Welcome to the Fall edition of the Committee Newsletter. Many thanks as always to our contributors - this edition we have articles on a wide range of topics and covering a number of important developments in various jurisdictions. Please let me know if you are interested in submitting an article for future editions.
Helen Colquhoun
(Registered Foreign Lawyer Hong Kong, England & Wales, New York, Withers LLP)
Wednesday, October 14, 2015
Canada - Can Adherence to a Foreign Regulatory Obligation Attract a Claim of Discrimination? The Supreme Court Provides an Answer
By Theodore Goloff, Senior Partner, Robinson, Sheppard, Shapiro LLP, Montreal
Introduction
When, as child, I would be confronted by my parents for being naughty, in an attempt to escape discipline, I would occasionally respond “It’s not me – the Devil made me do it”. It didn’t work then, and in view of the Supreme Court of Canada’s judgment in Québec (Commission des droits de la personne et des droits de la jeunesse) v. Bombardier Inc., a variant thereof, fails, now, in employment discrimination cases. In that judgment, the Supreme Court held definitively that a Canadian company cannot rely solely on the fact that a decision that it took was in furtherance of a decision rendered by a regulatory agency in the United States, as an affirmative defence to a charge of discrimination with respect to rights guaranteed under the Quebec Charter of human rights and freedoms [“Charter”]. On the other hand, that same Court has clarified what must be proven for any “adverse effect” discrimination claim to succeed, and the process that governs.
Context and Facts
As a major aeronautics manufacturer, Bombardier has training facilities for its aircraft in both Canada and the U.S., and as such must respect U.S. law. Following 9/11, U.S. authorities created the Alien Flight Students Program (“AFSP”) pursuant to which flight training/recurrent training under a U.S.-issued pilot’s licence, could not be given to a pilot who did not have American citizenship unless he received an appropriate security clearance. Javed Latif [“the “Complainant”], a Canadian citizen of Pakistani origin, held both U.S. and Canadian pilots’ licences. In 2003, he was offered a position with one airline to fly a Boeing 737 under his U.S. licence. He registered for initial training on that aircraft and was granted U.S. Department of Justice security clearance. The job opportunity, however, evaporated. When, several months later, while in Pakistan, Mr. Latif received an offer from a Canadian company to pilot a Bombardier Challenger 604, he registered for recurrent training on that aircraft under his U.S. license at Bombardier’s Dallas Training Centre. To speed things up Latif also sought recurrent training on that aircraft under his Canadian licence at Bombardier’s Montreal Training Facility. Bombardier received an unfavourable reply to Latif’s security screening request for the Dallas training from the competent U.S. authorities which meant that it could not dispense training under his U.S. licence. No explanation for the U.S. refusal was ever provided, although Latif’s evidence was that he thought that the refusal was due to an identification error. He then contacted Bombardier to proceed to training under his Canadian licence, which he believed was not subject to security screening by U.S. authorities. Bombardier replied that it had to comply with the American authorities denial, for all types of pilot training. It therefore refused to train Mr. Latif under his Canadian licence. When he requested the U.S. authorities review his file, Latif was advised that his denial was part of a process put “in place to protect the national security of the U.S.” It took until 2008 and other requests under his U.S. licence for training on various other types of aircraft, for him to receive clearance, all but the last request being denied on the grounds that “he posed a threat to aviation or national security in the United States.”
Latif filed an “adverse impact” discrimination claim against Bombardier in Montreal, alleging that it had impaired his right to avail himself of services normally offered to the public because of discrimination based on his religion or his ethnic or national origin, prohibited by the Charter, i.e. his Muslim background and/or Pakistani origin. In so doing, Bombardier had impaired his right to the safeguard of his dignity and reputation without distinction based on one or more of the prohibited grounds, i.e. religion, ethnic, or national origin. At the hearing before the Quebec Human Rights Tribunal [the “Tribunal”], Quebec’s Human Rights Commission [the “Commission”] sought to found its case on racial profiling that it claimed was prevalent in various U.S. agencies and underlay the various exclusions for flight training adopted by that country following 9/11, by presenting expert evidence to the effect that the measures put in place by the U.S. targeted Arabs and Muslims through such racial profiling that it viewed as discriminatory.
All parties agreed that the sole reason for Bombardier’s refusal of training to Latif at its Montreal facility was the denial of U.S. security clearance.
The Tribunal found that Bombardier had relied on a U.S. decision which itself was discriminatory with respect to Complainant’s religion and/or his ethnic or national background. Besides very substantial compensatory, moral and punitive damages, the Tribunal ordered Bombardier to “cease applying or considering […] decisions of the US authorities in ‘national security’ matters when dealing with applications for the training of pilots under Canadian pilots licences.”
The Quebec Court of Appeal determined that the evidence in the file and, in particular, the expert evidence tendered regarding racial profiling, did not create the required “causal connection” between the prohibited discriminatory ground and the refusal of training, and found that the Tribunal had no authority to make the order it did with respect to decisions of the U.S. authorities in national security matters, because the Tribunal’s jurisdiction is limited “to measures that are necessary and reasonable for the purpose of rectifying a problematic situation”. Since by the time the Tribunal rendered its decision, the U.S. authorities had finally approved Latif’s request for security clearance and, indeed, he had received the training he sought, the Tribunal could not use this case “as a pretext for managing the future activities of […] a private entity that is entitled to freedom of contract.” It therefore quashed the Tribunal’s orders.
What the Supreme Court Decided
I. International Law Aspects
Although it dismissed the appeals brought by both the Commission and Latif himself and confirmed that Bombardier had not discriminated against him, the Supreme Court made it clear that its conclusion “does not mean that a company can blindly comply with a discriminatory decision of a foreign authority without exposing itself to liability under the Charter.” It decided that there simply was no evidence of a connection between any of the prohibited grounds as set out in Section 10 of the Charter and the U.S. decision that Bombardier applied. Had there been such evidence, its decision would have been quite different. Hence, the “it wasn’t me, it was the other guy” defence or what I term “the devil made me do it” claim won’t be sufficient to exclude liability – not now, not ever!
Inferentially, the Supreme Court, like the Tribunal, rejected the argument that the financial consequences of a hypothetical revocation of Bombardier’s FAA accreditation could be the basis of a defence to a discrimination claim. While undue hardship might well support a refusal to accommodate, it cannot serve as an affirmative defence to a truly discriminatory practice of a foreign government.
The Supreme Court, however, established a number of other principles of equally far-reaching importance.
II. The Evidentiary Process in Discrimination Cases
i. The Supreme Court reaffirmed that discrimination legislation, whether entitled Charter, Code or Statute, because it deals with basic human rights, is considered quasi-constitutional in nature, and is to be interpreted liberally and purposefully. Furthermore, whatever their legislative origin, provincial or federal, absent specific legislative direction to the contrary, they are all to be interpreted in the light of one another, when similar terms are used. Finally, the process of analysis and its consequential shifting burdens of proof apply throughout.
ii. The Court identified that the first step in the process is for a Complainant to establish prima facie an evidentiary basis for discrimination, i.e. (1) a “distinction, exclusion or preference”, that (2) has the effect of impairing a Charter right (3) on the basis of one of the prohibited grounds of discrimination. The Complainant need not prove that the prohibited ground alleged was the only or exclusive factor leading to the impugned decision. It would be sufficient that appropriate evidence be tendered that there was a “connection” between the decision and the prohibited ground. The presence of a prohibited ground as but one of several factors poisons the entire process and might well lead to a conclusion of discrimination.
iii. Any reference to the term “prima facie” does not reduce by one iota the civil burden of proof that Complainant must satisfy. Indeed, the Courts endorsed Bombardier’s position that the proof required is proof that “in itself, where no contradiction is shown, is complete and sufficient… to establish, on a balance of probabilities, a connection between the decision whose basis is challenged and the prohibited… ground of discrimination”. The reference to the expression prima facie refers only to the fact that is the first step of the process and doesn’t alter the applicable degree of proof that is required from the Complainant to transfer the onus to the Defendant to justify the conduct, nor relax the obligation to satisfy the Tribunal by all the evidence tendered of the “connection” between the prohibited discrimination ground and the decision contested on balance of probabilities.
iv. The Supreme Court recognized the dynamism of discrimination law, and left open the opportunity for courts and tribunals to “take note of new forms of discrimination as they emerge in our society”. It noted that while the proof offered in support of a complainant’s position may vary from case to case, and that the nature of how the discrimination is said to have arisen may be factually different, “the application of a given legal test must be based on the same elements and the same degree of proof in every case […] in order to maintain the uniformity, integrity and predictability of the law.” Context which is to be taken account of recognizes the varied circumstances that allow a Complainant to meet the evidentiary burdens required, but doesn’t alter the legal test that always and invariably applies.
v. The Supreme Court then looked at the evidence tendered before the Tribunal. It decided, like the Quebec Court of Appeal, that the Tribunal’s finding that there had been discrimination by the U.S. authorities and, laterally, by Bombardier in relying upon the American decision, was an unwarranted syllogism i.e. that because Latif had been born in Pakistan and was a Muslim and because U.S. authorities, generally, in many instances in other programs targeted Arabs or Muslims, inter alia those from Pakistan, then Latif was a victim of discriminatory racial profiling on the part of U.S. authorities with Bombardier acting as a conduit for their decision. The Court of Appeal held that the evidence in the record did not support a conclusion that the U.S. authorities had acted in a discriminatory manner. The Supreme Court went one step farther, holding that, as there was no evidence available to the Tribunal that would reasonably allow it to find that ethnic origin or nationality was an operative factor in the decision, the Tribunal’s decision was unreasonable and, hence, in accordance with the revised standard of appellate intervention, reversible. Indeed, the Court stated that the expert evidence to the effect that racial profiling was prevalent in certain other U.S. national security-related programs was far from persuasive in the case at bar. In particular, the Court held that one cannot presume “solely on the basis of a social context of discrimination against a group” that a given decision is necessarily based on prohibited grounds. Not only would such practice amount to reversing the burden of proof in discrimination cases and creating differential evidentiary thresholds, but it would circumvent the rule that even if evidence is circumstantial, it “must nonetheless be tangibly related to the impugned decision or conduct” . Since the expert evidence was not sufficiently related to the facts of the case – indeed, the Court of Appeal found that the expert’s report did not refer to the only national security-related program the AFSP Program, at issue in the case – such evidence could not create any connection between the decision of the U.S. authorities on which Bombardier relied and Complainant’s ethnic, religious or national origins. Although made in another context, the Court’s reference to the Tribunal’s own admission that it did not know the process, criteria or objective reasons that resulted in the refusal by U.S. authorities to give Mr. Latif security clearance, and its overall conclusion that discrimination had been proven, could not reasonably stand, particularly in the light of Latif’s own testimony that he was informed by U.S. authorities that he was denied security clearance as a result of an identification error. Indeed, the Court found the Tribunal’s decision speculative when it stated that even if the American decision had resulted from an identification error, that error had “on a balance of probabilities, been caused by discriminatory programs and racial profiling, given that the security screening process could lead to ‘false positives’” . Finding that neither the expert evidence nor the circumstantial evidence could support any reasonable conclusion that the American decision to deny the security clearance was connected to Mr. Latif’s ethnic background or to his national origin, it found that the Complainant had not met the evidentiary burden required from the get-go.
Remediation
The Supreme Court did not endorse the position of the Court of Appeal that seemed to limit the remedial powers of the Tribunal to compensation for the prejudice suffered by Complainant. The Court recognized the public interest role of both the Commission and the Tribunal and the right in appropriate circumstances for the Tribunal, supported by relevant evidence, to make broader types of remedial orders more conducive to satisfying this public interest dimension. As the Court put it “[i]f the Tribunal had been right to find that Mr. Latif had been discriminated against, the fact that Mr. Latif had finally received his security clearance from the U.S. authorities would not necessarily have addressed the source of the problem, insofar as the evidence had established the existence of a discriminatory organizational policy. In this sense, an order by the Tribunal might then have been necessary in the public interest in order to prevent discrimination against others.”
Why This Judgment Matters
Certainly, for those whose operations or professional practice involve adherence to regulatory requirements of multiple jurisdictions (e.g. the transportation, defense and communications industries, for instance), this case must be studied with care. On the other hand, on a more general level, it clarifies the burden that is upon all Complainants in discrimination cases to show a factual but neither a “causal” nor an “exclusive” connection between the alleged offending conduct and the discriminatory ground invoked. Absent evidence on balance of probabilities of the connection between the two, a charge of discrimination will fail and Defendant will have no obligation to bring forward any defence in the nature of, for instance, a bona fide occupational requirement. However, this case highlights that, in appropriate cases where “systemic” or “organizational” discrimination has been made out, remediation may go far beyond remedying the Complainant’s own and immediate concerns. It also highlights that the commercial consequences that result from not following the dictates of foreign statutory or regulatory obligations that have “long-arm” application beyond the foreign entity’s borders do not diminish by one iota the exigencies of Canadian domestic human rights law. All in all, a case that requires careful consideration.
