Ruth Bonino, professional support lawyer in Clyde & Co’s London employment team reports on our most recent international seminar where employment lawyers from Clyde & Co and our fellow employment lawyers from L&E Global formed a panel of legal advisors who, through a case study about a fictitious Chinese bank’s expansion plans, helped to enlighten us on a range of HR/employment law issues in their jurisdictions.
The Shanghai and Beijing Banking Corporation, a fictitious bank head-quartered in Shanghai is a significant global corporate and investment bank. Its operations outside China are run from London and Nick Dent (in the real world a partner in Clyde & Co’s London employment team) acts out the part of the global ex-China HR Director based in London. The next phase of the Bank’s expansion strategy is to bolt on teams across a number of locations globally and Nick has a number of concerns. Over the next two hours he raises these with each of the lawyers representing the European jurisdictions of Switzerland, Italy, France and Germany; and in the Middle-east, the United Arab Emirates (Dubai).
Restrictive covenant risks
Nick needs to understand the Bank’s exposure if he is to hire teams or individuals in the various jurisdictions. He is aware that highly skilled new hires may be bound by covenants in their contracts of employment restricting their activities after their employment has ended but Nick wonders if he has anything to worry about: could the Bank be sued for damages or even prevented by injunction from employing new recruits?
It is clear from our European colleagues that, as in the UK, a key issue to consider is the enforceability of the covenants. This depends on how well they are drafted, particularly in terms of geographical scope and location. Kara Preedy, partner in L&E Global’s German office isn’t particularly concerned about team moves. “Team moves don’t bother us that much, it really depends on each individual team member’s covenant,” she says. “Often the covenants aren’t drafted very well and are then invalid.”
Duration is key to enforceability, but what is acceptable varies across Europe. In France, covenants should be no more than one year but in Italy, explains Luca Failla, partner in L&E Global’s Italian arm, an 18 month covenant could be valid. On the other hand, Andre Lerch, partner in L&E Global’s Swiss office, points out, in Switzerland employers with long covenants might still be protected, as unlike many other jurisdictions, the Swiss courts are willing to reduce them to a valid length (6 to 12 months being common).
In the UAE there are two very different legal systems in operation: the civil law system, which applies across most of the UAE (“the federal system”) and the common law system which applies in the Dubai International Financial Centre (“DIFC”) which was set up in 2004, based on the English court system. “It is easier to recruit a team under the federal system,” says Rebecca Ford, one of Clyde & Co’s Dubai-based employment partners. “Although a restrictive covenant is recognised, injunctive relief is not, so the Courts won’t stop an employee working for you.” In the DIFC though, principles similar to the English system are applied so injunctive relief is available to enforce suitably worded covenants.
Doing a deal with the former employer may be the solution. André explains that this is often the case in Switzerland where two employers regularly “sort out” the payment of the employee’s penalty which is often written in to the contract. This is also possible in France, although very costly, advises Olivier Kress, L&E Global’s French lawyer.
The Bank is keen to do background checks on its applicants but it is concerned that certain checks, such as drugs and alcohol, might cause problems in certain jurisdictions. From what our legal advisors tell us, it seems that certain checks should only be made if relevant to the job but it’s usually not a problem if the employee consents. In Dubai however, Rebecca advises that practicalities might be a problem. “In the UAE there has historically been no credit reference agency and only an individual can apply for a criminal record check about themselves”.
Cultural issues are also a consideration, particularly with regard to drugs and alcohol testing. “Germans are big on data privacy,” says Kara. “There is a public perception that alcohol testing is out of line.” In the UAE it is a criminal offence to take drugs and be drunk in public (and Muslims should not drink alcohol at all) so testing for these are uncommon.
The Bank wants to be able to require its staff to move around jurisdictions as it pleases but Nick wonders if including a suitably worded mobility clause in the contracts of new hires would be enough. Under Italian law such a clause is not even needed to move employees within Italy but would be invalid to move employees outside the jurisdiction. In other jurisdictions, enforceability would depend on the circumstances including the way it is drafted. For example, under French and Swiss law, the clause would have to be very precise, listing by name the countries the employee could be moved to. In the UAE, there is more of a problem as employment is dependent on having a valid work permit which is linked to the place of work. If the location changes (whether within the UAE or abroad), a transfer would be seen as a termination of employment so any mobility clause would fall away and would no longer be enforceable.
