Welcome to our international quarterly newsletter. This Fall 2016 edition focuses on employment, pensions and benefits legal developments which took place in the EU, Austria, Belgium, China, France, Germany, Japan, the Netherlands, Russia, Spain, the UK and the US over the past 3 months.
Bankers' bonuses - EU Commission proposes amendments to CRD4
On 23 November, the Commission presented a comprehensive package of reforms aimed at further strengthening the resilience of EU banks and reducing risk in the banking sector, as well as making the new regulatory framework more proportionate to banks’ complexity, size and business profile. The package contains a number of legislative proposals including proposed amendments to the remuneration provisions contained in the 2013 Capital Requirements Directive (CRD4). Please read our full briefing to discover more about the developments regarding the proportionality principle and bankers' bonuses.
What will the world look like once the UK has left the EU?
While there has been a significant amount of Brexit-related commentary looking at the near-term future, we saw a gap for credible insights on how the world could look once Britain has left the EU, looking beyond 2019. This is how we came up with our Beyond Brexit – Visions of a post-2020 world piece. Contributors include our partners and consultants as well as leading thinkers from politics and the boardroom, who were asked for their perspectives on how to run a business in times of extreme uncertainty and how corporations should respond to the rise of populism.
European Parliament's vote on recast Occupational Pensions Directive
The recast Institutions for Occupational Retirement Provision Directive (IORP II) aims to remove obstacles for cross-border provision of services and promote the single market in occupational retirement provision, facilitating the procedures for pension schemes to move their assets, liabilities and operations to other European countries so the funds can get a better deal for their beneficiaries, for example through economies of scale. After discussions lasting for more than two years, at its plenary session on 24 November 2016 the European Parliament adopted its first-reading position on the proposal for the recast Directive, endorsing the informal trialogue agreement reached with the Council and the Commission in June 2016. According to the adopted text, providers of workplace pension schemes that want to transfer their portfolios across national borders will first have to get the approval of their members, followed by authorisation from both their national regulators and those of the receiving country, with EU level mediation. Compared to the first Directive, IORP II contains additional provisions concerning governance and transparency, which apply to all EU-based occupational pension funds, and sets significant disclosure requirements as regards the content of annual pension benefit statements, to improve access to information for pension scheme members. Another key difference from the original proposal includes a funding standard for IORPs operating cross-border which is more in line with that applied to non-cross-border IORPs. After the Council’s formal adoption under the ordinary legislative procedure, the Directive will be published in the Official Journal and enter into force.
Review of the Posted Workers Directive
The Enforcement Directive, adopted in May 2014 to address concerns that the protections outlined in Directive 96/71/EC on posting of workers were not being fully provided (particularly in the construction sector), had to be transposed into law by Member States by 18 June 2016. Currently, the Directive is still in the process of national transposition by some Member States and because of this recent deadline there has been renewed interest and attention around the relevant requirements. The aim of the 2014 Enforcement Directive was to strengthen instruments to fight and sanction circumventions, fraud and abuses of posted workers. The key provisions include:
- the introduction of a subcontracting liability, that ensures posted workers in the construction sector can claim back unpaid wages (up to the level of the minimum wage) from the next contractor in the supply chain;
- monitoring and compliance provisions, including what information requirements Member States can impose on companies posting workers to work in their territory. Inter alia, the Directive states that a service provider established in another Member States should make a simple declaration to the responsible national competent authorities at the latest at the commencement of the service provision containing the relevant information necessary in order to allow factual controls at the workplace, and should inform the competent authorities in the host Member State without undue delay of any important changes to the information contained in the declaration;
- cooperation between Member States on information exchange, inspection, mutual assistance and cross-border enforcement of penalties.
While the Enforcement Directive mainly focused on improving the implementation of existing rules and processes of the Posted Workers Directive, it didn’t touch upon more fundamental questions relating to the framework of posting (protection of posted workers, definition of applicable working conditions, equal treatment and pay, tackling of social dumping practices etc.). As we reported on in our spring edition, due to the limited scope of the Enforcement Directive, the European Commission published a proposal to revise the Posted Workers Directive in March 2016, focusing on issues not addressed by the Enforcement Directive. Discussions relating to the Commission’s proposal are still ongoing, with the Parliament yet to deliver its position in the first reading.