Introduction
When, as child, I would be confronted by my parents for being naughty, in an attempt to escape discipline, I would occasionally respond “It’s not me – the Devil made me do it”. It didn’t work then, and in view of the Supreme Court of Canada’s judgment in Québec (Commission des droits de la personne et des droits de la jeunesse) v. Bombardier Inc., a variant thereof, fails, now, in employment discrimination cases. In that judgment, the Supreme Court held definitively that a Canadian company cannot rely solely on the fact that a decision that it took was in furtherance of a decision rendered by a regulatory agency in the United States, as an affirmative defence to a charge of discrimination with respect to rights guaranteed under the Quebec Charter of human rights and freedoms [“Charter”]. On the other hand, that same Court has clarified what must be proven for any “adverse effect” discrimination claim to succeed, and the process that governs.
Context and Facts
As a major aeronautics manufacturer, Bombardier has training facilities for its aircraft in both Canada and the U.S., and as such must respect U.S. law. Following 9/11, U.S. authorities created the Alien Flight Students Program (“AFSP”) pursuant to which flight training/recurrent training under a U.S.-issued pilot’s licence, could not be given to a pilot who did not have American citizenship unless he received an appropriate security clearance. Javed Latif [“the “Complainant”], a Canadian citizen of Pakistani origin, held both U.S. and Canadian pilots’ licences. In 2003, he was offered a position with one airline to fly a Boeing 737 under his U.S. licence. He registered for initial training on that aircraft and was granted U.S. Department of Justice security clearance. The job opportunity, however, evaporated. When, several months later, while in Pakistan, Mr. Latif received an offer from a Canadian company to pilot a Bombardier Challenger 604, he registered for recurrent training on that aircraft under his U.S. license at Bombardier’s Dallas Training Centre. To speed things up Latif also sought recurrent training on that aircraft under his Canadian licence at Bombardier’s Montreal Training Facility. Bombardier received an unfavourable reply to Latif’s security screening request for the Dallas training from the competent U.S. authorities which meant that it could not dispense training under his U.S. licence. No explanation for the U.S. refusal was ever provided, although Latif’s evidence was that he thought that the refusal was due to an identification error. He then contacted Bombardier to proceed to training under his Canadian licence, which he believed was not subject to security screening by U.S. authorities. Bombardier replied that it had to comply with the American authorities denial, for all types of pilot training. It therefore refused to train Mr. Latif under his Canadian licence. When he requested the U.S. authorities review his file, Latif was advised that his denial was part of a process put “in place to protect the national security of the U.S.” It took until 2008 and other requests under his U.S. licence for training on various other types of aircraft, for him to receive clearance, all but the last request being denied on the grounds that “he posed a threat to aviation or national security in the United States.”
Latif filed an “adverse impact” discrimination claim against Bombardier in Montreal, alleging that it had impaired his right to avail himself of services normally offered to the public because of discrimination based on his religion or his ethnic or national origin, prohibited by the Charter, i.e. his Muslim background and/or Pakistani origin. In so doing, Bombardier had impaired his right to the safeguard of his dignity and reputation without distinction based on one or more of the prohibited grounds, i.e. religion, ethnic, or national origin. At the hearing before the Quebec Human Rights Tribunal [the “Tribunal”], Quebec’s Human Rights Commission [the “Commission”] sought to found its case on racial profiling that it claimed was prevalent in various U.S. agencies and underlay the various exclusions for flight training adopted by that country following 9/11, by presenting expert evidence to the effect that the measures put in place by the U.S. targeted Arabs and Muslims through such racial profiling that it viewed as discriminatory.
All parties agreed that the sole reason for Bombardier’s refusal of training to Latif at its Montreal facility was the denial of U.S. security clearance.
The Tribunal found that Bombardier had relied on a U.S. decision which itself was discriminatory with respect to Complainant’s religion and/or his ethnic or national background. Besides very substantial compensatory, moral and punitive damages, the Tribunal ordered Bombardier to “cease applying or considering […] decisions of the US authorities in ‘national security’ matters when dealing with applications for the training of pilots under Canadian pilots licences.”
The Quebec Court of Appeal determined that the evidence in the file and, in particular, the expert evidence tendered regarding racial profiling, did not create the required “causal connection” between the prohibited discriminatory ground and the refusal of training, and found that the Tribunal had no authority to make the order it did with respect to decisions of the U.S. authorities in national security matters, because the Tribunal’s jurisdiction is limited “to measures that are necessary and reasonable for the purpose of rectifying a problematic situation”. Since by the time the Tribunal rendered its decision, the U.S. authorities had finally approved Latif’s request for security clearance and, indeed, he had received the training he sought, the Tribunal could not use this case “as a pretext for managing the future activities of […] a private entity that is entitled to freedom of contract.” It therefore quashed the Tribunal’s orders.
What the Supreme Court Decided
I. International Law Aspects
Although it dismissed the appeals brought by both the Commission and Latif himself and confirmed that Bombardier had not discriminated against him, the Supreme Court made it clear that its conclusion “does not mean that a company can blindly comply with a discriminatory decision of a foreign authority without exposing itself to liability under the Charter.” It decided that there simply was no evidence of a connection between any of the prohibited grounds as set out in Section 10 of the Charter and the U.S. decision that Bombardier applied. Had there been such evidence, its decision would have been quite different. Hence, the “it wasn’t me, it was the other guy” defence or what I term “the devil made me do it” claim won’t be sufficient to exclude liability – not now, not ever!
Inferentially, the Supreme Court, like the Tribunal, rejected the argument that the financial consequences of a hypothetical revocation of Bombardier’s FAA accreditation could be the basis of a defence to a discrimination claim. While undue hardship might well support a refusal to accommodate, it cannot serve as an affirmative defence to a truly discriminatory practice of a foreign government.
The Supreme Court, however, established a number of other principles of equally far-reaching importance.
II. The Evidentiary Process in Discrimination Cases
i. The Supreme Court reaffirmed that discrimination legislation, whether entitled Charter, Code or Statute, because it deals with basic human rights, is considered quasi-constitutional in nature, and is to be interpreted liberally and purposefully. Furthermore, whatever their legislative origin, provincial or federal, absent specific legislative direction to the contrary, they are all to be interpreted in the light of one another, when similar terms are used. Finally, the process of analysis and its consequential shifting burdens of proof apply throughout.
ii. The Court identified that the first step in the process is for a Complainant to establish prima facie an evidentiary basis for discrimination, i.e. (1) a “distinction, exclusion or preference”, that (2) has the effect of impairing a Charter right (3) on the basis of one of the prohibited grounds of discrimination. The Complainant need not prove that the prohibited ground alleged was the only or exclusive factor leading to the impugned decision. It would be sufficient that appropriate evidence be tendered that there was a “connection” between the decision and the prohibited ground. The presence of a prohibited ground as but one of several factors poisons the entire process and might well lead to a conclusion of discrimination.
iii. Any reference to the term “prima facie” does not reduce by one iota the civil burden of proof that Complainant must satisfy. Indeed, the Courts endorsed Bombardier’s position that the proof required is proof that “in itself, where no contradiction is shown, is complete and sufficient… to establish, on a balance of probabilities, a connection between the decision whose basis is challenged and the prohibited… ground of discrimination”. The reference to the expression prima facie refers only to the fact that is the first step of the process and doesn’t alter the applicable degree of proof that is required from the Complainant to transfer the onus to the Defendant to justify the conduct, nor relax the obligation to satisfy the Tribunal by all the evidence tendered of the “connection” between the prohibited discrimination ground and the decision contested on balance of probabilities.
iv. The Supreme Court recognized the dynamism of discrimination law, and left open the opportunity for courts and tribunals to “take note of new forms of discrimination as they emerge in our society”. It noted that while the proof offered in support of a complainant’s position may vary from case to case, and that the nature of how the discrimination is said to have arisen may be factually different, “the application of a given legal test must be based on the same elements and the same degree of proof in every case […] in order to maintain the uniformity, integrity and predictability of the law.” Context which is to be taken account of recognizes the varied circumstances that allow a Complainant to meet the evidentiary burdens required, but doesn’t alter the legal test that always and invariably applies.
v. The Supreme Court then looked at the evidence tendered before the Tribunal. It decided, like the Quebec Court of Appeal, that the Tribunal’s finding that there had been discrimination by the U.S. authorities and, laterally, by Bombardier in relying upon the American decision, was an unwarranted syllogism i.e. that because Latif had been born in Pakistan and was a Muslim and because U.S. authorities, generally, in many instances in other programs targeted Arabs or Muslims, inter alia those from Pakistan, then Latif was a victim of discriminatory racial profiling on the part of U.S. authorities with Bombardier acting as a conduit for their decision. The Court of Appeal held that the evidence in the record did not support a conclusion that the U.S. authorities had acted in a discriminatory manner. The Supreme Court went one step farther, holding that, as there was no evidence available to the Tribunal that would reasonably allow it to find that ethnic origin or nationality was an operative factor in the decision, the Tribunal’s decision was unreasonable and, hence, in accordance with the revised standard of appellate intervention, reversible. Indeed, the Court stated that the expert evidence to the effect that racial profiling was prevalent in certain other U.S. national security-related programs was far from persuasive in the case at bar. In particular, the Court held that one cannot presume “solely on the basis of a social context of discrimination against a group” that a given decision is necessarily based on prohibited grounds. Not only would such practice amount to reversing the burden of proof in discrimination cases and creating differential evidentiary thresholds, but it would circumvent the rule that even if evidence is circumstantial, it “must nonetheless be tangibly related to the impugned decision or conduct” . Since the expert evidence was not sufficiently related to the facts of the case – indeed, the Court of Appeal found that the expert’s report did not refer to the only national security-related program the AFSP Program, at issue in the case – such evidence could not create any connection between the decision of the U.S. authorities on which Bombardier relied and Complainant’s ethnic, religious or national origins. Although made in another context, the Court’s reference to the Tribunal’s own admission that it did not know the process, criteria or objective reasons that resulted in the refusal by U.S. authorities to give Mr. Latif security clearance, and its overall conclusion that discrimination had been proven, could not reasonably stand, particularly in the light of Latif’s own testimony that he was informed by U.S. authorities that he was denied security clearance as a result of an identification error. Indeed, the Court found the Tribunal’s decision speculative when it stated that even if the American decision had resulted from an identification error, that error had “on a balance of probabilities, been caused by discriminatory programs and racial profiling, given that the security screening process could lead to ‘false positives’” . Finding that neither the expert evidence nor the circumstantial evidence could support any reasonable conclusion that the American decision to deny the security clearance was connected to Mr. Latif’s ethnic background or to his national origin, it found that the Complainant had not met the evidentiary burden required from the get-go.
Remediation
The Supreme Court did not endorse the position of the Court of Appeal that seemed to limit the remedial powers of the Tribunal to compensation for the prejudice suffered by Complainant. The Court recognized the public interest role of both the Commission and the Tribunal and the right in appropriate circumstances for the Tribunal, supported by relevant evidence, to make broader types of remedial orders more conducive to satisfying this public interest dimension. As the Court put it “[i]f the Tribunal had been right to find that Mr. Latif had been discriminated against, the fact that Mr. Latif had finally received his security clearance from the U.S. authorities would not necessarily have addressed the source of the problem, insofar as the evidence had established the existence of a discriminatory organizational policy. In this sense, an order by the Tribunal might then have been necessary in the public interest in order to prevent discrimination against others.”
Why This Judgment Matters
Certainly, for those whose operations or professional practice involve adherence to regulatory requirements of multiple jurisdictions (e.g. the transportation, defense and communications industries, for instance), this case must be studied with care. On the other hand, on a more general level, it clarifies the burden that is upon all Complainants in discrimination cases to show a factual but neither a “causal” nor an “exclusive” connection between the alleged offending conduct and the discriminatory ground invoked. Absent evidence on balance of probabilities of the connection between the two, a charge of discrimination will fail and Defendant will have no obligation to bring forward any defence in the nature of, for instance, a bona fide occupational requirement. However, this case highlights that, in appropriate cases where “systemic” or “organizational” discrimination has been made out, remediation may go far beyond remedying the Complainant’s own and immediate concerns. It also highlights that the commercial consequences that result from not following the dictates of foreign statutory or regulatory obligations that have “long-arm” application beyond the foreign entity’s borders do not diminish by one iota the exigencies of Canadian domestic human rights law. All in all, a case that requires careful consideration.
France - French Dispute Resolution: Recent Improvements
By Nicolas Etcheparre, Roselyn Sands EY Societe d'Avocats
Early in 2015, the French Government announced a series of measures to favor employment, including modifications to employment dispute resolution rules. After several months of debate before the French National Assembly and Senate, the law for growth, activity and equal economic opportunities (referred to as the “Macron” law, after the Minister of Economy who proposed it) came into force on August 7, 2015.
