Friday, March 4, 2016

Welcome to the Spring edition of the international employment committee newsletter. Many thanks as always to our contributors.

Helen Colquhoun
Registered Foreign Lawyer, Hong Kong (qualified in England & Wales, New York)

Canada - Where Principles Collide - Quebec Court of Appeal Modulates Successor Employer Rights and Obligations and the Rules Governing Constructive Dismissal in the Non-Unionized Sector

By Theodore Goloff, Robinson Sheppard Shapiro, Montreal


“Privity” of contract, the personal nature of the employment relationship, sometimes described as being intuitu personæ, and the abolition, in Canada, of enforced indenture/personal servitude as early as 1834, would dictate that, absent intention to the contrary, none but the original parties to any employment-related agreement could be debtor or creditor of the obligations and rights that they create. Sale, transfer or other alienation of the employer’s business or enterprise, to the extent that it extinguishes one of the parties, would therefore per se terminate the relationship.

All eleven Canadian labour relations jurisdictions tempered and modulated these principles, early on, creating “successor employer” obligations to preserve the integrity of union certifications, the process of collective bargaining and, indeed, collective bargaining agreements themselves, from the vicissitudes of mergers and acquisitions. Since they arose in the 1960s, successor employer provisions have generated a plethora of contentious, hard-fought and complex Supreme Court decisions. Obliging “successor employers” to respect union certifications that are essentially creatures of statute giving rise to collective agreements distinct from the individual employment agreements that they may condition and affect, is an “easy stretch”. Since, as is the case almost everywhere in Canada, union certification arises by government fiat that imposes a process of collective bargaining, codifies the rules of industrial conflict, modulates how and when collective agreements come into being and to some extent their contents, and determines the manner in which disputes that arise are to be settled i.e. arbitration, all of which are “policed” by recourse to the labour relations board, commission or tribunal that created these rights, such departures from legal theory are less difficult to conceptualize.

Enter Quebec – Stage Right – and its new Civil Code [“C.C.Q.”] in 1993, which, alone amongst Canada’s provinces and territories, creates successor employer obligations, even in the non-union sector, that complicate mergers and acquisitions, by adopting Article 2097 C.C.Q. which provides:

“2097. A contract of employment is not terminated by alienation of the enterprise or any change in its legal structure by way of amalgamation or otherwise.

The contract is binding on the successor of the employer.

2097. L'aliénation de l'entreprise ou la modification de sa structure juridique par fusion ou autrement, ne met pas fin au contrat de travail.

Ce contrat lie l'ayant cause de l'employeur.”

Reflecting successor employer provisions of the Quebec Labour Code (s. 45 et seq.), Article 2097, although similar, is not identical in wording or in application. Since employment agreements are essentially private, voluntary and consensual agreements, differences could be expected. In part, because of the distinction between an employment contract and a collective agreement, adoption of Article 2097 has brought new and complex issues to the fore.

At much the same time as Quebec’s new Civil Code came into force, the Supreme Court of Canada in Farber v. Royal Trust Co., [1997] 1 SCR 846 redefined the concept of constructive dismissal so as to include an employee’s resignation following unilateral, substantive and prejudicial changes by the employer to the pre-existing conditions of employment, changes that are neither permitted by the employment contract nor duly accepted by the employee, even without any employer intention to see the employee leave.

When allegations of constructive dismissal surface in the context of a merger and/or acquisition creating successor obligations, and where the change in the identity of the employer is the basis of or catalyst for the allegation of changed working conditions, the makings of a “perfect storm” of conflicting rights are present. The Quebec Court of Appeal, in just such a context, in 2108805 Ontario Inc. c. Boulad, 2016 QCCA 75 has recently done a review of how the rights and obligations that Article 2097 C.C.Q. provides playout in “real time”. While it raises perhaps as many questions as it settles, it should be carefully reviewed by anyone with an employment law or transactional practice that involves Canada.

Mise en scène

Hired by Hilton International in 1988, and having spent a number of years abroad, in 2002 Plaintiff Boulad was, at his request, assigned as Director of Operations at the Airport Hilton, one of several Hilton properties in the Montreal area. When Hilton Canada restructured its operations, that hotel, while being managed by Hilton, was sold to Westmount Hospitality Group. Boulad became the latter’s employee. This change, he claimed, suited him as his new employer, being a part of an international hospitality consortium, offered the same prestige and chances for advancement as was the case before. In late 2008, Hilton announced that it was giving up management of the Airport Hilton to Westmount, who, by 2009, sold that property to Defendant, subsidiary of a far smaller entity operating only two seasonal hotels in the South of France. The acquirer agreed to preserve the employment of all existing employees and their respective working conditions. Unhappy, however, at the changed circumstances, Boulad asked to be kept on by Westmount in some other capacity. While there was some dispute as to whether or not Westmount or its representatives agreed, at first, to do so, what became clear is that Boulad never intended to work for the hotel’s new owners. In September 2010, he instituted proceedings against both the Vendor and Purchaser for some $400,000 claiming that the sale of the hotel and the refusal to reassign him to some other position with Westmount constituted a substantive change of essential working conditions, and therefore, a “constructive dismissal”, entitling him to a substantial “severance” indemnity. Defendants’ answer was that in view of Article 2097 C.C.Q., the sale could not be viewed as a termination of any employment contract which, in any case, continued to have legal effect in every respect, the Purchaser being substituted for the Vendor as a “successor employer”. To be sure, Boulad was not obliged to remain in the employ of the successor employer, but if he chose not to, he would have voluntarily resigned, putting an end to the contract, attracting no severance or indemnity. By refusing to work for the Purchaser, Boulad, in any case, refused to mitigate any of his damages, depriving him of any right to indemnification.