Digital Rights Ireland files challenge to EU-US Privacy Shield
Earlier this year, the EU Commission adopted the EU-US Privacy Shield, an improved data transfer framework that was negotiated with US authorities to address the inadequacies of the former Safe Harbour as raised by the European Court of Justice (ECJ) in the Schrems case. The agreement entered into force on 1 August and more than 500 companies signed up to the Privacy Shield so far, including tech-giants Google, Facebook and Microsoft. However, many argue the new mechanism does not adequately include all appropriate safeguards to protect EU citizens' rights to privacy and data protection. As predicted in our last edition and widely expected, the adoption of the Privacy Shield was recently challenged by privacy advocacy group Digital Rights Ireland in front of the EU’s second highest court, the Luxembourg-based General Court, which is the lower court of the ECJ (case T-670/16). Under EU law, if a decision by an EU institution directly affects individuals or companies, they are entitled to take action before the EU General Court (having jurisdiction for such actions at first instance) within two months of the act coming into force. The court will probably rule on the matter not before a year, and could also declare the case inadmissible if it finds the Privacy Shield not of direct concern to Digital Rights Ireland.
Qualifying criteria for survivor's pension is not discrimination on grounds of sexual orientation or age
The ECJ recently decided that a national rule which, in connection with an occupational benefit scheme, makes the right of surviving civil partners of members to receive a survivor’s benefit subject to the condition that the civil partnership was entered into before the member reached the age of 60, where national law did not allow the member to enter into a civil partnership before reaching that age, does not constitute discrimination on grounds of sexual orientation or on grounds of age contrary to the Equal Treatment Framework Directive. In Parris v Trinity College Dublin and others, the scheme required the member to have married or entered into a civil partnership before age 60 in order for his partner to receive a survivor’s pensions. The member argued he could not marry under 60 because Irish law did not allow same sex marriage until after he became 60. The Advocate General suggested in its opinion earlier this year, that the age 60 limit did amount to indirect discrimination on grounds of sexual orientation and direct discrimination on grounds of age, but the ECJ disagreed. The court also found that there was no indirect discrimination from the combined effect of discrimination based on sexual orientation and age.
Employees not defined as such under national law might be eligible for protection under EU law
Under the Temporary Agency Workers Directive (Directive 2008/104), a “worker” is any person who carries out work and who is protected on that basis in the Member State concerned. The Directive not only applies to workers who have concluded an employment contract with a temporary-work agency, but also to those who have an “employment relationship” with such an undertaking. Therefore, neither the legal characterisation, under national law, of the relationship between the worker and the temporary-work agency, nor the nature or form of their legal relationship, is decisive for the purposes of characterising that person as a “worker” within the meaning of the Directive. As such, the concept of worker under EU law may well differ from the concept of worker under national law. This may lead to consider individuals not having the status of workers in a Member State nevertheless eligible to enjoy protection under an EU Directive. Following the Advocate General’s opinion in Betriebsrat der Ruhrlandklinik gGmbH v Ruhrlandklinik gGmbH, the ECJ held that the Directive covers the secondment by an association, in return for financial compensation, of one of its members to a user undertaking for the purposes of that member carrying out, under the direction of that user undertaking, work in return for remuneration, where that person is protected on that basis in the Member State concerned. The ECJ noted that this also applies despite the members not having an employment contract with their association, that could define them as employees under national law.
New formal requirements for all-in compensation clauses
So-called "all-in" compensation clauses concluded on or after 1 January 2016 must state a reference base salary for the normal working hours, in the form of a specific amount. The employer is free to determine such amount, subject to any applicable collective bargaining agreement (i.e. it must not be lower than the mandatory salary according to the applicable collective bargaining agreement). This enables employees to compare whether their all-in salary in fact covers all overtime performed and, if not, to claim additional compensation on the basis of the hourly rate resulting from the reference base salary. Where an all-in arrangement does not explicitly refer to a reference base salary, a fictitious reference base salary that is “customary in place and trade” shall be applied to determine whether overtime is sufficiently covered by the all-in salary. This may lead to significantly increased hourly salary entitlements and applies irrespective of whether a collective bargaining agreement is in place. Employers are recommended to review employment contract templates and update the compensation wording where all-in clauses are being used.
First Austrian supreme court ruling regarding bans on religious clothing in the workplace
The Austrian supreme court recently issued its first judgement regarding employers' right to issue instructions in relation to religious clothing in the workplace. The case revolved around the termination of a muslim female notary clerk who refused to comply with her employer's instructions against religious clothing in the workplace. The employer terminated her employment after she had started to regularly wear a face veil (niqab) at work, in addition to her already wearing a headscarf and muslim robe. The employee filed a suit for EUR 7,000 in damages on the grounds of discrimination (i) in regard to labour conditions, having suffered inappropriate comments from her employer and a limitation of her client exposure due to her wearing a headscarf and a muslim robe, well before the termination, and (ii) in regard to the termination itself. The Austrian supreme court ruled that the ban on face veils imposed by the employer was justified, because these limit a person‘s ability to communicate not only with clients but also with other co-workers and the employer, and thus hinder the employee‘s ability to fulfil her duties under the employment contract. The claimant was awarded only part of the damages claimed, namely for the discriminatory treatment experienced prior to the termination. The verdict clarifies that a ban on face veils in the workplace can be justified. Although it is unclear to what extent the specific facts of the case – e.g. the employee's special responsibilities involving client contact or the fact that she had not worn any religious clothing at the time she was hired - were decisive, the ruling seems to imply that such ban may be justified not only in relation to employees with client exposure. It remains to be seen whether this view will be confirmed by courts in potential future rulings. The question whether other religious clothing such as headscarves may also be banned remains unsolved, but the ECJ may provide some guidance in this respect in similar pending cases such as Achbitta v G4S (on which we reported in our summer edition).
