Renewal of the Bangladesh Accord
On 29 June, a number of fashion brands and retailers, global trade unions and NGOs signed a renewed Bangladesh Accord, to improve and increase safety in the country’s garment sector. The current global Bangladesh Fire and Building Safety Accord was signed in May 2013 for five years as a response to the Rana Plaza building collapse, which killed over 1,100 workers and injured thousands more, bringing to light their poor working conditions. The new agreement builds on the first one and extends independent, expert building safety inspections for over 1,000 garment factories in Bangladesh supplying signatory brands, ensuring the achievements under the first Accord will be maintained and expanded. Among the changes provided for by the new agreement are the obligation of suppliers to pay severance to workers if they have to close or relocate a factory for safety reasons, the explicit protection of freedom of association and the enhancement of the dispute resolution mechanism. The new Accord also provides for the possibility to bring new categories of factories in scope, eg footwear and home textiles. The agreement has so far been signed by brands such as Primark, H&M, Inditex, C&A, Aldi and Tchibo. More signatories are expected to join the agreement. It will come into force after the 2013 Accord expires in May 2018, and will be effective until 2021.
Rights of EU citizens in the UK after Brexit: Do the UK Government’s proposals work for business?
A key concern for UK business is its ability to retain or attract EU workers in the wake of Brexit. Most employers want an immigration system that is simple to administer, inexpensive and which gives early certainty to EU citizens about their future status. Their worry is that without this EU citizens will be less likely to apply for jobs in the UK and those already in employment may be less inclined to stay. There is increasing evidence to suggest this is already happening. The UK Government’s proposals on EU citizens’ rights were published on 26 June. Please read our briefing, which looks at the proposals and at the concerns business might have about them. It also includes a table outlining how the UK proposals differ from the EU’s proposals as set out in its recent negotiating position paper.
SEs/Cross-border mergers and Brexit - What you need to know from an employment perspective
Following the Brexit vote, many UK businesses and UK based financial institutions have been looking at ways to retain access to the single market and/or retain passporting rights. In our briefing, we discuss two of the potential ways of achieving this: by reforming as a Societas Europaea or by effecting a cross-border merger with a company incorporated in another Member State. Please follow this link for our analysis of the main advantages and disadvantages of the two structures, together with a summary of the employment procedures involved. For a mobile/tablet friendly version, please follow this link.
Employee data protection
The Article 29 Working Party (an independent European working party that deals with issues relating to the protection of privacy and personal data - WP29) released a new opinion on data processing at work which looks at updating previous opinions from 2001 and 2002 on employee data processing and the surveillance of electronic communication.
The WP29 reiterates the importance of fundamental data protection principles, such as solid legal grounds to process employee data, protection against automated decision-making, and the need for compliance with transparency and proportionality of the processing.
The term “employee” is defined broadly as “new business models served by different types of labour relationships, and in particular employment on a freelance basis, have become more commonplace”. This reflects the position of the WP29 not wanting to restrict the definition to persons with an employment contract recognised as such under the applicable labour laws, but instead extending it “to cover all situations where there is an employment relationship”, whether based on an employment contract or not. This position is mainly aimed at businesses operating in the so-called “gig economy”, but also at other industries which are starting to rely on a very diverse workforce, mixing classic employees with workers and freelancers.
The opinion assesses the balance between legitimate interests of the employers and the reasonable privacy expectations of employees, providing a series of guidelines and good practice recommendations for employers in relation to a series of practical scenarios. For instance, employers may want to implement an “all-in-one” monitoring solution (eg a suite of security packages) enabling them to monitor all ICT usage in the workplace. However, the proportionality of the measures should be evaluated, as well as any additional actions that can be taken to mitigate or reduce the scale and impact of the data processing. Secondly, employers must implement and communicate acceptable policies, outlining the permissible use of the organisation’s network and equipment, and strictly detailing the processing taking place. In some countries this would require approval of a Works’ Council or other employee representative body. Interestingly, WP29 recommends that, in any case, an employee representative sample is involved in assessing the necessity of the monitoring, as well as the logic and accessibility of the policy.
On BYOD specifically, location tracking is unlikely to be appropriate for a personal device. Security softwares should not scan parts of the devices considered personal, such as the photos folder, while "sandboxing" (ie storing data within a specific app to protect it) is encouraged. The fact that employers have ownership of the electronic means does not rule out the right of employees to secrecy of their communications, related location data and correspondence. Employees should be given the opportunity to shield their private communications from any work-related monitoring. At the plenary session of 15 June, the EU Parliament passed a non-legislative resolution asking for common measures to ensure that collaborative platforms respect workers’ (and consumers’) rights as well as their tax obligations, to improve compliance and to fight abuse. Please read our blog post to find out more.
European Pillar of Social Rights
On 26 April 2017, the EU Commission published the “European Pillar of Social Rights”, setting out 20 key principles and rights divided into three chapters: equal opportunities and access to the labour market, fair working conditions, social protection and inclusion. These principles are not directly enforceable, but will need to be translated into updated EU law and dedicated national legislation in order to become effective. At the same time, the Commission started a consultation with trade unions and employers aimed at bringing non-standard workers into national social security systems. The consultation relates directly to several principles of the Pillar (eg, n. 4 “active support to employment”, n. 5 “secure and adaptable employment”, n. 12 on “social protection”). Discussions between the Commission, the Parliament and the Council started, to work towards a broad political support and endorsement of the Pillar. The Commission proposes a joint proclamation of the Pillar by the three institutions towards the end of this year.