The “Macron” law modifies two key aspects of employment dispute resolution rules: employment dispute resolution and alternative dispute resolution.
1. General context
One particularity of Labor Courts in France is that they are composed of a council of four magistrates, elected every five years: two are elected by employers and two are elected by employees. Labor Court decisions are taken by a majority vote, and if there is a tie, the case is reheard up to 12 months later, with an additional judge from the court of general jurisdiction.
French Labor Courts are often criticized for the lack of speed with which they render decisions. Indeed, parties can wait 10 to 18 months from the time the complaint is filed to the rendering of the decision, excluding appeal. France has been sentenced by the European Court of Human Rights for failing to provide justice to persons with claims before the Labor Courts within a reasonable timeframe.
In France, before a labor law case can go to trial, the parties must attend a conciliatory hearing during which they are encouraged to agree to an amicable resolution. However, these hearings rarely result in settlement.
In order to hasten proceedings, the “Macron” law implements three changes to employment dispute resolution rules: a reduced court for deciding dismissal cases, the possibility of referring directly to the labor court formation including a judge of the court of general jurisdiction for deciding more complex cases, and new rules when awarding damages for wrongful dismissals.
The “Macron” law also provides for the possibility of alternative dispute resolutions, in order to unburden Labor Courts.
2. New employment dispute resolution rules
The “Macron” law has made considerable modifications to the rules regarding legal proceedings before Labor Courts.
A. The option for a reduced court in dismissal cases
According to the new law, during the conciliatory hearing, parties in dismissal cases may agree that their case be heard by a reduced court of only 2 judges, 1 elected by employers and 1 elected by employees. This reduced court will render decisions within 3 months.
It is difficult to predict at this stage the impact this new measure will have on legal proceedings before French Labor Courts.
B. Direct referral to a judge of the court of general jurisdiction
According to the new law, during the conciliatory hearing, if the nature of the case requires it or if the parties request it, their case can be directly heard by 4 labor court magistrates and an additional judge of the court of general jurisdiction. (Normally, a case would be heard by 4 labor court magistrates and referred to the formation including an additional judge of general jurisdiction only in the case of a tie.)
The purpose of this measure is to avoid having the case heard twice if a tie-break decision seems inevitable, thus accelerating the proceedings.
C. Damages awarded to employees and the “Macron” law on scales and ceilings
When a court decides that an employee’s dismissal is wrongful, the employee is awarded damages, the amount of which may vary depending on the employee’s personal situation (e.g. age, salary, years of service). If the employee has more than 2 years of service in the company, and if the company employs more than 10 employees, awarded damages must equal at least 6 months’ salary (the statutory minimum).
There is no statutory ceiling or scale to calculate the damages which might be awarded to a wrongfully dismissed employee. Therefore once a dismissal is challenged, there is no way for an employer to assess the amount of potential damages which might be awarded.
Employers argue that this lack of visibility burdens France’s labor market, as they are less likely to hire employees if they are unable to evaluate the potential cost of dismissing them. For this reason the French government proposed to introduce two new measures to the much disputed Macron bill: i) an indicative scale to allow courts to award damages based on various criteria and ii) ceilings providing for maximum amounts of potential damages awarded.
The indicative scale was implemented by the Macron law, whereas the ceilings on damages was not.
i). The indicative scale
Under the new law, labor judges will have available an indicative scale which will allow them to better assess the amount of damages to award in cases of wrongful dismissal. The exact amounts indicated in the scale should be published shortly by administrative decree, and likely will be based on the employee’s years of service, age and employment situation.
This scale will be purely indicative, meaning that judges may decide not to apply it. However, the scale can become binding if both parties request its application during litigation.
ii). Ceilings on damages
The ceilings on damages proposed were based on the employee’s years of service and the number of employees in the company.
The fact that the ceilings were based on the number of employees in the company was challenged and deemed by the French Constitutional Court as unconstitutional. According to the Court, the principle of a ceiling itself is lawful, however its amount cannot be tied to the size of the company, as it is not linked to the damage caused to the employee.
Thus, the French Government has officially announced that the ceilings will be the subject of a new upcoming law, which will likely further modify the Labor Court system in France.
3. New alternative dispute resolution opportunities
Finally, the “Macron” law makes available for employers and employees two new alternative dispute resolution options.
First, an employer and employee can agree to mediate any potential dispute, prior to any court hearing. Mediation was previously restricted to multi-jurisdictional disputes but now is an available remedy to any type of dispute.
Second, employers and employees can now pass agreements by which both parties will agree not to litigate before the Courts for a set amount of time and will, instead, seek an amicable resolution to any future dispute. However, such agreements only apply to future litigation and require that each party be represented by a lawyer when entered into.
Both of these options for alternative dispute resolution have been available since the publication of the “Macron” law on August 7, 2015.
4. Conclusion
In an effort to facilitate doing business in France and favor future economic growth, the French government has passed the “Macron” law, bringing considerable improvements to employment dispute resolution rules in France. Rules regarding proceedings have been modified in the hopes of allowing justice to be brought more swiftly in labor and employment law matters.
In addition, the new evaluative scale, as well as new ceilings for damages awarded to wrongfully dismissed employees, should give employers more visibility on the costs of dismissing employees in France.
Furthermore, alternative dispute resolution opportunities have been created, allowing for disputes to be resolved outside crowded courthouses.
Early in 2015, the French Government announced a series of measures to favor employment, including modifications to employment dispute resolution rules. After several months of debate before the French National Assembly and Senate, the law for growth, activity and equal economic opportunities (referred to as the “Macron” law, after the Minister of Economy who proposed it) came into force on August 7, 2015.
The “Macron” law modifies two key aspects of employment dispute resolution rules: employment dispute resolution and alternative dispute resolution.
1. General context
One particularity of Labor Courts in France is that they are composed of a council of four magistrates, elected every five years: two are elected by employers and two are elected by employees. Labor Court decisions are taken by a majority vote, and if there is a tie, the case is reheard up to 12 months later, with an additional judge from the court of general jurisdiction.
French Labor Courts are often criticized for the lack of speed with which they render decisions. Indeed, parties can wait 10 to 18 months from the time the complaint is filed to the rendering of the decision, excluding appeal. France has been sentenced by the European Court of Human Rights for failing to provide justice to persons with claims before the Labor Courts within a reasonable timeframe.
In France, before a labor law case can go to trial, the parties must attend a conciliatory hearing during which they are encouraged to agree to an amicable resolution. However, these hearings rarely result in settlement.
In order to hasten proceedings, the “Macron” law implements three changes to employment dispute resolution rules: a reduced court for deciding dismissal cases, the possibility of referring directly to the labor court formation including a judge of the court of general jurisdiction for deciding more complex cases, and new rules when awarding damages for wrongful dismissals.
The “Macron” law also provides for the possibility of alternative dispute resolutions, in order to unburden Labor Courts.
2. New employment dispute resolution rules
The “Macron” law has made considerable modifications to the rules regarding legal proceedings before Labor Courts.
A. The option for a reduced court in dismissal cases
According to the new law, during the conciliatory hearing, parties in dismissal cases may agree that their case be heard by a reduced court of only 2 judges, 1 elected by employers and 1 elected by employees. This reduced court will render decisions within 3 months.
It is difficult to predict at this stage the impact this new measure will have on legal proceedings before French Labor Courts.
B. Direct referral to a judge of the court of general jurisdiction
According to the new law, during the conciliatory hearing, if the nature of the case requires it or if the parties request it, their case can be directly heard by 4 labor court magistrates and an additional judge of the court of general jurisdiction. (Normally, a case would be heard by 4 labor court magistrates and referred to the formation including an additional judge of general jurisdiction only in the case of a tie.)
The purpose of this measure is to avoid having the case heard twice if a tie-break decision seems inevitable, thus accelerating the proceedings.
C. Damages awarded to employees and the “Macron” law on scales and ceilings
When a court decides that an employee’s dismissal is wrongful, the employee is awarded damages, the amount of which may vary depending on the employee’s personal situation (e.g. age, salary, years of service). If the employee has more than 2 years of service in the company, and if the company employs more than 10 employees, awarded damages must equal at least 6 months’ salary (the statutory minimum).
There is no statutory ceiling or scale to calculate the damages which might be awarded to a wrongfully dismissed employee. Therefore once a dismissal is challenged, there is no way for an employer to assess the amount of potential damages which might be awarded.
Employers argue that this lack of visibility burdens France’s labor market, as they are less likely to hire employees if they are unable to evaluate the potential cost of dismissing them. For this reason the French government proposed to introduce two new measures to the much disputed Macron bill: i) an indicative scale to allow courts to award damages based on various criteria and ii) ceilings providing for maximum amounts of potential damages awarded.
The indicative scale was implemented by the Macron law, whereas the ceilings on damages was not.
i). The indicative scale
Under the new law, labor judges will have available an indicative scale which will allow them to better assess the amount of damages to award in cases of wrongful dismissal. The exact amounts indicated in the scale should be published shortly by administrative decree, and likely will be based on the employee’s years of service, age and employment situation.
This scale will be purely indicative, meaning that judges may decide not to apply it. However, the scale can become binding if both parties request its application during litigation.
ii). Ceilings on damages
The ceilings on damages proposed were based on the employee’s years of service and the number of employees in the company.
The fact that the ceilings were based on the number of employees in the company was challenged and deemed by the French Constitutional Court as unconstitutional. According to the Court, the principle of a ceiling itself is lawful, however its amount cannot be tied to the size of the company, as it is not linked to the damage caused to the employee.
Thus, the French Government has officially announced that the ceilings will be the subject of a new upcoming law, which will likely further modify the Labor Court system in France.
3. New alternative dispute resolution opportunities
Finally, the “Macron” law makes available for employers and employees two new alternative dispute resolution options.
First, an employer and employee can agree to mediate any potential dispute, prior to any court hearing. Mediation was previously restricted to multi-jurisdictional disputes but now is an available remedy to any type of dispute.
Second, employers and employees can now pass agreements by which both parties will agree not to litigate before the Courts for a set amount of time and will, instead, seek an amicable resolution to any future dispute. However, such agreements only apply to future litigation and require that each party be represented by a lawyer when entered into.
Both of these options for alternative dispute resolution have been available since the publication of the “Macron” law on August 7, 2015.
4. Conclusion
In an effort to facilitate doing business in France and favor future economic growth, the French government has passed the “Macron” law, bringing considerable improvements to employment dispute resolution rules in France. Rules regarding proceedings have been modified in the hopes of allowing justice to be brought more swiftly in labor and employment law matters.
In addition, the new evaluative scale, as well as new ceilings for damages awarded to wrongfully dismissed employees, should give employers more visibility on the costs of dismissing employees in France.
Furthermore, alternative dispute resolution opportunities have been created, allowing for disputes to be resolved outside crowded courthouses.
India - India's Changing Winds of Employment Law
By Poorvi Chothani, Esq. and Zeenat Phophali, Esq., LawQuest, Mumbai, India
In a recent move to strengthen economic ties between India and the United States, the leaders of the two countries pledged to deepen economic cooperation and set up a joint program to boost investment. The Indian Prime Minister Narendra Modi and United States President Barack Obama have targeted a five-fold jump in Indo-US trade to 500 USD. During Modi’s recent visit to the United States, he said "any bottlenecks which should not be there, will not be there." Among other things, labour law reforms in India emerged as one of the key areas for facilitating business growth in India during the Prime Minister’s talks with business leaders in the U.S. Moreover, with the launch of the ‘Make in India’ initiative by the Prime Minister, labour law reform has inevitably become the need of the hour.
The industry demand is for flexibility in terms of freedom to hire contract labour, the freedom to retrench workers and close down undertakings without prior government permission, and the freedom to introduce technological changes that involve loss of employment. Further, businesses want a liberal labour inspection system and a rational and modern system of records compliance.
The present government proposes to loosen strict hire-and-fire rules, make it tougher for workers to form unions but raise by three times the severance package to protect employee interest, as stated by an officer of the Ministry of Labour and Employment.
Labour Landscape in India
Currently India does not have a robust and comprehensive labour law governing employment in India, but has a plethora of complex and antiquated laws that govern various aspects of employment related matters such as employment conditions, wages, lay-offs and so on. Under the Constitution of India, labour falls under the domain of both the Central (federal) Government and the State Governments. At present, there are 44 labour related statutes enacted by the Central Government dealing with minimum wages, accidental and social security benefits, occupational safety and health, conditions of employment, disciplinary action, formation of trade unions, industrial relations, etc. The labour laws comprise 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.
