1. Australia: “Sham contracting” in the spotlight

A renewed regulatory focus on sham contracting and a court recent decision in ACE Insurance Limited v Trifunovski highlights the need for employers to regularly review their on-boarding processes and existing “independent contractor” engagements.

In ACE, the Full Federal Court found that 5 insurance sales agents purportedly engaged as independent contractors were, in truth, employees, and ordered the employer to pay over $500,000 in unpaid annual and long service leave entitlements.

The Court held that the key factors indicative of an employment relationship include a lack of capacity for the worker to delegate to third parties, and where the worker is paid for time worked rather than outcome-based.

The parties’ characterisation of the relationship (including their tax, superannuation and insurance arrangements) is not determinative.

Action for employers

“Employers” are encouraged to ensure that the parties’ conduct throughout the engagement actually reflects the intended employment or contractor relationship, even where workers are engaged via a corporate entity, as a failure to do so may lead a court to find that the purported independent contractor ultimately has a contract of engagement with the “employer” directly.

Read more details on our blog.

Article written by Paul Burns, Partner and Gabrielle Hayward, Solicitor.

2. China: Post-termination non-compete obligations for PRC employees

An interpretation issued by the Supreme People's Court has provided national level guidance as to the amount of compensation to be afforded to ex-employees who are subject to post-termination non-compete obligations. 

PRC labour law permits the imposition of post-termination non-compete obligations on senior management, technical staff and other staff subject to confidentiality obligations. Such restrictions may not last for longer than two years from the date of termination of employment, and monthly compensation must be paid during this period. PRC law does not expressly regulate the geographic area and specific scope of the restriction; however, the geographic area and scope of a restriction should be reasonable. Prior to 1 February, there was no national-level guidance as to the amount of required compensation.

The interpretation issued by the Supreme People’s Court provides that an ex-employee may claim 30% of his/her average monthly wage over the previous 12 months if: (i) there was no agreed compensation rate or amount; and (ii) the ex-employee has complied with his/her post-termination non-compete obligations. The 30% amount cannot be less than the relevant local minimum wage.

Ex-employees who are subject to post-termination non-compete obligations are entitled to monthly compensation during the non-compete period. As a result of this interpretation if the amount of compensation is not agreed, then an employee may claim 30% of their average monthly wage if they have complied with their non-compete obligations.

Action for employers

Employers should be aware that the 30% amount may be taken as minimum for future negotiations of post-termination non-compete obligations. Existing contracts that include post-termination non-compete obligations should also be reviewed to ensure that at least 30% is being offered as compensation.

Read more details on our blog.

Article written by Betty Tam, Partner and Karen Ip, Partner.  

3. Dubai, United Arab Emirates:  Employment law developments in the Dubai International Financial Centre

The Dubai International Financial Centre (DIFC) Authority has introduced the DIFC Employment Law No.3 of 2012 (the Amended DIFC Employment Law), which amends the DIFC Employment Law No.4 of 2005.

The Amended DIFC Employment Law affords greater protection to employees working in the DIFC by enhancing certain employment rights.

The Amended DIFC Employment Law, which came into effect on 23 December 2012, applies to employees of establishments having a place of business within the DIFC, and is the applicable law of a contract of employment of an employee based within, or who ordinarily works within or from, the DIFC. It has amended the law in relation to (among other things) the employee's right to an employment contract, leave entitlements, end of service gratuity, termination for cause, and discrimination.

The significant changes include:

  • Termination for cause

A new 'termination for cause' provision states that 'an employer or employee may terminate employment for cause in circumstance where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated the employment' (Article 59A of the Amended DIFC Employment Law).

It remains to be seen how this provision will be interpreted by the DIFC courts in practice and in particular, how the DIFC courts will apply the reasonableness test.

  • Discrimination provisions

The law now prescribes in significantly more detail what constitutes discrimination in the workplace, and prohibits harassment, direct and indirect discrimination, subject to certain defences available to employers (Article 58(2) of the Amended DIFC Employment Law).