On 15 June, European ministers were supposed to meet in Luxembourg to discuss the revision of the Posted Workers Directive of 1996 and approve the related proposal by the EU Commission of March 2016, which included changes aimed at establishing a level playing field. However, French president Emmanuel Macron required a tighter approach, making a series of proposals including the reduction of the legal limit of postings abroad to 12 months (instead of the proposed 24 months), therefore the agreement was postponed until automn. Belgium, Austria and Luxembourg support France’s proposals, whereas Italy, Croatia, Bulgaria, Estonia, Portugal and Spain are still hesitant. France has a very high rate of workers posted from other Member States and wants to ensure these postings are really temporary in nature and safeguard certain rights and guarantees. Posted workers, sent by their employers to work in another EU country temporarily, receive the same pay as they would at home and continue to pay social security there. Their remuneration can be lower than the one of an equivalent position in the country where they are working temporarily. This system is heavily criticised by some as a case for "social dumping". Macron is also keen to strengthen the cooperation between administrations in order to fight the phenomenon of the so-called letterbox companies.
Court of Appeal ruling regarding all-in compensation clauses
As already reported in our Fall 2016 edition, new formal requirements regarding so-called “all-in” compensation clauses entered into force in Austria as of 1 January 2016. In this context, the Austrian Court of Appeal recently ruled that an employee shall, in general, not be obliged to extend his working hours beyond the statutory permissible maximum limit of working hours (which is, save for certain exceptions, 50 hours per week). Nevertheless, in case this happens, the employee is entitled to receive overtime compensation (base salary plus overtime pay) for such working hours exceeding the maximum limit. If stipulated correctly and unambiguously, an all-in agreement could also effectively cover such inadmissible overtime working hours. However, according to good practice, without a clear wording or a respective contractual amendment or clarification, an all-in compensation shall only cover ongoing income associated with permitted work performance. Overtime hours exceeding the statutory permissible maximum limit of working hours shall (in case of doubt) be remunerated separately and additionally. In order to prevent claims for such additional salary payments this issue should be considered when concluding an employment contract and existing contracts may be reviewed or supplemented to avoid a potential risk of litigation. As of 1 January 2017 the rules on the prevention of wage dumping and social dumping were collated in a dedicated Act. The new Act has not significantly extended the material scope of the existing provisions, but includes changes for certain groups, and provides for administrative implications as employers are obliged to meet and comply with comprehensive reporting and documentation requirements. Employers may face penalties in the range of EUR 1,000 to EUR 50,000 per affected employee in case of violations of remuneration or documentation rules, the amount of such penalties depending on the number of affected employees and on the frequency of the offence. Following a proposal of the Austrian social-partnership, the Austrian Government passed a new law (the so-called "Reintegration-Part-Time Law") which entered into force on 1 July 2017 aimed at facilitating the reintegration in the workplace after long-term illness. Employers now have the possibility to reintegrate employee having been on a long sick leave on a part time basis, with the wage costs for the reintegration period being split between the employer and the social security system. The new law provides for a model under which the normal weekly working time may be reduced by 25% - 50% for a maximum period of six months, as long as a few prerequisites are met. The employee will receive, in addition to the pro-rated remuneration paid by the employer, financial support from the statutory health insurance carrier for the period of reintegration.
Impact of the revised EU Shareholders' Rights Directive on Belgian companies
The revised EU Shareholders’ Rights Directive was published on 20 May 2017 in the Official Journal. The Directive aims to improve long-term engagement of shareholders and transparency in listed companies. Member States will have until 10 June 2019 to implement it under local law. Please read our full briefing to learn about key changes introduced and consequences for Belgian companies.
The French “say on pay” regime
The Sapin II law of 9 December 2016 introduced binding “say on pay” rules for corporate officers’ remuneration in listed companies. Their pay arrangements must be described in a resolution submitted at least once a year to shareholders. With the exception of fixed remuneration, no payment can be made prior to obtaining shareholder approval, failing which a new proposal must be submitted at the next general meeting. Pending approval, the previous terms must remain in force. The implementation decree of 17 March 2017 clarified the meaning of “remuneration” for these purposes: it includes directors’ attendance fees, fixed and variable annual remuneration, multi-year remuneration, share options, restricted shares, etc. Even though both the Sapin II law and the Shareholders’ Rights Directive cover “say on pay” rules, the French law contains stricter requirements than the Directive and is not to be considered its implementation law. The Directive provides for minimal harmonization of rules, which means that France will remain free to adopt and implement a more restrictive regime.