Act One – Trial Court’s Decision

The Superior Court [2014 QCCS 1928] maintained Plaintiff’s position that in the circumstances, the change of employer resulting from the sale represented a unilateral and substantive alteration in his essential working conditions. In the Court’s view, Boulad’s departure was neither unreasonable, capricious or voluntary, adding that it would be ironic to view a provision designed to maintain the employment relationship as chaining the employee to a new employer without regard to the latter’s identity or attributes. The Court added that Defendant’s position with respect to the automatism of Article 2097 and its consequences, in its view, offended the proposition that “…the right of the employee to choose whom he would serve ‘constituted the main difference between a servant and a serf’”. Boulad could reasonably view the transfer to the numbered company or its parent as a form of demotion to a position lacking any of the attractions associated with a prestigious employer with worldwide connections. In such circumstances, his refusal to work for the purchaser did not forfeit his right to indemnification, notwithstanding any obligation to mitigate.

Act Two – The Court of Appeal Reverses

The Appellate Court recognized the attraction, at first blush, of the Trial Judge’s point of view. The size, reputation and importance of the successor employer might certainly dictate whether an employee wished to remain after purchase. Having chosen an employer with an international cachet, being forced, now, to work for one that is much smaller, could represent substantive change. The reverse might also be true. A smaller, more intimate work environment might have been the original attraction, meaning that a sale to a much larger organization might be troubling to the employee. On the human plane, Boulad’s reaction to Westmount’s refusal to alternatively transfer him or terminate his employment at the time of the sale (which would allow him to claim severance/common law notice pursuant to Article 2091 C.C.Q.), and “obliging” him to work for an employer not of his own choosing, placed him in the unenviable position of having to accept the unacceptable, resulting, whether by design or otherwise, in his being indirectly shown the door.

However attractive, the Superior Court’s analysis was judged wrong in law.

The appellate judgment determined that Article 2097, an imperative provision, serves to: i) confirm that “alienation” or “changed legal structure” does not, per se, and, in and of itself, terminate an employment contract; ii) continue said contract by binding the Vendor’s assigns; and iii) bind the employee, albeit implicitly, to such successor employer, all this by operation of law.

Had Westmount terminated Boulad’s employment in fact, at or immediately prior to the sale, the Court would have been required to decide whether, for instance, in response to the Purchaser’s dictates, it could have done so notwithstanding Article 2097 and the consequences thereof.

Indeed, in an earlier decision, Aéro Photo (1961) v. Raymond, 2014 QCCA 1734, in the particular circumstances of the case, the Court of Appeal found that an attempt to terminate a senior employee immediately prior to an assignment in bankruptcy, where the Trustee continued operating the enterprise, thereafter, as a going concern, eventually selling it to a third party, bound the eventual Purchaser by way of Article 2097 to pay the senior employee the hefty severance provided in his original employment contract. Indeed, it characterized such manoeuver just prior to the bankruptcy as a constructive dismissal, quashing it as being in violation of the procedural requirements of the executive’s employment contract. Because of the continuity of operations, it placed the bill at the eventual Purchaser’s door.

In Boulad, The Court of Appeal noted that it would be strange, indeed, if when the Vendor or Purchaser refused to respect Article 2097, same could be considered as a form of constructive dismissal, as in Aéro Photo, to suggest in the same breath, that the expressed intention of the Vendor and Purchaser to respect that provision, in every way, could also constitute a constructive dismissal. A provision whose purpose is to recognize that alienation or modification of legal structure does not bring about, per se, the end of an employment contract, could not at the same time, constitute a termination thereof, in the absence of any manifestation of the employer’s intent to voluntarily terminate the contract. Indeed, the Court pointed out that no reading of Article 2097 would be consistent with an ability of an employee to force an employer, against its will, to terminate an employment contract whose effects continued by operation of law. That would leave to the employee and not to the law, the choice of the effects of any such alienation or modification of legal structure, inconsistent with its imperative character.

The Court dismissed the position that application of Article 2097 and the change of the employer that the legislature imposes on the employee could constitute a substantial change in working conditions or give rise itself to a claim of constructive dismissal, because any such claim involves violation or abdication by the employer of obligations, whether explicit or implicit, that derive from the employment contract itself.

