BY DEIRDRE LYNCH, ASSOCIATE, BYRNEWALLACE, DUBLIN, IRELAND
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.
Friday, March 4, 2016
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.
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.
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.
Monday, December 14, 2015
Dear all
Welcome to the Winter edition of the International Employment Committee newsletter. A short and sweet edition, but we are looking forward to a bumper edition early next year.
Wishing you all happy holidays and a wonderful 2016. We look forward to seeing you in New York in April!
Helen Colquhoun
(England & Wales, New York, Registered Foreign Lawyer in Hong Kong)
Welcome to the Winter edition of the International Employment Committee newsletter. A short and sweet edition, but we are looking forward to a bumper edition early next year.
Wishing you all happy holidays and a wonderful 2016. We look forward to seeing you in New York in April!
Helen Colquhoun
(England & Wales, New York, Registered Foreign Lawyer in Hong Kong)
France - Measures improving the relationship between employers and employee representative bodies
By Roselyn S. Sands, EY Société d’Avocats, Paris, France
The law on social dialogue and employment, dated August 17, 2015 (the “Rebsamen law”), has brought substantial changes to the manner in which employee representative bodies function in France and has also simplified employer obligations with the Works Council.
In addition, recent legislation has rendered mandatory the creation of an economic and social database containing all information provided to employee representative bodies.
The purpose of these modifications is to improve the relationship between employers and employee representative bodies, in order to guarantee constructive and useful discussions between both parties.
I. Simplified obligations with the Works Council
Instead of 17 mandatory meetings with the Works Council required before on a variety of subjects, the employer now must only meet in the information and consultation process 3 times a year. Moreover, only 3 subjects need be addressed: 1) the strategic orientation of the company, 2) the financial and economic situation of the company and 3) the company’s human resources policies and the working and employment conditions.
In addition, instead of having to collectively bargain 12 different subjects with the unions, they are now regrouped into only 3 negotiations.
II. Merging employee representative bodies
Before the Rebsamen law, companies with under 200 employees could opt to merge the Works Council and the personal delegates (“délégués du personnel”). The Rebsamen law provides greater relief for employers: they may now opt to merge into a single representative body the personal delegates, the Works Council but also the Health and Safety Committee. Employers who employ less than 300 employees can proceed with this merger after having informed and consulted the relevant representative bodies. Employers with more than 300 employers may do so but only if collectively bargained with a representative union.
III. The economic and social database
Since June 2015, all public and private companies with more than 50 employees must create and kep up to date an economic and social database to hold information sent to the employee representatives during the 17 mandatory meetings mentioned above. In essence, the information which must be provided is the same as before, however, it must now be centralized in a single database.
The database must be accessible to all employee representatives at all times; therefore, even if it is not mandatory, almost all companies have implemented an electronic economic and social database. Failure to implement such a database could result in a € 7.500 fine.
a. The purpose of the economic and social database
The main purpose of the economic and social database is to:
- Create a database containing information on the company’s strategic orientations
- Make accessible to employee representatives, at all times, all of the information which it has been provided with in order to ensure useful dialogue between them and the employer
- Organize and centralize information which must be mandatorily provided to the employee representatives in a coherent and organized manner
b. Contents of the economic and social database
The database must contain information on the company’s strategic orientation and its impact on employment, the company’s activity, the evolution of skills, working conditions, the use of subcontracting, interns and temporary workers. This information must not be mere data, but must be presented by the employer in a clear and understandable manner, in order to detail the strategic options which are available as well as their internal consequences for the company.
Therefore, in addition to information which is traditionally provided to the employee representatives, such as the “social data report” (i.e. “Bilan social”), the employer will have to provide, for instance, information on potential growth opportunities or the company’s need for restructuring.
The economic and social database must also include all information which must be provided to employee representatives, such as information on investments, social and cultural activities, the report on health and safety at work.
However, information which must be provided to employee representatives in specific circumstances, such as information notes provided during restructuration.
c. Confidentiality
All employee representatives are bound by an obligation of discretion regarding the information with which they are provided and which is marked as confidential by the employer. Given that the information provided is particularly sensible, employers should take protective measures such as providing each employee representative with his own personal access code or making sure that the sanctions applicable to employees who violate their obligations are mentioned on confidential documents.