Emmanuel Macron’s political agenda: labour law reform
The newly elected French President Emmanuel Macron has shared his plans for labour law reforms which should be partly implemented by the end of the summer by way of executive decrees (rather than legislation debated in Parliament). His main reform proposals are: • introducing more flexibility for companies by extending the list of matters on which collective agreements entered into at company level can override provisions of national industry-wide collective agreements; • simplifying employee representation by merging the works council, staff delegates and the health and safety committee into a single employee representative body; • capping the amount of damages that can be awarded by labour courts for unfair dismissal; • reducing employee social security contributions and - under certain conditions - employer contributions. Furthermore, overtime pay would be exempt from social security contributions; • promoting entrepreneurship, eg by extending unemployment benefits to self-employed entrepreneurs. On 13 July, the National Assembly approved a bill (loi d’habilitation) presented by the Macron government, which, if approved by the Senate, will authorise the government to issue decrees implementing the reforms. The decrees are expected to be issued in September.
Transnational secondment of workers to France
In August 2016, the so-called “El Khomri Law” introduced new provisions on workers posted to France from abroad in order to reinforce the restrictions in this area, especially for temporary work agencies and in the construction sector. Implementation measures have now been published. They include an obligation for all employers based outside France, who intend to second employees to provide services in France, to submit a declaration to the competent French labour authority and to pay a lump sum contribution of 40 euros per posted worker. The host company must ensure that the foreign company has complied with this requirement before the secondment begins, failing which it will have to file a subsidiary declaration in this respect. The new rules, which appear to apply even to intra-group secondments regardless of the duration (eg, a one-day business trip), will come into force on 1 January 2018.
The Sapin II law requires legal entities with at least 50 employees to implement appropriate arrangements for receiving concerns raised by whistleblowers. A decree of 19 April 2017 has detailed the content and the conditions for the establishment of these arrangements. According to this decree, the arrangements must specify: • with whom whistleblowers can raise their concerns (ie, their supervisor, employer or a specially appointed referee); • which information must be provided (ie relevant facts, information or documents to support their claims); • how the employer or its representative should go about discussing the issue with the recipient of the report; • steps to acknowledge receipt of the report and inform the whistleblower about the foreseeable timeframe for evaluating the report and how she/he will be informed of the outcome of the assessment; • how the employer will ensure that the whistleblower’s identity and the alleged facts remain confidential, even if the report is communicated to third parties for investigative purposes.
Act on Pay Transparency enacted
The Act on Pay Transparency was finally enacted on 6 July 2017. Under the Act men and women may not be remunerated differently for equal work or work of equal value. The Act grants employees an individual information right with regard to the average monthly remuneration of a group of at least five employees of the other sex working in the same or an equivalent position, provided the employer regularly employs more than 200 employees. The information request shall be made by the works council or, if no works council exists or if the employee is an executive employee and thus not represented by the works council, by the employee him-/herself. Furthermore, if the employer regularly employs more than 500 employees, an assessment procedure to review compliance with equal pay principles has to be implemented. In addition, the Act requires employers that employ regularly more than 500 employees and that are obligated to prepare management reports under the German Commercial Code to publish reports on gender equality and equal pay; reports are due every three (for tariff-bound employers) or five years.
ECJ decision on co-determination on supervisory boards – Erzberger v TUI (C-566/15)
On 18 July, the European Court of Justice (ECJ) issued its judgment in the “TUI case”, dealing with the question whether or not employees who do not work in Germany but in another Member State should be entitled to vote and stand as candidates in employee elections to the supervisory board. Following the Advocate General’s opinion and the EU Commission’ statement, the ECJ concluded that the existing German rules (MitBestG) are compliant with EU law. According to the Court, Article 45 TFEU (Treaty on the Functioning of the European Union) does not preclude legislation, such as the German rules in dispute, which provides that only employees employed in the establishments of a company situated on national territory have a right to vote or to stand for election as employee representatives on the supervisory board of that company.
ECJ decision on dynamic reference clauses – Asklepios (C-680/15)
Based on references for a preliminary ruling from the German Federal Labour Court, the ECJ decided on 27 April 2017 that Article 3 of the Acquired Rights Directive (ARD) and Article 16 of the Charter of Fundamental Rights of the European Union require that, in case of a transfer of business, clauses in the employment contracts of a transferring employee pursuant to which the employment relationship is governed not only by a collective agreement in force on the date of the transfer, but also by agreements subsequent to the transfer and which supplement, amend or replace the original collective agreement, remain in effect and need to be respected by the acquirer, if the national law provides for the possibility for the acquirer to make adjustments to the employment contract both consensually and unilaterally (C-680/15). The decision was eagerly awaited, since in its 2013 “Alemo-Herron” decision the ECJ had ruled that dynamic reference clauses do not bind the acquirer in a transfer of business scenario if the acquirer cannot exert influence on the negotiations on the referenced subsequent collective agreements (C-426/11), whereas in the case at hand the ECJ ruled the exact opposite, ie that the collective agreements do indeed continue to apply dynamically. The ECJ treats the two cases differently because in the “Alemo Herron” case the acquirer was not able to adjust the reference clause following the transaction. German labour law experts, though, are aware of the very strict (and rarely fulfilled) requirements of a so called termination for modification of contract, being the only way to unilaterally adjust the reference clause (with the effect of reducing the employee’s salary) – from this perspective the ECJ decision came as a surprise.