What the Court then said, merits very close examination:

[49] By virtue of its right to manage and direct the work recognized by Article 2085 C.C.Q., an employer may modify conditions of employment of its employees, even unilaterally, in order to adapt the work environment to the enterprise’s evolution, in order to make it more productive or to respond to external constraints, etc. An enterprise is a sort of ecosystem, as it were, marked by greater or lesser changes. In consequence, conditions of employment are dynamic and not static, the employer’s room to manoeuver depending clearly on the circumstances that pertain and the terms of the employment contract.” (Translation and highlighting, our own)

On the other hand, the Court left unanswered a series of questions that it raised itself, deciding that the facts before it did not require it to decide. In particular, it asked, whether the imperative character of Article 2097 C.C.Q. means, henceforth, that every employer who, prior to alienation of the enterprise, whether on his own or on instructions of the Purchaser, terminates the employment contract, in so doing and in reality, attempts to circumvent the legislature’s intent? Is there a distinction to be made between different circumstances, i.e. whether the employer provides common law notice or the payment in lieu thereof, required when terminating an employment contract without “serious reason” or when it does not? What happens if the Vendor immediately post-closing terminates the employee? Is there joint and several responsibility in such case?

In that regard, it may be worth noting that unlike the successor employer provisions of the Quebec Labour Code, Article 2097 does not specify that the Purchaser becomes bound “…in the place and stead of the former employer”. On the other hand, joint and several liability – termed in Quebec “solidary responsibility” – normally requires it to be clearly and specifically provided for.

Indeed, while recognizing the imperative character of Article 2097 – what some consider its “public order” character – the former employer’s exit from the business, like any other administrative or economic reason upon which a termination might rest, could not constitute a “serious reason”, allowing termination of the employment contract without the consequences normally attaching thereto, including the requirement to provide common law notice or pay in lieu thereof, in the case of a contract of employment of indefinite duration, or payment of the full value of the remainder of the contract in the case of a fixed-term contract.

However, in the light of a most recent judgment of the Superior Court, rendered a scant two weeks after Boulad, what was said by the Court at paragraph 50, gives cause for reflection:

“[50] This said, an employer may not, at least not unilaterally, change in a substantial manner, that is to say important manner, the essential conditions of the employee’s employment contract, essential conditions which deal principally with remuneration, the nature of the tasks involved, as well as the place they are to be executed…” (Translation and highlighting, our own)

These remarks, or rather the reference to “essential conditions”, may allow in some future case, one party or another, to claim that not all parts of the employment contract continue in effect, all this, because of how the courts have interpreted tacit renewal of fixed-term contracts. Pursuant to Article 2090 C.C.Q., when at the end of a fixed-term contract, an employee is allowed to continue working for five days or more without protest, the employment relationship is tacitly renewed, but on the basis of a contract of indefinite duration. On the other hand, recent judgments have said that only the “essential conditions” of employment contracts are in fact tacitly renewed. In particular in Traffic Tech Inc. c. Kennell, 2016 QCCS 355, the Superior Court determined that restrictive covenants are not essential conditions relating to the employee’s remuneration, the nature of the work, or the place of execution and fall by the wayside and cannot be tacitly renewed pursuant to Article 2090. If that same reasoning were to be applied to Article 2097 C.C.Q., one can imagine the havoc that it might play with regard to mergers and acquisitions in knowledge-based or contact-based industries. The Purchaser would be obliged to continue employment of key employees pursuant to Article 2097, but without benefit of any restrictive covenant not to compete or not to solicit in the event of that employee’s eventual resignation.

One last comment is in order. The Court recognized that pursuant to Article 2097, an employee could not force the Vendor to transfer him to another position and maintain him in its employ any more than such employee could force the employer to promote him. On the other hand, the Court wrote, that “Change Of Control Provisions”, had they been part of Boulad’s original employment contract, would have allowed him a recourse against one or the other, Vendor or Purchaser.

Furthermore, the Court refused to view an employer’s original sales pitch to prospective employees of potential possibilities of career advancement as an enforceable offer and acceptance, equivalent to a binding condition of employment, absent specific representations to that effect in the contract. As the Court said in Boulad:

“[64] ...(E)nterprises are moving changeable entities that are neither immobile or immutable; they are at the mercy of circumstances and it is improbable that an employer would undertake to remain exactly as it is without change or that it would include the climate at work, its general ambiance, a promise of promotion or opportunities for transfer as formal conditions guaranteed to its employees. In brief, absent an undertaking representing the common intention of both parties, this type of general considerations is not to be considered part of working conditions.

