Welcome to our global EPI newsletter.
Like the elephant, the degree of change inching into many jurisdictions is sometimes easier to recognise than to define. We set out below some of the areas of significance which are likely to impact over the first half of 2016.
Across the Eurozone, developments in EU law on trade secrets and data protection have been significant and remove much uncertainty over the direction of proposed regulation. We provide a detailed briefing on the new Directives and the EU-US Privacy Shield.
Meanwhile the UK has announced new gender pay reporting obligations which could give rise to Equal Pay Claims in the private sector, with potential contingent liability for employers. In the US, a proposed new rule brought about by the US Equal Employment Opportunity Commission would see expanded reporting requirements for gender pay reporting. Both consultations represent a prelude to Regulations designed to speed up the rate at which the gender pay gaps close.
In Germany, a draft bill introduced new legislation concerning agency workers which potentially renders existing business models, regarding the hire of temporary agency workers, non-compliant. Further, the German Federal Council approved the EU Mobility Directive 2014/50/EU into national law impacting pension arrangements, leaving companies with potentially additional costs and adjustments to existing employee benefit schemes.
With the Spring Festival passed and the long-awaited implementation of two new Ordinances (Contract (Rights of Third Parties)) Ordinance, and the Competition Ordinance), Hong Kong shows no sign of abating with a new discrimination law reform on the cards for 2016.
In Singapore, a plethora of changes to the employment landscape announced in 2015 are due to be implemented from April 2016 and we set out those with immediate impact for consideration. Equally significant, Japan's Ministry of Employment and Labour handed down judgement on the much anticipated Aoba Post Office case concerning renewals of fixed-term employment contracts in redundancies.
Lastly in Australia, we comment on recent decisions of the Australian Courts in connection with the award of discretionary bonuses and the risks inherent in employee bonus policies referred to in an employment contract.
As the elephant stealthily moves on, the volatile start to 2016 shows no sign of dwindling.
Enjoy the read,
1. Australia: courts continue to fetter the employer's discretion when awarding bonuses
Recent decisions of the Australian Courts have highlighted the limits, in the form of an implied term, on an employer’s contractual discretion to award bonus payments.
Decisions such as Russo v Westpac Banking Corporation  FCCA 1086 have confirmed that, notwithstanding an express term in the employment contract that any bonus is payable at the employer’s absolute discretion, an employer must exercise this discretion:
- in a manner which is not “capricious, arbitrary or unreasonable” having regard to the proper scope and content of the contract; and
- after complying with the other express terms of the contract relating to the payment of any bonus (eg, requirements regarding the performance review process or considering the satisfaction of key performance indicators).
Care also needs to be taken to comply with any policies regarding the payment or calculation of bonuses which may have contractual force. The Court has found that employee bonus policies referred to in an employment contract were incorporated into the terms and conditions of employment and had contractual force, notwithstanding express wording in the contract to the contrary.
When considering whether to award a discretionary bonus, we recommend that employers:
- correctly apply criteria for determining employee eligibility for any bonus;
- comply with any procedural requirements relating to the bonus contained in the employment contract or under an applicable policy referred to in the employment contract;
- maintain evidence of decision-making procedures followed to determine the bonus payment or non-payment;
- ensure there is a sound business case to support not awarding a discretionary bonus; and
- have clear communications ready to address queries from employees, as this is often an issue of significant importance (particularly where employment is also being terminated).
Finally, we recommend that employers exercise caution when referencing policies in their employment contracts in relation to the payment of bonuses (or otherwise), given the risk that such policies may be found to have been incorporated into the contract.
2. China: policy review needed following abolition of one-child policy
In light of the decrease of the working-age population and the increase of the number of people of over 60 years old, China's central government has decided to abolish its long-standing one-child policy. Since 1 January 2016, Chinese married couples are permitted to have up to two children. China's Population and Birth Planning Law has been amended to reflect such change; local implementing rules in this regard have already been issued or are in the pipeline. These changes may have a considerable impact on employers and employees in China, including change in statutory entitlements of marriage, maternity and paternity leave. Further details are set out here.