The law is silent on compensatory measures available to employees that have been discriminated against. However, a breach of the anti-discriminatory provisions may entitle an employee to terminate for cause.

  • Abolition of Director of Employment Standards (DES)

DES, the body that was responsible for receiving and investigating employment disputes has been abolished in its entirety. All employee complaints must now be brought before the Small Claims Tribunal (SCT) or the DIFC Court of First Instance, depending on the monetary amount of the employee's claim. This will likely result in employees incurring significant costs from the outset. In addition, hearings before the DIFC Court of First Instance (unlike the SCT) are public unless otherwise ordered and therefore not confidential, which may deter employees bringing their cases forward.

Action for employers

Employers operating in the DIFC should consider whether company policies require amendment in light of these significant changes to the DIFC employment law.

Article written by Bridget Butler, Senior Associate.

4. European Union: CRD IV – Proposals to cap bankers' bonuses

The European Commission intends to replace the existing Capital Requirements Directive with a regulation and a directive (known as CRD IV) which will introduce a capped ratio on the fixed and variable component of remuneration.  The time frame for transposition of the directive is provisionally 1 January 2014, but this may slip to 1 July 2014.

Credit institutions and investment firms will be obliged to have a basic salary-to-bonus ratio of 1:1; this may be raised to a maximum of 1:2 with the approval of shareholders.  The higher 1:2 ratio between fixed and variable remuneration would require at least 66% of votes in favour, with a quorum of 50% of shareholders; 75% of votes in favour, if less than half the shareholders vote.  To encourage more of a link between remuneration and long-term risk, a percentage of the whole bonus could be deferred for at least five years (in the form of long-term deferred instruments), in which case such proportion may be discounted for the purposes of the proposed ratio.

It is not yet clear which staff will be affected.  This will depend on the draft regulatory standards decided by the European Banking Authority who have been asked to identify qualitative criteria to identify categories of staff whose professional activities have a material impact on an institution's risk profile. 

Action for employers

Once the detail of CRD IV is known, it will become clearer what strategies may be adopted to minimise the impact of the measure.  Credit institutions and investment firms will look to their advisers for innovative ways of mitigating the impact of the measures.  Ideas being floated include increasing fixed pay, withholding salary during the year and re-structuring remuneration by offering shareholdings instead of salary and bonus.

Read more details on our blog.

Article written by Jemima Coleman, Professional Support Lawyer.  

5. France: Important new legislation to provide increased flexibility to employers considering redundancies

Important legislation is currently passing through the French parliament following an agreement reached in January 2013 between employer and employee representatives.

The legislation, which is expected to be finalised within the next two months, aims to provide more flexibility to employers in return for certain guarantees for employees, for example health insurance cover and the transfer of training rights.

Under the proposed new legislation companies with 50+ employees in economic difficulties will be able to negotiate with trade union representatives representing 50% of votes cast at the last works council election, in order to obtain an agreement which for provides for more flexibility in relation to salary and working time for a maximum period of two years, in exchange for a guarantee not to make redundancies.

Furthermore, companies with 50+ employees will be able to follow one of two new procedures for collective redundancies:

  • an agreement reached with the trade union representatives representing at least 50% of the votes cast at the last works council election) governing the number and timetable of meetings with the employee representatives, list of documents to provide, conditions and timetable for consulting an expert, selection criteria for the redundancies and the content of the social plan. In addition, the start date for internal redeployment measures; or
  • the employer unilaterally determines the above points, in a document submitted for validation by the French authorities within a 21-day time limit. Maximum time limits are fixed for the dismissals (e.g. 2 months for 10-99 redundancies).

Any actions challenging the validity of the agreement must be brought within three months.

The new legislation will also provide employee representatives with increased rights to access information concerning the economic situation of the company and a right to be consulted on the strategic orientation of the company. Furthermore, in the event of the proposed closure of a site, the works council must be specifically consulted on seeking potential buyers. For companies with 10,000 employees worldwide, or 5,000 employees in France, employees will have voting rights on the board.