[65] In the end, it is not because Respondent believed he could be transferred or could maintain his employment with the Appellant notwithstanding the sale of the enterprise that the latter was obliged thereto. What would have been required is that Appellant bound itself voluntarily to such an employment contract resulting from the common intention of both (Article 1378 C.C.Q.).” (Translation and highlighting, our own)

Act Three – Musings on Mitigation

In obiter, since the appeal had already succeeded on other grounds, the Court did note that in refusing the successor employer’s offer of continued employment, Boulad had failed to mitigate his damages, forfeiting any claimed right to indemnification. The Court noted its reticence to force an employee to accept an offer of employment from an employer who had terminated the employment contract, particularly where there is perceived hostility, embarrassment, humiliation or loss of faith/dignity. None of that was present. Appellant’s claim that working for the successor employer given its small size and relative obscurity in the hotel industry amounted to “professional suicide” was found to be unsubstantiated by sufficiently cogent proof. Hence, even on that basis his claim was without merit.


Certainly from the perspective of this management side employment lawyer, the Boulad decision seems to put to rest a number of issues. Indeed, it seems to underscore what a generally stated management rights clause would provide in a collective agreement. On the other hand, when notice is taken of recent judgments regarding what are or are not “essential working conditions”, it may raise substantive questions regarding just what continues in effect as a result of Article 2097 CCQ. All in all, Boulad is a case to be reviewed with care by anyone with an employment or transactional practice touching on Canada.

France - The Draft Bill for 'New Freedoms and Safeguards for Companies and Workers'

By Roselyn Sands, Ernst & Young Société d'Avocats

The French government is currently reviewing a draft bill that will have important consequences for numerous aspects of labor and employment law in France. The draft bill for “new freedoms and safeguards for companies and workers”, which contains over 50 articles on dozens of different subjects, still has to follow the usual French legislative process.

Hardly had the draft bill been published than it raised comments from the ranks of politicians of all sides, labor and employer unions and legal professionals alike. The draft will be the subject of vivid debates before the French legislature which are likely to be lengthy and agitated. As a matter of reference, the bill for economic growth (the “Macron” law) which also brought modifications to sensible areas of French labor and employment law, such as economic redundancies, was discussed for over 200 hours.

In the preamble, the draft bill (the “El Khomri” bill based on the name of the Minister for Labor who submitted it) states that its purpose is to follow through with the spirit of the reforms that have been implemented by the French government over the past 4 years in matters relating to labor and employment law. The preamble also insists on the fact that its goal is to strengthen the power of collective bargaining.

Measures to define the general principles of French employment law

Article 1 of the draft bill provides that a preamble will be introduced in the French Labor Code which will contain the 61 basic principles of employment law in France. These basic principles provide guidance on a variety of subjects, such as the rights and freedoms of employees, remuneration, working time and paid holidays.

The 61 basic principles will not supersede any of the articles contained in the French Labor Code, but will act as guides for those who must interpret the rules provided by the French Labor Code. For instance, article 38 of the preamble simply states that “all employees are entitled, each year, to paid holidays with a minimum set by law”; thus, the purpose of the article is to state that paid holidays are a basic employee right, without establishing what amount should be guaranteed and thus leaving future governments, or even perhaps the employer, to determine what amount should be given.

Measures to strengthen collective bargaining

Regarding collective bargaining, the draft bill’s preamble notes that France is “a country where relations between employees, their representatives and their employer are still often marked by distrust, which causes prejudice to its image with regards to foreign stakeholders”.

In order to remedy this issue, the draft bill provides for new rules regarding company-wide collective bargaining agreements (CBA). Such agreements can now be passed by means of employee referendum, whereas previously only unions were entitled to negotiate these agreements.

In addition, majority unions, who have obtained more than 50% of votes during the previous Works Council elections, no longer have the right to veto negotiations on a company-wide CBA. The draft bill provides that, on the contrary, unions who obtained at least 30% of votes during the previous Works Council elections can request that a referendum be held if the majority unions refuse to sign a company-wide CBA.

In addition, all collectively bargained company-wide CBAs, unless stated otherwise in the agreement, will be for a duration of 5 years, and will be published on an online database, unless they contain information prejudicial to the employer.

Measures to increase flexibility for employers and security for employees: working time

The draft bill includes a series of measures impacting working time. These measures aim to increase employer flexibility and freedom in organizing the company, while safeguarding employee rights, in particular with regards to work life balance and health and safety at work.

The manner in which the section on working time has been drafted is innovative, given that each subject contains 3 subsections. A first subsection on the principle which is of public policy and can never be differed from; a second subsection on the subjects which can be collectively bargained; a third subsection on the rules which apply if negotiations fail or do not take place.

For example, regarding working time and overtime, in its first subsection the draft bill states that as a matter of principle a working week in France remains 35 hours and employees can perform overtime within the limit of a yearly ceiling and for compensation of an increased hourly rate. In its second subsection, the draft law provides that the yearly ceiling as well as the amount of the rate increase can be negotiated in a company-wide CBA (the increase which must remain above 10%). In its third subsection on this subject, the draft bill states that if no agreement is reached, the minimum increase for overtime must be 25%.