Measures aimed at protecting and supporting self-employed workers
The Italian legislator has provided for more protection for self-employed workers. Under the new regulation, the contractual clauses that recognise to the employer the power to unilaterally change the conditions of the agreement or, for those self-employed workers who are performing their activity on a continuous basis, to terminate it without notice are illegal and ineffective. In addition, the contract cannot provide payment terms exceeding 60 days from the receipt of the invoice or the payment request. Protection of self-employed workers is also provided in case of maternity and sickness. Firstly, the new piece of legislation grants to self-employed workers the same right normally granted to employees to benefit from an economic allowance during the maternity leave, which may last from two months before the birth to three months after it. Moreover, those self-employed workers who are performing their activity on a continuous basis are entitled to suspend the performance of their activity (and, conversely, the employer is entitled to suspend the payment) for a period not exceeding 150 days per year in case of maternity, sickness or work accident, provided that the employer still has an interest in the performance of the relevant contract. Furthermore, the new legislation also provides that in case of maternity every self-employed worker can be substituted by other trusted workers who satisfy necessary professional requirements, subject to the employer agreeing to the relevant substitution. Lastly, in case of sickness or work accident impeding the effective performance of the activity for more than 60 days, the self-employed worker is exempt from the obligation to pay the relevant social security contributions and insurance premiums to the competent Italian public bodies. In addition, other legal instruments support the self-employed workers in their own activities. For instance, the expenses borne for professional trainings are fully deductible and their intellectual property rights are generally recognised to them.
Smart work and right to disconnect
In order to reconcile working time with personal life time and, at the same time, increase the competitiveness of Italian businesses, a new piece of legislation allows the parties of an employment contract to agree on a more flexible way of working. Smart working, is characterized by the fact that the employee does not have to respect a strict working time and the working activity can also be performed outside the employer’s premises. The specific terms and conditions are to be agreed by the parties in writing. A critical aspect of smart working consists in finding a balance between the employer’s monitoring power on the performance of the employee who works outside the company’s premises and the privacy of the relevant employee, in particular outside of working hours. For this reason, the abovementioned agreement has also to: a) specify how the employer’s monitoring power can be exercised; b) impose certain limits to its exercise; and c) specifically indicate what conducts of the employee can lead to disciplinary sanctions. In order to guarantee the “right to disconnect” to the employee, the agreement between the employer and the employee has to clearly indicate the periods of rest and provide all the necessary technical and organisational measures to ensure the disconnection of the employee from work devices outside of working times.
New limits for voucher-based work
The Italian legislator recently changed the regulation regarding “voucher-based” work, a specific form of payment for occasional workers under which employers use vouchers from the INPS (the Italian social security body), rather than cash, to pay for a service of a worker. Since the regulation was liberalised in recent years leading to a boom in their use, the legislator has decided to introduce further limits in order to avoid the abuses arisen under the previous regulation. The new regulation provides that the use of voucher-based work is limited to households and companies that do not employ more than 5 permanent employees and do not operate in the agricultural sector. In addition, the voucher-based worker cannot receive more than EUR 5,000 per year as total remuneration for all the working activities he/she has performed during the same year. Similarly, a household or a company cannot use voucher-based workers spending an overall amount of more than EUR 5,000 per year. Moreover, a voucher-based worker cannot receive more than EUR 2,500 per year from the same firm or household, and the working activities have to be performed within the limit of 280 working hours per year. In case of violation of these two limits, the voucher-based worker will be considered as a permanent employee.
Joint and several liability in contracting and subcontracting arrangements
In order to foster accountability of businesses involved in contracting and subcontracting arrangements, the Italian legislator modified the law provisions regarding joint and several liability of the principal and its contractors and subcontractors. Under the previous legislation, the principal and its contractors and subcontractors were jointly and severally liable with regard to the payment of salaries, social security contributions and insurance premiums vis-à-vis the workers involved in the contracting and subcontracting arrangements within two years of the termination of the relevant agreement. This system of joint and several liability was (and still is) expressly extended to the workers of all the contractors and subcontractors in a supply chain. However, the workers of the contracting parties were entitled to obtain the relevant payments from the principal only when their employer, ie the contractor or subcontractor, was not financially able to fulfil their relevant obligations towards them. According to the new legislation, these workers are entitled to obtain the payment of salaries, social security contributions and insurance premiums both from the principal and their employer, ie the contractor or subcontractor, irrespectively of the fact that the latter is financially able to fulfil their relevant obligations towards them.
