Against rising headwinds from an economic, socio-political, regulatory and case law viewpoint, it is challenging to present a prognosis of what lies ahead. Certainly regulation is merciless. Witness below Australia’s recent shift in courts imposing harsher penalties than have previously been seen for so-called sham contracting in contravention of the Fair Work Act 2009. On the other hand, France’s political shift to the right seeks to reduce employers’ risk exposure in terms of the costs of dismissal, a highly political and charged move with fierce debate ensuing and likely to see further amendments yet. Hinterland in Germany, a rising tide is swelling against employers using freelancers by the tax and social securities authorities as they seek to severely prosecute false self-employment.
Meanwhile in Singapore, a recent High Court case draws attention to employers’ imperative to protect information in order to mitigate breaches of confidentiality and duties of good faith and fidelity. Interestingly, on the other side of the Pacific in America, the Securities and Exchanges Commission has settled its first enforcement action against a company for improperly restrictive language in confidentiality agreements, with ramifications for all confidentiality provisions among SEC-regulated entities. As typhoon Linfa bears down on Hong Kong, looking ahead from 1 January 2016 employers will need to consider expressly excluding 3rd party rights in employment contracts in order to avoid its pitfalls following introduction of The Contracts (Rights of 3rd Parties) Ordinance.
So what can we deduce? The emerging pattern is varied and inconclusive across jurisdictions, which unveils the complexity and often volatile socio-politico-economic context. You will forgive me then, I hope, for not setting out a prognosis for how the remaining year will unfold. Suffice it to say, uneasy lies the head that wears the Crown.
Enjoy the read,
- Australia: Regulators continue to focus on ‘sham contracting’
- France: introduction of a cap for Employment Tribunal awards
- Germany: Ongoing efforts by authorities to prevent “false self-employment”
- Hong Kong: Contracts (Rights of Third Parties) Ordinance
- Japan: Employers to offer stress checks to workers
- Russia: Higher penalties for breaches of employment legislation
- Saudi Arabia: Key changes to labour law
- Singapore: breaches of confidentiality and duties of good faith and fidelity
- Thailand: minimum wage rate set to change for 2016
- UK: ECJ restores status quo on collective redundancy consultation trigger
- US: SEC targets confidentiality agreements in first-ever whistleblower protection enforcement action
1. Australia: Regulators continue to focus on ‘sham contracting’
Sham contracting has been, and will likely continue to be, a key focus for Australian regulators. Recent cases indicate the intention of regulators to prosecute contraventions of the sham contracting provisions of the Fair Work Act 2009 (Cth), with a risk of substantial penalties being imposed.
Earlier this year, the Fair Work Ombudsman published the findings of an inquiry into the Victorian Department of State Development and Business Innovation. The FWO made no finding of sham contracting, however noted that the Department had engaged in practices which increased the risk of workers being incorrectly classified.
The FWO made recommendations to the Department including:
- undertaking a review of labour engagement policies,
- auditing the engagement of independent contractors, and
- obtaining legal advice regarding the engagement of independent contractors.
Recent cases have indicated that courts are prepared to impose substantially harsher penalties than have previously been seen. InDirector of the Fair Work Building Inspectorate v Linkhill Pty Ltd the court imposed total penalties of $313,500.
Actions for employers
Employers who current engage workers as independent contractors or are intending to do so are encouraged to review current engagement policies, agreements and practices so as to reduce the risk of significant penalties.
Click here for more details.
Authors: John Cooper, Partner and Melanie Smith, Solicitor
2. France: introduction of a cap for Employment Tribunal awards
The French Government has proposed a new law intended to cap tribunal damages awards in respect of unlawful dismissals.
The bill has not yet been finally adopted but is close to finalisation. Due to its highly political nature, it is still subject to discussions and may be further amended.
Under the current proposals, the usual cap is determined by the individual’s length of service and the size of the employer, as set out in the following table, but in some cases further damages may be due (see below). All references to “months” are to months’ remuneration, both fixed and variable:
Click here to view table.
These sums are obviously in addition to the notice, holiday and remunerations payments under the collective bargaining agreement, when applicable.