The draft bill contains numerous measures on working time, which include night work, part time work, weekly and daily rest periods as well as fixed number of days working agreements (“forfait jour”). These agreements, which are reserved for managerial employees and state that they are to work a fixed number of days and not hours per year, must now ensure that the employees’ workload is properly supervised and that employees are entitled to be “disconnected” from their work.

Measures to render termination costs more predictable

Some in France believe that a cause of unemployment is the risks for employers associated with employee termination. The draft bill contains several measures which aim to favor and encourage employment in France by easing the difficulties in dismissals. These measures either reduce the cost and risk tied to redundancies or provide additional flexibility for employers in the way they manage their workforce.

The uncertainty of the costs of a potential challenge in wrongful dismissal litigation (“licenciement sans cause réelle et sérieuse”) is considered as being a reason for which foreign stakeholders sometimes shy away from investing in France. French labor judges will now be bound by a defined scale with respect to the range of damages to be awarded to employees in wrongful dismissal litigation. The draft bill proposes that the amount of damages will depend on the employee’s length of service, with a maximum amount of 15 months’ salary for employees with more than 20 years of seniority.

The draft bill proposes that a new justification for economic redundancies be introduced in the French Labor Code. Companies facing economic difficulties, measured by a reduction in orders or a reduction in turnover compared to the same period of the previous year, or measured by an operating loss over the previous months, or measured by a considerable decline in the company’s reserves, or any other worrying economic element which might justify such difficulties. In addition, the period which must be taken into consideration can be defined in a company-wide agreement.

Lastly, the draft bill provides that when faced with job-threatening difficulties the employees’ working conditions, including remuneration, can be modified through collective bargaining.


This draft bill is far from being voted into law as legislative debates will follow. It does demonstrate that even the socialist government is willing to propose laws across the political spectrum to render French labor and employment laws more flexible.

Ireland - The Concept of 'Reasonable Accommodation' Under Irish Employment Equality Law


The High Court recently affirmed a decision of the Labour Court which had awarded an employee €40,000 compensation on the basis that her employer had failed to engage in any meaningful way with the concept of "reasonable accommodation" under the Employment Equality Act, 1998 - 2015 (the “Equality Acts"). The decision in Nano Nagle School v Daly provides helpful guidance regarding the steps which employers need to take to ensure that they are meeting their statutory obligation to provide reasonable accommodation to employees/prospective employees with a disability.

The Equality Acts provide that an employer is not required to recruit, promote, retain or provide training or experience to an individual if he/she “is not fully competent and available to undertake, and fully capable of undertaking, the duties attached to that position, having regard to the conditions under which those duties are, or may be required to be, performed".

Before the Labour Court, the employer had argued that the above quoted section did not require an employer to continue an employee in employment who was not fully capable of undertaking the job which he/she was employed to do. Before the High Court, the employer modified its position and conceded that the statutory obligation could require the stripping out of tasks peripheral to the original job. The concept of reasonable accommodation is elaborated upon in the Equality Acts which also provide that a person with a disability "is fully competent to undertake, and fully capable of undertaking, any duties, if, the person would be so fully competent and capable on reasonable accommodation (referred to as “appropriate measures”) being provided by the person's employer”. The Act goes on to define the term "appropriate measures" as including the adaptation of premises and equipment, patterns of working time, distribution of tasks etc.

By way of factual background, the plaintiff in this case had been employed as a special needs assistant (SNA) by a school. Following an accident, she became paralysed from the waist down and wheelchair bound. She was referred for various occupational health assessments and the school arranged for a number of risk assessments to be conducted. An occupational therapist had determined that Ms. Daly could carry out 9 of the 16 duties of an SNA or return to work as a floating SNA which would obviously have necessitated the reorganisation of other SNAs’ duties. The school maintained that there was no position of floating SNA, albeit that any potential redistribution of tasks to other SNA's was not discussed with them. In essence, therefore, the school insisted that Ms. Daly be able to perform all of the duties attached to her role as an SNA.

The High Court concluded that the school’s interpretation of the concept of reasonable accommodation was erroneous stating that if such a position were correct "it would seem difficult to envisage any circumstances in which a person suffering from a disability could be reasonably accommodated". The High Court agreed with the Labour Court that the school had not fulfilled its obligations under the Act in not having considered a redistribution of Ms. Daly's tasks.
This case provides employers with an important reminder of, their obligation to reasonably accommodate individuals with a disability and the specific steps which should be taken to ensure that the statutory obligation is satisfied.

Kingdom of Saudia Arabia - New Fines Applicable in KSA

By Sara Khoja, Clyde & Co

Since August 2011 the Ministry of Labour in the Kingdom of Saudi Arabia (KSA) has focused on promoting employment for KSA nationals and updating labour legislation to produce a more dynamic labour market. Recently these measures culminated in the amendment of the KSA Labour Law (Labour Law) with the amendments coming into effect on 18 October 2015 and the introduction of new fines to support the enforcement of those amendments.