Transfer of a going concern (or a part thereof) and change of service provider
Italian law used to distinguish between a change of contractor and a transfer of a going concern (or a part thereof), providing that when a new contractor hires employees already employed by the previous contractor, the regulation concerning the transfer of a going concern (or a part thereof) did not apply to them. The EU Commission started a pre-infringement procedure against the Italian Government, because Italian law allegedly breached the EU Directive regarding transfer of a going concern (or a part thereof) in not considering a change of service provider as falling into the scope of the relevant Directive. In order to be compliant with the EU Commission opinion, the Italian legislator has decided to modify the relevant local provision. Therefore, according to the new piece of legislation, the regulation concerning the transfer of a going concern (or a part thereof) does not apply in case of a change of service provider provided that: a) the new contractor has its own organisational and operational structure; and b) there are elements of discontinuity in the performed activity, which demonstrates that the new contractor has a different and specific business identity compared to the former one. Otherwise, a change of service provider is a transfer of a going concern (or a part thereof). If this is the case, the following rules apply (inter alia): a) all rights and obligations arising from employment contracts related to the going concern (or a part thereof) that has been transferred from the former contractor shall be transferred to the new contractor; b) the new contractor shall be jointly and severally liable in respect of all the obligations which arose before the date of transfer from the relevant employment contracts existing on the date of the transfer; and c) if the relevant dimensional thresholds are met, the former and the new contractor shall carry out the relevant information and consultation procedure vis-à-vis the unions.
New Action Plan for the country’s labour reforms
On 28 March 2017, the Council for the Realization of Work Style Reform approved an Action Plan introducing overtime regulation with accompanying penalties to address the culture of long working hours. A number of related bills are expected to be tabled before the National Diet in 2017.
The main points of the legal reform are listed below: Under existing legislation, as long as employers conclude the “Article 36 agreement”, a labour agreement on overtime pursuant to the Labour Standards Act, employees are allowed to work unlimited number of hours. Guidelines regarding limits on overtime were published by the Ministry of Health, Labour and Welfare; however, these did not contain reference to penalties in case of violation of overtime limits. The Action Plan for the Realization of Work Style Reform aims to limit overtime to 45 hours per month or up to 360 hours per year. Even if employers had concluded the “Article 36 agreement”, overtime hours cannot exceed 720 hours per year. Barring special circumstances, penalties may be imposed on employers whose employees have exceeded the prescribed limit in violation of the Act. Moreover, where employee workload is temporarily increased and overtime hours begin to encroach upon the 720-hour limit, the hours must still be: (i) capped at the monthly average of 80 hours for periods between two and six months including holiday overtime; (ii) less than 100 hours in any given month including overtime work including holiday overtime; and (iii) these exceptions can be applied for half a year at maximum. The bill states that these points will be submitted to the National Diet in autumn. The government published draft guidelines on Equal Pay for Equal Work in December 2016. The Action Plan aims to improve working conditions of non-regular employees. The basic principle of “Equal Pay for Equal Work” is to harmonise working conditions between regular and non-regular employees including base salary, allowances, welfare, education, and training. Under the Action Plan, judicial relief can be obtained by way of court ruling to ensure effectiveness of the draft guideline. The plan also aims to promote teleworking and second jobs, which will provide employees having childcare commitments or caring duties for family members with opportunities to work without geographical or time restrictions. In order to implement the plan, the government is expected to renew and establish several guidelines.
Amendments to the Working Conditions Act
In our Fall 2016 edition we reported about the changes of the Working Conditions Act, aimed at strengthening employers’ and employees’ engagement with respect to occupational health services, sickness prevention and at enhancing the conditions under which the company doctor operates. The changes came into force on 1 July, the most important being that (i) employers have to grant employees access to a company doctor; (ii) company doctors must be provided with the opportunity to visit any workplace; (iii) employees are under circumstances entitled to a second opinion from another company doctor; (iv) works councils have the right of approval in relation to the appointment of an employee expert (an employee entitled to assist the employer in relation to compliance with employers’ obligations under the Working Conditions Act). In our Fall 2016 edition we informed you that the Declaration of Independent Contractor Status (VAR), confirming the status of independent contractors, was replaced by so-called ‘model agreements’ based on the Assessment of Employment Relationships (Deregulation) Act with effect from 1 May 2016, providing for a defeasible assumption of the status of an independent contractor. A transitional period was scheduled to apply until 1 May 2017, which was initially extended to 1 January 2018. The transitional period has been extended again to 1 July 2018 in order to give employers and employees further opportunities to draft legally enforceable ‘model agreements’. During this period, the government will not impose any fines and/or additional tax assessments unless in case of obvious abuse.
Amendments to Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act
As of 1 July, the Evaluation on the Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act entered into force. This Act will simplify and improve the Executives’ Pay (Standards) Act. The administrative burden is reduced and the norm to counteract legal evasion tightened. Some changes to the benefit of institutions and top officials who fall within the scope of this Act have come into force retroactively as of 1 January 2017. These changes include: • Abolishment of the prohibition of variable remuneration. The Evaluation Act allows variable rewards as long as the total remuneration remains below the applicable remuneration maximum; • Extension of the exception for dismissal fees. Dismissal fees deriving from a generally binding collective labour agreement or statutory provision were already excluded for the standardisation. This exception will now also apply with respect to benefits that arise from other collective labour agreements or collective arrangements. The foregoing does not apply to i) arrangements that are unilaterally determined by the employer and ii) social plans; • Extension of the exception with regard to an applicable work-to-work programme. If an exemption from employment is part of an applicable work-to-work programme resulting from a statutory provision, collective labour agreement or collective arrangement, exemption from work will no longer be considered as severance pay within the meaning of the Executives’ Pay (Standards) Act.
