Developments in international employment law over the past quarter. News from Europe, Belgium, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Russia, Spain, and the UK.


Labour market reforms

The sovereign debt crisis has triggered labour market reforms across Europe. In most cases, these reforms are intended to simplify hiring and firing and to stimulate employment. The July 2013 edition of our Labour market reforms tracker reports on planned and voted reforms in Belgium, France, Greece, Ireland, Italy, the Netherlands, Portugal, Spain and the UK.

Please contact Jean-François Gerard to get a copy of the tracker.


Harmonisation of blue- and white-collar statuses

Belgium is due to end the difference in the way blue-collar and white-collar workers are treated with respect to, among other things, their notice periods. The legislator has until 8 July 2013 to end this discrimination and to harmonise the statuses of blue-collar and white-collar workers, which may have a significant effect on the costs of termination. More information is available in our July 2013 Labour market reforms tracker.

Social ‘ruling’ activated

Recent rules about the fight against fictitious self-employment had foreseen the launch of a commission to provide guidance on the appropriate categorisation of work relationships. This commission has now been activated.

The commission can provide guidance for future and for existing relationships. For existing relationships, it has to be requested within a certain period after the relationship has begun. The period depends on who files the request.

The financial consequences of re-categorising an employment relationship will be weakened if it defers to a decision of the commission.

Misuse of social law

The act of 27 December 2012, entered into force on 10 January 2013, introduces a concept of misuse of social law. This is similar to the concept that was introduced in tax law. It is an misuse of social law when a party avoids the application of a social law or places him/herself under the application of such law while it is contrary to the aim of the law.

If the relevant authority or the inspectorate can prove the misuse, the legal act or its qualification used to commit the misuse will not be binding, unless the party involved can prove it did not intend to commit the misuse.

A Royal Decree will determine the misuse that falls under the scope of the new provisions.

A similar regime has been introduced within the framework of international secondments under social security, for the event that provisions of the relevant European regulations would be unduly applied to certain situations, in order to avoid the application of Belgian social security.

ECJ 16 April 2013 – within the framework of cross-border employment, the Flemish decree on use of language violates EU law

A Flemish decree of 19 July 1973 imposes the exclusive use of the Flemish language for employment relationships between employers in Flanders and their employees. Non-compliance results in the employment contract (or other relevant acts or documents) being invalid.

On the prejudicial question of the labour tribunal of Antwerp, the ECJ has decided that within the framework of cross-border employments, the decree, in particular the sanction of nullity, constituted a disproportionate limitation of the freedom of movement for workers as enshrined in article 45 of the EU treaty.

While it has been made about the Flemish decree, the same reasoning should apply to the Decree of the French Community on the use of language, which also provides for a sanction of nullity. Conversely, the existing rules in the Brussels Region and the German-speaking Community area should remain unchanged. They do not provide for a sanction of nullity but only in a mandatory translation on request of the employee.

It cannot be anticipated if and how the local legislators will modify the existing decrees. And the ECJ’s decision only concerns the cross-border employment situations. Hence, caution remains recommended when drafting employment contracts and documentation.


Employer liability for stress at work

In a recent case, the French Supreme Court showed the extent to which poor working conditions have become a sensitive issue under French labour law.

A case law dated 8 November 2012 noted the employer was at fault when an employee had a heart attack because of stress at work. The supreme court noted that cost-cutting measures meant the employee’s working hours increased to 70 a week. Indeed, the increase in workload was obvious before the employee’s accident at work. So, the employer should have known the danger the employee was exposed to, even if the employee had never complained before.

On 13 March 2013, the same court underlined that an employee who is absent because of work-related burnout cannot be dismissed, even if the employer is unaware of the deterioration of the employee’s health. Indeed, the employee’s absence was caused by a heavy workload, resulting in stress. So, the employee’s absence was the result of the employer’s breach of its health and safety obligation.

Job security to boost French competitiveness

On 14 May 2013, the French parliament adopted the Job Security Bill. Based on an agreement the social partners concluded on 11 January 2013, the bill aims to improve labour market flexibility and job security.

The bill changes labour code rules. It improves, for instance, supplementary health coverage and implements new rules on unemployment benefits, training rights (creating a training account), internal staff mobility, procedures of information, consultation of employee representatives, and so on.

The new bill changes the procedure for collective redundancies, in particular where companies with more than 50 employees plan to dismiss more than 10 employees within 30 days, triggering a job protection plan.