Towards "Workable Work"
A number of flexibility arrangements are already in place to meet employees’ and employers’ needs. Nevertheless, due to fast-pacing developments in terms of economic revival and strengthened competitiveness, the labour market is facing new challenges with respect to flexible work. In light of this, the Belgian Minister of Labour has been developing the so-called “Workable Work” project in order to enable employees to work longer hours and to keep their productivity, but at reduced stress levels. One of the key elements in the debate on “Workable Work” concerns working time, including “time saving” and “flexible working hours”.
Roundtables have been organised by the Minister of Work and the High Council of Labour performed a research on flexibility regulations on the labour market. This resulted in the approval of a draft law by the Council of Ministers in October, the text of which has been submitted for advice to the Council of State and to the National Labour Council, and is expected to be discussed by the Belgian Parliament soon. Key measures include the possibility to calculate the working time limits on an annual basis, provided a sector or company-level agreement is reached in such respect, and the creation of a legal framework to allow occasional telework. Employees will also be entitled to an increased number of training days per year and will be able to work up to 100 hours per year of paid overtime on a voluntary basis, if there is an offer from employer’s side.
Developments in e-commerce
A late 2015 agreement between social partners had attempted at making night work easier with a view to support the development of the Belgian e-commerce. But the agreement proved difficult to implement as the introduction of night work was subject to the negotiation of a company-level collective bargaining agreement. The Belgian government recently decided to amend the relevant Labour Act allowing employers in said industries to introduce a night work regime without the need to reach a company-level collective bargaining agreement. As a major downside however, such amendment will only be applicable to employers that are new on the Belgian market, thus not as beneficial to Belgian e-commerce as entrepreneurs in the retail and distribution industries had hoped.
Amendments to the legislative framework for collective dismissals
After a few major corporations recently announced their intention to carry out collective dismissals affecting high number of employees, the Minister of Labour proposed a number of amendments to the legislative framework governing collective dismissals. Among other measures, the Minister of Labour suggests that prior to each collective dismissal, the impact thereof on the company’s subcontractors needs to be assessed in an attempt to limit the collateral damages resulting from it. Furthermore, the proposed measures aim to enhance the role of social conciliators during the information and consultation processes and to oblige parties to agree on a social plan. The proposal is now being reviewed by the social partners and will most likely be on the agenda of social dialogue in the coming months.
Two new regulations issued by the Ministry of Human Resources and Social Security will take effect on 1 January 2017, with a view to promote labour protections and to reinforce penalties on violations of labour laws. These changes apply to all employers incorporated and existing in China, including domestic companies and foreign-invested entities.
Employers will be graded as A, B and C and regulated differently
Issued on 25 July 2016, the Measures for Grading Compliance and Integrity Level of Labour Protection Acts of Enterprises introduce a yearly rating system to grade the employers as A, B or C class by evaluating their compliance level with labour protection laws, including the execution of employment contracts with the employees, compliance with labour dispatch regulations, contribution to social insurance, implementation of working hour system and practice of leave and rest.
A company that has not received any administrative penalties on any violation of employment protection laws in the year will be graded as A, whereas minor violations and penalties charged less than three times trigger a ranking as B. If, inter alia, the violation is material or the company has been charged penalties for over three times in the year, or its violations cause mass disturbance or have significant negative social impact, the company will be labelled with C. These rankings will serve as the basis for the labour administrative authority to exercise regulation differently, in particular in terms of the frequency of inspection. The labour authorities will pay special attention to companies in class C, talking to relevant individuals in charge and urging them to make necessary changes and improvements with regard to labour protection.
Serious violations of labour protection laws will be made public
On 1 September 2016, the Ministry of Human Resources and Social Security promulgated the Measures for Publicising Material Violations of Labour Protection Laws. Under these Measures, material violations of labour protection laws will be publicly disclosed by the labour administrative authorities, including but not limited to serious delay in salary payment, failure to make contributions to social insurance in accordance with the law, failure to provide special labour protections to female and minor employees, usage of child labour and any acts in breach of labour protection laws that adversely impact society. These violations as well as the corresponding penalties will be disclosed on the official website of the labour administrative authorities, and also disseminated via the media. Nevertheless, any information in relation to state secrets, trade secrets or personal privacy will not be disclosed.