The new fines were introduced by way of Ministerial Resolution Number 4786 dated 28/12/1436H (equivalent to
12 October 2015) (Resolution) and supplement existing fines under the Labour Law and immigration regulations. In this article we examine the main fines introduced in the Resolution.

Failure to issue employment documentation in Arabic

Under the Labour Law, it has long been an obligation to issue employment contracts and policies in Arabic. Under the Resolution a fine of SR 5,000 may be levied for failure to use Arabic for employment contracts and personnel records. A fine of SR 5,000 is also imposed if personnel records detailing employee names, wages, fines imposed, attendance records, medical examinations of employees, and work files for each employee, are not maintained.

Failure to comply with workforce nationalization obligations

The various legal obligations to employ KSA nationals is often referred to as 'Saudisation' and the fines introduced for failing to comply with specific obligations include:

SR 25,000 (for each worker) and closure of the office for 5 days if the employer registers a KSA national as an employee without the individual's knowledge or approval. This fine seeks to prevent the registration of individuals simply to meet a quota;

SR 20,000 (for each worker) if the employer employs a non KSA national without a work permit or under an expired and non renewed permit;

SR 25,000 (for each worker) if the employer employs individuals sponsored as dependents by a foreign national in KSA without a valid permit; and

SR 5,000 if the employer (with 50 employees or more) fails to comply with its obligation to train at least 12% of its
KSA workforce

Breaching regulations regarding employment of women

Within its measures to promote the employment of nationals, the Ministry of Labour has also sought to encourage the employment of KSA women by introducing a number of resolutions regulating the employment of women in factories, retail, amusements parks and also permitting them to work remotely from home. Accordingly, the Resolution includes the following fines:

SR 10,000 (for each worker) and close of the business for 1 day, if the employer employs a male worker in a role reserved for a KSA female worker;

SR 5,000 if an employer fails to post written instructions in the workplace to female employees (of whatever nationality) notifying them of their obligation to wear the veil;

SR 1,000 on a female employee (of whatever nationality) for failing to wear the veil; SR 1,000 for failing to provide separate sections for female employees; and
SR 5,000 (per worker) for employing women during night time hours.

Failure to comply with health and safety obligations

The spotlight has been placed on health and safety issues in the Kingdom, in light of the recent tragic events during the Haj in Islamic year 1436 and the previous crane accident in the Holy Mosque in Mecca (leading to a Royal Decree ordering an official investigation and banning the Bin Laden company from government contracts as well as a travel ban on its Chairman). The Resolution seeks to further highlight and penalize healthy and safety violations with the following fines:

SR 25,000 and closure of the business for 1 day if the employer fails to comply with rules measures and standards applicable regarding occupational protection, health and safety within the establishment or fails to take precautions with regard to hazards, occupational diseases and machinery;

SR 3,000 (per worker) for failing to comply with summer time working hours prohibition or other regulations regarding work in direct sun light;
SR 5,000 if an employer fails to prominently post in the workplace work place rules regarding health and safety; SR 1,000 on the worker directly if he or she fails to use, maintain or preserve personal protective equipment or to
follow health and safety instructions or if the worker misuses or impairs devices provided to protect workers and
the workplace;

SR 1,000 failure to provide medical aid cabinets for first aid; and

SR 5,000 (per worker) for failure to provide a comprehensive medical examination for workers exposed to occupational diseases as specificed in the social insurance law and GOSI regulations.

Interestingly the Resolution creates new fines if an employer retains an employee's passport without consent (SR
2,000 per worker), if the employer passes on the costs of recruitment or visa fees to the employee (SR 10,000 per worker), or if the employer fails to give an employee a work experience certificate or provides a certificate containing detrimental statements likely to prejudice the employee's ability to secure another job (SR 5,000 per employee).

Doubling of Fines

If an employer is discovered to be repeating a breach for which he has previously been fined, then the fine is doubled on the second violation. A breach should be rectified within one month of being discovered and the fine imposed, otherwise the fine is regarding as a second violation and is doubled. If 24 months pass between one violation and a second one the second is regarded as a new violation and not a repeat one. An employer may appeal a fine within 60 days of it being imposed but the fine itself will not be suspended pending the appeal unless by way of a specific Ministry committee decision.

The amended Labour Law introduced a reward for whistleblowers notifying the Ministry of potential violations. If a fine is levied on an employer, the individual whistleblower may receive up to 25% of the fine.

USA - How to Payroll an Employee Working in a New Country

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

Often these days, an employer’s headquarters arranges to let staff float off by themselves working in some foreign country not anchored to any in-country registered affiliate employer that does business locally and that can issue a legal local payroll. We might call these “floating employment” arrangements. These scenarios have been popping up ever more frequently lately because technology encourages them: Technology and the on-demand economy facilitate telecommuting from anywhere in the world with just a computer, smartphone, express courier delivery, and maybe videoconferencing and a printer. The big challenge with floating employment arrangements is legal compliance, particularly as to issuing payroll. How can a boss legally payroll someone whose place of employment is a country where the employer otherwise does not do business or have a legal presence?