The World Bank has said that India needs to have more flexible laws rather than restrictive in order to encourage employment growth and investment . Some of the labour laws are restrictive in nature and pose an impediment to business growth. For example, the Industrial Disputes Act (1947) has certain provisions that mandate obtaining prior government approval in the case of layoffs, retrenchment and closure of industrial establishments employing more than 100 workers. This provision is applicable even in situations where there is good cause to close down an establishment or in cases where job performance is reasonably poor. Another example of an antiquated labour law is the Trade Unions Act (1926) which needs to be updated and brought in line with changing labour and industry requirements. Cast in the colonial period and constructed along the lines of the then prevailing British law, the Trade Unions Act merely provides for voluntary registration of trade unions, affords certain kinds of protection and regulates rather severely the internal affairs of the trade unions. With far too many complex labour legislations, employers have often had to grapple with compliance related issues and employees have often found it difficult to identify the protections available to them under the different laws.
Labour Law Reforms
In a step to simplify labour laws, the present Indian government proposes to subsume and consolidate 44 of the labour laws into five broad codes relating to industrial relations, wages, social security, industrial safety and welfare. The new law will not only be applicable to all establishments in the organized and unorganized sectors but will also ensure minimum wages to all workers. The new law is expected to replace the existing Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act, among others. Under it, the fixation and revision of minimum wages will now be left to the states - earlier it could have been done by both the Centre and the states. The states will also be empowered to multiply the minimum wages depending upon how difficult the task is.
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”. Additionally 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 Government also proposes to amalgamate three labour laws, including The Trade Unions Act, 1926, The Industrial Employment (Standing Orders) Act, 1946, and The Industrial Disputes Act, 1947, allowing easier retrenchment and closing down norms for firms with less than 300 workers. According to the proposal, firms employing up to 300 workers would be permitted to lay them off without prior government approval, as against the current threshold of 100 workers. In turn, workers would be given compensation for an average 45 days worked in a year as against the current practice of 15 days in the event that a factory is closing down.
Businesses will also have to give notice of three months to lay off workers or shut down a unit as against the prevailing one month period. The proposed bill also seeks to keep strikes and lock outs under control and has added new conditions when a strike or lockout cannot take place. Further, a proposed provision in draft code provides that 10 per cent of the total workers must come together to register a trade union. At present, 7 or more members can apply for registration of a trade union. In cases where 10 per cent of workers is less than 7, at least 7 workers are required (to apply) for the purpose and where the 10 per cent of workers exceed 100, 100 workers shall be sufficient for registering the trade union. These new provisions discourage formation of trade unions in India, which have historically been impediments rather than protecting employee rights.
While the Centre has amended the Apprentices Act, 1961 and the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, amendments to the Factories Act, 1948 are pending with Parliament. It has also finalised changes to the Child Labour (Prohibition and Regulation) Act, 1986 and is working on umbrella legislation for small factories as well as easier laws of retrenchment of workers.
Changes at the State Level
The State Government of Rajasthan has taken the initiative in introducing changes to labour laws to attract investment and foster employment growth. In November 2014, the government of Rajasthan enacted amendments to three central labour laws that will allow businesses operating in the state to employ and lay off workers more easily, while making it more difficult for workers to unionize. The Industrial Disputes Act as it stands requires a firm employing more than 100 workers to seek permission from its state government for retrenching or laying off workers. Rajasthan’s recent amendment raises this threshold to 300 workers. It also increases the threshold employment for registration of a firm under the Factories Act, a regulation that puts a number of stipulations on work hours and work days in addition to the minimum age requirement. The State is raising the minimum membership for the registration of a trade union from 15 per cent of the company’s total employment to 30 per cent, thereby attempting to reduce managerial and labour time lost in building consensus among multiple unions.
The steps taken by Rajasthan will facilitate flexibility in hiring and bringing more workers under the labour legislation. Other states are expected to follow Rajasthan, with the current Union Labour Minister Narendra Singh Tomar signalling states can amend labour laws to suit local conditions.
The state of Madhya Pradesh's Cabinet has also approved amendments on similar lines. The government of the state of Haryana is considering changes to the Industrial Disputes Act, the Factories Act and the Contract Labour Act, along the lines of changes brought about in Rajasthan.
Conclusion
It is certainly clear that the Indian labour law regime is in need of comprehensive and meaningful reform in order to facilitate ease of doing business, promote industry and employee harmony and boost investments. Apart from consolidation of the various labour laws into simplified legislation, what also needs to be scrutinized is multiple and often complex processes relating to government approvals and permissions, without adversely impacting employee rights and protections.
A mechanism both at the central and state levels needs to be put in place in order to streamline and expedite the obtaining of necessary approvals and licenses. Also most importantly, reforming the labour law regime would not be effective unless corresponding enforcement measures are simplified and strengthened. In appropriate cases, labour law cases should be put on fast track paths in order to avoid litigation delays and huge costs both to employers as well as employees.
In a recent move to strengthen economic ties between India and the United States, the leaders of the two countries pledged to deepen economic cooperation and set up a joint program to boost investment. The Indian Prime Minister Narendra Modi and United States President Barack Obama have targeted a five-fold jump in Indo-US trade to 500 USD. During Modi’s recent visit to the United States, he said "any bottlenecks which should not be there, will not be there." Among other things, labour law reforms in India emerged as one of the key areas for facilitating business growth in India during the Prime Minister’s talks with business leaders in the U.S. Moreover, with the launch of the ‘Make in India’ initiative by the Prime Minister, labour law reform has inevitably become the need of the hour.
The industry demand is for flexibility in terms of freedom to hire contract labour, the freedom to retrench workers and close down undertakings without prior government permission, and the freedom to introduce technological changes that involve loss of employment. Further, businesses want a liberal labour inspection system and a rational and modern system of records compliance.
The present government proposes to loosen strict hire-and-fire rules, make it tougher for workers to form unions but raise by three times the severance package to protect employee interest, as stated by an officer of the Ministry of Labour and Employment.
Labour Landscape in India
Currently India does not have a robust and comprehensive labour law governing employment in India, but has a plethora of complex and antiquated laws that govern various aspects of employment related matters such as employment conditions, wages, lay-offs and so on. Under the Constitution of India, labour falls under the domain of both the Central (federal) Government and the State Governments. At present, there are 44 labour related statutes enacted by the Central Government dealing with minimum wages, accidental and social security benefits, occupational safety and health, conditions of employment, disciplinary action, formation of trade unions, industrial relations, etc. The labour laws comprise 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.
The World Bank has said that India needs to have more flexible laws rather than restrictive in order to encourage employment growth and investment . Some of the labour laws are restrictive in nature and pose an impediment to business growth. For example, the Industrial Disputes Act (1947) has certain provisions that mandate obtaining prior government approval in the case of layoffs, retrenchment and closure of industrial establishments employing more than 100 workers. This provision is applicable even in situations where there is good cause to close down an establishment or in cases where job performance is reasonably poor. Another example of an antiquated labour law is the Trade Unions Act (1926) which needs to be updated and brought in line with changing labour and industry requirements. Cast in the colonial period and constructed along the lines of the then prevailing British law, the Trade Unions Act merely provides for voluntary registration of trade unions, affords certain kinds of protection and regulates rather severely the internal affairs of the trade unions. With far too many complex labour legislations, employers have often had to grapple with compliance related issues and employees have often found it difficult to identify the protections available to them under the different laws.
Labour Law Reforms
In a step to simplify labour laws, the present Indian government proposes to subsume and consolidate 44 of the labour laws into five broad codes relating to industrial relations, wages, social security, industrial safety and welfare. The new law will not only be applicable to all establishments in the organized and unorganized sectors but will also ensure minimum wages to all workers. The new law is expected to replace the existing Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act, among others. Under it, the fixation and revision of minimum wages will now be left to the states - earlier it could have been done by both the Centre and the states. The states will also be empowered to multiply the minimum wages depending upon how difficult the task is.
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”. Additionally 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 Government also proposes to amalgamate three labour laws, including The Trade Unions Act, 1926, The Industrial Employment (Standing Orders) Act, 1946, and The Industrial Disputes Act, 1947, allowing easier retrenchment and closing down norms for firms with less than 300 workers. According to the proposal, firms employing up to 300 workers would be permitted to lay them off without prior government approval, as against the current threshold of 100 workers. In turn, workers would be given compensation for an average 45 days worked in a year as against the current practice of 15 days in the event that a factory is closing down.
Businesses will also have to give notice of three months to lay off workers or shut down a unit as against the prevailing one month period. The proposed bill also seeks to keep strikes and lock outs under control and has added new conditions when a strike or lockout cannot take place. Further, a proposed provision in draft code provides that 10 per cent of the total workers must come together to register a trade union. At present, 7 or more members can apply for registration of a trade union. In cases where 10 per cent of workers is less than 7, at least 7 workers are required (to apply) for the purpose and where the 10 per cent of workers exceed 100, 100 workers shall be sufficient for registering the trade union. These new provisions discourage formation of trade unions in India, which have historically been impediments rather than protecting employee rights.
While the Centre has amended the Apprentices Act, 1961 and the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, amendments to the Factories Act, 1948 are pending with Parliament. It has also finalised changes to the Child Labour (Prohibition and Regulation) Act, 1986 and is working on umbrella legislation for small factories as well as easier laws of retrenchment of workers.
Changes at the State Level
The State Government of Rajasthan has taken the initiative in introducing changes to labour laws to attract investment and foster employment growth. In November 2014, the government of Rajasthan enacted amendments to three central labour laws that will allow businesses operating in the state to employ and lay off workers more easily, while making it more difficult for workers to unionize. The Industrial Disputes Act as it stands requires a firm employing more than 100 workers to seek permission from its state government for retrenching or laying off workers. Rajasthan’s recent amendment raises this threshold to 300 workers. It also increases the threshold employment for registration of a firm under the Factories Act, a regulation that puts a number of stipulations on work hours and work days in addition to the minimum age requirement. The State is raising the minimum membership for the registration of a trade union from 15 per cent of the company’s total employment to 30 per cent, thereby attempting to reduce managerial and labour time lost in building consensus among multiple unions.
The steps taken by Rajasthan will facilitate flexibility in hiring and bringing more workers under the labour legislation. Other states are expected to follow Rajasthan, with the current Union Labour Minister Narendra Singh Tomar signalling states can amend labour laws to suit local conditions.
The state of Madhya Pradesh's Cabinet has also approved amendments on similar lines. The government of the state of Haryana is considering changes to the Industrial Disputes Act, the Factories Act and the Contract Labour Act, along the lines of changes brought about in Rajasthan.
Conclusion
It is certainly clear that the Indian labour law regime is in need of comprehensive and meaningful reform in order to facilitate ease of doing business, promote industry and employee harmony and boost investments. Apart from consolidation of the various labour laws into simplified legislation, what also needs to be scrutinized is multiple and often complex processes relating to government approvals and permissions, without adversely impacting employee rights and protections.
A mechanism both at the central and state levels needs to be put in place in order to streamline and expedite the obtaining of necessary approvals and licenses. Also most importantly, reforming the labour law regime would not be effective unless corresponding enforcement measures are simplified and strengthened. In appropriate cases, labour law cases should be put on fast track paths in order to avoid litigation delays and huge costs both to employers as well as employees.
Netherlands - New Dutch Payroll Tax Rules to Combat 'Bogus' Self-Employment
By Patrick de Loof, Van Doorne NV
Under current Dutch tax law, self-employed workers - also known as independent contractors - can apply for a Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, "VAR"). When contractors provide a VAR to their client, that client can assume that the relationship with the contractor does not qualify as an employment relationship for taxation purposes. Consequently, payroll taxes do not need to be withheld from payments to the contractor and the business engaging the contractor cannot be held liable for not withholding payroll taxes. Service agreements between businesses and contractors often include a clause providing that payroll taxes will be withheld if the contractor fails to provide a VAR. This system will soon be replaced by a significantly stricter regime, requiring businesses engaging contractors to pay much more attention to their contractual arrangements in order to avoid tax liabilities.
Fight against "bogus" self-employment
For several years, the Dutch government has been seeking alternatives for the VAR. The main reason for this is that the VAR can be obtained fairly easily, by filing a standard request form with the tax authorities, while it is difficult for the tax authorities to verify whether the contractor is in fact sufficiently independent in order not to be considered an employee for taxation purposes. But even if a contractor is in fact insufficiently independent, the client of the contractor may still rely on the VAR and can generally not be held liable for the payroll taxes which should have been withheld. In lack of a system to accurately verify whether a contractor meets the requirements of independence, the government is potentially missing out on substantial tax income.
In 2014 an attempt was made to replace the VAR-system by a new system in which the businesses engaging contractors would have an increased responsibility in verifying if the contractual relationship qualifies as an employment relationship. Both contractors and clients opposed this proposal, due to the administrative burden and the related expenses. Following fierce criticism, the Ministry of Finance drastically changed this proposal at the beginning of this year.
The amended proposal has been adopted by parliament and is expected to be adopted by the senate soon. If adopted, the proposed new system is likely to replace the VAR regime as early as 1 January 2016.