The Tribunal may grant damages exceeding the above-mentioned limits in the event of particularly serious failings by the employer, including:
- moral or sexual harassment;
- dismissal based on discrimination;
- breach of the right to strike, of the protective status of employee representatives, of the protective status relating to maternity and paternity leave, workplace accidents, occupational disease, or incapacity;
- more generally, the breach of a fundamental freedom.
Once finalised, the law is likely to enter into force from end of July 2015 but would only apply to proceedings initiated after such date.
Impact for employers
If these measures are passed, this would obviously provide employers with more certainty in terms of the costs of dismissal and sums which are negotiated in settlement.
Author: Celia Gallo, Associate
3. Germany: Ongoing efforts by authorities to prevent “false self-employment”
For decades German companies have been engaging freelancers instead of or in addition to regular employees to achieve more flexibility, save social contributions and avoid bureaucratic burdens. While in many cases this practice is neither illegal nor illegitimate, social security offices and tax authorities have become increasingly anxious to counteract so called “false self-employment”.
Very often it is not easy to determine whether a person is self- or dependently employed. The consequences where authorities find a company to be in violation of the respective regulations can be quite severe.
The freelance status has several advantages, often for both parties, compared to regular employment relationships. Based on the idea that a freelancer bears his own financial risk and will take care of social security himself, for freelancers there is no statutory dismissal protection, no social security contributions have to be paid, no minimum wage or working time regulations have to be observed and a freelancer will have no sickness or holiday entitlements.
However, this comes at a “price” due to the nature of the contractual relationship itself. In most cases the company’s rights of direction will be limited; working time and place of work will be determined by the freelancer himself. A freelancer is not only free to work for other companies but also does not owe the services in person. Usually he will also not be integrated into the working operations of the company he performs services for.
Circumventing or “bending” the rules, especially by limiting the rights of the freelancer, comes with an increasing risk of authorities qualifying the freelance contract as an employment relationship. The evaluation not only includes review of the contractual basis of the relationship but also the way the contract is being “lived” by all parties.
If a freelance relationship qualifies as an employment relationship, possible consequences can include retroactive repayment of social security contributions, granting full statutory rights to the employee (in respect to holiday entitlements, sick pay, working time etc.), joint liability (with the employee) for unpaid tax, administrative fines and/or criminal prosecution in case of intent.
Actions for employers
Companies should carefully evaluate the factual nature of the working/ service relationship in each given case. In case of doubt, insurance status can be established by pension authorities on written request.
Authors: Christian Strunck, Wissenschaftlicher Mitarbeiter, and Dr Tobias Brinkmann, Associate
4. Hong Kong: Contracts (Rights of Third Parties) Ordinance
The Contracts (Rights of Third Parties) Ordinance will come into effect on 1 January 2016 and, subject to limited exceptions, will apply to contracts entered into from that date. The Ordinance provides an exception to the doctrine of privity of contract by providing a person who is not a party to a contract with a right to enforce the contract terms directly. In addition, unless the contract states otherwise, the consent of the third party will be required for any variation of the contract which affects that third party. Further information about the Ordinance and what it means for contract drafting can be found here.
Similar to the position under English statute, the Ordinance does not apply to enable a third party to enforce a term of a contract of employment against an employee. Accordingly, to the extent that the parties wish to give rights to a third party to enforce an employee’s obligations, they will need to consider alternative ways to document those arrangements so as to give effect to that intention.
The Ordinance will apply in relation to third party rights against an employer. However, parties will be at liberty to contract out of the effect of the Ordinance in whole or in part.
Actions for employers
Ahead of the Ordinance coming into effect, employers will need to consider how third party rights may arise out of different types of contracts commonly used in the employment context and whether additional clauses are appropriate to exclude or to control the application of the Ordinance (for example, to limit its application to specified clauses or in respect of particular classes of third parties). By careful planning and particular attention during the negotiation and drafting of employment related contracts, employers should be able to take advantage of the Ordinance while avoiding its potential pitfalls.