Employers will need to review and, if appropriate, amend their employee handbook and other internal policies with regard to marriage leave, maternity leave, paternity leave and related entitlements to ensure compliance with the new rules. They should monitor regulatory progress, especially the local implementing regulations, in relation to the abolition of the one-child policy, and prepare for a possible increase of child-birth leave.
3. Europe: developments in EU laws on trade secrets and data protection
- The European Parliament and EU Council have agreed the terms of a Trade Secrets Directive that aims to harmonise the definition and protection of trade secrets and undisclosed know-how across Europe. Once approved and adopted, the Directive could take effect early this year, with Member States then having a two year window in which to implement its provisions. Companies operating across the EU will welcome a more unified approach which should facilitate cross-border research and development, and provide the mechanisms for an effective response and deterrent against the unlawful disclosure of trade secrets.The Directive is discussed in detail here.
- In December 2015, the European Commission, Parliament and Council agreed on a common text version of a new General Data Protection Regulation, to take effect in early 2018. The EU General Data Protection Regulation, which is directly applicable in all EU member states supersedes and replaces the previous European data protection directive and any national data protection regulations based on it. A detailed briefing on the General Data Protection Regulation is available here. The final text will now need to be formally approved by the European Parliament and the Council and published in the Official Journal. There will then be a two year implementation period before the Regulation comes into effect, meaning that employers should expect the new rules to apply from sometime in 2018. Employers will need to consider the implications for their processing of employee data and prepare for compliance in 2018.
- The EU Commission and the US have agreed on a new framework to facilitate the transfer of EU personal data to the US, the EU-US Privacy Shield, following the ECJ ruling that the old Safe Harbour framework was invalid (reported in our November 2015 global EPI e-bulletin). The Article 29 Working Party (ie, the EU data protection regulators) have called on the Commission to send it full details of the agreement by the end of February so it can review whether it provides an adequate level of protection. The hope is for the arrangement to be adopted and in effect within three months.
4. Germany: reforms to temporary agency work law and company pensions
The last few months saw legislative progress in two areas: temporary agency work and company pensions.
- The German Federal Ministry of Labour presented a draft bill regarding the reform of the German Act on Temporary Agency Work and other laws. This law is to take effect on 1 January 2017. The draft bill provides for the introduction of a maximum hire period (subject to deviations permitted in the case of collective agreements). If the maximum hire term is exceeded, an employment relationship with the hiring business is deemed to arise, provided the temporary employee does not object to this. Currently, it is expected the draft bill will be agreed by the German Federal Government (Bundeskabinett) on 9 March 2016. Employers should keep an eye on progress and, once the new law has been approved, temporary agencies and employers hiring temporary agency workers should assess whether their business model still complies with the new requirements, particularly in terms of the maximum hire period.
- In late December 2015, the German Federal Council approved the law for the transposition of the EU Mobility Directive 2014/50/EU into national law, to take effect by early 2018. Among other things, the employer-funded company pension entitlements are to reach the status of vesting after only three years (instead of five years under the existing rules), if employees have completed their 21st year of age by that time. Moreover, an adjustment of pension rights of former employees with vested pension rights, a regulation on paying-off of minimum pension rights and detailed employers' information obligations have been set forth. The adjustment will apply to pension schemes which provide for a calculation of pension benefits on the basis of the salary received by the employee at the time of his/her retirement (e.g. 5% of the remuneration received at the age of 67). Companies may face additional costs once these changes come into force and may therefore want to review their pension schemes and decide whether to adjust them for new hires. They may also wish to assess the impact of the adjustment to former employees' rights and consider whether changes to schemes are required and legally feasible.
For more detail on these and other recent developments in Germany, please see our EPI Germany E-bulletin.
5. Hong Kong: developments to look out for in 2016
Two important Ordinances came into effect at the turn of the year, while two EOC reports suggest that discrimination law reform is likely to be on the agenda for 2016:
- On 1 January 2016, the Contracts (Rights of Third Parties) Ordinance came into effect. For contracts of employment, the Ordinance does not enable enforcement by third parties (eg, members of a corporate group) of an employee's obligations but, unless excluded, it can be used by third parties (eg, family members of an employee upon whom the contract confers a benefit) to enforce the employer's obligations. Employers will generally seek to exclude the operation of the Ordinance in all employment contracts. We recommend that contract templates are reviewed and amended as appropriate to include language to exclude or modify the application of this Ordinance. Further details can be found here (see item 4) and here.