Companies (or groups of companies) that are obliged to implement a job protection plan will have to define the dismissal procedure – that is, works council’s information and consultation procedure, selection criteria for order of dismissals, timing of dismissals, number of job cuts and professional categories concerned, redeployment measures. They will have to either sign an agreement with the trade unions or implement a so-called unilateral document established by the employer. This agreement or unilateral document, as the case may be, will then have to be submitted to the Labour Administration.

The consultation of the works council is now framed into a closed timeline. At the end, the works council will be deemed to have been consulted, even if it refuses to give an opinion.

These new proceedings will, in principle, apply to any dismissal procedure started after 1 July 2013.

The bill changes employment litigation rules:

  • reducing the statute of limitations from • five to two years for claims relating to the performance or termination of the employment contract (three years for salary-related claims instead of five years); and
  • introducing minimal, lump-sum compensation for employees willing to settle at the conciliation hearing before the labour court in dismissal cases.

Finally, a significant part of the redundancy procedure litigation will shift to the administrative courts (except for claims disputing the absence of economic grounds).

The bill was enacted on 16 June 2013. The main provisions (‘job security agreement’, ‘internal staff mobility’ agreement, reduced statute of limitations, and so on) entered into force on 17 June 2013. Implementing decrees are currently being published.


Non-temporary agency workers pose a risk to user undertakings

The revised German Act on Agency Work, which implements EU Directive 2008/104/EC of 19 November 2008, came into force in Germany on 1 December 2011. One big change was a new qualification to temporary agency work. It stated that agency workers can only be assigned temporarily, reflecting the definitions of the directive.

As expected, the meaning of ‘temporary’ work and the legal implications when this is not the case soon gave rise to litigation under the new act. Case law on this point so far appears inconsistent. However, a strong opinion has evolved. An assignment is no longer temporary when there is a permanent demand for a job that is met by engaging agency workers. And the condition of being temporary must be understood to refer to the position, not the employee.

Case law disagrees on the consequence of a non-temporary assignment. For some courts, the company that provides agency workers would lose or not be granted its temporary work. Other court decisions suggest that when temporary agency workers are assigned on a non-temporary basis, this constitutes unlawful temporary agency work. This in turn, by virtue of law, leads to an employment relationship between the agency worker and the user – the company that uses the worker.

Where the agency only provides temporary workers to other group companies, does not target the market and only serves to reduce personnel costs or avoid dismissal protection laws, there is a risk that a German labour court will consider this circumventing the law and treat the temporary worker as an employee.

Companies that regularly use agency workers from another company within the same group, to fill permanent positions, are therefore at risk of having higher personnel costs and liabilities than expected. We are awaiting the German Federal Labour Court’s decision, which might draw a different conclusion. Until then, users should review the positions to which they assign agency workers against these risks.

Beware of looking for university graduates and young professionals

The German Federal Labour Court recently held that a job advert for ‘university graduates/young professionals’ can be viewed as unlawful age discrimination. The advert sought applicants for a hospital’s leadership training programme. According to the court, to an objective reader, it meant an applicant should be no more than 30 or 35 years old at most.

The court did not accept the employer’s defence, justifying age discrimination, that within 10 years 35 per cent of the employees would retire and almost 50 per cent would be over 50 years old. The court did not recognise this as a problem of an ageing workforce. It held that the employer failed to show the disadvantages of such an age structure within the workforce. The two-year training programme could not justify a maximum age in the sense that it would only be a reasonable investment for university graduates/young professionals, to be sensible from a business management perspective.

Hong Kong

Change to remedies available to employees for unreasonable and unlawful dismissal

The Legislative Council of Hong Kong proposes to change the remedies available to an employee who has been unlawfully or unreasonably dismissed.

Currently, if the Labour Tribunal finds that an employee has been unlawfully or unreasonably dismissed, it can order terminal payments. These are statutory payments an employee is entitled to on termination of employment. Usually these would have been paid to the employee in any event.

Alternatively, the Labour Tribunal can order reinstatement or re-engagement of the employee. However, only if the employer consents, and the court has no power to force this consent.

The proposed change will enable the Labour Tribunal, where it considers reinstatement or re-engagement appropriate, to compel reinstatement or re-engagement without consent. If the employer does not comply, it will be ordered to pay a further sum of three times the employee’s monthly wages, capped at HK$50,000, approximately US$6,500.