Action for employers

If this legislation is passed in its current form employers should be aware of the increased rights of employee representatives that will accompany the increased flexibility around how redundancies are implemented.

Article written by Sophie Brézin, Partner and Emma Röhsler, Of Counsel.

6. Hong Kong: Proposed amendments to the remedies available to unlawfully & unreasonably dismissed employees

The Legislative Council of Hong Kong is proposing to make amendments to the remedies available to an employee who has been unlawfully or unreasonably dismissed.

Currently, if an employee is found by the Labour Tribunal to have been unlawfully dismissed (e.g. dismissed during pregnancy or paid sick leave) and/or unreasonably dismissed (i.e. dismissed without a valid reason), the Labour Tribunal may make an order for reinstatement/re-engagement only if the employer consents.  The Labour Tribunal currently has no power to order an employer to reinstate/re-engage an employee without its consent.  Where the employer does not consent, the only remedy available is an award of terminal payments (Terminal payments are the statutory payments that an employee is entitled to upon termination and which would have usually already been paid to the employee in any event).

Thus, there is generally little incentive for an employee to bring a claim under the present regime.

The proposed changes envisage that, in a situation where the Labour Tribunal considers that reinstatement/re-engagement of the employee is appropriate, it will be able to make a compulsory order for reinstatement/re-engagement without securing the consent of the employer.  In the event of non-compliance with the order, the employer will be ordered to pay a further sum of three times the employee's monthly wages, capped at HK$50,000 (c.US$6,500).

It is not yet clear when the proposed changes will come into force.

Action for employers

Employers should be aware that the proposed changes (if enacted) may lead to a significant increase in unlawful/unreasonable dismissal claims and will take Hong Kong (a traditionally "employer-friendly" regime) one step closer to regimes where an employer must have a "fair" reason for a dismissal.

Article written by Gareth Thomas, Partner and Tara Grossman, Senior Associate.

7. India: Law on prevention of Sexual Harassment in the Workplace passed by Lower and Upper houses

The Lok sabhas (Lower house)  and Rajya sabhas (Upper house) have passed the Sexual Harassment to Women at the Workplace Bill (2012) (the Bill), almost 15 years after the Supreme Court of India in Vishaka and others v State Rajasthan (Vishka Judgment) identified the need for laws directly addressing sexual harassment in India, and laid down guidelines making it mandatory for employers to provide internal grievance mechanisms pertaining to workplace sexual harassment.

The Bill, which is awaiting Presidential assent, gives legislative backing to the guidelines set by the Supreme Court in the Vishka Judgment, whilst also extending the obligations placed on employers to take measures to ensure that sexual harassment of their female employees is prevented.

The Bill makes it obligatory for an employer to take measures to ensure that sexual harassment of its female employees is prevented, including by:

  • providing a safe working environment;
  • providing for a grievance redressal and complaint mechanism for victims of sexual harassment through the constitution of an Internal Complaints Committee (ICC) at all offices of a company and Local Complaints Committees (LCC); and
  • providing assistance to female employees who choose to file a complaint in relation to sexual harassment related offences under the Indian Penal Code or any other law in force.

The Bill further:

  • sets out the procedure to be followed by ICCs and LCCs;
  • equips ICCs with the powers of a civil court under the Code of Civil Procedure, 1908 for the purposes of requiring discovery of documents, summoning and enforcing attendance of persons an examining them on oath;
  • employs a definition of ‘the workplace’ that is not limited (as it was in the Vishka Judgement) to the premises of the employer, but includes any place that is visited by an employee during and in the course of her employment including transportation; and
  • employs a definition of ‘employee’ that covers permanent, part-time, ad-hoc or daily wage employees and  contractors and volunteers.

Action for employers

Employers are advised to review their internal policies and ensure compliance with the provisions of the Bill in order to avoid facing penalties, including fines of up to Rs 50,000 in the first instance, and higher penalties and cancellation of licence or registration to conduct business for repeated violations.