Model contracts vs. assessments of contracts upon request
In the new system, the tax authorities will publish model contracts which - if used - guarantee a sufficient degree of independency of the contractor. If the contractor and the client make use of a published model contract and provided that they act strictly in accordance with the provisions of the model contract, no payroll taxes need to be withheld and paid. The tax authorities have announced that the first model contracts will be published on their website mid-October 2015.
As an alternative, a contractor and a client can choose to use their own contract and have it assessed by the tax authorities. The tax authorities will then confirm in writing whether or not payroll taxes must be withheld. This confirmation can be relied upon as long as the parties act in accordance with the contract. This option will be available for both existing and new contracts. The tax authorities expect that average processing time of a request for assessment will be approximately six weeks.
When assessing a contract, the tax authorities will focus on elements which typically make the difference between an employment relationship and an independent contractor relationship. If too many elements of the arrangement between the contractor and the client point towards an employment relationship, the tax authorities will draw the conclusion that the contractor must be considered an employee for taxation purposes. Several elements which the tax authorities will look at have already been identified in the legislative process. These include arrangements on holiday entitlements and entitlements to payment during sickness, whether or not the contractor has contractually agreed to take out liability insurance, and whether or not the contractor will make use of company property of the client in the execution of the agreed work.
What should independent contractors and their clients do now?
If the contract used by a contractor and a client is not a contract approved by the tax authorities, then the tax authorities may take the view that the relationship qualifies as an employment relationship and hold the client liable for the payroll taxes. The same can happen if the contract itself is approved, but the parties do not in fact act in accordance with the contract.
Depending on the provisions of current contracts with independent contractors and the manner in which the contracts are carried out, it can be useful to already have these contracts assessed by the tax authorities in order to ensure that it will not be necessary to withhold payroll taxes as of 1 January 2016. Should the tax authorities rule that the relationship between the contractor and the client does not qualify as an independent contractor relationship, then payroll taxes should be withheld or the contract terms will need to be renegotiated prior to 1 January 2016.
Most template contracts that we currently see include an obligation for the contractor to provide the client with a VAR. Since the VAR can no longer be obtained from 2016, this wording needs to be replaced by wording suited to the new system. In addition, the contract should overall sufficiently reflect that the relationship between the contractor and the client is not in fact an employment relationship. Depending on the circumstances, it may be possible to make use of one of the model contracts to be published soon by the tax authorities.
If it is decided that a contract will be assessed by the tax authorities then we advise not entering into the contract until the outcome of the assessment is clear. If this is not feasible, the client could retain part of the fees payable to the contractor to cover for payroll taxes if it turns out that these must be withheld. If the contract is approved, it will be important - more than now - to strictly comply with the terms and conditions of the contract in order to avoid the risk that the approval may not be relied upon in a later stage.
Under current Dutch tax law, self-employed workers - also known as independent contractors - can apply for a Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, "VAR"). When contractors provide a VAR to their client, that client can assume that the relationship with the contractor does not qualify as an employment relationship for taxation purposes. Consequently, payroll taxes do not need to be withheld from payments to the contractor and the business engaging the contractor cannot be held liable for not withholding payroll taxes. Service agreements between businesses and contractors often include a clause providing that payroll taxes will be withheld if the contractor fails to provide a VAR. This system will soon be replaced by a significantly stricter regime, requiring businesses engaging contractors to pay much more attention to their contractual arrangements in order to avoid tax liabilities.
Fight against "bogus" self-employment
For several years, the Dutch government has been seeking alternatives for the VAR. The main reason for this is that the VAR can be obtained fairly easily, by filing a standard request form with the tax authorities, while it is difficult for the tax authorities to verify whether the contractor is in fact sufficiently independent in order not to be considered an employee for taxation purposes. But even if a contractor is in fact insufficiently independent, the client of the contractor may still rely on the VAR and can generally not be held liable for the payroll taxes which should have been withheld. In lack of a system to accurately verify whether a contractor meets the requirements of independence, the government is potentially missing out on substantial tax income.
In 2014 an attempt was made to replace the VAR-system by a new system in which the businesses engaging contractors would have an increased responsibility in verifying if the contractual relationship qualifies as an employment relationship. Both contractors and clients opposed this proposal, due to the administrative burden and the related expenses. Following fierce criticism, the Ministry of Finance drastically changed this proposal at the beginning of this year.
The amended proposal has been adopted by parliament and is expected to be adopted by the senate soon. If adopted, the proposed new system is likely to replace the VAR regime as early as 1 January 2016.
Model contracts vs. assessments of contracts upon request
In the new system, the tax authorities will publish model contracts which - if used - guarantee a sufficient degree of independency of the contractor. If the contractor and the client make use of a published model contract and provided that they act strictly in accordance with the provisions of the model contract, no payroll taxes need to be withheld and paid. The tax authorities have announced that the first model contracts will be published on their website mid-October 2015.
As an alternative, a contractor and a client can choose to use their own contract and have it assessed by the tax authorities. The tax authorities will then confirm in writing whether or not payroll taxes must be withheld. This confirmation can be relied upon as long as the parties act in accordance with the contract. This option will be available for both existing and new contracts. The tax authorities expect that average processing time of a request for assessment will be approximately six weeks.
When assessing a contract, the tax authorities will focus on elements which typically make the difference between an employment relationship and an independent contractor relationship. If too many elements of the arrangement between the contractor and the client point towards an employment relationship, the tax authorities will draw the conclusion that the contractor must be considered an employee for taxation purposes. Several elements which the tax authorities will look at have already been identified in the legislative process. These include arrangements on holiday entitlements and entitlements to payment during sickness, whether or not the contractor has contractually agreed to take out liability insurance, and whether or not the contractor will make use of company property of the client in the execution of the agreed work.
What should independent contractors and their clients do now?
If the contract used by a contractor and a client is not a contract approved by the tax authorities, then the tax authorities may take the view that the relationship qualifies as an employment relationship and hold the client liable for the payroll taxes. The same can happen if the contract itself is approved, but the parties do not in fact act in accordance with the contract.
Depending on the provisions of current contracts with independent contractors and the manner in which the contracts are carried out, it can be useful to already have these contracts assessed by the tax authorities in order to ensure that it will not be necessary to withhold payroll taxes as of 1 January 2016. Should the tax authorities rule that the relationship between the contractor and the client does not qualify as an independent contractor relationship, then payroll taxes should be withheld or the contract terms will need to be renegotiated prior to 1 January 2016.
Most template contracts that we currently see include an obligation for the contractor to provide the client with a VAR. Since the VAR can no longer be obtained from 2016, this wording needs to be replaced by wording suited to the new system. In addition, the contract should overall sufficiently reflect that the relationship between the contractor and the client is not in fact an employment relationship. Depending on the circumstances, it may be possible to make use of one of the model contracts to be published soon by the tax authorities.
If it is decided that a contract will be assessed by the tax authorities then we advise not entering into the contract until the outcome of the assessment is clear. If this is not feasible, the client could retain part of the fees payable to the contractor to cover for payroll taxes if it turns out that these must be withheld. If the contract is approved, it will be important - more than now - to strictly comply with the terms and conditions of the contract in order to avoid the risk that the approval may not be relied upon in a later stage.
Saudi Arabia - Amendments to the Labour Law
By Sara Khoja, Jack Fletcher & Rebecca Ford, Clyde & Co
Certainty of employment terms
The Saudi Labour Law currently requires employers with more than ten employees to develop workplace regulations, to be submitted for approval to the Ministry of Labour. The amendments to the law will now require all employers (regardless of number of staff) to provide workplace regulations. Although the workplace regulations must conform to the model code or codes issued by the Ministry, the employer is entitled to incorporate additional terms, provided that they do not contradict the provisions of the Labour Law. Reference to the approval process previously contained in the Labour Law has been removed.
The amendments to the law also state that the Ministry will develop a uniform employment contract, which shall include the name, address, nationality of the employee, as well as salary, bonus, allowances, dates of employment, and whether the contract is for a fixed term. Currently, there is no standard form contract issued by the Ministry. The amendments do, however, allow an employer to add additional terms and conditions, provided that these do not contradict the Labour Law.
Facilitation of Saudi nationals in the workplace
A number of amendments have been introduced which specifically affect the employment of Saudi nationals, in particular:
- Employers with 50 or more employees must provide training on an annual basis to Saudi employees making up not less than 12 per cent of the total workforce (previously the requirement was for 6 per cent of the workforce), although this can also include those employees who are completing their education, where the employer is paying their education costs.
- Fixed term periods may now continue for three consecutive terms (whereas previously this was only for two fixed terms), or for a total period of four years (previously this was for three years), whichever is the shorter, before they convert to unlimited term contracts. A fixed term contract will automatically expire at the end of its term (unless the parties continue to perform under it).
Current work practices
Certain amendments update the Labour Law to reflect both employer and employee requirements in the workplace:
- Employers may require an employee to carry out their duties in a place other than their workplace for a period not exceeding 30 days per annum, without having to obtain the employee's prior consent. However, the employer must pay for the employee's transport and accommodation throughout the period, and there must be some form of emergency necessitating the assignment.
- Employers must pay salary into an employee's bank account through approved banks. This reflects the fact that a wage protection system is currently being rolled out in KSA (currently those companies with 170 employees or more are required to comply with the system).
- Maximum working hours have been increased from 11 to 12 hours per day (of which at least one hour must be for rest, food, and prayer).
- Paid leave periods for employees have been increased, in particular, paternity, marriage, and compassionate leave have all been increased to five calendar days, and compassionate leave for a female Muslim employee whose spouse has died has increased from 15 days to the Iddah leave of four months and ten days. A female employee may now take an additional one month's unpaid maternity leave (in addition to the current ten weeks' paid leave paid in accordance with the Labour Law provisions) and, if the baby is ill or disabled and whose health requires permanent attention, a female employee may have one additional month's paid leave, in addition to the maternity leave available to other female employees.
Termination of employment
A number of the amendments to the Labour Law address issues which arise during employment, in particular:
- The existing probation period provided for under the Labour Law of 90 days may be extended by a further 90 days, during which the employment may be terminated at any time (or in accordance with the contract);
- The notice period to be given to terminate an unlimited term contract (applicable to Saudi nationals only) has been increased from 30 to 60 calendar days;
- An employer may not dismiss an employee for cause for unauthorised leave until the employee is absent for at least 30 calendar days' a year, or 15 consecutive days (this was previously 20 and 10 days, respectively);
- The concept of redundancy will now be included in the law, so that a valid reason for termination arises where the establishment of the employer is being closed or there is a cessation of business within the unit or operation where the employee works;
- The Labour Law currently provides that an employer must issue a service certificate to an employee on termination, on request, confirming the dates of employment, role, and last salary received. The amendments to the law now expressly provide that the employer shall not include in the certificate any remarks which are prejudicial to the employee's reputation, or are likely to limit the employee's ability to obtain employment;
- The employee is entitled to paid time off work to look for alternative employment when notice is served by the employer, which is limited to one full day or eight hours, per week, during the course of the notice period;
- A significant amendment to the law relates to the compensation due on termination for an invalid reason. The amendments to the law now allow the parties to expressly state in the employment contract the level of compensation which may be payable where either party terminates the contract without reason, provided that it must not be less than two months' wages. In the absence of prior agreement, the amendments to the Labour Law state that the compensation shall be 15 calendar days' pay per year of service in the case of an unlimited term contract, and pay for the remainder of the term in the case of a limited term contract.
Sanctions for breach
The amendments to the Labour Law have increased the penalties for breaches of the Labour Law and also provide greater powers to Ministry of Labour Officials (or those appointed by them). In addition, inspectors are now obliged to produce reports and minutes of any inspection (rather than offer initial guidance and corrective recommendations, which is currently contained in the Labour Law).
The amendments also introduce a form of whistleblowing, to encourage the reporting of violations of the rules by individuals, by way of a financial incentive. An individual assisting in the detection of violations may be rewarded up to 25% of the value of a fine imposed on an employer by the Ministry.
What's next?
The implementation of the amendments to the Labour Law in October is likely to lead to a number of changes in workplace practices and employers should be taking steps now to update their contracts and company policies.
Looking further into the future, the amendments to the Labour Law do contain some noticeable absences; for example, announcements in early 2014 indicated that the Shoura Council had approved a move to a 5-day working week, although this is currently still under discussion. In addition, revisions to the Nitaqat system are expected, which are likely to increase Saudisation requirements in certain sectors, and make adjustments to the calculation methods and incentives.
Certainty of employment terms
The Saudi Labour Law currently requires employers with more than ten employees to develop workplace regulations, to be submitted for approval to the Ministry of Labour. The amendments to the law will now require all employers (regardless of number of staff) to provide workplace regulations. Although the workplace regulations must conform to the model code or codes issued by the Ministry, the employer is entitled to incorporate additional terms, provided that they do not contradict the provisions of the Labour Law. Reference to the approval process previously contained in the Labour Law has been removed.