It is not yet known when the proposed change to the Employment Ordinance will be enacted. However, once adopted it will increase the need for employers to consider whether there is a valid reason for dismissal, as the incentive for an employee to bring a claim under the new regime will increase.

Abolishment of right to offset severance or long-service payments

Another change being discussed is to abolish the employer’s right to offset severance or long-service payments payable to employees in case of dismissal against the Mandatory Provident Fund (MPF) contributions made by the employer. Under the current regime, an employer may deduct the severance and long-service payments from the contributions it made into the employee’s MPF fund.

The proposal would mean that employees in case of dismissal will not only be entitled to severance or long-service payments but also to their full MPF fund. Although it is not yet clear when this proposed change will become law, if adopted, it will raise the costs of dismissal in Hong Kong.


Framework agreement on collective bargaining system

The main Italian Employers’ Association (Confindustria) and the main trade union confederations (CGIL, CISL, UIL) have recently entered into a framework agreement regulating national collective bargaining (the Framework Agreement). For the first time, for private sector collective bargaining, precise criteria concerning representativeness of unions and stipulation of national collective bargaining agreements (NCA) were agreed.

In particular, a minimum representativeness rate is necessary to participate in NCA negotiations. The NCAs will be considered binding by every union that is a party to the Framework Agreement if the draft of an NCA is approved – by means of a referendum – by a simple majority of the employees of the relevant sector and if the NCA is signed by one or more unions having a representativeness rate of at least 50 per cent +1.

Representativeness rates are calculated on the basis of both union membership ratios and vote percentages in the elections of the works council. The Framework Agreement also provides that all members of the works council be elected by the employees of the relevant work unit; before the Framework Agreement, one-third of these members were directly appointed by the unions.

Dismissal of an employee for failing to submit the medical certificate to his employer

The Italian Supreme Court upheld the dismissal of an employee who, failing to submit to his employer a medical certificate confirming his sickness, had four days of unjustified absence. On the basis of the general principles of good faith and fairness as set out by the Italian Civil Code, regardless of the factual existence or not of the sickness, the employee is obliged to promptly inform the employer in case of absence, to limit the prejudice caused to the employer. Failure to do so may result in the employee’s dismissal, as the court decided in this case.

Dismissal under employee’s lack of consent to accept transfer

Under Italian Law, in cases where an employer asks an employee to transfer from one company work unit to another, the transfer must be grounded on documented, objective business reasons. If these reasons exist and the employee declines the transfer, the employer may dismiss the person. The transfer proposal can also include a condition whereby the employee must consent before a set date. If the employee does not consent before this date, the employee can be dismissed.

The Italian Supreme Court recently decided a case in which an employee was not aware of the transfer proposal for reasons outside his control. Therefore, he did not give consent by the due date. But in this case, the court upheld the employee’s dismissal. He had been allowed to give his consent even after the due date, but did not.

Japan New rules for fixed-term employees have taken effect

Changes to the Labour Contract Act took effect on 1 April 2013. The changes reinforce protection for fixed-term employees, which has been long discussed. The recession has increased the number of fixed-term employees to an estimated 12 million, and their lives have likely lacked stability.

So, the practice of the courts had been to rule in favour of employees who have not had their fixed-term employment contracts renewed, if there were grounds to suggest the employees had reasonable expectations that their employment contracts would be renewed. The new changes give legislative effect to the rules developed by court practice – and they go even further.

The rule of ‘conversion to unlimited term employees’

The change that should have the most effect is the rule of ‘conversion to unlimited term employees’. Under this rule, if an employee’s fixed-term contract with the same employer has been renewed at least once and the total contract term exceeds five years, the employment contract will be converted to an unlimited term employment contract on the employee’s request.

Many employers may wish to avoid this conversion because it is difficult to dismiss an unlimited term employee under Japanese law. Using ‘cooling off periods’ between contract terms – for example, a cooling off period of at least six months for contracts longer than 10 months – may help stop contracts from being interpreted as lasting over five years.

However, employers should be careful not to be seen as trying to circumvent the law. They need to take care in renewing fixed-term contracts (ie, considering the employee’s performance or other factors to judge whether to renew the contract), by taking into account if the employee would be a suitable unlimited term employee in the future.

Other rules to reinforce protection for fixed-term employees

The changes also give legislative effect to the court practice outlined above. This stops employers from not renewing fixed-term employment contracts if there are grounds to suggest the employees had reasonable expectations that their employment contracts will be renewed.

