1. Does the business have employees located in offices in a risk member state?
If the business has employees located in offices in a risk member state, it should review the contracts of employment. The fact that the country in which that office is based has left the Eurozone or is a financially weakened state due to EU bail out terms (e.g. Cyprus) may not lead to any change in the employment terms and the contract will simply continue to operate (subject to potential changes to salary payments and other conditions - see question below). However, if there is a risk of the individual’s employment coming to an end because the office is no longer operating or wishes to reduce the workforce, the business will need to consider if the employee is employed by the local office. If not, are they employed by the business and seconded to the “at risk” office? If so, what are the terms of the secondment, particularly concerning termination of the secondment arrangement and returning to the employing business? It will be necessary to review the governing law of the contracts but also consider whether the employees have statutory employment rights in the local jurisdiction or in the jurisdiction from which the business operates.
2. How will salaries be re-denominated?
Most contracts of employment will specify the denomination in which salary is to be paid. An employer is unlikely to be able to vary the terms of the employment unilaterally. Difficulties may arise where the employees’ contractual right is to be paid in euros and they would prefer to continue to be paid in that denomination. However, any legislation regarding re-denomination may deal with this issue. The re-denomination of the salary should not put the employee in a worse position than he or she would have been in previously so that there cannot be held to be any breach of contract. It will also be important to ensure that the re-denomination does not significantly change the employee’s entitlement to any other benefits. For those businesses whose bonus or incentive plans cover a number of jurisdictions the business will need to ensure parity of treatment across the jurisdictions. In certain jurisdictions there may be a requirement to consult both collectively as well as individually before making any such changes to contracts of employment. Whether an employee would for example, have a claim under the relevant legislation will depend upon various factors such as whether the employee solely performs work abroad or works for that company. To ensure that there is no claim for breach of contract, an employer may want to seek written confirmation from the employee to the change in the terms and conditions.
3. How might pensions and other benefits be affected?
Where a business has a defined benefit pension scheme within its group, any commercial activity which affects the funding position of the pension scheme may also affect the sponsoring company (or companies) of that scheme. It is likely that the pension scheme will hold investments which could be affected by the Eurozone crisis and these will need to be considered. It is possible that the funding position of the scheme may deteriorate, which may impact on the funding burden on the sponsoring employer. For example a fund may include bonds or other investments connected to a risk member state. It is also possible that there may be an impact on the sale price where a business with a defined benefit scheme is being sold. The issue could be significant as, according to a leading firm of consultants, pension deficits represented 4.8 per cent of market capitalisation for European multinationals in 2010-2011, compared with 2.9 per cent in 2007-2008.