Employment Counseling and Litigation United States Navigating US and International Employment Laws in the Wake of Low Oil Prices: A Quick Guide to Global Layoffs With the collapse of oil prices, many companies in the energy industry are forced to cut costs. Layoffs, furloughs, and reducing labor costs are invariably top of mind. And, because labor and employment rules outside of the United States are vastly different from those inside of the United States, it is vital that in-house counsel and human resource professionals "wear a global hat" when approaching these changes. What works from a US point of view may not work at all outside of the United States. Companies should be mindful of the differences as they plan cost-cutting measures that involve their employees. Selection Issues In the US, it is best practice to use legitimate non-discriminatory factors in selecting which individuals to layoff. Permissible factors that are deemed to be objective and non-discriminatory include performance, seniority, and productivity. However, companies should tread lightly when evaluating salary for layoff purposes because it can oftentimes correlate with age. For example, if a company decides to lay off many of its highest earners, it may inadvertently be laying off many of its older workers, raising a potential age discrimination issue under the Age Discrimination in Employment Act (“ADEA”) and various, state antidiscrimination laws. For example, in California, the Fair Employment and Housing Act (“FEHA”) prohibits the use of salary as a selection criteria if salary correlates with age due to its adverse impact on older workers. To avoid these types of discrimination issues (and others) in connection with a reduction in force (“RIF”), the company should conduct an adverse impact analysis (with the help of counsel) to determine the layoff’s impact, if any, on any protected groups. Outside of the US, there should be a different approach. While taking steps in the selection process to avoid potential discrimination claims (as defined under local law) is prudent, the threshold questions are: (1) are specific selection criteria mandated by local statute or otherwise; and (2) which employees are protected from termination? For example, Germany, Italy, and China require employers to follow specific social selection criteria in a layoff. In the Netherlands and Malaysia, it is either recommend or required for an employer to select employees for layoff based on the “last in, first out” principle, that is, the employees with the least amount of tenure must be the first ones to be terminated. Employees who are pregnant or breastfeeding, those on protected leaves, employees with pending labor claims, or union or works council members (subject to government approval) may be deemed to be "protected" under local employment laws, meaning that companies will be prohibited from terminating in connection with a layoff. Client Alert February 2015 For further information please contact: Houston David Ellis +1 713 236-5195 email@example.com Jordan Faykus +1 713 427-5050 firstname.lastname@example.org Emily Harbison +1 713 427-5045 email@example.com Scott Nelson +1 713 427-5027 firstname.lastname@example.org 2 Navigating US and International Employment Laws in the Wake of Low Oil Prices: A Quick Guide to Global Layoffs April 2015 Whether the layoffs are domestic or abroad, companies should of course also analyze whether the affected employees are governed by a collective bargaining agreement, severance policy, or individual employment agreement. If so, the terms of those agreements need to be carefully scrutinized to determine whether they impact who can be selected for a layoff and otherwise impact the terms of the layoff. Reasons for Termination In the US, most employment relationships in the energy industry are "at will", meaning that either the company or the employee can terminate employment at any time and for any reason. Accordingly, in the US it is not necessary for a company to explain the reason why the employee is being terminated. Outside of the US, there is no concept of "at will" employment, meaning that in most cases a company must show specific grounds for termination. As a result, in most countries it is highly unlikely that the drop in the price of oil, or a moderate change in the financial condition of the employer will be sufficient. Instead, the company may be required to explain a genuine business reason for the termination (e.g., restructuring of the company, closure of a plant, etc.). Or, the company may need to show that without termination the employees it will have to file for bankruptcy, or that it has explored alternatives to a RIF and that termination of employment is only a last resort. Notice Obligations Most US practitioners who handle employment issues are familiar with the advance notice requirements under the Worker Adjustment and Retraining Notification Act (“WARN”) and equivalent state obligations. Federal WARN requires 60 days’ advance written notice of covered plant closings and mass layoffs to the affected employees or the employees’ representative (if any), the state dislocated worker unit (e.g., in Texas, the Texas Workforce Commission), and the chief elected local government official. Federal WARN generally covers employers with 100 or more employees (excluding part-time), or 100 or more employees (including part-time) who work at least 4,000 hours per week (excluding overtime). A covered plant closing occurs when a facility or operating unit is shut down for more than six months, or when 50 or more employees lose their jobs during any 30‑day period at a single site of employment. A covered mass layoff occurs when either: (i) 50 to 499 employees are affected during any 30-day period at a single employment site (or for certain multiple related layoffs, during a 90-day period), if these employees represent at least 33 percent of the employer’s workforce where the layoff will occur; or (ii) 500 or more workers are affected during any 30-day period at a single employment site. In addition, companies should be aware that many states have “mini-WARN” statutes, with distinct requirements and broader application. Other notification requirements may arise under federal or state law in the event of dismissal, such as the obligation to notify employees of their rights to obtain unemployment insurance or to purchase group health plan continuance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Outside of the US, the requirement to provide advance notice of termination to the employees and to the government is a “given”, even for individual layoffs. For instance, in Canada, while statutory notice requirements per province are rather limited, employees may be entitled to up to 27 months’ of common law “reasonable” 3 Navigating US and International Employment Laws in the Wake of Low Oil Prices: A Quick Guide to Global Layoffs April 2015 notice if their employment contract does not contain an enforceable notice provision, depending on factors such as status within the organization and seniority. Severance and Release Agreements In