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DELVACCA Presents: The Top Ten Things U. S. Employers Need to Know About International Employment and Labor Law DELVACCA thanks Littler Mendelson, P. C. for sponsoring this event
presented by: Eric A. Savage, Esq. Littler Mendelson, P. C. , Newark, NJ 973. 848. 4706, [email protected] com Marguerite Walsh, Esq. Littler Mendelson, P. C. , Philadelphia, PA 267. 402. 3016, [email protected] com Eric A. Tilles, Esq. Arkema Inc. , Philadelphia, PA 215. 419. 7317 eric. [email protected] com
Today’s Agenda 1. The continued rapid pace of globalization impacts employers 2. How the employment relationship differs outside the U. S. 3. Risks unique to the international arena 4. Managing a globally-mobile workforce
Companies Pushing Globalization Forward § § § § Procter & Gamble – next 15 years will double annual sales focusing on Africa, Asia & Latin America Royal Philips Electronics – increasing their presence in emerging markets, esp. healthcare business in China Pepsi. Co – building 6 new plants in China; $1 B over 4 years Microsoft – increased presence in India LG Electronics – 15% overall increase in sales in 2009 (India – primary market) Far Eastern International Bank –acquiring AIG international credit card business China Petroleum – acquired ADDIX Petroleums to give them oil resources in Africa & Kurdish region of Iraq Qualcomm & Zeebo joint venture – video-game console sold all over the world, first hit market in Sao Paulo and Mexico City, next other Latin American countries, then India
What Does Globalization Mean for Employers? § It boils down to. . . – Anticipating compliance issues, especially regarding: • Employment agreements • Termination of employment • Anti-corruption measures • Data privacy – Effectively managing employee movement/ migration • Expatriate assignments • Unfair competition concerns
How Does the Employment Relationship Differ Outside of the US? To understand global differences in legal aspects of the employment relationship, first need to briefly consider the differences in legal systems. .
Comparative Legal Systems § Three types of legal systems: – Common Law – Civil Law – Mixed Systems
Common Law Systems § Laws made by judges – England most former/current colonies • US (except Louisiana) • Canada (except Quebec) • Singapore • Hong Kong • Ireland • India
Civil Law § Laws are codified and judicial decisions have little precedential value – Continental Europe – Mexico – China – Japan
Mixed Systems § Elements of both common and civil law – Israel – South Africa – Scotland – Quebec – California
Comparative Legal Systems Wrap-up § This is boring – why should I care about the differences between legal systems? § Lines are blurring but the substantive distinction isn’t § The bluffer’s guide to international employment law § Always keep cultural differences in mind § Moving on to specific differences in the employment context. . .
Key Differences Between the US and Other Jurisdictions § Employment at will – Generally unheard of outside the US because employees have employment contracts § Wage and hour laws – Very different outside of the US – Generally covered by contract – Vacations and public holidays treated very differently
Key Differences (cont. ) § Leaves of absence – Most jurisdictions provide much more generous pregnancy leave and parental leave – Civil law jurisdictions generally provide much more sick leave
Key Differences (cont. ) § Discrimination – Varies widely – May cover categories not recognized in the US, e. g. , philosophical beliefs (recent case in UK: strong belief in acting to stop climate change potentially protected)
Key Differences (cont. ) § Arbitration clauses – Almost never seen or allowed outside the US § Termination as a tort § Employee handbooks
Employment Contracts § Generally required outside of the US for all employees – Written or oral – Some jurisdictions have language requirements (i. e. , contract must be in local language) – Some minimum terms often required: • Names of parties • Job title • Pay rate • Place of work • Working hours • Pension plan
Employment Contracts (cont. ) § Term of contract – Fixed term (e. g. , 1 year) – Open ended § Probationary period – Duration often limited by law to 3 -6 months § Notice period for termination
Termination of Employment Common Law – Relatively easy – Notice period – Pay in lieu Civil Law – Not as easy – Often must obtain permission from court or government – Often easiest to negotiate severance
Termination Notice § Generally required everywhere but the US § Minimum length mandated by statute § In common law countries, length often must be “reasonable, ” which may differ from the statutory period § Tip – Specify notice period in employment contract
Pay in Lieu of Notice § Same amount of pay as length of notice (i. e. , choice between 20 weeks’ notice or 20 weeks’ pay) § Use must be specified in employment contract in some jurisdictions § Lump sum or salary continuance?
Various Termination Issues § Constructive discharge § Which jurisdiction’s law applies? § Can we get a release? Will it be effective? § Post-employment restrictive covenants
Group Terminations § Most jurisdictions have special rules for group terminations and/or redundancies § Information, consultation and/or bargaining obligations – Employee representatives – Works council – Trade union
Cost Cutting § Different analysis than in the US § Generally based on contract principles § Unilateral change/ bilateral change § Information, consultation and/or bargaining obligations
Collective Issues § Works councils § Trade unions
Works Councils Q: What is a works council and what does it do? A: A body of employees who must be provided information about and consulted on various matters affecting the workplace.