The amendments to the law also state that the Ministry will develop a uniform employment contract, which shall include the name, address, nationality of the employee, as well as salary, bonus, allowances, dates of employment, and whether the contract is for a fixed term. Currently, there is no standard form contract issued by the Ministry. The amendments do, however, allow an employer to add additional terms and conditions, provided that these do not contradict the Labour Law.
Facilitation of Saudi nationals in the workplace
A number of amendments have been introduced which specifically affect the employment of Saudi nationals, in particular:
- Employers with 50 or more employees must provide training on an annual basis to Saudi employees making up not less than 12 per cent of the total workforce (previously the requirement was for 6 per cent of the workforce), although this can also include those employees who are completing their education, where the employer is paying their education costs.
- Fixed term periods may now continue for three consecutive terms (whereas previously this was only for two fixed terms), or for a total period of four years (previously this was for three years), whichever is the shorter, before they convert to unlimited term contracts. A fixed term contract will automatically expire at the end of its term (unless the parties continue to perform under it).
Current work practices
Certain amendments update the Labour Law to reflect both employer and employee requirements in the workplace:
- Employers may require an employee to carry out their duties in a place other than their workplace for a period not exceeding 30 days per annum, without having to obtain the employee's prior consent. However, the employer must pay for the employee's transport and accommodation throughout the period, and there must be some form of emergency necessitating the assignment.
- Employers must pay salary into an employee's bank account through approved banks. This reflects the fact that a wage protection system is currently being rolled out in KSA (currently those companies with 170 employees or more are required to comply with the system).
- Maximum working hours have been increased from 11 to 12 hours per day (of which at least one hour must be for rest, food, and prayer).
- Paid leave periods for employees have been increased, in particular, paternity, marriage, and compassionate leave have all been increased to five calendar days, and compassionate leave for a female Muslim employee whose spouse has died has increased from 15 days to the Iddah leave of four months and ten days. A female employee may now take an additional one month's unpaid maternity leave (in addition to the current ten weeks' paid leave paid in accordance with the Labour Law provisions) and, if the baby is ill or disabled and whose health requires permanent attention, a female employee may have one additional month's paid leave, in addition to the maternity leave available to other female employees.
Termination of employment
A number of the amendments to the Labour Law address issues which arise during employment, in particular:
- The existing probation period provided for under the Labour Law of 90 days may be extended by a further 90 days, during which the employment may be terminated at any time (or in accordance with the contract);
- The notice period to be given to terminate an unlimited term contract (applicable to Saudi nationals only) has been increased from 30 to 60 calendar days;
- An employer may not dismiss an employee for cause for unauthorised leave until the employee is absent for at least 30 calendar days' a year, or 15 consecutive days (this was previously 20 and 10 days, respectively);
- The concept of redundancy will now be included in the law, so that a valid reason for termination arises where the establishment of the employer is being closed or there is a cessation of business within the unit or operation where the employee works;
- The Labour Law currently provides that an employer must issue a service certificate to an employee on termination, on request, confirming the dates of employment, role, and last salary received. The amendments to the law now expressly provide that the employer shall not include in the certificate any remarks which are prejudicial to the employee's reputation, or are likely to limit the employee's ability to obtain employment;
- The employee is entitled to paid time off work to look for alternative employment when notice is served by the employer, which is limited to one full day or eight hours, per week, during the course of the notice period;
- A significant amendment to the law relates to the compensation due on termination for an invalid reason. The amendments to the law now allow the parties to expressly state in the employment contract the level of compensation which may be payable where either party terminates the contract without reason, provided that it must not be less than two months' wages. In the absence of prior agreement, the amendments to the Labour Law state that the compensation shall be 15 calendar days' pay per year of service in the case of an unlimited term contract, and pay for the remainder of the term in the case of a limited term contract.
Sanctions for breach
The amendments to the Labour Law have increased the penalties for breaches of the Labour Law and also provide greater powers to Ministry of Labour Officials (or those appointed by them). In addition, inspectors are now obliged to produce reports and minutes of any inspection (rather than offer initial guidance and corrective recommendations, which is currently contained in the Labour Law).
The amendments also introduce a form of whistleblowing, to encourage the reporting of violations of the rules by individuals, by way of a financial incentive. An individual assisting in the detection of violations may be rewarded up to 25% of the value of a fine imposed on an employer by the Ministry.
What's next?
The implementation of the amendments to the Labour Law in October is likely to lead to a number of changes in workplace practices and employers should be taking steps now to update their contracts and company policies.
Looking further into the future, the amendments to the Labour Law do contain some noticeable absences; for example, announcements in early 2014 indicated that the Shoura Council had approved a move to a 5-day working week, although this is currently still under discussion. In addition, revisions to the Nitaqat system are expected, which are likely to increase Saudisation requirements in certain sectors, and make adjustments to the calculation methods and incentives.
Spain - Age as an Acceptable Selection Criteria in Collective Redundancy Plans
By Sonia Cortés, Abdon Pedrajas & Molero (Spain)
The Spanish Constitutional Court decision (STC 66/2015 of 13th of April) addresses whether age can be deemed a valid criterion to select employees in a redundancy plan or whether it is a discriminatory practice. Targeting elder employees for redundancy has been a fairly common practice by employers, often with unions’ consent, in the belief that their redundancy has a softer impact due to their closeness to retirement age and higher severance. Very few court decisions addressed the issue and these were often based on abstract criteria of proportionality and justification.
In the ruling at hand, the company used four selection criteria to decide which employees were to be included in the collective dismissal: (i) employees who worked in the department affected by the redundancy process, (ii) employee skills and expertise, (iii) employee qualifications and know-how and (iv) proximity to retirement age. Employees challenged the redundancy plan by arguing that this selection criterion was discriminatory on the basis of age (art. 14 of the Spanish Constitution and art. 21.1 of the Charter of Fundamental Rights of the European Union).
The Court reiterated that it is the employers’ right to select employees for redundancy, as long as such decision is not discriminatory. The Court went on to say that while selection of age is discriminatory, the selection criterion may be deemed acceptable if it is accompanied by appropriate measures to compensate the affected workers. The Court dismissed the company’s first argument to try to justify the differential treatment, ie that the training costs of retaining older employees would be too high because the company would have to retrain new employees in the short period of time. The Court dismissed this based on the fact that termination of older employees left them with hardly any chance to find a new job.
On the other hand, the second argument was upheld. The company argued that proximity to retirement along with the compensatory measures could be read under an objective light given that the measures were appropriate and effective to mitigate the negative impact caused to the selected employees. The measures included social security contributions for employees over 55, which is compulsory for employers in collective redundancies, an additional monthly consideration to such employees and finally the public benefit for unemployed individuals older than 55 who have low income.
The Constitutional Court concluded that there had been unequal treatment based on age but that this was justified on objective grounds and compensated with appropriate and proportional measures to mitigate the harm.
It remains to be seen whether, in years to come, the court sustains the same interpretation, now that the labour reform has decreased severance entitlement and the social benefits granted to elder individuals.
The Spanish Constitutional Court decision (STC 66/2015 of 13th of April) addresses whether age can be deemed a valid criterion to select employees in a redundancy plan or whether it is a discriminatory practice. Targeting elder employees for redundancy has been a fairly common practice by employers, often with unions’ consent, in the belief that their redundancy has a softer impact due to their closeness to retirement age and higher severance. Very few court decisions addressed the issue and these were often based on abstract criteria of proportionality and justification.
In the ruling at hand, the company used four selection criteria to decide which employees were to be included in the collective dismissal: (i) employees who worked in the department affected by the redundancy process, (ii) employee skills and expertise, (iii) employee qualifications and know-how and (iv) proximity to retirement age. Employees challenged the redundancy plan by arguing that this selection criterion was discriminatory on the basis of age (art. 14 of the Spanish Constitution and art. 21.1 of the Charter of Fundamental Rights of the European Union).
The Court reiterated that it is the employers’ right to select employees for redundancy, as long as such decision is not discriminatory. The Court went on to say that while selection of age is discriminatory, the selection criterion may be deemed acceptable if it is accompanied by appropriate measures to compensate the affected workers. The Court dismissed the company’s first argument to try to justify the differential treatment, ie that the training costs of retaining older employees would be too high because the company would have to retrain new employees in the short period of time. The Court dismissed this based on the fact that termination of older employees left them with hardly any chance to find a new job.
On the other hand, the second argument was upheld. The company argued that proximity to retirement along with the compensatory measures could be read under an objective light given that the measures were appropriate and effective to mitigate the negative impact caused to the selected employees. The measures included social security contributions for employees over 55, which is compulsory for employers in collective redundancies, an additional monthly consideration to such employees and finally the public benefit for unemployed individuals older than 55 who have low income.
The Constitutional Court concluded that there had been unequal treatment based on age but that this was justified on objective grounds and compensated with appropriate and proportional measures to mitigate the harm.
It remains to be seen whether, in years to come, the court sustains the same interpretation, now that the labour reform has decreased severance entitlement and the social benefits granted to elder individuals.
International - How to Build a Global Labor Relations Platform to Align Collective Bargaining and Organized Labor Strategies Across Borders
By Donald C. Dowling, Jr.
Partner, K&L Gates LLP, New York City
Like it or not, in today’s interconnected world collective labor issues increasingly arise simultaneously across a number of countries, particularly in cross-border “change projects” like global restructurings, cross-border M&A deals, international reductions-in-force and global HR information system launches, as well as union “corporate campaigns” and other cross-border organized labor offensives. In the old days, multinationals used to silo their organized labor relationships by country. Multinationals had little business reason or incentive to align union strategies across borders. But today, multinational human resources operations and organized labor have gone global. Now, multinationals increasingly launch cross-border workplace initiatives that reach staff internationally―global mergers, divestitures, restructurings, reductions-in-force, codes of conduct, human resources policies, intranet systems and the like—that require a cross-border approach to organized labor compliance. Meanwhile, unions themselves have gone global and now focus on cross-border collective labor solidarity as their most cutting-edge, tactic forcing management to respond accordingly. And so both these drivers, headquarters global HR alignment and cross-border union offensives, now push multinationals to coordinate organized-labor strategy internationally.
What steps can a multinational take to facilitate and simplify its ever-growing list of headquarters-driven human resources integration initiatives that reach staff internationally―initiatives like cross-border restructurings, mergers, acquisitions, spin-offs, reductions-in-force, global HR policies, codes of conduct, whistleblower hotlines, international safety programs, global employee benefits programs, conversions to new HR Information Systems and border-crossing internal investigations? And what steps can a multinational take to counter offensives by foreign organized labor―offensives like international union “corporate campaigns” and union demands that the multinational adopt an “international framework agreement,” launch an international employee representative body or respond at headquarters to a foreign labor dispute that cooperating unions wage across borders?
The answer to both questions: Build a global labor relations platform. If a multinational takes the time and spends the resources, it can build a strong platform that serves as both a launching pad for future cross-border workplace initiatives and a parapet defending against targeted international organized labor initiatives. But building the global labor relations platform can be a big job. Headquarters may show little interest in (or budget for) a grandiose undertaking in what management may regard as the moribund, money-sucking backwater of organized labor. Yet building a sturdy platform to support labor relations internationally pays off for many reasons besides just advancing global alignment and integration and saving time and money through increased efficiencies. A well-built global labor relations platform will:
• advance headquarters’ corporate goals and enhance operational flexibility internationally
• harmonize local collective bargaining provisions and procedures across borders, driving uniformity for the organization
• engage and empower the organization’s own overseas labor negotiators who bargain for the employer, motivating them to bargain harder and teaching them to advance headquarters initiatives rather than merely local goals
• streamline and implement headquarters-driven “change initiatives” affecting the workplace internationally
• hold back internationally-focused trade unions teaming up across borders, launching international corporate campaigns and pushing headquarters to launch a European Works Council or sign an international framework agreement
Where these reasons justify building a global labor relations platform, the question becomes how to build it. How does a multinational that today finds itself with a disorganized agglomeration of disparate collective labor relationships scattered across affiliates around the world clean up its inefficient foreign labor contracts, align its various foreign worker representatives and heal its festering foreign bargaining relationships—and then craft them into a global labor relations platform from which it can both launch headquarters integration initiatives and defend against international labor attacks? While building a global labor relations platform takes time and money, the blueprint for building one is fairly simple. It has four parts: (1) project team (2) information-gathering (3) labor philosophy and (4) platform application.
1. Project team
The first step in building a global labor relations platform is selecting the project team. Project management for a cross-border labor alignment initiative should be top-down, falling under the headquarters human resources function or under any headquarters-level global manager of industrial relations. The project team must include the head in-house employment lawyer with global responsibility. Be sure to include on the team any headquarters-level global health and safety function, and consider involving a corporate communications or public relations person as well as someone from corporate compliance. If the company has a European Works Council or other cross-border labor consultation body, the project team should include that body’s management-side liaison who advocates on behalf of management.