- The Competition Ordinance came into effect on 14 December 2015, prohibiting (among other things) the exchange of competitively sensitive information (including, for example, in relation to salaries and benefits) between competitors. As a result, many employers are now looking to use third party benchmarking services and, when doing so, should ensure that the data provided is aggregated data, consolidated from a number of sources (eg, at least five), so that it is sufficiently anonymised and cannot be traced back to a specific employer. Employers should ensure that HR personnel and recruiters are made aware of the risks outlined. For further information on the impact of the Competition Ordinance on your business, please contact Mark Jephcott, Head of Competition - Asia.
- In January 2016, the EOC released two reports on discrimination on the grounds of sexual orientation, gender identity and intersex status, and separately on age discrimination in employment. The EOC reported widespread public support for legislative protection against discrimination for members of the LGBTI community, and called for the government to undertake public consultation as soon as possible to ascertain the appropriate scope and content of that legislation. The EOC also reported substantial support for legislation protecting workers from age discrimination, noting that a majority of respondents did not support a mandatory retirement age. Employers should monitor these developments and review internal policies and procedures as appropriate.
6. Japan: Non-renewal of fixed-term employment contract not justified by redundancy of role
Generally, when fixed-term employees have been continuously employed by the same employer for a number of years and the fixed-term contract has undergone many renewals, the fixed-term employees will essentially be treated like permanent employees under the eyes of the law, and if the employer decides on one occasion not to renew the contract, such a decision can be challenged. As a recent Court decision shows once again, even redundancy of the role is not a good enough reason to justify a non-renewal.
In October 2013, Aoba Post Office in Yokohama purported not to renew the fixed-term employment contract of an employee who had been continuously employed for almost 11 years and whose contract had been renewed roughly every six months. The employee lodged a claim in Court asking for a declaration that the refusal to renew was not valid. Aoba Post Office argued that due to recent restructuring of the delivery system, the role itself had become redundant.
On 19 January 2016, the Court handed down judgment with the finding that Aoba Post Office had not implemented sufficient measures to ensure that its fixed-term employees could continue their employment. The refusal to renew the employee's contract in this case was therefore found to be invalid.
In Japan, redundancy of a role does not necessarily justify managing out the person doing the role. Companies should discuss with the employee the alternative roles available within the company or at other branch offices, and try to avoid a termination as best as they can.
7. Korea: proposed changes to employment law
In September 2015, the Park administration introduced several amendments to Korean labour laws. The proposals have not yet been voted on and are being reviewed by sub-committees of the Korean National Assembly. They have been strongly opposed by the opposition party and labour unions. Some of the major proposed amendments include:
- An amendment so that a fixed term worker is deemed a permanent worker after four years rather than two years. This would remove the incentive for employers to terminate a worker's fixed term contract before the two year point is reached.
- An expansion to the circumstances where workers may be hired on a temporary basis through an agency, to cover those who are 55 years old and more, managers or professionals, or work in certain technology and manufacturing sector.
- Currently working hours cannot exceed 40 hours a week and, where there is an agreement between the employer and employee for extended work, 52 hours a week. The proposal is to clarify that the 40 and 52 hour limits apply to Monday to Sunday and not Monday to Friday, but permit another 8 special extended hours at weekends.
- "Ordinary wage" (which is used as the basis for calculating overtime pay or payment in lieu of notice or annual leave) is to be defined as all wages paid to employees regularly and across the board, and the government will be given the power to exclude non-fixed wages such as incentives from the scope of ordinary wage by Presidential Decree.
- The Ministry of Employment and Labour also announced guidelines on 22 January 2016 making it easier for companies to dismiss poor performers (allowing employers to specify lack of performance as one of the justifiable causes for dismissal in their rules of employment, so that it is easier to dismiss without imposing any disciplinary measures) and revise employment rules (no longer requiring the consent of a majority of workers to an unfavourable amendment if the change is accepted as reasonable/rational in accordance with social norms). The guidelines are not legally binding but will be used by Ministry officials to supervise labour and management relations.