There are five possible approaches: Structuring that overseas “floating employee” as (1) an employee of a local affiliate (2) employee on offshore payroll (3) “leased” employee (4) employee on “shadow payroll” or (5) legitimate independent contractor. None of these five approaches is a magic bullet that works best every time. Which of these approaches is the best fit in a given floating employment scenario depends on local law and on factual variables like: how long the worker expects to remain in-country; what ties the worker has to headquarters; how the in-country tasks relates to the local host country market; what other ties the boss has to the host country; whether the boss has an in-country business partner to issue payroll; and whether others work for the organization in the host country.

Consider all five possible approaches for any floating employee assignment. Select the one that works best this time.

1.Employee of a local affiliate: The presumptive way a boss is supposed to engage and deliver pay to a worker overseas is for the organization to step up and register a corporate employer entity in the worker’s place of employment—a local subsidiary, branch, or representative office. Viola! The newly-registered local entity legally employs the worker in-country, issuing a legal local payroll. The new entity gets a local taxpayer identification number with which it payrolls the worker locally (usually using an outsourced payroll provider—remember, a payroll provider cannot issue payroll for an employer that does not give the payroll provider its in-county taxpayer identification number). Registering is what local corporate regulators, local tax agencies and local lawyers expect foreign employers to do when they come into a country and employ and pay staff. Registration is the default approach.

But the default approach can be slow, expensive and complex. With just a staffer or two in a new overseas jurisdiction (maybe only temporarily), corporate registration can be impractical, especially when a worker moves to the new country for personal reasons that the boss only reluctantly agrees to accommodate. Registering makes sense when launching a “greenfield” brick-and-mortar facility in a new country. But registering is not always viable with just a stray floating employee or two. The boss may seek a simpler, cheaper, faster way.

2.Employee on an offshore payroll: Where corporate registration is not viable, the easiest way for headquarters to employ and payroll someone working in a country where the employer organization has no legal presence is the offshore payroll model: Headquarters or one of its affiliates simply hires (or keeps right on employing) the worker directly, payrolling on offshore (headquarters or affiliate) payroll as if the worker simply worked in the payrolling country. Payroll gets direct-deposited in the worker’s bank account, which he the worker accesses from the host country. The boss might even pay full gross wages without making any reporting/deductions/withholdings to any government authorities―the payroll country may exempt the worker from its payroll laws because the place of employment is abroad. Meanwhile, the employer will not be set up to issue a legal payroll or make payroll deductions in the host country place of employment. (This gets more complex in scenarios where the home country regulates offshore payroll, like a U.S. citizen working outside the U.S. directly for a U.S.-registered employer or an expatriate from Brazil, Ghana, the Philippines or other countries that regulate payroll of expatriates working abroad.)

Offshore payroll is logistically simple. The challenge is compliance with host country payroll laws. The country A employer with an employee but no legal presence in country B has no country B taxpayer identification number and so cannot possibly make country B payroll reporting/deductions/withholdings. Again, even an outside payroll provider needs its client’s local taxpayer identification number. “Impossibility” is no excuse for evading payroll laws, because compliant payrolling is quite possible if only the boss registers as doing business in the host country.
Even with these challenges to offshore payrolling, there are two scenarios where offshore payroll might be legal: short sojourn and host country work-around.

•Short sojourn: When a worker’s overseas sojourn is short enough, home country payroll works just fine. The employer takes the position the overseas stay is a mere business trip or working vacation, and the place of employment remains at home. If an American or Canadian attends a week- or month-long conference or business meeting in Italy or Hong Kong, no one would expect that traveler to get payrolled on an Italian or Hong Kong payroll, because Italy or Hong Kong do not become the place of employment. The same is true for an American or Canadian staffer working in Italy or Hong Kong for a week, a month, or maybe even longer. Whether this staffer must file a personal tax return in Italy or Hong Kong is a completely separate issue―personal tax residence is a legal concept unrelated to place of employment.

The inevitable question, of course, is: How long can a stay in a foreign country last before the county becomes the place of employment? We already answered this question: There is no predetermined amount of time, because “place of employment” is not strictly a function of time. The “short sojourn” payrolling strategy works for short trips but gets weaker as work time abroad increases. It gets hard to defend when someone works overseas for most of a year.

Host country work-around: While the payroll laws of a country usually reach staff working in that country, some payroll laws obligingly offer work-arounds for a foreign boss with no in-country presence or place of business other than a stray local employee or two. Payroll law work-arounds are not particularly common (and American employers have no right to expect them, because U.S. law does not offer one for overseas employers of stateside-working staff). But where a work-around is available, it can be quite helpful. These work-arounds fall into two categories: foreign employer exemption and payroll law compliance option for the employer.

a) Foreign employer exemption: While payroll laws tend to attach to workers’ places of employment, some jurisdictions helpfully confine their payroll mandates to in-country staff transacting business locally or occupying local premises. These payroll laws expressly or implicitly exempt offshore bosses that neither transact business in-country nor occupy in-country premises. The worker―a local taxpayer employed by an unregistered offshore employer not doing business locally―bears the sole burden of tax and social security filings, as if self-employed. The worker self-registers with government authorities as if self-employed.