Consider adding to the global labor alignment team an outside expert experienced in international labor law like an international labor lawyer or labor consultant with experience beyond just the headquarters country. Any outside lawyer or expert brought in needs to know how to build a global labor relations platform and should bring practical experience wider than just a home-country labor relations mindset. A lawyer leading the global labor project team might be able to structure the global labor platform project so it comes under at least the U.S. attorney/client privilege.
2. Information-gathering
Project team in place, the next step in building a global labor relations platform is to gather information internally about the organization’s existing labor relationships around the world.
• Management labor liaison directory. Too often no one at headquarters is sure who, overseas, speaks on behalf of the organization to local foreign labor representatives. Begin gathering labor relationship information by identifying all the organization’s own internal local labor liaisons—its in-house, on-the-ground labor relations experts who currently consult and negotiate around the world on behalf of management with foreign labor representatives. For example, find out who in your Paris office consults with your French works council on behalf of management, who in your Tokyo facility negotiates for management with your Japanese unions and who in Lima convenes health-and-safety meetings at the Peruvian facility. Put together a country-by-country directory (with up-to-date contact information) and a global email directory listing the organization’s in-house management-side labor liaisons in each overseas location. Be sure to include not only managers who bargain with full-fledged trade unions but also point-people who consult with statutory consultative representative bodies like works councils, worker committees, workplace forums, staff consultation committees, ombudsmen, health/safety committees and the like. Add to the directory the names and contact information of outside labor lawyers and labor consultants that the organization retains to advise overseas facilities.
• Inventory of labor representative bodies. Using the overseas labor liaisons just identified, create a list of all labor organizations that represent staff internationally―full-fledged unions plus in-house standing statutory consultative bodies that the organization’s overseas operations host, sponsor, recognize, consult, bargain, “co-determine” or negotiate with. For each labor body identify the corresponding management-side labor professional who serves as management’s lead contact with that group.
• Library/database of labor agreements. In-house inventory of labor representative bodies now in hand, assemble a virtual library or database of the written labor agreements that the organization has with labor representatives around the world. Include all trade union collective bargaining agreements and all applicable sectoral CBAs, including even applicable sectoral CBAs to which the organization is not a signatory. Collect works council constitutions and “works agreements” including any European Works Council agreement plus all labor ombudsmen charters, health and safety committee constitutional documents, social plans from past lay-offs, grievance resolutions with ongoing effect and any other agreements with labor representative bodies worldwide. In gathering up these collective agreements, inevitably some of them will seem to have expired by their terms. As to those, find out (and note in writing) the company’s position as to roll-over or ongoing enforceability.
Add to this virtual library or database any headquarters declarations on labor relations policy that the organization may have issued, such as any labor/free association statement in a supplier code of conduct, any international framework agreement (“transnational company agreement”) or any charters of multiemployer bargaining groups to which the organization might be a party.
• Other information. Next, assess the nature or tone of the organization’s existing organized labor relationships worldwide. Make notes that summarize the status of the bargaining relationship with each labor organization. Which relationships are typically hostile, and which are generally cooperative? Which if any of the company’s unions are so-called “white” (“white knight”) unions friendly to management? To which global union federations do unions representing the organization’s workers belong? Are any foreign labor organization drives underway? Are any cross-border labor initiatives, secondary boycotts, corporate campaigns or pushes for international framework agreements in the works? If you do not have a European Works Council yet, do you have a European employee population over 1,000 susceptible to getting one? To which employer bargaining groups do overseas affiliates belong?
Then make timetables: When do local meetings with foreign labor groups in each country take place? How long does it usually take to implement new management proposals in each labor group? When are collective agreements next are up for renewals?
Collect data about overseas affiliates’ local bargaining goals and agendas, the patterns of local grievances and disputes, and about the tenor of local bargaining relationships. Which relationships are typically hostile, and which are generally cooperative? Which relationships are proactive and which are moribund? What are foreign worker representatives’ bargaining objectives? How many days, on average, do company affiliates lose to strikes? What are the biggest obstacles the local management-side labor liaisons struggle with around the world?
3. Labor philosophy
Project team in place and information having been gathered, next formulate, articulate and test a global labor relations philosophy or strategy:
• Articulate a global labor philosophy. A Canadian and a German labor lawyer have said: “We believe the best way to protect local operations is for each [multinational] to decline the invitation to sign an [international framework agreement]. Instead, [each multinational employer] should develop and implement its own global labor strategy, taking into account the different labor laws and business environments in which it [does] business.” (Sherrard & Wisskirchen)
Follow this broad advice by formulating and articulating a viable organizational labor relations strategy or philosophy for the conglomerate multinational organization. One simple global labor philosophy, for example, might just be to leverage the organization’s existing labor representative structures around the world advantageously, to facilitate and streamline cross-border headquarters-driven workplace initiatives. Otherwise, a global labor relations philosophy might take more of a stand, even if a polarizing one. At one pole is the quintessentially European view nurturing employee “free association” rights in “social partnership” with management. German-based Volkswagen’s global labor philosophy is accommodating enough to organized labor that the company tried to launch a German-style works council in Chattanooga and then invited in an American union. Paris-based Danone is on record supporting union organization and promoting laborers’ free association through international framework agreements. Danone has declared: “Because we have strong social convictions and a 40-year history of dialog with international labor, Danone works hard to provide good working conditions for all of our employees, wherever they are. One important tool for reaching this goal is signing international master agreements with the international labor federation IUF as part of a regular dialog dating back to 1985.” (Danone 11 Economic and Social Report (2012)) Of course, a U.S.-based multinational will likely reject a labor philosophy so friendly to organized labor, but the (mostly European) organizations that embrace overtly labor-friendly philosophies have, from their point of view, some laudable motives and concrete business imperatives: promoting the universally-recognized human right of worker association; fostering labor peace; enhancing corporate reputation; reducing labor risks; improving relationships with unions and workers; strengthening business relationships; building brand identity; and impressing customers with positive public relations and socially-responsible corporate citizenship.
At the opposite pole of global labor relations philosophies is the quintessentially-American “union-free” position that expressly opposes organized labor wherever opposing labor is legal. (In Brazil, as mentioned, unions are mandatory and so a union-free position is illegal; openly opposing unions also seems to violate Chinese labor law.) American-headquartered multinational fast-food chains and retailers have been said to embrace a labor philosophy like this that opposes organized labor worldwide, where that position is legal. Those companies prefer to deal with their employees directly, without worker representative middlemen in the way—not only in the United States but all over the world.
In articulating an organized labor philosophy, distinguish supply chain labor issues and supply chain agreements like the Bangladesh accords. While unions’ corporate campaigns (in England called “leverage campaigns”) often implicate supply chain labor issues, carefully distinguish the internal labor situation of the multinational’s own staff from supplier labor issues. Too often these very-distinct issues get confused. An organization’s internal labor philosophy does not have to be the same as its supply chain labor philosophy, but the two philosophies do need to align.
• Test the labor philosophy. After articulating a global labor philosophy, whatever it is, test it. Does it work in practice consistently across global operations? As mentioned, one “acid test” of a labor philosophy that resists organized labor is to verify that it aligns with the company’s own supplier code of conduct. A multinational with a union-free labor philosophy would be inconsistent if it also imposes a “free association” mandate on its suppliers. Another “acid test” for a global corporate labor philosophy is to ask the hypothetical “white union” question: Imagine the organization launches a new facility in Mexico and local Mexican advisors suggest (as they often do) inviting in a management-friendly “white”/“white-knight” union to keep away Mexico’s hostile independent militant unions. White unions are common in Mexico and for the most part are legal, although of course they would be flatly illegal in the United States as management-dominated. Decide whether contracting with a white union would be consistent with the articulated labor philosophy.
4. Platform Application
Having articulated and tested the organization’s global labor relations philosophy, the final stage in building a global labor relations platform is to apply that philosophy to the organization’s overseas labor relationships, identifying and resolving problems. This is the most complex step, but at the same time this is the most valuable aspect of a global labor relations platform.
• Problem spotting and solving. Analyze the information gathered in light of the global labor relations philosophy to isolate which labor problems the organization most urgently faces overseas. What themes and patterns hamper the organization across borders? For example, are foreign labor representatives too obstreperous? Too slow in consulting? Too uninformed about headquarters goals? Devise strategies to fix these problems. Factor in management goals.
Pave a path for future “change projects.” Address the cumbersome provisions and procedures in foreign collective bargaining arrangements and other identified obstacles that block the organization’s integration and cross-border projects. If, for example, local collective bargaining processes in some jurisdictions are too slow (maybe local labor representatives insist on discussing just one issue at a time and delay submitting their positions), focus on those locations for attention and reform. If the European Works Council agreement gives too much power to the EWC to obstruct pan-European merger and acquisition deals, then try to amend the EWC agreement. Develop a jurisdiction-by-jurisdiction agenda for reforming local collective bargaining relationships, collective agreements and consultation procedures in a way that advances the global labor relations philosophy, speeds up and aligns consultation timelines across jurisdictions and streamlines headquarters-driven global initiatives.
• Benchmarking. Next, benchmark best labor practices across relevant jurisdictions. If peer employers’ local collective bargaining agreements, works council “works agreements,” social plans and labor representative relationships offer innovative, flexibility-enhancing provisions and procedures, then that might mean your organization is saddled with antiquated labor arrangements that need reform. Bring these into alignment with the local market by borrowing or adapting helpful labor practices from other companies.
• Labor relation “pyramid.” Using the in-house list of management-side labor liaisons already developed, build a cascading-down labor-relations “pyramid” of management-side negotiators worldwide. Design a communications and involvement strategy that engages and empowers overseas management-side labor negotiators, focusing them on the headquarters labor agenda. Teach overseas local managers the kinds of organized labor activity to watch out for. Empower them to report emerging labor issues and union maneuvers to headquarters. To facilitate future headquarters “change projects,” maintain and support the global labor platform pyramid structure using intranet tools and regular conference calls. “[P]ut key [international] labour issues on senior management’s agenda through yearly briefings and HR-related inputs into leadership development. [Ensure j]oint thinking on labour-related relationships with external stakeholders, including international trade unions and NGOs, to pre-empt campaigns.” (C. Jordan, P. Moritz, V. Podolyak, IBA Employment & Industrial Relations Law, Mar. 2014 at pg. 8, 10)
• Change-management process. Turn to this global labor platform every time headquarters launches a new M&A deal, reduction-in-force, code of conduct, work rule, compensation plan, intranet system, HR Information System or other “change project” that reaches rank-and-file overseas staff. Each time headquarters launches another change initiative, use the labor relations pyramid to advance the organization’s global labor agenda.
• Ongoing monitoring. Implement a process to maintain the global labor platform and to monitor how it is working. Keep internal labor directories updated. Keep team relationships active and lines of communication open. Appoint a headquarters labor expert to track organized labor activity across the group worldwide. Monitor the media for news reports of labor activity and corporate campaigns affecting the organization.
Partner, K&L Gates LLP, New York City
Like it or not, in today’s interconnected world collective labor issues increasingly arise simultaneously across a number of countries, particularly in cross-border “change projects” like global restructurings, cross-border M&A deals, international reductions-in-force and global HR information system launches, as well as union “corporate campaigns” and other cross-border organized labor offensives. In the old days, multinationals used to silo their organized labor relationships by country. Multinationals had little business reason or incentive to align union strategies across borders. But today, multinational human resources operations and organized labor have gone global. Now, multinationals increasingly launch cross-border workplace initiatives that reach staff internationally―global mergers, divestitures, restructurings, reductions-in-force, codes of conduct, human resources policies, intranet systems and the like—that require a cross-border approach to organized labor compliance. Meanwhile, unions themselves have gone global and now focus on cross-border collective labor solidarity as their most cutting-edge, tactic forcing management to respond accordingly. And so both these drivers, headquarters global HR alignment and cross-border union offensives, now push multinationals to coordinate organized-labor strategy internationally.
What steps can a multinational take to facilitate and simplify its ever-growing list of headquarters-driven human resources integration initiatives that reach staff internationally―initiatives like cross-border restructurings, mergers, acquisitions, spin-offs, reductions-in-force, global HR policies, codes of conduct, whistleblower hotlines, international safety programs, global employee benefits programs, conversions to new HR Information Systems and border-crossing internal investigations? And what steps can a multinational take to counter offensives by foreign organized labor―offensives like international union “corporate campaigns” and union demands that the multinational adopt an “international framework agreement,” launch an international employee representative body or respond at headquarters to a foreign labor dispute that cooperating unions wage across borders?