Article written by Celia Yuen, Executive Counsel and Lilly Knorr, Solicitor.  

8. Indonesia: Update on outsourcing

A recent regulation issued and enacted by the Minister of Manpower provides some clarification on when outsourcing activities may be implemented and requires outsourcing companies in certain circumstances to guarantee continuity of work for fixed term outsourced employees.

In November 2012 the Minister of Manpower issued and enacted a new regulation on outsourcing, Regulation Number 19 of 2012 on the Terms to Outsource Work to Another Company’ (Regulation 19).

Regulation 19 restricts the occupations in which outsourcing activities may be implemented. The regulation states that outsourcing activities may only be implemented in the following lines of work:

  • janitorial work (or cleaning services);
  • catering;
  • security guard services;
  • supporting services in the mining and oil sectors; and
  • transportation services.

Regulation 19 follows a decision of the Indonesian Constitutional Court (ICC) in January last year (Decision No. 27/PUU-IX/2011 (Decision 27), which also resulted in protections for outsourcing employees employed on a fixed term basis. Decision 27 prohibits outsourcing companies who are the subject of an outsourcing arrangement from hiring employees on a ‘fixed term basis’ unless certain contractual protections are in place which protect the outsourcing employees in the event that the relevant job provider under an  their outsourcing employer is replaced by an alternative outsourcing employer.

Under Regulation 19, the relationship between the outsourcing company and the outsourced employee may be made on a fixed term basis provided that the outsourcing company guarantees the continuity of the performance of work.

It is unclear how outsourcing companies should guarantee the performance of work if the outsourced employee is working on fixed term basis, but Regulation 19 grants outsourced employees the right to file a claim with the Industrial Relations Court if the right to have continued work performance is not granted.

Action for employers

Companies that use outsourcing arrangements should be aware of the new restrictions on outsourcing arrangements, as the lines of work that may be outsourced are now heavily restricted. Furthermore, companies should carefully consider how the commercial risk of the ‘continued work performance’ requirement will be allocated in the outsourcing agreement.

Article written by David Dawborn, Partner.  

9. Japan: Amendments to Japan's Labour Contracts Act

Recent amendments to Japan's Labour Contracts Act provide increased protection for employees on fixed term contracts.

From 1 April 2013, if an employee on a fixed term contract has had a total period of continuous employment exceeding five years, he/she will be entitled to apply for an indefinite term employment contract. The period of employment ceases to be "continuous" if there is a break in employment of 6 months. The new provisions will only apply to contracts commencing after 1 April 2013.

The amended Labour Contracts Act also prohibits unreasonable differences in terms and conditions of employment between permanent and fixed term employees. Whether differences are unreasonable will be determined by the facts of each case.

Action for employers

Employers considering renewing or offering fixed term contracts which would result in  total continuous employment exceeding five years will need to be aware that these amendments to the Labour Contracts Act will entitle an employee to apply for an indefinite term employment contract.

Read more details on our blog.

Article written by Peter Godwin, Partner and Elizabeth Brogan, Associate.

10. Russia: Foreign Employees - What's New?

Recent amendments to Russian law have opened up employment opportunities for foreign employees whilst simultaneously creating harsher sanctions for foreign employees who breach their visas.

  • Business visas

Five year business visas will now be available for foreign employees of both "major" foreign companies which are investing in Russia and foreign companies which are participating in government projects (e.g. Skolkovo). These are subject to the requirement that a specially designated authority must make an additional petition on behalf of such "major" foreign company to the Russian authority responsible for migration issues, in order for the visa to be granted. The Russian government will determine the requirements for a foreign company to be considered "major" as well as which authority will make petitions on behalf of foreign companies.

  • Work permits

The requirement that foreigners with temporary residence permits wishing to work in Russia first obtain work permits, and that the companies which engage them obtain employment permits, has been eliminated. Previously, this exemption was only available to foreigners with permanent residence permits.