In addition to publicising, the labour administrative authorities will record such violation into the employer's Compliance and Integrity files. Such record, as well as the grades mentioned above, will further be shared with other governmental authorities and organisations.
The “El Khomri Law”
New legislation proposed by the French labour minister Myriam El Khomri was passed on 8 August 2016. It aims to reform various aspects of labour law: working time, collective bargaining, secondments, professional training, and digital technology in the workplace. It also contains some important changes to the rules on economic dismissals:
- an “operational” definition of the notion of economic difficulties, based on specific criteria: a decline in orders or turnover for several consecutive quarters in comparison with the same period of the previous year, or operating losses lasting several months, or a substantial deterioration in cash flow;
- a definition of the duration characterising economic difficulties according to the size of the business concerned.
The law provides that a significant decline in orders or turnover is constituted if the decline, in comparison with the same period the previous year, lasts at least: a) one quarter for a company employing fewer than 11 employees; b) two consecutive quarters for a company employing at least 11 employees and fewer than 50 employees; c) three consecutive quarters for a company employing at least 50 employees and fewer than 300 employees; d) four consecutive quarters for a company with at least 300 employees. The new rules on economic dismissals will enter into force on 1 December 2016.
Minimum damages award for unfair dismissal in companies with at least 11 employees
On an unfair dismissal, employers with at least 11 employees must pay damages equal to at least six months' pay, whereas employers with fewer than 11 employees must pay damages freely assessed by the court according to the harm/loss actually suffered and/or anticipated. As a result, there is a difference in treatment, depending on the headcount of the employing entity. In a recent decision, the constitutional court confirmed that the difference in treatment is justified and does not breach the French constitution. Indeed, the court ruled that this minimum compensation applicable only to dismissals within companies with at least 11 employees is designed to avoid an excessive burden on companies which are considered “economically weaker”. For such companies, an award of damages with no minimum amount was held to be a sufficient deterrent.
France gives new protection to whistleblowers
A bill on “transparency, the fight against corruption and the modernisation of economic life” (bearing the name of the current Minister of the Economy and Finance, the “Sapin II Law”) has just been passed. It creates a framework for the exercise of whistleblowing rights in the workplace. The proposed legislation defines whistleblowers included within the scope of protection as individuals that selflessly and in good faith report crimes or offences, serious violations of international commitments ratified or approved by France, or threats to the public interest of which it has personally become aware. Companies with at least 50 employees are required to implement an "appropriate process" that guarantees confidentiality in order to receive alerts raised by their employees or other workers. Obstructing the transmission of a report by a whistleblower is punishable by up to one year in prison and by a fine of EUR 15,000 (or five times that amount for a company). Whistleblowers will be expressly protected from retaliatory measures. Sanctions, dismissals and discriminatory measures implemented because a person has blown the whistle will automatically be void. This protection is already applied in practice by French judges (as illustrated by a June 2016 decision by the French supreme court). Finally, there is a reversal of the normal burden of proof: a whistleblower merely has to produce evidence suggesting that he or she acted in accordance with the legal framework for whistleblowing. It is then up to the employer to prove to the court that its decision (to sanction or dismiss the employee) was justified by objective elements that were unrelated to the alert raised by the whistleblower.
Remuneration policy for asset management companies
In order to comply with the principles of the UCITS V Directive (undertakings for collective investment in transferable securities), French asset management companies are being asked to complete a form describing their remuneration policies. The form must be approved by the AMF (Autorité des marches financiers) by 31 March 2017. Laurence Harvey-Wood
Draft legislation on equal pay (update)
In our spring edition, we reported on the initiative of the Federal Ministry of Family Affairs, aimed to end the gender pay gap. In October 2016, the coalition of the political parties CDU, CSU and SPD agreed on an adjusted draft legislation on equal pay. Following the strong criticism of the initial draft, the following amendments were announced, while the draft itself has not been published yet:
- The information right for individual employees shall only apply in companies employing at least 200 employees.
- If a company is bound by collective bargaining agreements, the works council shall be the responsible body to exercise the information right. If no works council is in place or collective bargaining agreements do not apply, the employee can assert the information right against the employer.
The obligation to implement an assessment procedure to review compliance with equal pay principles shall still only apply to companies with at least 500 employees. The draft law has not yet passed the legislative procedure. According to the Ministry’s plan, it should come into force in summer 2017 but - with the federal elections taking place in September 2017 and reserves from various sides - it is still questionable whether the law will come into force.