In addition, the changes ban employers from setting unreasonable working conditions for fixed-term employees, compared with unlimited term employees (in which case, the working conditions considered to be unreasonable will be invalidated).


Recent developments in respect of flexible labour relationships

Flexible labour contracts have become more popular in the Netherlands. However, because people working on the basis of these flexible contracts often enjoy less protection than regular employees under Dutch law. These flexible contracts have also become more and more the subject of political discussions.

Payrolling, in particular, whereby the principal recruits and chooses the individual, who enters into an agreement with the payroll company and then works exclusively for the principal, is subject to criticism. Recently, in line with the opinion of several Dutch authors, a Dutch court ruled that in such triangular relationship no employment agreement existed between the payroll company and the individual. This was because the payroll company solely took care of the assignment of the individual to the principal. And this relationship therefore did not meet the elements of an employment contract under Dutch law. Consequently,

the next step in Dutch case law could be that the principal qualifies as the employer, effectively making the purpose of the structure, to shift the employer’s responsibility to the payroll company, redundant.

This ruling builds on a tendency to take more of a substance over form approach where it concerns the definition of ‘employer’.

Also, as part of the social agreement (Sociaal Akkoord) between social partners in April 2013, social partners have agreed to review how to counter the abuse of triangular relationships (eg payrolling, contracting, temporary employment agencies) and other shams. In this context, the special dismissal rules for individuals working on the basis of a payroll construction will be removed and more emphasis will be placed on the transparency of an employment relationship for the employee.


Potential changes to employment legislation

On 26 April 2013, the State Duma of the Federal Assembly of the Russian Federation adopted a draft bill regulating outsourcing personnel. To come into legal force, the draft bill needs to pass one more reading at the State Duma, to be approved by the Federation Council and to get signed by he president.

The changes provide for regulations for outsourcing personnel under personnel lease agreements and establish the terms and conditions under which such outsourcing is legal and appropriate. So far there has been no legislation regarding outsourcing personnel.

Under the changes, outsourcing services may only be provided by:

  • private employment agencies that have the necessary accreditation; and
  • companies exchanging personnel, if one of the companies has direct or indirect control over the other.

Private employment agencies may only send employees to individuals who need personal care or help at home, to individual entrepreneurs and to companies, to carry out the duties of temporarily absent employees and to individual entrepreneurs and companies for work related to known fixed-term (up to nine months) expansion of production or service volume.

In addition, private employment agencies may send employees studying full-time, single parents with three minor children and persons released from prisons to third parties under outsourcing agreements in other cases where it is permitted to execute fixed-term employment contracts under the legislation.

One significant issue of the changes is that the customer may incur secondary liability for all of the service provider’s obligations stemming from employment relations with outsourced employees. These include salary obligations, employment termination compensation payable to employees, as well as obligations for social and pension contributions.

In certain cases – for example, a strike, the customer’semployees being prevented from working due to reasons outside their control or the threat of mass staff reduction – engagement of employees by outsourcing is prohibited. The changes, if adopted as a law, will come into force on 1 July 2014.


First Supreme Court review of collective redundancies after the 2012 labour reform

The Supreme Court issued a first ruling on collective redundancies as regulated after the labour reform of 2012 and confirmed a decision declaring a proceeding invalid.

Two issues were raised: the consultation period and the conditions for a single employer consideration within a group of companies (involving joint and several liability of its members).

Further to the labour reform of 2012, employers may carry out collective redundancies without prior administrative authorisation, but going through a reinforced consultation period with the employees’ representatives.

The Supreme Court places emphasis on this consultation period. It should be directed to avoid or, at least, cut the scope of the collective redundancy and to mitigate its consequences, through social measures to improve employability of the redundant employees. The sentence further stresses the need for a real consultation period, meaning a period aimed at trying to reach an agreement between the company and the workers’ representatives, and not just a formality. In the case at stake, it was considered that the consultation had not been duly completed, and, therefore, the collective redundancy was declared invalid.

Second, the sentence deals with a group of companies for employment purposes. It resumes its traditional doctrine on the field. To extend the responsibility undertaken by one of the companies with its own employees to the other group companies, the companies must not only belong to same group but must also require additional elements; namely:

uniform organisation;

  • simultaneous or successive provision of services by the employees to various companies of the group;
  • creation of companies with no real operation;
  • common funds and employees; and
  • external appearance of unity and unity of direction.