  • Sanctions

Where an employer misrepresents the real reason for a foreign employee's visit or where the employer fails to provide the foreign employee with financial or medical support or accommodation, they may be subject to fines of up to RUB 500,000 (approximately USD 16,300).

Entry rules have also been toughened. Where a foreigner overstays their visa by more than 30 days, they will be automatically banned from entering Russia for the next 3 years, other than in certain exceptional circumstances (e.g. serious illness, acts of God, etc.).

Action for employers

Employers should be aware of the new obligations relating to employing foreigners and make sure they compy with them. Employers are also advised to inform their foreign employees that they may be refused entry into Russia if they overstay their visas.

Article written by Marat Agabalyan, Senior Associate.

11. Singapore: Changes proposed to Employment Act

The Ministry of Manpower (MOM) has announced proposed changes to the Singapore Employment Act (EA), following a public consultation. Of significance, MOM has proposed to extend employment protections to a broader category of employees. Additional changes to the EA will be considered later this year.

The proposed changes include:

  • extending the application of Part IV of the EA (which is concerned with annual leave, working hours, rest periods and overtime), through an increase in the salary threshold for non-manual labourers;
  • extending certain existing EA minimum entitlements and protections to junior managers/executives (including unfair dismissal protection, but with a one year service qualification period);
  • removing liability to pay for sick leave and medical expenses for employees’ cosmetic consultations and procedures;
  • introducing sub-caps in relation to existing salary deduction caps;
  • requiring employers to maintain detailed employment records and provide payslips; and
  • reducing the current three year qualifying period for entitlement to retrenchment benefits to two years (although this change is largely cosmetic as there are currently no statutory entitlements to retrenchment benefits in Singapore).  

Later this year the MOM will review dispute resolution mechanisms and protection for people in non-traditional work arrangements such as contract work and self-employment.

The changes proposed to the EA are significant and, if passed, will alter the employment landscape in Singapore.

Action for employers

Employers should identify employees that may be affected by the changes, in particular junior managers/executives earning up to $4,500 a month, and consider the impact for their business.

Article written by Celia Yuen, Executive Counsel and Georgia Leonhardt, Associate.

12. Spain: Royal Decree of Law on measures promoting active ageing

A Royal Decree Law approved on 15 March 2013, and entering into force on 1 April 2013, amends certain provisions of Law 27/2011, having regard to updating, adjustment and modernisation of the Spanish social security system and aims to discourage age discrimination from being employed in staff downsizing decisions.

The reform relates to the contributions payable by companies or groups of companies that employ in excess of 100 employees, when those companies perform mass redundancies affecting employees 50+ years of age, in circumstances where the company/group has made a profit in the previous two financial years.

Employers who satisfy the above requirements and who use discriminatory criteria when selecting the employees to be affected by a mass redundancy will be required to make a contribution to the Spanish Treasury.

Discriminatory criteria will be deemed to have been employed where the percentage of workers aged 50+ years affected by a mass redundancy is higher than the percentage of workers aged 50- years on the company’s staff.

Furthermore, with effect from 1 April 2013 the age at which employees will be able to:

  • voluntarily retire will be increased from 63 to 65 years; and
  • retire non-voluntarily will be increased from 61 to 63  years of age,

by way of a sliding scale until 2027.

The Royal Decree Law facilitates the possibility of employees staying longer in the labour market and aligns employees expected working life with European trends and other Member State legislations.

Action for employers

Employers should have regard to the Royal Decree Law when implementing mass redundancies.

Article written by Carmen Martinez, Senior Associate.  

13. Thailand: Controversial minimum wage hike

The Wage Committee, under the Ministry of Labour, has announced an increase on a nationwide basis from 1 January 2013 in the daily minimum wage. The minimum wage will increase to 300 Baht regardless of age, sex, industry.

In some provinces, this national minimum wage represents an increase of more than 30% to the previous minimum wage. As the minimum wage in some neighbouring countries is 20% or even 6% of Thailand’s wage, workers in those countries have flocked to Thailand. 