The answer to both questions: Build a global labor relations platform. If a multinational takes the time and spends the resources, it can build a strong platform that serves as both a launching pad for future cross-border workplace initiatives and a parapet defending against targeted international organized labor initiatives. But building the global labor relations platform can be a big job. Headquarters may show little interest in (or budget for) a grandiose undertaking in what management may regard as the moribund, money-sucking backwater of organized labor. Yet building a sturdy platform to support labor relations internationally pays off for many reasons besides just advancing global alignment and integration and saving time and money through increased efficiencies. A well-built global labor relations platform will:
• advance headquarters’ corporate goals and enhance operational flexibility internationally
• harmonize local collective bargaining provisions and procedures across borders, driving uniformity for the organization
• engage and empower the organization’s own overseas labor negotiators who bargain for the employer, motivating them to bargain harder and teaching them to advance headquarters initiatives rather than merely local goals
• streamline and implement headquarters-driven “change initiatives” affecting the workplace internationally
• hold back internationally-focused trade unions teaming up across borders, launching international corporate campaigns and pushing headquarters to launch a European Works Council or sign an international framework agreement
Where these reasons justify building a global labor relations platform, the question becomes how to build it. How does a multinational that today finds itself with a disorganized agglomeration of disparate collective labor relationships scattered across affiliates around the world clean up its inefficient foreign labor contracts, align its various foreign worker representatives and heal its festering foreign bargaining relationships—and then craft them into a global labor relations platform from which it can both launch headquarters integration initiatives and defend against international labor attacks? While building a global labor relations platform takes time and money, the blueprint for building one is fairly simple. It has four parts: (1) project team (2) information-gathering (3) labor philosophy and (4) platform application.
1. Project team
The first step in building a global labor relations platform is selecting the project team. Project management for a cross-border labor alignment initiative should be top-down, falling under the headquarters human resources function or under any headquarters-level global manager of industrial relations. The project team must include the head in-house employment lawyer with global responsibility. Be sure to include on the team any headquarters-level global health and safety function, and consider involving a corporate communications or public relations person as well as someone from corporate compliance. If the company has a European Works Council or other cross-border labor consultation body, the project team should include that body’s management-side liaison who advocates on behalf of management.
Consider adding to the global labor alignment team an outside expert experienced in international labor law like an international labor lawyer or labor consultant with experience beyond just the headquarters country. Any outside lawyer or expert brought in needs to know how to build a global labor relations platform and should bring practical experience wider than just a home-country labor relations mindset. A lawyer leading the global labor project team might be able to structure the global labor platform project so it comes under at least the U.S. attorney/client privilege.
2. Information-gathering
Project team in place, the next step in building a global labor relations platform is to gather information internally about the organization’s existing labor relationships around the world.
• Management labor liaison directory. Too often no one at headquarters is sure who, overseas, speaks on behalf of the organization to local foreign labor representatives. Begin gathering labor relationship information by identifying all the organization’s own internal local labor liaisons—its in-house, on-the-ground labor relations experts who currently consult and negotiate around the world on behalf of management with foreign labor representatives. For example, find out who in your Paris office consults with your French works council on behalf of management, who in your Tokyo facility negotiates for management with your Japanese unions and who in Lima convenes health-and-safety meetings at the Peruvian facility. Put together a country-by-country directory (with up-to-date contact information) and a global email directory listing the organization’s in-house management-side labor liaisons in each overseas location. Be sure to include not only managers who bargain with full-fledged trade unions but also point-people who consult with statutory consultative representative bodies like works councils, worker committees, workplace forums, staff consultation committees, ombudsmen, health/safety committees and the like. Add to the directory the names and contact information of outside labor lawyers and labor consultants that the organization retains to advise overseas facilities.
• Inventory of labor representative bodies. Using the overseas labor liaisons just identified, create a list of all labor organizations that represent staff internationally―full-fledged unions plus in-house standing statutory consultative bodies that the organization’s overseas operations host, sponsor, recognize, consult, bargain, “co-determine” or negotiate with. For each labor body identify the corresponding management-side labor professional who serves as management’s lead contact with that group.
• Library/database of labor agreements. In-house inventory of labor representative bodies now in hand, assemble a virtual library or database of the written labor agreements that the organization has with labor representatives around the world. Include all trade union collective bargaining agreements and all applicable sectoral CBAs, including even applicable sectoral CBAs to which the organization is not a signatory. Collect works council constitutions and “works agreements” including any European Works Council agreement plus all labor ombudsmen charters, health and safety committee constitutional documents, social plans from past lay-offs, grievance resolutions with ongoing effect and any other agreements with labor representative bodies worldwide. In gathering up these collective agreements, inevitably some of them will seem to have expired by their terms. As to those, find out (and note in writing) the company’s position as to roll-over or ongoing enforceability.
Add to this virtual library or database any headquarters declarations on labor relations policy that the organization may have issued, such as any labor/free association statement in a supplier code of conduct, any international framework agreement (“transnational company agreement”) or any charters of multiemployer bargaining groups to which the organization might be a party.
• Other information. Next, assess the nature or tone of the organization’s existing organized labor relationships worldwide. Make notes that summarize the status of the bargaining relationship with each labor organization. Which relationships are typically hostile, and which are generally cooperative? Which if any of the company’s unions are so-called “white” (“white knight”) unions friendly to management? To which global union federations do unions representing the organization’s workers belong? Are any foreign labor organization drives underway? Are any cross-border labor initiatives, secondary boycotts, corporate campaigns or pushes for international framework agreements in the works? If you do not have a European Works Council yet, do you have a European employee population over 1,000 susceptible to getting one? To which employer bargaining groups do overseas affiliates belong?
Then make timetables: When do local meetings with foreign labor groups in each country take place? How long does it usually take to implement new management proposals in each labor group? When are collective agreements next are up for renewals?
Collect data about overseas affiliates’ local bargaining goals and agendas, the patterns of local grievances and disputes, and about the tenor of local bargaining relationships. Which relationships are typically hostile, and which are generally cooperative? Which relationships are proactive and which are moribund? What are foreign worker representatives’ bargaining objectives? How many days, on average, do company affiliates lose to strikes? What are the biggest obstacles the local management-side labor liaisons struggle with around the world?
3. Labor philosophy
Project team in place and information having been gathered, next formulate, articulate and test a global labor relations philosophy or strategy:
• Articulate a global labor philosophy. A Canadian and a German labor lawyer have said: “We believe the best way to protect local operations is for each [multinational] to decline the invitation to sign an [international framework agreement]. Instead, [each multinational employer] should develop and implement its own global labor strategy, taking into account the different labor laws and business environments in which it [does] business.” (Sherrard & Wisskirchen)
Follow this broad advice by formulating and articulating a viable organizational labor relations strategy or philosophy for the conglomerate multinational organization. One simple global labor philosophy, for example, might just be to leverage the organization’s existing labor representative structures around the world advantageously, to facilitate and streamline cross-border headquarters-driven workplace initiatives. Otherwise, a global labor relations philosophy might take more of a stand, even if a polarizing one. At one pole is the quintessentially European view nurturing employee “free association” rights in “social partnership” with management. German-based Volkswagen’s global labor philosophy is accommodating enough to organized labor that the company tried to launch a German-style works council in Chattanooga and then invited in an American union. Paris-based Danone is on record supporting union organization and promoting laborers’ free association through international framework agreements. Danone has declared: “Because we have strong social convictions and a 40-year history of dialog with international labor, Danone works hard to provide good working conditions for all of our employees, wherever they are. One important tool for reaching this goal is signing international master agreements with the international labor federation IUF as part of a regular dialog dating back to 1985.” (Danone 11 Economic and Social Report (2012)) Of course, a U.S.-based multinational will likely reject a labor philosophy so friendly to organized labor, but the (mostly European) organizations that embrace overtly labor-friendly philosophies have, from their point of view, some laudable motives and concrete business imperatives: promoting the universally-recognized human right of worker association; fostering labor peace; enhancing corporate reputation; reducing labor risks; improving relationships with unions and workers; strengthening business relationships; building brand identity; and impressing customers with positive public relations and socially-responsible corporate citizenship.
At the opposite pole of global labor relations philosophies is the quintessentially-American “union-free” position that expressly opposes organized labor wherever opposing labor is legal. (In Brazil, as mentioned, unions are mandatory and so a union-free position is illegal; openly opposing unions also seems to violate Chinese labor law.) American-headquartered multinational fast-food chains and retailers have been said to embrace a labor philosophy like this that opposes organized labor worldwide, where that position is legal. Those companies prefer to deal with their employees directly, without worker representative middlemen in the way—not only in the United States but all over the world.
In articulating an organized labor philosophy, distinguish supply chain labor issues and supply chain agreements like the Bangladesh accords. While unions’ corporate campaigns (in England called “leverage campaigns”) often implicate supply chain labor issues, carefully distinguish the internal labor situation of the multinational’s own staff from supplier labor issues. Too often these very-distinct issues get confused. An organization’s internal labor philosophy does not have to be the same as its supply chain labor philosophy, but the two philosophies do need to align.
• Test the labor philosophy. After articulating a global labor philosophy, whatever it is, test it. Does it work in practice consistently across global operations? As mentioned, one “acid test” of a labor philosophy that resists organized labor is to verify that it aligns with the company’s own supplier code of conduct. A multinational with a union-free labor philosophy would be inconsistent if it also imposes a “free association” mandate on its suppliers. Another “acid test” for a global corporate labor philosophy is to ask the hypothetical “white union” question: Imagine the organization launches a new facility in Mexico and local Mexican advisors suggest (as they often do) inviting in a management-friendly “white”/“white-knight” union to keep away Mexico’s hostile independent militant unions. White unions are common in Mexico and for the most part are legal, although of course they would be flatly illegal in the United States as management-dominated. Decide whether contracting with a white union would be consistent with the articulated labor philosophy.
4. Platform Application
Having articulated and tested the organization’s global labor relations philosophy, the final stage in building a global labor relations platform is to apply that philosophy to the organization’s overseas labor relationships, identifying and resolving problems. This is the most complex step, but at the same time this is the most valuable aspect of a global labor relations platform.
• Problem spotting and solving. Analyze the information gathered in light of the global labor relations philosophy to isolate which labor problems the organization most urgently faces overseas. What themes and patterns hamper the organization across borders? For example, are foreign labor representatives too obstreperous? Too slow in consulting? Too uninformed about headquarters goals? Devise strategies to fix these problems. Factor in management goals.
Pave a path for future “change projects.” Address the cumbersome provisions and procedures in foreign collective bargaining arrangements and other identified obstacles that block the organization’s integration and cross-border projects. If, for example, local collective bargaining processes in some jurisdictions are too slow (maybe local labor representatives insist on discussing just one issue at a time and delay submitting their positions), focus on those locations for attention and reform. If the European Works Council agreement gives too much power to the EWC to obstruct pan-European merger and acquisition deals, then try to amend the EWC agreement. Develop a jurisdiction-by-jurisdiction agenda for reforming local collective bargaining relationships, collective agreements and consultation procedures in a way that advances the global labor relations philosophy, speeds up and aligns consultation timelines across jurisdictions and streamlines headquarters-driven global initiatives.
• Benchmarking. Next, benchmark best labor practices across relevant jurisdictions. If peer employers’ local collective bargaining agreements, works council “works agreements,” social plans and labor representative relationships offer innovative, flexibility-enhancing provisions and procedures, then that might mean your organization is saddled with antiquated labor arrangements that need reform. Bring these into alignment with the local market by borrowing or adapting helpful labor practices from other companies.
• Labor relation “pyramid.” Using the in-house list of management-side labor liaisons already developed, build a cascading-down labor-relations “pyramid” of management-side negotiators worldwide. Design a communications and involvement strategy that engages and empowers overseas management-side labor negotiators, focusing them on the headquarters labor agenda. Teach overseas local managers the kinds of organized labor activity to watch out for. Empower them to report emerging labor issues and union maneuvers to headquarters. To facilitate future headquarters “change projects,” maintain and support the global labor platform pyramid structure using intranet tools and regular conference calls. “[P]ut key [international] labour issues on senior management’s agenda through yearly briefings and HR-related inputs into leadership development. [Ensure j]oint thinking on labour-related relationships with external stakeholders, including international trade unions and NGOs, to pre-empt campaigns.” (C. Jordan, P. Moritz, V. Podolyak, IBA Employment & Industrial Relations Law, Mar. 2014 at pg. 8, 10)
• Change-management process. Turn to this global labor platform every time headquarters launches a new M&A deal, reduction-in-force, code of conduct, work rule, compensation plan, intranet system, HR Information System or other “change project” that reaches rank-and-file overseas staff. Each time headquarters launches another change initiative, use the labor relations pyramid to advance the organization’s global labor agenda.
• Ongoing monitoring. Implement a process to maintain the global labor platform and to monitor how it is working. Keep internal labor directories updated. Keep team relationships active and lines of communication open. Appoint a headquarters labor expert to track organized labor activity across the group worldwide. Monitor the media for news reports of labor activity and corporate campaigns affecting the organization.
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