Ireland - Recent Developments
By Deirdre Lynch, BYRNEWALLACE, Dublin, Ireland
1. COURT OF APPEAL OVERTURNS BULLYING AWARD
Bullying is not defined in legislation in Ireland. However, the Health and Safety Authority’s Code of Practice on Bullying defines the term. This definition has been widely accepted in case-law on the issue. Bullying is defined in the Code as "repeated inappropriate behaviour, direct or indirect, whether verbal, physical or otherwise, conducted by one or more persons against another or others, at the place of work and/or in the course of employment, which could reasonably be regarded as undermining the individual‘s right to dignity at work.” As will be apparent, this definition has a number of elements.
In May 2014, the High Court awarded damages in the sum of €255,000, comprising general and special damages, in a bullying claim, Ruffley v Board of Management of St. Anne's School. The employee had been employed as special needs assistant in a school and the High Court held that the grossly unfair disciplinary process which had been followed amounted to bullying. The school appealed the decision.
The Court of Appeal has now overturned the High Court's decision. By a majority, the Court of Appeal found that the manner in which the employee had been treated did not fall within the definition of bullying set out in Irish Law. This decision will be widely welcomed by employers in Ireland.
In finding in favour of the employee, the High Court had held that she had been subjected to bullying. By way of background, the employee had worked for the school in question for over 14 years. She was employed as a special needs assistant. An incident occurred in September 2009 when she was with a pupil in the school’s sensory room. The principal of the school had tried to gain entry to the room in question; however it was locked. A disciplinary process followed. The disciplinary process itself was not conducted appropriately and had a significant number of flaws.
The High Court had concluded that the manner in which Ms. Ruffley had been treated during the disciplinary process fell within the legal definition of bullying. However, the Court of Appeal has now concluded that such treatment did not fall within the definition of bullying and that whilst the disciplinary process was conducted in a "hopelessly flawed manner", the school's conduct did not come anywhere close to meeting the established legal definition of bullying.
2. BUDGET 2016
The Irish Government recently delivered its 2016 Budget. A number of its provisions are relevant to companies employing individuals in Ireland, including:-
The minimum wage will increase from €8.65 to €9.15 per hour from 1 January 2016. The employer social insurance threshold will also be increased in order to offset the higher cost businesses may face as a result of the increase to the minimum wage.
Until now, Ireland has had one of the most limited paternity leave regimes in Europe (a father could only take leave in the circumstances where a mother died during her maternity leave and the father became entitled to the balance of the leave). However, from September 2016, two weeks’ paid paternity benefit will be introduced.
1. COURT OF APPEAL OVERTURNS BULLYING AWARD
Bullying is not defined in legislation in Ireland. However, the Health and Safety Authority’s Code of Practice on Bullying defines the term. This definition has been widely accepted in case-law on the issue. Bullying is defined in the Code as "repeated inappropriate behaviour, direct or indirect, whether verbal, physical or otherwise, conducted by one or more persons against another or others, at the place of work and/or in the course of employment, which could reasonably be regarded as undermining the individual‘s right to dignity at work.” As will be apparent, this definition has a number of elements.
In May 2014, the High Court awarded damages in the sum of €255,000, comprising general and special damages, in a bullying claim, Ruffley v Board of Management of St. Anne's School. The employee had been employed as special needs assistant in a school and the High Court held that the grossly unfair disciplinary process which had been followed amounted to bullying. The school appealed the decision.
The Court of Appeal has now overturned the High Court's decision. By a majority, the Court of Appeal found that the manner in which the employee had been treated did not fall within the definition of bullying set out in Irish Law. This decision will be widely welcomed by employers in Ireland.
In finding in favour of the employee, the High Court had held that she had been subjected to bullying. By way of background, the employee had worked for the school in question for over 14 years. She was employed as a special needs assistant. An incident occurred in September 2009 when she was with a pupil in the school’s sensory room. The principal of the school had tried to gain entry to the room in question; however it was locked. A disciplinary process followed. The disciplinary process itself was not conducted appropriately and had a significant number of flaws.
The High Court had concluded that the manner in which Ms. Ruffley had been treated during the disciplinary process fell within the legal definition of bullying. However, the Court of Appeal has now concluded that such treatment did not fall within the definition of bullying and that whilst the disciplinary process was conducted in a "hopelessly flawed manner", the school's conduct did not come anywhere close to meeting the established legal definition of bullying.
2. BUDGET 2016
The Irish Government recently delivered its 2016 Budget. A number of its provisions are relevant to companies employing individuals in Ireland, including:-
The minimum wage will increase from €8.65 to €9.15 per hour from 1 January 2016. The employer social insurance threshold will also be increased in order to offset the higher cost businesses may face as a result of the increase to the minimum wage.