A risk-oriented approach to state supervision of employment matters
On 1 March 2017, changes to Russian legislation entered into force according to which a risk-oriented approach to state supervision of employment matters was adopted. Under the new rules, all employers will be categorised according to the level of risk of their main area of business (eg, mining, manufacturing, construction, transportation and storage, information and communication activity, other activities) and the level of risk of employer’s violating requirements to employees’ life and health safety. Risk levels will be determined on the basis of an approved formula which takes account of, among other things, workplace accidents, the severity thereof, workplace injuries, and failures to pay salary on time. The frequency of scheduled inspections by the State Labour Inspectorate will depend on an employer’s risk level: • in case of a high-risk level, once every two years; • in case of a significant-risk level, once every three years; • in case of a medium-risk level, no more than once every five years; and • in case of a moderate-risk level, no more than once every six years. There will be no scheduled inspections of employers assigned a low-risk level.
New rules on administrative liability for breaches of personal data legislation
On 1 July 2017, a law establishing new types of violations of personal data legislation and increasing administrative fines for violations in this sphere came into force. Currently fines for breach of personal data legislation are up to RUB 10,000 (approx. USD 170) for companies and up to RUB 1,000 (approx. USD 17) for their executives. The law provides for differentiated grounds for administrative liability for breach of personal data legislation (eg, (i) processing personal data for purposes different from those for which such data was collected, (ii) processing personal data without the written consent of the personal data subject where such consent is required under Russian law, (iii) failure to comply with statutory requirements on the safekeeping of physical storage media containing personal data where such failure leads to unlawful or accidental access to such personal data or certain other unlawful actions in relation thereto) and related fines for companies and/or their executives. The amounts of new fines vary from RUB 15,000 to 75,000 (approx. from USD 250 to 1,250) for companies and from RUB 3,000 to 20,000 (approx. from USD 50 to 330) for companies’ executives.
Introduction of electronic sick-leave certificates
From 1 July 2017, subject to the employee’s written consent, sick-leave certificates may be issued electronically. Such certificates of temporary disability will be signed by a medical specialist and a medical institution using an encrypted qualified digital signature. However, electronic issuance of sick-leave certificates requires that both the relevant medical institution and the employer sign up to a special information-sharing system supported by the Russian Federation Social Security Fund. Since it is planned to switch to electronic sick-leave certificates as to the main form of documenting temporary disability in future, it is reasonable for employers to start taking steps for signing up to such information-sharing system. Otherwise, if a Russian employer is not planning to take such steps in the near future, the company is advised to inform its employees that for the time being it will not accept electronic sick-leave certificates. Despite the introduction of electronic sick-leave certificates, it will still remain possible to issue paper-based sick-leave certificates.
Employers are required to provide basic civil defence training, exercises and drills
As of 2 May 2017, the Russian Federation Government itemized and expanded the responsibilities of employers relating to civil defence. Civil defence encompasses various activities aimed at defending people and cultural values in case of a military conflict or industrial and natural disasters. Under Russian law, certain obligations with regard to civil defence are imposed on all companies that engage employees in Russia, including branches and representative offices of foreign companies. In turn, all individuals employed in Russia, including all foreign employees, are required to undergo special trainings, participate in civil defence practice and perform other obligations required by law. Among other things, employers shall also: • develop a basic introductory civil defence training programme; • have new employees undergo such training during the first month of their employment; and • schedule and hold civil defence exercises and drills. Employers were already obliged to train employees in civil defence but now they are required to provide such training as a formal course. Failure to comply with the requirements and to hold civil defence trainings is an administrative offence punishable by a fine of up to RUB 200,000 (approx. USD 3,450) for companies and up to RUB 20,000 (approx. USD 350) for their executives.
Bonus of the manager after a transfer of undertaking
The High Court of Justice of Madrid has clarified what happens to a bonus plan further to a transfer of undertaking. In the relevant case, the accounting system applied by the Canadian company, of which the plaintiff was a manager, was in accordance with US GAAP, where the revenue was not identified with turnover, but with the profit margin applied over costs incurred. This was the accounting system used to determine the income that would serve as the basis for calculating the bonus according to the manager's incentive plan. At a certain point the Canadian company was bought by a Spanish company, which applied a European accounting system in which the criterion for determining revenue recognition was turnover. According to the incentive plan of the seller, which applied the American regime, the manager was not entitled to receive any additional remuneration to that previously received. However, the manager was claiming a bonus of about EUR 200,000 arguing it should be calculated according to the system of recognition of revenue of the buying company. The first instance court partially upheld the claim and ordered the company to pay the manager the bonus calculated in accordance with the Spanish accounting system as well as a 10% increase in late payment interest from the date of accrual until the judgment date. The company appealed the judgment alleging that the bonus is to be calculated taking into account the terms agreed in the incentive plan, according to which the US billing criteria should be applied. The Court ruling on the appeal, based on previous judgments of the Spanish Supreme Court, recalls that in the order established for the interpretation of contracts, the first rule is to go to the literal meaning and the proper sense of the wording, so that the words and intention of the parties constitute "the main hermeneutical rule". Therefore, the bonus must be calculated taking into account the terms agreed by the company and the manager and should in no case be calculated according to the revenue criteria of the new company, that differ from those of the former one even after a transfer of undertaking. The conclusion is that the new company is obliged to maintain the conditions of the bonus that the manager had with his previous company, whether to the benefit of the employee or otherwise.