Author: Gillian McKenzie, Associate
5. Japan: Employers to offer stress checks to workers
From December 2015 amendments to Japan’s Industrial Safety and Health Act will require employers regularly employing 50 workers or more to offer an annual stress check to employees. This will include staff on secondment to overseas offices. Workplaces with fewer than 50 regular employees are encouraged (including subsidies), but not required, to offer the stress checks. Employees are recommended but not obliged, to undergo the stress check offered.
These amendments are aimed at preventing work-related mental illness, by helping employees to identify impacts of stress and helping employers improve the work environment through collective analysis of data.
The Industrial Safety and Health Act (Article 18) requires employers to establish a ‘health committee’. The health committee will be expected to oversee introduction of the stress check system and arrange for tests to be conducted.
The Japanese Ministry of Health, Labour and Welfare expects the general stress check system to operate as follows:
- employee undergoes stress check overseen by doctors/public health nurses;
- results are delivered directly to the employee;
- the conductor of the stress check may recommend the employee meets with a doctor, if detected stress levels warrant this;
- employers must arrange a doctor interview of any employee who requests this in writing;
- after the interview, the doctor, employer and employee will consult regarding any necessary remedial measures, such as shorter work hours or a change of workplace or job duties.
For stress checks, employers will have the option of using: (i) stress check software; (ii) another form of stress-check test; or (iii) a set of Ministry questions.
The results of stress tests are confidential; employee consent will be required before disclosure to the employer. An employer also cannot treat an employee unfavourably because they request a doctor interview, but such a request will be taken as implied consent to the employee’s initial stress check results being disclosed to the employer.
Actions for employers
- From December 2015, all employers employing more than 50 regular employees must offer annual stress checks to employees. To assist with this, free stress check software should become available for download later this year.
- After conducting stress checks, employers should submit a report to their labour standards office. The format for this form will be released late 2015.
- Employers who don’t meet reporting requirement may face penalties.
For more details see the Ministry website.
Author: Victoria MacMillan, Associate, Tokyo
6. Russia: Higher penalties for breaches of employment legislation
On 1 January 2015 new amendments governing the liability of employers for breaches of Russian employment legislation entered into force. In particular, the general penalty for breach of employment legislation has been increased. Moreover, some new penalties have been introduced for specific types of breaches. An additional penalty for repeated breaches has also been introduced.
According to the new rules, the penalty for breach of employment legislation has been increased from a maximum of 30,000 Roubles (approximately USD 535) to a maximum of 50,000 Roubles (approximately USD 892). In case of a repeated breach of employment legislation the penalty may be up to 70,000 Roubles (approximately USD 1,250).
The amendments also introduce specific penalties for non-execution or improper execution of an employment agreement with an employee and for conclusion of a civil law contract in case of de facto employment relations. The penalty for such violations may amount to up to 100,000 Roubles (approximately USD 1,785) or for a repeated breach up to 200,000 Roubles (approximately USD 3,571).
Moreover, in light of the new Federal Law No. 426-FZ “On special assessment of work conditions” that entered into force on 1 January 2014 and that imposes on the employers, inter alia, an obligation to conduct assessment of all types of workplaces (subject to limited exceptions), the failure to conduct or properly conduct such assessment or to comply with other occupation safety rules is subject to a penalty of up to 80,000 Roubles (approximately USD 1,428). A separate penalty of up to 130,000 Roubles (approximately USD 2,321) is imposed in cases where an employee actually performs his/her labour duties without obligatory training and examination on occupational safety rules as well as without compulsory medical examinations. Failure to provide employees with personal protection equipment is also penalised with a fine amounting to up to 150,000 Roubles (approximately USD 2,678). Any repeated breaches of occupational safety related rules may lead to a penalty of up to 200,000 (approximately USD 3,571) Roubles being imposed or an administrative suspension of business activity of the employer for up to 90 days.
Actions for employers
In light of the above amendments, the employers should be aware of the increased penalty and take care when structuring any employment related relationships with individuals (secondments, outsourcing, etc.). They should also make sure to comply with the new law governing special assessment of work conditions and occupational safety rules in general.
Author: Arina Fot, Associate
7. Saudi Arabia: Key changes to labour law
Saudi Arabia’s Council of Ministers has approved amendments to the Kingdom’s labour laws, but has delayed the implementation of new Saudisation requirements.