Law on flexible transition into retirement
This autumn, the German legislator passed a law which is aimed to give employees more flexibility for the transition period between working life and retirement and encourage employees to continue working after reaching the statutory retirement age. The rigid monthly ceiling for additional income of pensioners has been replaced by an annual ceiling of EUR 6,300 (currently EUR 5,400). Pensioners with a higher income have to accept reductions of their statutory pension. Employees who are entitled to statutory pension but continue to work are incentivised by an increase of their future pension entitlement, whereas employees before retirement age can contribute additional amounts to the pension fund which gives them the opportunity to balance deductions if they apply for an early retirement. Employers no longer have to pay contributions for the statutory unemployment insurance for the employment of pensioners. Part of the new legislation will come into force on 1 January 2017, the rules concerning the increase of the ceiling on 1 July 2017.
Update on the new "Temporary Employment Act"
The German legislator recently adopted the new legislation on temporary employment which includes the following key provisions:
- The maximum hire term of 18 months for temporary employees is part of the final legislation, but exemptions may be agreed through a collective bargaining agreement or works agreement. Employment prior to 1 April 2017 shall not be taken into account for the calculation of the 18 months period.
- The principle of equal pay shall apply no later than after nine months. After this period, a temporary employee must not be paid less than a comparable employee in the organisation of the hiring company. However, the final legislation doesn’t include a clear definition of the equal pay term. Deviations from the equal pay principle may be agreed for a limited time by collective bargaining agreements concerning gradual harmonisation of the material working conditions.
- Temporary employees may not be used as “strike breakers”, unless they continue to work in the same workplace they have been hired for. In any case, they shall not carry out additional tasks performed by striking employees.
- Temporary employees must be taken into account when calculating thresholds stated in the law on works councils (e.g. with regard to the number of works councils’ members).
- Changes have been made concerning the formal requirements of employees’ right to object to an employment relationship with the customer instead of the personnel service provider, which would otherwise apply by law in certain situations (e.g. illegal temporary lease, breach of maximum hire terms).
The law will come into force on 1 April 2017.
Increased awareness of overtime work
Japan has been known as a society where workers are expected to show dedication and commitment to the firm they work for, which often results in very long working hours. This practice has long been recognised as a serious social issue and is coming under increased scrutiny. A special unit was established in the Tokyo and Osaka Labour Departments in April 2015 to investigate and eliminate illegal overtime work, issuing administrative directions as required. The worst offences are dispatched to the criminal prosecutors, while previously criminal prosecutions against companies and executives for inadequate management of long working hours were rare. However, since the creation of the new authority, there have been a number of cases where prosecutors investigated cases filed against retailers and their executives that led to fines for the company. In parallel, the government expressed willingness to change the criteria of investigation into overtime malpractice, setting the threshold of relevance from more than 100 hours per month to more than 80 hours per month. These changes show how the government is becoming more aggressive about going after complaints about overtime. Similarly, the Labour Standards Bureau (LSB) recently rendered a decision where it recognised that the suicide committed by a first-year employee working at one of Japan’s largest advertisement companies was caused by her excessive overtime work hours. The employee had allegedly worked at least 40 hours and 105 hours of overtime in September and October 2015 respectively, which led to her depression in November of the same year and to her suicide the following month. The case was widely reported and received much attention from the media. After LSB’s decision, her employer underwent compulsory investigation by the authorities. Given that society on the whole is becoming more sensitive to the issue of overwork, both human resources departments and company executives will need to ensure compliance with relevant laws and regulations and pay much more attention to the management of working hours. The issue of excessive working hours represents both a regulatory/legal risk as well as a reputational risk.
Increased rights for works councils in relation to pensions
As of 1 October 2016, the rights of approval for works councils under the Dutch Works Council Act in relation pension plans have been increased as follows:
- Works councils now have the right to approve decisions to adopt, amend or revoke a pension plan regardless of the pension provider administering the plan. Previously, works councils had no approval rights in relation to decisions to amend a pension plan administered by external pension funds but only if administered by an insurance company.
- Works councils no longer have a right of approval only related to the main terms of a pension plan but also in relation to all relevant arrangements, like the choice for a pension provider and the administration agreement between the employer and the pension provider.
- Works councils have the right to be informed as soon as possible, in writing, of any proposal by the employer to adopt, amend or revoke an administration agreement.
Amendment of Labour Market Fraud (Bogus Schemes) Act
The Labour Market Fraud (Bogus Schemes) Act prohibits employers to make certain deduction to the minimum wage of their employees. As mentioned in our summer 2016 edition, this law will be enacted with effect from 1 January 2017. Two additional exceptions will be introduced with effect from that date, allowing employees to authorise their employer to pay their rent and related cost on their behalf (provided that the house meets certain minimum criteria and whereby the rent and costs may not exceed 25% of the applicable minimum wage) and to pay their health insurance. The employer will be authorised to deduct these amounts from the wage even if this would to bring it under the applicable minimum wage.