Posting of workers
Spain recently implemented the 2014 EU Directive on the enforcement of 1996 Directive concerning the posting of workers in the framework of the provision of services. The 2014 Directive includes a series of measures aimed at enforcing an appropriate level of protection of the rights of workers posted for the provision of cross-border services, in particular to ensure that the applicable conditions of employment are met in the Member State where the services are going to be provided, facilitating the exercise of freedom to provide services and promoting an environment of fair competition within the European Union. Spanish law 45/1999 on the posting of workers in the framework of a cross-border provision of services already anticipated the content of the 2014 Directive. In addition, certain administrative actions have recently been carried out, meeting part of the requirements of the 2014 Directive. A May 2017 Royal Decree ensures the full implementation of the Directive. Please click here to read about the provisions introduced by the Royal Decree.
On 11 July 2017, Matthew Taylor published his much anticipated Taylor Review Report on modern working practices. Entitled Good Work, the Report sets out specific recommendations and advocates strategic shifts aimed at better reflecting and supporting the changing way in which we work. It is, in the main, a balanced report aimed at achieving fairness and certainty in the labour market. It is now for the government to review the Report and to determine to what extent its recommendations should be implemented through legislation or other means. A number of the recommendations in the Report are key for business, including: • a recommendation that the three tier employment status framework should be retained but ‘worker’ status should be replaced by ‘dependent contractor’ status and each worker category should be exclusive. The aim is to make it easier to distinguish between employees, dependent contractors and those who are genuinely self-employed. This new framework should be reinforced by changes to the employment tribunal system aimed at making it more straightforward for individuals to establish their employment status quickly and without paying a tribunal fee; • a recommendation that there be increased protections for agency workers and zero hours workers in relation to pay and working hours. For a more detailed analysis of the recommendations of the report, please see our briefing here. For our related briefing on how employers might best seek to incentivise their flexible workforce please see here. Governance reform was a key focus for the last Conservative government, and formed part of the party’s manifesto for the June 2017 general election. It is unclear how many of its plans it will now pursue as the Queen’s Speech on 21 June did not refer to the topics covered by the relevant manifesto pledges (which included new legislation on, for example, shareholders’ approval of executive remuneration and the representation of employees’ interests on boards). These pledges built on the then government’s November 2016 green paper which was designed to stimulate a debate on options for strengthening the UK’s governance framework. The details of the proposals set out in the green paper are set out in our briefing here. The last Parliament’s Business Energy and Industrial Strategy’s Select Committee also issued a report on governance reform in April 2017 - the recommendations made by the Committee are set out in our briefing here. The McGregor-Smith Review on race in the workplace and the government’s response were published in March 2017. The Review’s main recommendations for improving diversity within organisations are: (i) listed companies and businesses with more than 50 employees should publish a breakdown of employees by race, ideally by pay band, on their website and in the annual report; (ii) the government should legislate to ensure that workforce data broken down by race and pay band are published; and (iii) businesses with more than 50 employees should identify a board-level sponsor for all diversity issues, including race, who should be held to account for the overall delivery of aspirational targets - chairs, CEOs and CFOs should explain what steps they are taking to improve diversity in their statements in the annual report. The then Business Minister wrote to the chief executives of FTSE 350 companies calling on them to take up key recommendations from the review.
UK cases update
Employer’s belief that a whistleblower’s disclosure is not protected is irrelevant
In May 2017, the Court of Appeal decided in the case of Beatt v Croydon Health Services NHS Trust (Beatt) that when determining whether a whistleblower’s disclosure is protected, courts and tribunals should apply an objective test and not take into account the employer’s belief that the disclosure was not ‘protected’. Under English law, a disclosure is ‘protected’ if it relates to a wrongdoing (or potential wrongdoing), the whistleblower reasonably believes that the disclosure is in the public interest, and the whistleblower has made the disclosure to a certain category of person (which includes the employer). In Beatt, the employer decided that the individual’s disclosure was not ‘protected’ because they considered it to be motivated by his troublesome working relationship with some of his colleagues and therefore believed that the disclosure did not meet the test of being ‘in the public interest’. This case gives a useful overview of the factors which are considered relevant and irrelevant in a whistleblowing claim. Employers should not allow their subjective opinions or suspicions to prevent them from properly investigating whistleblowing disclosures.