the US, a severance payment to the affected employees is generally not required, absent contractual obligations to the contrary. These obligations may be contained in an employment agreement, collective bargaining agreement, or through a company’s severance plans, policies or practices. Even if not required, companies may decide to provide departing employees a severance payment in exchange for a release or waiver of liability for all claims connected with the employment relationship, including discrimination claims. These releases can pose significant challenges, even in the US. As a threshold matter, releases must be “knowing and voluntary.” The standard as to whether a waiver is “knowing and voluntary” depends on the statute under which the suit has been brought, and is established by either statute or case law. The Age Discrimination in Employment Act (“ADEA”) was amended in 1990 to add the Older Workers Benefit Protection Act (“OWBPA”), which established specific requirements for the release of ADEA claims. As a result, a US employee must have every opportunity to make an informed choice when deciding whether to sign the release. Under the OWBPA, for a release to be valid, employees age 40 or older must be provided a waiver that is written in a manner that can be clearly understood; given 21 days in an individual layoff to consider the release; given 7 days to revoke after signature; be advised of their right to consult an attorney; provided a waiver that does not include rights and claims that may arise after the date the release is executed; and the release must specifically refer to rights or claims arising under the ADEA. Moreover, in group layoffs (consisting of only 2 or more employees), there are additional requirements under the OWBPA. For example, those employees selected for layoff must be given 45 days to consider the release and must also be provided with information about the age and position of the individuals retained and those terminated in the affected “decisional unit.” Recently, the US Equal Employment Opportunity Commission (“EEOC”) started targeting companies’ severance agreements. The EEOC alleges that certain language in severance agreements can interfere with employees’ rights to file discrimination charges and to communicate and cooperate with the EEOC during an investigation (rights which cannot be waived). Given these developments, companies should draft severance agreements carefully to avoid scrutiny by the EEOC. Companies in the US should also be mindful that making severance benefits conditional upon the execution of a non-compete and non-solicitation agreement in exchange for severance benefits at the end of the employment relationship is likely unenforceable in certain states (e.g., Texas). However, the laws governing such restrictive covenants vary based on the state in which the employee works. For example, in California non-compete agreements are generally invalid as a matter of law, except in very limited circumstances. Outside the US, severance is often mandatory and cannot be waived by the employee. Accordingly, a company may have to pay a terminated statutory severance without the ability to obtain a release of claims against the company. The amount of statutory severance entitlement for a lawful layoff varies, depending on seniority, the job title, and the industry. Obtaining a release is generally considered best practice, but there are exceptions. Some jurisdictions 4 Navigating US and International Employment Laws in the Wake of Low Oil Prices: A Quick Guide to Global Layoffs April 2015 do not technically recognize a release of claims in the US sense (e.g., Brazil and Malaysia), but rather will apply any payments against future claims. In other countries, releases are subject to specific requirements. For instance, in the UK, an employee must be represented by a solicitor to sign a valid complete release. In France, a release can only be agreed upon after the employee has received formal notice of termination and it must be provided in French. In Mexico, releases need to be approved by the Ministry of Labor. Wage and Hour Pitfalls In the US, companies that are considering layoffs should be mindful of the impact of wage and hour laws, both on a federal and state level. A terminated (and disgruntled) employee may file a lawsuit alleging wage and hour violations in connection with the termination. This kind of lawsuit can get costly very quickly because it often impacts a group of employees, rather than just one individual. Specifically, employers should be aware of any state wage and hour laws that govern when the final paycheck is due. For example, in Texas, if an employee is laid off (or otherwise involuntarily separated from employment), the final paycheck is due within 6 calendar days of the termination. Failure to comply with this rule is common, and an employee who is unhappy will be sure to point it out. Along those same lines, US companies should also be aware of whether they are required to pay out accrued but unused vacation, sick, or PTO time. In Texas, for example, payouts of accrued leave are required under the Texas Payday Law only if such a payment is promised by the employer in a written policy or agreement. Accordingly, companies should review their employee handbook and internal policies to determine whether such a payout of accrued time has been promised. Further, employee misclassification issues can rear their ugly head after termination. This especially holds true for energy companies, where exemption status can be a vulnerable area. In the energy industry, there has been a recent increase in lawsuits challenging the exempt status of certain job positions and the calculation of the overtime rate in light of job bonuses and per diems. Prior to termination, therefore, US companies should examine employee exemption status and how overtime rates are calculated to be better positioned to act proactively, if needed (rather than responding to a lawsuit). Outside of the US, this pitfall can be extremely costly, given that in many countries the concept of “exempt and non-exempt” employment status does not exist. Even mangers can be eligible for overtime. Further, outside of the US, employees may be entitled to specific “termination indemnities” that include not only final pay and unused vacation, but also pro-rata portions of 13th month bonuses and the like. As the drop in oil prices forces energy companies to take action, including RIFs and other employee cost-cutting measures, they must be mindful that a US employment law mindset will not work outside of the US. There are significant differences between US and non-US employment laws, and failure to appreciate the differences can be costly and time consuming. It is best practice to evaluate these issues early in the process. Waiting until the last minute, or failing to consult with US counsel or local counsel outside of the US on these issues, will most certainly have unintended (and costly) consequences. ©2015 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. 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