In the case at stake, all companies belonging to this group were considered a single employer, so jointly and severally liable.

This case shows how the Spanish courts are shifting, on collective redundancies, towards a formal approach when resolving on the validity or not of such proceedings. Therefore, it is key to prepare and carry out a comprehensive consultancy procedure with the employees.


UK government passes legislation that introduces the new voluntary status of an ‘employee shareholder’ into UK law

The government has legislated to introduce ‘employee shareholder’ status. The proposal was announced in October 2012 and has been consulted on and debated, including twice being rejected by the House of Lords.

Employee shareholders will have the same rights as employees, except they will forego certain employment rights. These include:

  • the right to request time off for study or training;
  • the right to make a flexible working request (except to a limited extent after a return from parental leave);
  • the right not to be unfairly dismissed (except in health and safety cases, automatically unfair cases, or cases where the dismissal is discriminatory); and
  • the right to a statutory redundancy payment.

Employee shareholders must also give 16 weeks’ notice if they want to return early from statutory maternity, adoption or additional paternity leave.

In return for giving up these rights, the employee shareholder will be issued or allotted a minimum of £2,000 worth of shares in their employing company or its parent company.

The Finance Bill 2013 proposes changes to UK tax legislation to make sure the employee shareholder will not pay tax on the first £2,000 of shares. Further changes to UK tax legislation will make sure there will be no capital gains tax charged on disposal of the first £50,000 of shares (valued on an unrestricted basis, as at the respective dates of acquisition).

To agree that the individual will become an employee shareholder, the company must supply a written statement. And the statement must confirm the employee will not have certain employment rights and specify the rights that apply

to the shares. The agreement can only become effective if the individual gets independent legal advice from a solicitor or barrister. The company must meet the reasonable costs of this advice. Legislation has been proposed to provide that this advice will be tax-free for the individual.

Finally, an individual must be given a seven-day cooling-off period before the agreement takes effect.

It is expected that the new status will be implemented on 1 September 2013.

Employment Appeal Tribunal ruling has implications on the meaning of ‘establishment’ for the purposes of a collective consultation on redundancy

It has been reported that the UK Employment Appeal Tribunal (EAT) changed its position on the meaning of ‘establishment’ in section 188(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) for a collective consultation on redundancy.

Under UK law, an obligation to consult collectively with employees arises if an employer proposes to make 20 or more people redundant at one establishment within 90 days or less.

It has been acknowledged that the words ‘at one establishment’ are incompatible with the EU Collective Redundancies Directive (Directive 98/59/EC), under which there will be a collective redundancy even where the dismissals are at different establishments. However, before this case, the UK courts had not adopted a purposive interpretation of the UK legislation and a body of case law has developed regarding the definition of ‘establishment’.

In the relevant case the EAT reportedly ruled that the words ‘at one establishment’ in section 188(1) of TULRCA should be disregarded for any collective redundancy of 20 or more employees. The EAT found in favour of the trade union representing former employees of Woolworths in claims for protective awards, overturning the Employment Tribunal’s ruling that each store was a separate establishment for the purposes of TULRCA.

This would be a significant change to UK law. If it is proposed that at least 20 employees in a single business are to be made redundant, the number of establishments at which those employees work would be irrelevant in determining whether there is an obligation for collective consultation.

UK government consults on how the proposed shared parental leave scheme should be administered in the UK

Following an announcement in November 2012, the UK government consulted between February and May 2013 on how the proposed shared parental leave scheme should be administered. It is intended that shared parental leave (previously known as flexible parental leave) will be introduced in the UK in 2015.

Under the proposed scheme, eligible parents will be able to share the statutory maternity leave and pay that is only available to mothers. The same principles will apply to adoption leave and pay, which is only available to the primary adopter.

It is proposed that parents will be allowed to take their leave concurrently or separately and that they will be permitted (with the agreement of the employer) to take the leave in small blocks of no less than one week at a time.

The consultation addressed the details of how various aspects of the proposal will operate, including:

statutory ‘day one’ rights for fathers and partners of pregnant women to attend ante-natal classes;

  • eligibility requirements for the shared parental leave scheme and the application process;
  • the system of operating ‘keeping in touch’ days;
  • how to protect parents’ rights to return to the same job while maintaining flexibility for employers; and
  • how the system should be operated in the case of adoption.

The government will publish its response to the consultation in late summer.