Maternity leave and flexible working
The Bank is keen to be family friendly, but at the same time needs to understand maternity leave and parental leave rights. That said, some people within the Bank are concerned that there is an increasing trend for maternity leavers to seek ever more unrealistic flexible working demands. So Nick is hopeful that in the jurisdictions selected it won’t be difficult to reject flexible working requests where they don’t fit with business needs.
First as regards rights to maternity leave and pay, it appears that these vary widely across the jurisdictions. Female employees receive the best protection in France (10 months’ maternity leave after birth on full pay) and the worst under the federal system in the UAE (where there is no discrimination law and only 45 days’ maternity leave on full pay, or half pay where the employee has less than one year’s service). Amongst the European countries, Swiss employees fare the worst, where you have to return to work after 16 weeks unless the employer agrees to an extension. Finally, we are all pretty surprised to hear that in Italy it is a criminal offence to work during your 5 month mandatory maternity leave period (although you do receive pay of between 80% and 100% of salary).
Flexible working rights follow a similar pattern. This time though, German employees have the best rights and the UAE the worst. “Flexible working is socially and culturally accepted in Germany,” Kara tells us. “It is very difficult for an employer to refuse a request to work flexibly and the employee does not have to give any reason. Employers can only refuse on grounds of “operational need” but this is a very high hurdle to overcome.”
The Bank wants to inculcate a high performance culture that will involve a few currently sleepier corners of the Bank losing a number of people. This isn’t a redundancy programme. The key question put to our lawyers concerns dismissal for poor performance.
Again the answers vary: the best protected workers were definitely in Italy. “It’s easier to dismiss 1,000 workers for redundancy than one worker for poor performance,” advises Luca. But how much do you have to pay? Nick asked. “A lot of money,” said Luca, “twenty four months’ total remuneration including benefits under some collective agreements.”
Out of all the European countries represented, dismissal is least costly in Switzerland. “Provided you give the appropriate notice,” says André, “your maximum exposure is six months’ salary in theory for unfair dismissal, but the courts don’t generally award more than two or three.”
“In France, we are more flexible than our Italian cousins,” says Olivier. “We have unfair dismissal protection of course but we make more use of long probationary periods where termination can be effected without notice.” Also in Germany, Kara tells us that fixed term contracts are common in order to avoid restrictive unfair dismissal laws.
The Bank does not want to see collective representation outside China but it seems in France, Germany and Italy, the Bank will be disappointed. Work councils can create serious issues in these countries and it is essential to factor in work council negotiations when putting into effect any decisions affecting staff. In Switzerland though, work councils are only generally seen in companies with more than 50 staff but even then, they don’t have decision making powers and would be informed and consulted on matters such as redundancy, pensions and mass dismissals. In the UAE, strikes and indeed any trade union activity are illegal and there is no right to other forms of collective consultation or action (which can also lead to criminal charges).
Finally, it would appear that a number of important changes are afoot in each of the jurisdictions so it’s well worth keeping abreast of developments. Italy, for example, has a new Prime Minister and under the new Job Act there are proposed fundamental changes to dismissal laws which should help employers dismiss more easily in the first 36 months of employment. There is also a focus on young people to reduce unemployment rates. In Switzerland, there are proposals to increase protection for whistleblowers where currently blowing the whistle constitutes an act against the company’s interests, justifying dismissal. In Germany, the new coalition government proposes to reduce pension age to 63 in respect of certain categories of employees, and in France a new law will facilitate redundancy procedures and negotiations on collective bargaining at company level. Finally, in the Emirate of Dubai, a requirement to provide private health insurance is being rolled out, with larger companies of 1,000+ workers required to provide health insurance to their employees. For smaller companies their obligation to do so will follow in 2016. Gulf-wide, there is a movement towards nationalisation targets with a particular crackdown in Saudi Arabia on the employment of expats.