Assessment of Employment Relationships (Deregulation) Act (Wet DBA)
As of 1 May 2016, the Declaration of Independent Contractor Status has been replaced by so-called ‘model agreements’ based on the Assessment of Employment Relationships Deregulation Act. A transitional period was scheduled to apply until 1 May 2017, but this period has now been extended to 1 January 2018 in order to give employers and employees further opportunities to draft legally enforceable ‘model agreements’. During this period, the government will not take any measures in relation to fines and/or additional tax assessments unless in case of obvious abuse.
Retirement age in 2022 increased to 67 years and three months
As a result of the increased life expectancy according to a statistics study, the state retirement age for entitlement to state pension will, as from 1 January 2022, increase from 67 years to 67 years and three months. This will only affect people born after 1 January 1955. As a result, employers have to amend their pension schemes in 2017 to increase the pensionable age accordingly, with effect from 1 January 2018.
Amendment to Working Conditions Act
Several amendments have been made to the Working Conditions Act, with effect from 1 January 2017. The aim of these amendments is to strengthen employers’ and employees’ engagement in respect of occupational health services, sickness prevention and to enhance the conditions under which the company doctor operates. The most important changes are that (i) each employer has to give 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 the employers’ obligations under the Working Conditions Act).
New rules on the salary payment dates
In accordance with the new Federal Law No. 272-FZ dated 3 July 2016 concerning increased employers’ liability for breach of legislation regarding payment of salaries (the Law), employers are, as previously, required to pay salaries at least every half month. However, the new rules specify that salaries should be paid within 15 calendar days of the end of the period for which they are accrued (e.g., salaries for November should be paid no later than 15 December). Even thought the Law does not specifically mention it, the same rules may potentially apply to bonuses included in a company’s remuneration system, which should be paid within 15 calendar days of the end of the period for which they are accrued (e.g., a month, a year, etc.). Regulatory authorities have not yet provided any official statements or clarifications with regard to the new requirements applicable to salary and bonus payment deadlines. Therefore, at this point it is difficult to predict the position the courts and the inspection authorities will take with regard to the matter.
Documents governing salary payment dates
Under current legislation, an employer must specify the dates on which salaries are paid in both its internal house rules and employment contracts with employees. From 3 October 2016, an employer is permitted to choose to include such dates in its internal house rules or in employment contracts with employees. Salary payment dates must also be stated in any collective bargaining agreements the company has entered into with its employees’ representatives.
Increased liability for failure to pay salaries
The Law also increases employers’ liability for failure to (timely) pay salaries, i.e.: (i) the maximum amounts of administrative fines for a failure to pay all or part of salaries and other employment-related payments by the applicable deadlines that may be imposed on a company and/or its officials (e.g., a CEO) have been increased starting from 3 October 2016. If such violation is committed for the first time, an administrative fine of up to RUB 20,000 (ca. USD 310) may be imposed on companies’ officials and a fine of up to RUB 50,000 (ca. USD 780) may be imposed on the companies themselves. The second violation may entail administrative fines in the amount of up to RUB 30,000 (ca. USD 470) or disqualification for up to three years for the companies’ officials and administrative fines of up to RUB 100,000 (ca. USD 1,560) for the companies themselves; and (ii) from 3 October 2016, the amount of compensation which an employer must pay an employee for late payment of his/her salary or other amounts owed to the employee are doubled.
New limitation period for salary payment disputes
As from 3 October 2016, the limitation period for employees to apply to a court to resolve any dispute relating to an employer’s failure to pay all or part of his/her salary and other amounts owed to the employee has been extended from three months to one year. The limitation period will start on the date established by the company for payment of said amounts.
Changes to the rules governing the jurisdiction of employment disputes
As a general rule, an employee’s claims against his/her employer shall be filed with a court at the employer’s location. Under the Law, an employee may file a claim on restoration of his/her employment rights with a court located in the area in which the employee resides. The rules on the jurisdiction of employment disputes may be changed contractually.
Fixed-term employment in Europe: the ECJ's decision in De Diego Porras and beyond
On 14 September 2016, the ECJ delivered a landmark decision in De Diego Porras v Ministerio de Defensa (case C 596/14), declaring Spanish legislation on severance compensation for temporary replacement contracts illegal for breach of Council Directive 1999/70/EC concerning the framework agreement on fixed-term work. The ECJ found that Spanish legislation discriminated against temporary replacement workers by failing to provide any compensation upon termination of their contract, while granting such severance pay to comparable permanent workers. Read more about this and other relevant decisions, and discover their potential consequences in other European countries in our recent briefing.
Gender Pay Gap Reporting - final Regulations published
The revised gender pay gap reporting regulations were published on 6 December 2016. The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 will come into force on 6 April 2017. Our briefing on the revised regulations can be found here.
The key points to note are as follows:
- The reporting obligations apply to employers with 250 or more employees on 5 April in any given year. The 250 employees threshold applies to each group company on an individual basis.