Until now, Ireland has had one of the most limited paternity leave regimes in Europe (a father could only take leave in the circumstances where a mother died during her maternity leave and the father became entitled to the balance of the leave). However, from September 2016, two weeks’ paid paternity benefit will be introduced.
Hong Kong - Contracts and Third Party Rights
By Helen Colquhoun, Withers
Background
The Contracts (Rights of Third Parties) Ordinance (Cap.623) ("Ordinance") is due to come into force on 1 January 2016. The aim of the Ordinance is to bring Hong Kong into line with other common law jurisdictions (such as England & Wales, Canada and New Zealand) by reforming the common law doctrine of privity of contract.
Under this common law doctrine, only the parties to a contract have the right to enforce the contract against another party to the contract. A third party, even if granted rights under the contract, cannot bring an action to enforce the terms of the contract.
The Ordinance
The aim of the Ordinance is to reform this doctrine and protect third parties who expect to benefit from a contract, by giving them the ability to enforce the terms directly against the contracting parties. Thus, under the Ordinance a third party will potentially be able to enforce a term under a contract if:
1. the contract expressly provides that the third party may do so; or
2. a term in the contract purports to confer a benefit on the third party, and the contracting parties intend for the term to be enforceable by the third party.
The second limb above clearly gives rise to uncertainty and thus a risk of dispute as to whether or not a benefit is conferred and/or as to what the contracting parties intended. Parties to contracts covered by the Ordinance (as set out below) should therefore clearly and expressly state whether or not a particular term is intended to be enforceable by a third party. Third parties should also be expressly identified in the contract by name, as a member of a class or as answering a particular description.
It is important to note that it is permissible under the Ordinance for parties to an agreement to select which terms are intended to be enforceable by third parties and which are not.
Which contracts does the Ordinance cover?
The Ordinance will apply to contracts entered into on or after 1 January 2016. However, the Ordinance can be contracted out of by the parties (provided this is expressly stated in the contract).
There are also a number of contracts which are automatically excluded from the Ordinance, including negotiable instruments, bills of exchange, covenants relating to land, and promissory notes.
In relation to employment contracts, a partial exemption applies - the Ordinance does not permit third parties to enforce terms against an employee. A third party can, however, enforce a term in an employment contract against an employer. Importantly, other employment related documents (such as settlement agreements, standalone confidentiality agreements and restrictive covenant agreements and independent contractor agreements) do not benefit from this exemption and will all be covered by the Ordinance (and can therefore potentially be enforced by third parties against both employers and employees assuming the conditions set out above are met).
What does this mean for employers?
The Ordinance will be relevant to employers in a number of areas. By way of example:
1. many employees will have access to confidential information across group companies and it may be important for group companies (as 'third parties') to have the ability to enforce any confidentiality obligations which the employee has entered into with the employing entity. To ensure this is permissible under the Ordinance, an employer will need to ensure that a separate confidentiality agreement is entered into with the employee (rather than simply having confidentiality obligations within the employment contract itself). The confidentiality agreement should also include an express clause stating that the obligations can be enforced by group companies. Similar considerations will apply in relation to a group company wishing to have the ability to enforce post-termination restrictions;
2. in a settlement agreement, group companies are likely to want to have the ability to enforce any obligation upon the employee to release claims against them. The settlement agreement should expressly confirm that group companies are permitted to enforce the agreement;
3. an employer may wish to limit the ability of a third party to enforce rights under the employment contract against the employer. For example, employers often extend fringe benefits to both employees and their dependants (such as health insurance and education allowances). Family members will be entitled under the Ordinance to enforce their rights to such benefits against the employer, unless the contract expressly states otherwise;
4. if an employer outsources the provision of benefits to employees to a service provider, the employer will wish to avoid the risk of an employee (as a third party) being able to bring a claim against the employer by virtue of an agreement between the employer and the service provider. Again, such an option will be available to employees unless the agreement between the employer and the service provider expressly excludes the application of the Ordinance.
In many cases, employers will wish to exclude (or at least limit) the operation of the Ordinance. Employers should therefore review their contracts and agreements to see if any terms purport to confer a benefit on third parties and, if so, consider whether they wish to expressly exclude or modify application of the Ordinance in relation to any or all such terms and/or in respect of particular classes of third parties.
Employers should also consider whether there are any scenarios in which they want to ensure that the Ordinance does apply (for example to allow for enforcement of obligations by group companies). In such a scenario, and to minimise the risk of any dispute, employers should ensure that agreements are carefully drafted to ensure: (i) they do not fall within the exemptions to the Ordinance, (ii) they expressly confirm that the Ordinance applies, and (iii) the third parties who are intended to be able to enforce the agreement are clearly identified.