Saudi Arabia’s Labour Minister, Adel Fakeih, has announced that a number of amendments had been made to the Kingdom’s labour laws. Key amendments include:
- maximum permitted term for fixed term contracts increased from three years to four years;
- an employee’s contract will be considered open-ended if the fixed term contract is renewed three times;
- companies with 50 or more employees will be required to train 12% of the Saudi workforce (increased from 6%);
- maximum probationary period increased from 90 days to 180 days; and
- leave entitlements increased (e.g. paternity leave will be three days and compassionate leave will be five days).
Saudi Arabia’s Labour Minister has further announced that the implementation of new legislation aimed at increasing Saudisation levels has been put on hold in order to give private companies more time to understand the new amendments. The programme has been met with criticism, with some employers commenting that the quotas are impossible to meet as nationals are either not interested or not trained to carry out certain jobs. The change was scheduled to take place by the end of April 2015 and there has been no indication as to when the programme will be implemented.
Actions for employers
Once the amendments to the labour laws come into force (expected in October 2015), employers in Saudi Arabia will need to undertake a review of their internal policies and contracts in order to bring them into line with the new requirements. Failure to adhere to the law may expose companies to fines of up to SR100,000 (US$26,646) and closure for 30 days.
Author: Stuart Paterson, Partner
8. Singapore: breaches of confidentiality and duties of good faith and fidelity
A recent decision of the Singapore High Court has emphasised the value for employers in taking steps to protect confidential information.
In Tempcool Engineering (S) Pte Ltd v Vincent Chong, the primary issue was whether the employees misused confidential information in breach of confidence. The applicable test was found to be whether: (i) the information possessed the necessary quality of confidentiality; (ii) the information was imparted or received in circumstances such as to import an obligation of confidentiality; and (iii) there was unauthorised use of information and detriment suffered.
Various technical drawings of the employer (whose business is the engineering, supply and design of refrigeration and air conditioning systems) were found to be confidential information: they were password-protected and kept in a contained environment, and had value, allowing the employer adapt precedents for new projects. The employee’s acts in sending and receiving them therefore constituted a misuse of confidential information.
The company’s pricing information was also found to be confidential. Misuse was easily evidenced as the former employee could structure his new venture’s bids on project tenders to beat offers by the employer.
Although the first employee did not have a formal employment contract, he was found to owe an implied obligation of confidentiality. The former employee was found to owe an equitable obligation of confidence, as a reasonable man in his circumstances would have known the information was given in breach of confidence.
Actions for employers
Employers should take reasonable steps to protect information, for example, through passwords, information barriers and internal sign-off barriers etc. This helps show the information was confidential when claiming a breach of confidence.
For more details see our e-bulletin article.
Authors: Fatim Jumabhoy, Of Counsel, and Sarah Yazid, Associate
9. Thailand: minimum wage rate set to change for 2016
The Permanent Secretary of the Labour Ministry announced in early June that Thailand’s nationally set daily minimum wage, currently set at 300 Baht (approximately US $9) in 2013, will cease at the end of 2015.
The announcement follows a resolution of the Wage Committee in December 2014 to revert to the former system where minimum wages across Thailand were set depending on the cost of living and economy of each province. Consequently, some provinces such as Bangkok had a higher minimum wage than other provinces because their cost of living and economic development were higher compared to other provinces.
When the current uniform national wage was implemented in 2013 it drew substantial criticism from the business community, on the grounds that it reduced Thailand’s competitiveness and amounted to a 100% wage increase for workers in some provinces who previously had low minimum wages. Compared to its ASEAN neighbours, Thailand’s current 300-baht rate is the same as the Philippines but higher than Malaysia, Indonesia, Myanmar, Vietnam, Laos and Cambodia. Only Singapore and Brunei have higher minimum wage rates.