- The reporting obligations relate to ‘relevant employees’. These are defined as persons ‘employed by the relevant employer on the snapshot date’. The new ‘relevant employee’ definition extends to employees who are based overseas but are employed by the group company which is required to report.
- The definition of ‘relevant employee’ includes any person employed under a contract of employment, contract of apprenticeship, or a contract personally to do work. Casual workers, contractors and zero hours workers who are directly engaged by the employer will therefore fall within the scope of the regulations. Partners and LLP members are specifically excluded from the definition of ‘relevant employee’.
- Pay is now split into (i) ‘ordinary pay’ and (ii) ‘bonus pay’. Both are to be calculated before deductions made at source. There is an obligation to report:
- the difference between the mean hourly rate of pay of male and female employees (hourly rate being an aggregate of ordinary and bonus pay);
- the difference between the median hourly rate of pay of male and female employees (again, an aggregate of ordinary and bonus pay);
- the difference between the mean bonus pay paid to male and female employees in the 12 month period prior to the snapshot date;
- the difference between the median bonus pay paid to male and female employees in the 12 month period prior to the snapshot date – this is a new obligation;
- the proportions of male and female relevant employees who received bonus pay in the 12 month period prior to the snapshot date;
- the proportions of male and female employees in each of the quartile pay bands - this is a new obligation.
- The snapshot date is 5 April each year, starting on 5 April 2017 (in the draft regulations it was 30 April). The information must be published within the 12 period beginning on the snapshot date each year.Non-statutory guidance to help employers meet the new requirements will be published after the UK Parliament has approved the regulations.
Holiday pay and commission: Court of Appeal ruling
In October 2016, the Court of Appeal upheld the judgment of the Employment Appeal Tribunal in Lock v British Gas and dismissed the appeal by British Gas. This means that the position in relation to holiday pay and contractual ‘results-based commission’ remains the same as it was in March 2015 when the Employment Tribunal gave its decision in Lock (see our client briefing here ). In summary, this decision confirms that if contractual commission is determined by reference to sales achieved, employers must take it into account when calculating Regulation 13 holiday pay (i.e. the four weeks’ EU holiday). The court confirmed that the tribunal had not erred by reading into the provisions of the UK Working Time Regulations 1998 new wording to make them consistent with the EU Working Time Directive. But it made it clear that the new wording which the tribunal had inserted should be limited to cases of contractual ‘results-based commission’ similar to that in the Lock case. The Court of Appeal has therefore left it open for employees on other types of results-based incentive arrangements to question how their holiday pay should be calculated and whether it should include a payment in respect of those arrangements. It seems the holiday pay case saga may not be over quite yet.
Corporate governance inquiry
In September 2016, the Business, Energy and Industrial Strategy (BEIS) Committee launched an inquiry into corporate governance in the UK, focusing on executive pay, directors’ duties, and the composition of boardrooms, including worker representation and gender balance on boards. This followed commitments made by the Prime Minister to overhaul the UK corporate governance regime. There was vocal opposition from business groups to the proposal to make worker representation on boards mandatory. The Prime Minister has now rowed back from her initial commitment on this point, and has indicated that companies will be encouraged rather than forced to put employees on their boards. The BEIS Committee inquiry has now received written evidence from institutional investors, think tanks and financial and professional services firms and is in the process of hearing oral evidence. A Government consultation paper on the proposed reforms is expected to be published before Christmas.
Pay and working conditions inquiry
In October 2016, the BEIS Committee launched an inquiry into pay and working conditions in the UK. The investigation will focus on:
- The status and rights of agency and casual workers, and the self-employed for the purposes of tax, benefits and employment law.
- The treatment of agency workers and possible limits that could be placed on their use.
- The rights of non-permanent staff.
- The enforcement of the ‘national living wage’.
- The increase use of zero-hours employment contracts.
- The inquiry follows comments from the Prime Minister that she wishes to ensure that employment regulation and practices keep pace with the changing world of work, a world in which there has been a significant rise in casual employment and agency work and court challenges to the employment models used in the gig economy. The deadline for written submissions is 19 December 2016.
UK Financial Services update
Non- executive directors
In September 2016, the Financial Conduct Authority (FCA) issued a consultation paper in which it proposed to extend the FCA Code of Conduct sourcebook to standard non-executive directors (NEDs) in banks, building societies, credit unions and dual-regulated investment firms and insurance firms. Standard NEDs means those who are not subject to regulatory pre-approval under the senior insurance managers regime and the FCA-revised Approved Persons Regime for insurance firms. The consultation closes on 9 January 2017.
Regulatory references for senior managers in insurers
In September 2016, the FCA and the Prudential Regulation Authority (PRA) published separate policy statements relating to regulatory references under the new accountability regimes for deposit-takers, PRA investment firms, firms within scope of the Solvency II Directive and large non-directive insurers. The rules set out in the policy statements will come into force on 7 March 2017.