Background
The Contracts (Rights of Third Parties) Ordinance (Cap.623) ("Ordinance") is due to come into force on 1 January 2016. The aim of the Ordinance is to bring Hong Kong into line with other common law jurisdictions (such as England & Wales, Canada and New Zealand) by reforming the common law doctrine of privity of contract.
Under this common law doctrine, only the parties to a contract have the right to enforce the contract against another party to the contract. A third party, even if granted rights under the contract, cannot bring an action to enforce the terms of the contract.
The Ordinance
The aim of the Ordinance is to reform this doctrine and protect third parties who expect to benefit from a contract, by giving them the ability to enforce the terms directly against the contracting parties. Thus, under the Ordinance a third party will potentially be able to enforce a term under a contract if:
1. the contract expressly provides that the third party may do so; or
2. a term in the contract purports to confer a benefit on the third party, and the contracting parties intend for the term to be enforceable by the third party.
The second limb above clearly gives rise to uncertainty and thus a risk of dispute as to whether or not a benefit is conferred and/or as to what the contracting parties intended. Parties to contracts covered by the Ordinance (as set out below) should therefore clearly and expressly state whether or not a particular term is intended to be enforceable by a third party. Third parties should also be expressly identified in the contract by name, as a member of a class or as answering a particular description.
It is important to note that it is permissible under the Ordinance for parties to an agreement to select which terms are intended to be enforceable by third parties and which are not.
Which contracts does the Ordinance cover?
The Ordinance will apply to contracts entered into on or after 1 January 2016. However, the Ordinance can be contracted out of by the parties (provided this is expressly stated in the contract).
There are also a number of contracts which are automatically excluded from the Ordinance, including negotiable instruments, bills of exchange, covenants relating to land, and promissory notes.
In relation to employment contracts, a partial exemption applies - the Ordinance does not permit third parties to enforce terms against an employee. A third party can, however, enforce a term in an employment contract against an employer. Importantly, other employment related documents (such as settlement agreements, standalone confidentiality agreements and restrictive covenant agreements and independent contractor agreements) do not benefit from this exemption and will all be covered by the Ordinance (and can therefore potentially be enforced by third parties against both employers and employees assuming the conditions set out above are met).
What does this mean for employers?
The Ordinance will be relevant to employers in a number of areas. By way of example:
1. many employees will have access to confidential information across group companies and it may be important for group companies (as 'third parties') to have the ability to enforce any confidentiality obligations which the employee has entered into with the employing entity. To ensure this is permissible under the Ordinance, an employer will need to ensure that a separate confidentiality agreement is entered into with the employee (rather than simply having confidentiality obligations within the employment contract itself). The confidentiality agreement should also include an express clause stating that the obligations can be enforced by group companies. Similar considerations will apply in relation to a group company wishing to have the ability to enforce post-termination restrictions;
2. in a settlement agreement, group companies are likely to want to have the ability to enforce any obligation upon the employee to release claims against them. The settlement agreement should expressly confirm that group companies are permitted to enforce the agreement;
3. an employer may wish to limit the ability of a third party to enforce rights under the employment contract against the employer. For example, employers often extend fringe benefits to both employees and their dependants (such as health insurance and education allowances). Family members will be entitled under the Ordinance to enforce their rights to such benefits against the employer, unless the contract expressly states otherwise;
4. if an employer outsources the provision of benefits to employees to a service provider, the employer will wish to avoid the risk of an employee (as a third party) being able to bring a claim against the employer by virtue of an agreement between the employer and the service provider. Again, such an option will be available to employees unless the agreement between the employer and the service provider expressly excludes the application of the Ordinance.
In many cases, employers will wish to exclude (or at least limit) the operation of the Ordinance. Employers should therefore review their contracts and agreements to see if any terms purport to confer a benefit on third parties and, if so, consider whether they wish to expressly exclude or modify application of the Ordinance in relation to any or all such terms and/or in respect of particular classes of third parties.
Employers should also consider whether there are any scenarios in which they want to ensure that the Ordinance does apply (for example to allow for enforcement of obligations by group companies). In such a scenario, and to minimise the risk of any dispute, employers should ensure that agreements are carefully drafted to ensure: (i) they do not fall within the exemptions to the Ordinance, (ii) they expressly confirm that the Ordinance applies, and (iii) the third parties who are intended to be able to enforce the agreement are clearly identified.
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