Guatemala, Ivory Coast, U.K., South Korea and Thailand are examples. An offshore employer conducting no business in these countries―that is, an organization that somehow manages to employ staff in Guatemala/Ivory Coast/U.K./Korea/Thailand without having a “permanent establishment” or local office—might legally pay in-country employees on home country payroll without violating Guatemala, Ivory Coast, U.K., Korean or Thai payroll law. But this exemption is fragile because it shuts down as soon as the host country can make the case that local staff are transacting business locally on behalf of their foreign employer, or that staff’s workplace has become the employer’s in-country office.

Of course, in these countries the boss should get a contractual commitment from its staff committing to self-register and stay self-registered—employee non-compliance could implicate the boss in a payroll law violation.

b) Payroll law compliance option for the employer: Some countries (France and Estonia are two examples) do not fully exempt foreign employers from their payroll laws but offer procedures by which a foreign employer with no in-country “permanent establishment” can come in and make a special “payroll only” registration with local tax and social security agencies. The foreign boss registers as an offshore-payrolling employer, and the country issues it a special offshore-payroller identification number with which to issue a legal local payroll every payday. (The employer will likely involve an outsourced payroll provider to handle local payroll logistics.)

In addition to work-arounds allowing for offshore payroll, there is also the illegal way: Pay an overseas employee on a home country payroll without complying with any express payroll law work-around. On any given day, thousands of people around the world probably work in host countries illegally on “offshore” payrolls. But this is illegal.

3.“Leased” employee: The third way a boss might legally engage the services of, and payroll, floating staff in some country where it has no payrolling presence is the “leased” employment model, also called “outsourcing” or “secondment”: The would-be employer enters a business-to-business contract with some host country partner―a collaborating business, supplier, customer or locally-operating temporary services agency like Adecco, Manpower or Kelly Services. That in-country partner then hires and payrolls the particular worker and “leases” (assigns, outsources, seconds) his services over to the offshore principal. The offshore principal (the actual boss) has privity of contract only with the collaborating business partner, not the worker. The worker gets classified and payrolled as a local employee—not a self-employed contractor and not an employee of the offshore principal. While the worker’s nominal employer is the in-country business partner, his beneficial employer (actual boss) is the overseas principal that gives day-to-day work assignments. If the employee used to work directly for the overseas principal in another country, he resigns from the principal or temporarily suspends the direct employment relationship.

In these situations the beneficial (actual) employer always faces risk of co-/dual-/joint-employer liability, if the nominal employer breaches its duties as employer.

4.Employee on “shadow payroll”: A fourth possible structure is “shadow payroll.” A shadow-payrolling offshore boss arranges with an in-country-registered partner organization (affiliate, partner business, supplier, customer, temporary services agency or “payroll agent”) to payroll the floating employee while he works in-country, just as if he worked for the payrolling partner organization. The offshore employer (the actual boss) pays the worker but the in-country payrolling partner shows the worker as employed and paid on its own local payroll. The in-country payrolling partner makes payroll reporting/withholdings/deductions, which the offshore boss duly reimburses—often adding a services fee along with the monthly reconciliation of payroll charges. On paper host country tax and social security authorities see the worker as a legally-payrolled employee employed by the local payrolling partner. Behind the scenes, though, the actual offshore employer has a business-to-business contract delegating to the in-country payrolling partner responsibility for making local payroll filings on behalf of the worker. The employment contract and expatriate documentation make clear that the worker remains employed and compensated by the actual offshore employer boss. The in-country payrolling partner merely does a pass-through payroll accommodation, reconciled monthly with a direct reimbursement from the employer. The worker and the in-country payrolling partner have no contractual relationship.

5.Legitimate independent contractor: The fifth and final way a boss might legally engage the services of floating staff in some country where it has no payrolling presence is the independent contractor model: The worker provides services as a legitimately-classified independent contractor who is not a misclassified de facto employee. A contractor who used to work for the organization in another country (say, at headquarters) resigns from the employer—or at least temporarily suspends the employment relationship.

The challenge here is that in most countries independent contractor classification status is fragile and easily susceptible to being recharacterized as de facto employment. Potential traps lurk in cross-border independent contractor classification. Companies and non-profits face expensive cross-border litigation when they misclassify de facto employees as nominal contractors. Overseas independent contractor classification is its own topic that requires a detailed compliance analysis of its own.

A separate challenge is that even where a contractor might be properly classified, services providers themselves sometimes resist being classified as contractors, preferring to be payrolled employees.