Whistleblowing in UK branches of overseas banks
The FCA and the PRA published whistleblowing rules for UK banks and insurers in October 2015, with the rules coming into force in September 2016. The aim of these rules is to encourage people to voice concerns and challenge poor practice without fearing retaliation. The FCA and PRA have now issued consultation papers in which they propose that new whistleblowing rules be put in place in relation to UK branches of overseas banks (but not overseas insurers). The proposed new rules are not as extensive as the rules which came into force in September 2016. They would require UK branches of overseas banks to tell their UK based employees that they can blow the whistle to the FCA and the PRA’s whistleblowing services. They would also require a UK branch that has a sister or parent company which is subject to the current whistleblowing rules to tell its staff that they can make use of that company’s whistleblowing arrangements. The consultation is open until 9 January 2017. The FCA will publish its final rules in a policy statement after considering the feedback received. It is expected that the final rules will come into force in September 2017.
Parliamentary inquiry on pensions regulator's powers and the pension protection fund
Earlier this year, the House of Commons Work and Pensions Committee (the Committee) launched an inquiry into the regulation of defined benefit pension schemes. As part of this inquiry, the Committee specifically asked for written evidence on the adequacy of the Pensions Regulator’s (TPR) “moral hazard” powers and whether a system of compulsory clearance would be appropriate for corporate transactions. TPR submitted written evidence and gave oral evidence to the Committee. In its written evidence, TPR suggested that there should be mandatory clearance in certain circumstances where there is a material risk to a scheme, i.e. where corporate actions, such as dividend payments, change of control share buy-backs and loans (and not just sales and acquisitions), weaken the employer covenant and the scheme is not sufficiently funded. TPR also called for wider investigatory powers, a discretion to demand more frequent valuations for higher-risk schemes and more flexibility when it comes to information gathering. The Committee received a lot of written evidence from interested parties and industry bodies. Many respondents consider that TPR’s powers, although adequate, could be exercised more effectively. A Green Paper is expected to be published in the next few months which will set out the Government’s proposals to reform defined benefit regulation in the UK, including any proposed changes to TPR’s powers.
Selecting an inflation index to calculate pensions increases
The rules of a pension scheme set out how pensions in payment are to be increased to reflect any increases to inflation. In the UK, most pension schemes require the scheme to use the Retail Prices Index to measure inflation when calculating pensions increases. Some schemes have wording which allow the trustees to use a different inflation index. Using a different inflation index, for example, the Consumer Prices Index, can significantly reduce the value of the scheme’s liabilities. In a recent decision by the Court of Appeal in Barnardo’s v Buckinghamshire, the court decided that the wording of the scheme rules did not give the trustees a discretion to switch the applicable index used to increase pensions in payment. The court held that the trustees only had a power to select an alternative index to the Retail Prices Index (RPI) when the RPI is replaced as an official index. Although RPI no longer meets the required standards to be recognised as a national statistic, it continues to be published today because it is used to calculate index-linked gilts and bonds and therefore the trustees did not have the power to select an alternative index. For further details see our briefing.
2016 SEC’s Annual Report to Congress on Whistleblower Programme
The Securities and Exchange Commission’s (SEC) Office of the Whistleblower has delivered its annual report to Congress. In fiscal 2016, the SEC received over 4,200 tips, a 40% increase in the number of tips since 2012, the first full year for which data is available. During the year, the SEC received approximately 10% of its whistleblower tips from individuals in 67 countries outside the US. The number of international tips increased 10.2% and the number of countries from which tips were reported increased 9.8%. Outside of the US, the largest number of tips came from Canada, the UK and Australia. Highlights of the program’s achievements in fiscal 2016, include:
- the SEC issued awards totaling over $57 million. Since the program came into effect in August 2011, it has awarded nearly $111 million to 34 eligible whistleblowers;
- six of the 10 highest whistleblower awards;
- an increase in complaints related to Corporate Disclosures and Financials from 17.5% of all complaints to 22%. Offering Fraud (15%) and Manipulation (11%) comprised the next two largest types of complaints;
- a significant increase in Foreign Corrupt Practices Act (FCPA) allegations from 186 to 238, a nearly 28% increase;
- o date almost 65% of award recipients were company insiders (an increase from approximately 50% as of last year).
These award recipients who were insiders, approximately 80% raised concerns internally to supervisors or compliance personnel, or understood these personnel were aware of the violations, before bringing their concerns to the SEC.
- almost 25% of award recipients reported anonymously; and
- 40% of individuals received an award for reporting information that significantly contributed to an ongoing SEC investigation and approximately 35% of award recipients were outsiders to the company on which they reported.