How to calculate a day’s pay for employees on ‘annual contracts’
In May 2017, the Supreme Court decided in the case of Hartley v King Edward VI College that the correct daily accrual pay rate for employees on ‘annual contracts’ who work outside their contractual hours is 1/365 of salary not 1/260 of salary (as the employer in the case had argued). It also held that salary accrues at an equal daily rate for contracts to which the Apportionment Act 1870 applies (ie, employment contracts that are not infinitely divisible and do not set hourly rates), but that the employer and employee can contract out of the Apportionment Act by agreeing an alternative daily accrual rate. This case concerned the withholding of pay in a strike situation but the principles apply equally to other types of unpaid leave. Whilst the judgment is of fairly narrow scope (in that it applies only to one category of employee), it is important for businesses to be clear what accrual rate applies to their employees - particularly those with unionised workforces who might be faced with working out a day’s pay for strike purposes. Since the case made clear that an alternative daily accrual rate can be agreed, businesses may now wish to review their employment contracts/employee handbooks to assess to what extent they specify a daily rate of accrual. If they do not do so, it may be worth making a small amendment to ensure they do, potentially amending current contracts at the next pay review.
Court of Appeal guidance on the public interest test in whistleblowing claims
On 10 July 2017, the Court of Appeal confirmed that a whistleblowing disclosure can be in the public interest (as required under UK whistleblowing legislation) where that disclosure is also in the individual’s private interest (for example, where it involves a breach of their employment contract). In Chesterton Global Ltd v Nurmohamed, the Court set out a number of factors that can be a ‘useful tool’ for future courts to consider when analysing whether an individual’s private interest is also in the public’s interest, namely: • the number of people whose interests the disclosure served; • the nature of the interest affected and the extent to which the interest is affected by the wrongdoing disclosed; • the nature of the wrongdoing disclosed; and • the identity of the alleged wrongdoer. Indirect age and race discrimination: no requirement to prove the reason for particular disadvantage
Under English law, indirect discrimination occurs when an employer applies a provision, criterion or practice (PCP) both to people who have and people who do not have the protected characteristic in question but which puts people with that characteristic at a particular disadvantage when compared with others and puts, or would put, the individual at that disadvantage, unless the employer can show that the PCP is a proportionate means of achieving a legitimate aim. In the conjoined cases of Essop and others v Home Office and Naeem v Secretary of State for Justice, the Supreme Court decided there is no requirement for a claimant to prove the reason why the PCP puts or would put an affected group sharing a protected characteristic at a particular disadvantage. What the claimant has to show is a causal connection between the PCP and the disadvantage suffered, both by the group and the individual. On 3 May 2017, the Financial Conduct Authority (FCA) published Policy Statement PS17/10 on remuneration in CRD IV firms. This sets out the response to the FCA Consultation Paper CP16/28 from September 2016. The Consultation Paper proposed changes to the FCA Handbook and guidance to make them compliant with the EBA Guidelines on sound remuneration policies. The Policy Statement sets out the final rules as well as non-Handbook guidance on frequently asked questions. Firms are required to comply with the EBA Guidelines and the FCA rules and guidance for the 2017 performance year onwards. In October 2015, the FCA and PRA published rules requiring banks and insurers to introduce whistleblowing procedures internally, which came into force in September 2016. In September 2016, the FCA and the PRA consulted on extending aspects of this regime, in the case of the FCA, to UK branches of overseas banks (EEA and third-country) and, in the case of the PRA, to UK branches of non-EEA deposit takers and overseas insurers (EEA and third-country), including reinsurers. On 26 April 2017, the PRA published Policy Statement PS8/17 and on 3 May 2017, the FCA published Policy Statement PS17/7, each setting out the new whistleblowing rules. The rules are not as extensive as the rules which came into force in September 2016. They require UK branches to communicate to their UK-based employees that they can use the whistleblowing services offered by the FCA and PRA. If a UK branch has a sister or a parent company that is subject to the UK whistleblowing rules in its own right, it must inform its staff that they are able to use the other group entities’ whistleblowing arrangements too. Following consultation, the final rules will not apply to UK branches of EEA insurers or reinsurers. The rules will come into effect on 7 September 2017.
FCA policy statement on applying the conduct rules to non-executive directors in banking and insurance
In Autumn 2016, the PRA and FCA consulted on proposals to extend their conduct rules and standards to standard non-executive directors (NEDs) in banks, building societies, credit unions and dual-regulated investment firms and insurance firms. Standard NEDs here includes NEDs who are not subject to regulatory pre-approval under the senior managers and certification regime, the senior insurance managers regime and the FCA-revised Approved Persons Regime for insurance firms. The FCA published a policy statement (PS17/8) in May 2017 introducing the final rules on applying the rules in its Code of Conduct sourcebook to standard NEDs. The new rules came into force on 3 July 2017. All affected firms should ensure that their standard NEDs receive appropriate training on the Code of Conduct sourcebook.
FCA policy statement on guidance on enforcing the duty of responsibility under the Senior Managers Regime
Under the duty of responsibility, the FCA and PRA can take enforcement actions against Senior Managers if they prove a breach of a regulatory requirement by the firm and that the Senior Manager was responsible for the management of the activities in relation to which the breach occurred, and did not take reasonable steps to avoid it. The duty of responsibility applies to firms in the banking sector but it will be rolled out across the financial services industry when the Senior Managers Regime is extended. Policy statement PS17/9 provides a non-exhaustive list of considerations the FCA will take into account when determining whether a Senior Manager has indeed taken reasonable steps to prevent a breach occurring or continuing. These go beyond looking at the statement of responsibilities and the responsibilities map. The new enforcement guidance applies from 3 May 2017.