The rise in labour costs resulting from the Wage Committee announcement has already had a substantial impact on small and medium sized enterprises (enterprises with less than 10 employees) and has led to employee layoffs and the closing of businesses in some cases. 

Medium and large companies are not as affected by the change due to the government’s reduction of corporate tax by 7% to compensate for this amendment.  Nevertheless, it is expected that some multinationals may consider investing in nearby countries due to more competitive cost structures. 

This change may also adversely affect some employees as certain employers are significantly reducing welfare, benefits, and overtime. 

Violation of this minimum wage announcement will result in a six -month imprisonment term for directors and/or a fine of 100,000 baht. 

Action for employers

Employers operating in Thailand need to ensure they are complying with the minimum wage announcement, as violation of the announcement may result in up to six -months imprisonment and/or a fine of 100,000 baht for directors of employing entitles who fail to comply.

Article written by Surapol Srangsomwong, Partner and Vanina Sucharitkul, Senior Associate.  

14. UK: Reform to mass redundancy law

UK employers will be able to make mass redundancies more quickly, following changes to the law on information and consultation obligations from April 2013.

The UK Government is carrying out an extensive review and reform of employment law.  A consultation exercise in 2012 identified that businesses needed greater flexibility and certainty when restructuring workforces.

Currently there is an obligation to inform and consult union or employee representatives where an employer proposes 20 or more redundancies at one establishment within a 90 day period.  Where the number proposed is 100 or more, notice of dismissal cannot take effect until at least 90 days after the consultation started, even if the consultation finished some time earlier, and 90 days after notice is given to the Secretary of State. 

For proposals made on or after 6 April 2013, these 90 day periods will reduce to 45 days.   The period for 20-99 redundancies will remain 30 days.  The expiry of fixed term contracts will no longer count towards the threshold, and there is guidance for employers on other aspects of the process.

Action for employers

Employers will be able to complete large scale collective redundancies more quickly, but still must ensure that consultation is still started "in good time", carried out "with a view to reaching agreement", completed before notice of dismissal is given, and that the 30/45 day period expires before any of the proposed dismissals take effect.

Article written by Peter Frost, Partner and Anna Henderson, Professional Support Consultant.  

15. Vietnam: Amendments to Labour Code

Amendments to the Labour Code (the Code), which will take effect on 1 May 2013, provide increased protection for employees, whilst simultaneously extending employer’s rights in respect of technological or business secrets and retrenchment. The changes also implement a number of new concepts to Vietnamese labour law such as outsourcing.

The most significant changes to the Code include:

  • Probationary Periods

The permitted probationary period duration will be determined by reference to the level of professional qualification required to carry out the work.

The minimum wage applicable during the probationary period will increased to 85% of the employee’s post probationary period wage entitlement.

  • Technology or business secrets

Recognition of the employer’s right to a written confidentiality agreement with employees who are directly involved in business or technological secrets.

  • Retrenching employees

The introduction of a new ground of redundancy on the basis of ‘economic reasons’.

Retrenched employees who have worked for more than a year will be entitled to one month’s salary for each year of employment. It will be the former employer’s responsibility to pay retrenchment allowances.

  • Discrimination

Sexual harassment will become a ground for an employee to unilaterally terminate a definite term labour contract.

  • Outsourcing

The introduction of provisions recognising the legal basis for outsourcing,  in circumstances where the outsourcing arrangement does not exceed 12 months and the outsourced employee receives an equivalent salary.

  • Termination of contract

An employer will no longer be required to obtain consent from the executive committee of the trade union and to report to local labour authorities prior to unilaterally terminating an employee’s labour contract, except where the employees are trade union officers.

  • Maternity leave entitlement

The maternity leave entitlement will increase to 6 months

Action for employers

Employers should familiarise themselves with the changes to the Code ahead of 1 May 2013 and should implement changes to contracts, policies and practices as necessary.     

Article written by Celia Yuen, Executive Counsel and Jessica Brivik, Solicitor.