Under the proposed change, Provincial Wage Committees will consider the economic development and cost of living for each province and will make submissions in respect of the appropriate minimum wage for each province. The Wage Committee will consider the Provincial Wage Committees' submissions at its October 2015 meeting and set the new 2016 provincial minimum wages, subject to no provincial minimum wage being set lower than 300 Baht. Public information on the proposed changes indicates that a Guideline will be determined and issued by the Wage Committee to standardise the process of making minimum wage determinations in the future.
The rationale for the change is to increase Thailand’s competitiveness while also improving the living conditions of workers in provinces with higher costs of living, such as Bangkok.
Actions for employers
Employers should keep abreast of the proposed change which will come into effect at the beginning of 2016 and ensure that wages set for 2016 comply with the announcement made by the Wage Committee at its October 2015 meeting.
Authors: Janaki Tampi, Foreign Associate, and Chotika Voravongsakul, Associate
10. UK: ECJ restores status quo on collective redundancy consultation trigger
In 2013 a landmark Employment Appeal Tribunal ruling turned UK lawyers’ understanding of UK collective redundancy law on its head. The EAT decided that multi-site employers would have to aggregate redundancies across all their separate workplaces and business units in determining whether the obligation to inform and consult for 20 or more proposed redundancies had been triggered.
In welcome news for multi-site employers, the European Court of Justice has now given its judgment in the case of USDAW v Woolworths (C-80/14) that, when applying the threshold for consultation of 20 or more proposed redundancies “at one establishment” over a 90 day period, EU law does not require the proposed redundancies to be aggregated across all of an employer’s separate employment units.
The Court ruled that the concept of “establishment” must be interpreted in an autonomous and uniform manner across the EU. Where an undertaking comprises several entities, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the ‘establishment’. The case will now return to the Court of Appeal to apply the ‘establishment’ test to the facts.
Actions for employers
The ruling is helpful in restoring the status quo for multi-site employers. However, it is likely to lead to a renewed focus on the issue of assignment and the meaning of an ‘establishment’. The Advocate-General in this case commented that “if an employer operates several stores in one shopping centre, it is not inconceivable that all those stores should be regarded as forming a single local employment unit”. That will depend on “(i) whether the joint entity in question can be said to have a certain degree of permanence and stability; (ii) whether it is assigned to perform one or more given tasks; and (iii) whether its workforce, technical means and organisational structure are adequate for the accomplishment of those tasks”.
Author: Anna Henderson, Professional Support Consultant
US: SEC targets confidentiality agreements in first-ever whistleblower protection enforcement action
The Securities and Exchanges Commission has settled its first enforcement action against a company for “improperly restrictive language in confidentiality agreements”.
SEC Rule 21F-17 prohibits companies from taking any action – including enforcing, or threatening to enforce, a confidentiality agreement – that impedes an employee from reporting possible securities laws violations to the SEC.
When investigating allegations of misconduct including violations of securities laws, KBR required employee witnesses to sign a confidentiality statement at the beginning of their interviews. The statement warned that employees faced disciplinary action – “up to and including termination” – should they disclose the subject matter or any particulars of the interview to anyone without the authorization of the company’s legal department.
The SEC conceded that it had no evidence that any KBR employee was thereby prevented from reporting potential securities law violations, but nevertheless concluded that the language of the confidentiality statement did “impede” communications with the agency.
Without admitting or denying the charges, KBR agreed to pay a $130,000 USD penalty and to cease and desist any violations of Rule 21F-17. The company also amended its confidentiality statement to clarify that employees are not prohibited from “reporting possible violations of federal law or regulation to any governmental agency or entity.” Finally, KBR undertook to make “reasonable efforts” to contact employees who had signed the statement, to inform them that no prior approval is required to communicate with any government agency regarding potential violations of federal law or regulation.
The SEC’s aggressive posture on whistleblower protection suggests that more enforcement actions under Rule 21F-17 are likely. The chief of the SEC’s Office of the Whistleblower issued a press release advising that “other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”
Actions for employers
Entities regulated by the SEC should review the confidentiality provisions of employment-related agreements and policies in light of this case. In the short term, the most obvious remedial measure is to insert into these documents the carve-out language adopted by KBR in its amended confidentiality statement.
Authors: Scott S. Balber, Partner and Emily Abrahams, Senior Associate