear the ultimate risk of profit or loss? Do you bear the risk of casualty loss (property/personal injury) and do you buy insurance? (This “business risk” factor is vital in Quebec, and also in Puerto Rico, where it is called the “economic reality” test—as well as in Beijing, per an August 2009 Beijing declaration on contractor classification.)

9 Tax/social security: Do you make tax/social security payments and withholdings like a business? (This is a vital issue in Ghana, India, Liberia, Sri Lanka, South Africa and many other jurisdictions.)

10 Business cards/letterhead/email/title: Do your business cards and letterhead clarify your independence from the principal, and do you use a title unrelated to the company? Are you kept off the principal’s organization charts and internal structure documents? Does your email address make clear you are not part of the principal’s organization?

These ten questions flushing out contractor dependence or “subordination” tend to predominate, but three other questions also frequently factor into classification analysis:

11 Restrictive covenants: Are you free from non-compete, non-solicitation and other post-termination restrictions?

12 Training: Do you refrain from attending the principal’s training sessions as a student?

13 Organization structure: Does your operation stay separate from the principal’s organization structure and work procedures? (In Peru, a contractor should not be “integrated” into the principal’s production or work “process.”)

Where a nominal contractor truthfully answers “yes” to all 13 questions, then perhaps every country on Earth will uphold contractor classification. Otherwise, though, the parties’ contractor classification gets weaker for each question that has to be answered “no.” Court opinions tend not to say so explicitly, but as a practical matter the classification challenge is toughest where a contractor answers “no” to the first two questions; that is, where the contractor is full time and long term. Classifying contractors rarely raises much risk where they are part time and short term.

For a “reality check” in assessing whether you might legitimately engage some overseas services provider as an independent contractor, ask: If structuring this position as an independent contractor is such a great idea, then why not go ahead and engage all this person’s home country counterparts as independent contractors, too? If a contractor relationship would fail the “smell test” in the headquarters country, expect it also to flunk the smell test abroad.

All this having been said, though, a handful of countries give substantial weight to certain special contract provisions, which therefore, in those particular jurisdictions, become vital to include when drafting an independent contractor agreement (as long as they are accurate). For example, in India, an independent contractor agreement should recite that the contractor has a “permanent tax account number” and withholds and pays his own taxes. In Israel, an independent contractor agreement should recite that the contractor has registered as a self-employed “consultant.” In Russia, an independent contractor agreement should recite that the services provider has registered as an “individual entrepreneur.” An independent contractor agreement in Indonesia or Turkey should expressly invoke the Indonesian Civil Code or the Turkish Code of Obligations as operative law, rather than those countries’ labor codes. In Haiti, independent contractor classification gets more defensible if the contract recites the contractor’s “patente” (taxpayer) number and declares that the contractor’s invoices will be subject to TCA (VAT), which the contractor agrees to remit to Haiti’s Direction General des Impots.

In addition, courts in some other jurisdictions—examples include Cambodia, El Salvador, Malaysia, Senegal, Thailand—ostensibly use the traditional analysis looking outside the four corners of the independent contractor agreement, but judges in these countries may prove somewhat more deferential to parties’ own classification as “contractor.” Australian courts will treat a clear contractual “acknowledgement” of contractor classification as one important factor buttressing contractor classification, as long as that acknowledgment “reflect[s] the real intentions of the putative employee.” (Tattsbet (2015), supra, at ¶¶ 65, 66) In these countries, where the text of an independent contractor agreement unequivocally has the services provider represent and warrant that he is self-employed, the parties’ contractor classification might actually withstand scrutiny. So vet an overseas independent contractor agreement with local counsel to capture any special local clauses and to take advantage of contractor status in jurisdictions that may be friendlier to parties’ selection of contractor status.

In short, figure out when, under local foreign law, a nominal independent contractor is likely to get classified a “subordinated” (dependent) de facto employee (or, in special jurisdictions like Canada and Colombia some unique local breed of services provides like a “dependent contractor” or “independent worker”). Where necessary, hire the services provider up front as an actual employee, or at least engage him as a leased employee (secondee on someone else’s payroll). Or else engage him as a “business-to-business” contractor through his own closely held corporation.