8. Singapore: important changes to administrative requirements for employers and Central Provident Fund contributions
Many significant changes to the employment landscape were announced in 2015 and are due to take effect this year.
From 1 April 2016, the Employment (Amendment) Act 2015 will require employers to:
- issue itemised payslips to all employees;
- provide employees with written Key Employment Terms; and
- keep detailed employment records for each employee.
These requirements apply to all employees who fall within the scope of the Employment Act, which generally encompasses non-managerial and non-executive employees, and any employees in managerial or executive positions who earn SGD 4,500 per month or less.
A failure to fulfil the new requirements is likely to be treated as a "civil breach" resulting in an order to rectify the breach and potential liability of up to SGD 1,000 for a first contravention and SGD 2,000 for a second or subsequent contravention. Employers are advised to implement procedures for payslips, key employment terms and record keeping as soon as possible.
In addition, from 1 January 2016 the majority of the changes to the Central Provident Fund regime announced in the 2015 Budget have come into effect. These mandatory changes aim to enhance the CPF for employees, particularly older workers, and as a result may place a greater financial burden on employers.
In summary, changes that have taken effect include:
- an increase in the CPF Salary Ceiling by SGD 1,000 to SGD 6,000;
- increased employer and employee contribution rates for workers aged between 50 and 65;
- an enhanced Temporary Employment Credit regime; and
- new Special Employment Credit incentives.
Further details can be found here.
9. UK: new gender pay reporting obligation for large employers
The UK Government has published draft regulations requiring employers with at least 250 employees ordinarily working in Great Britain to publish gender pay data, for consultation until 11 March 2016. The key points are as follows:
- Employers will be required to take a data snapshot on 30 April each year and will then have 12 months within which to publish their data on a date that suits them. The plan is to bring in the regulations in October 2016, with the first snapshot to be taken on 30 April 2017 and data published by April 2018.
- The data will need to be signed off as accurate by a director or equivalent and will have to be published on the employer's UK website and retained there for at least 3 years. Employers will also have to send evidence of compliance to a government-sponsored website, and the government has stated that it intends to publish comparative tables by sector and may also name and shame those who fail to comply. No additional civil penalties for non-compliance are currently proposed, although this will be kept under review.
- The data required is:
- the difference in mean and median pay between males and females;
- the number of men and women working across salary quartiles;
- the difference in mean bonus pay during the previous 12 months; and
- the proportion of males and females who received bonus pay.
- Supporting guidance will "strongly encourage"– but not require – employers to contextualise their data with a narrative. The supporting guidance will also set out how to account for different governance structures such as subsidiaries and parent companies.
Employers will need to take action now to prepare for this change, to ensure they will have processes in place in time to capture the required data efficiently and to consider what steps they should be taking to address any pay disparity (and how these should be presented in any narrative).
Further details are included in our ebulletin here.
10. US: proposed new obligation for large US employers to report pay information
A rule recently proposed by the US Equal Employment Opportunity Commission seeks to expand the scope of information that US employers with over 100 employees ("Qualified Employers") must currently report to the federal government. Specifically, in addition to reporting the race, gender, and ethnicity of their employees, the proposed rule would also require Qualified Employers to report pay data. The EEOC and other federal agencies will use the data to assess complaints of discrimination and to proactively identify employers with pay disparities for potential investigation.
The proposed rule, which would come into effect in 2017, would supplement the current EEOC rule requiring Qualified Employers to submit an annual report regarding their employees' ethnicity, race, and gender. Under the proposed rule, Qualified Employers would also be required to report the number of employees in each ethnic, racial, and gender category who fall into certain salary bands, as well as the number of hours worked by employees in each of those categories. The EEOC expects that Qualified Employers will be able to extrapolate the new categories of data from W-2 tax forms.
In addition to using the pay data to uncover potentially discriminatory employment practices, the EEOC may also publish the data on an aggregated basis as part of its regular reporting of employment statistics.
Employers who are not subject to Title VII of the Civil Rights Act of 1964 will not be subject to the proposed rule.
The EEOC has specifically requested public comment on the utility and burden of collecting pay and hours-worked data as contemplated by the proposed rule. Employers may provide comments until 1 April 2016. If the proposed rule is enacted, the first filing date that would be affected would fall in September 2017.