Works Councils (cont. ) § Voluntary § Whether they are allowed depends on the number of employees – Minimum number is 5 in Germany but 50 in Ireland § Depending on the jurisdiction, the works council may have decision-making authority over some matters
Works Councils (cont. ) Two types of works councils: 1. Domestic 2. European Domestic works councils – Established pursuant to the EU Information and Consultation Directive, but many jurisdictions had them already
Works Councils (cont. ) § European works councils – EU Directive on European Works Councils – Handle issues affecting more than one country – Revised Directive effective June 2011: establishes link between European and national level information and consultation, and will result in more complex multistage consultation
Trade Unions § Most jurisdictions have laws allowing employees to be represented by a trade union § Power and prevalence of unions varies widely from country to country § Method of becoming unionized (e. g. , card check, vote etc. . . ) varies widely from country to country
Employment Law Issues in Global Restructurings The key is to know which questions to ask
Risks Unique to the International Arena
Anti. Corruption Laws and the Reach of Sarbanes. Oxley (“SOX”)
SOX Civil Protections Section 806: Prohibits any “officer, employee, contractor, subcontractor, or agent” of a company from “discharging, demoting, suspending, threatening, harassing, or discriminating” against an employee who reports conduct he “reasonably believes” violates SOX or any federal/state securities laws
SOX Civil Protections § Section 1107: – Bars retaliation (including interfering with lawful employment of person) against: • Employee • Who reports truthful information to a law enforcement officer • About the actual or possible commission of any federal offense – Penalties can include fines and/or imprisonment of up to 10 years
SOX Civil Protections § Section 301: – Requires public companies to create mechanisms for reporting financial concerns • Specifically requires mechanisms for handling anonymous complaints by employees
Extraterritorial Application of SOX § All foreign companies listed on US exchanges must comply with SOX § Where conduct has substantial nexus to the US, courts will apply SOX whistleblower provisions to foreign subsidiaries
What’s at Stake for Noncompliance with SOX § Delisting from US exchanges § SOX criminal sanctions apply abroad § Civil penalties
Whistleblowing Hotlines Investigations Not only admitted, but also mandatory under SOX: § 301 requires Companies to institute procedures for handling «confidential, anonymous» employee complaints about accounting or auditing matters Is it in compliance with EU Laws? In general, NO. Possible conflicts with: § Privacy and data protection laws § Employment laws § Labor relations laws (“co-determination”)
Privacy and Whistleblowing Hotlines Under EU Law Whistleblowing schemes (including SOX hotlines) imply data collection and so they “must be implemented in compliance with EU data protection rules” (Opinion of the EU Data Protection Working Party set up under Article 29 of the Data Protection Directive 95/46/EC, “WP 117”, 2006) SOX perspective: Need to ensure financial security in international financial markets and to prevent frauds and misconduct through internal controls and reports EU Directive perspective: Need to guarantee the fundamental right to protect personal data of both the whistleblower and the accused person WP 117: Need for a balance-of-interest-test in adopting whistleblowing schemes
Anonymous Complaints Across Europe In the EU, the adoption of a whistleblowing hotline or of an investigation scheme based on anonymous complaints can come up against several issues: Data protection issues Mc. Donalds France and CEAC/Exide Technologies cases: French data privacy regulator (CNIL) refused permission to establish anonymous hotlines because of the risk of collecting personal data in violation of the French data protection law and of not informing adequately the accused employees about the collecting and processing of their personal data Labor law issues Wal-Mart case: the Employment Court of Wuppertal (Germany) held that a Code of Conduct providing rules for employees to use a hotline to report suspected Code violations by co-workers needs the consent of the Work Councils under the codetermination procedure provided by the German labor law Employment law issues Italian law: Italian Employment Courts held that, generally, anonymous complaints are not relevant and do not oblige the employer to activate a disciplinary procedure. In any case, a disciplinary procedure must comply with specific obligations provided by law and CBAs (procedure to be adopted, right of reply from the accused person, proportionally).
What U. S. Companies Must Do in Implementing SOX in EU § Limit whistleblowing schemes to the relevant areas (e. g. , financial and accounting) § Need to focus on the fundamental rights of individuals (especially for data protection issues) § Must comply with procedures set by law or CBAs in monitoring and/or sanctioning employees § If needed, involve works councils and negotiate whistleblowing schemes with them
What U. S. Companies Must Do in Implementing SOX in EU § Maintain strict confidentiality on the complaint and any investigative materials § Use information obtained only to investigate alleged misconduct § Comply with local labor provisions on disciplinary procedures
The Foreign Corrupt Practices Act (FCPA) § Enforced by the SEC and DOJ § Anti-bribery + recordkeeping requirements § SOX being used to enforce the FCPA § FCPA prosecutions have greatly increased in recent years
Recent Crackdown on Foreign Bribes § February 2010: BAE Systems, the world's second-largest defense contractor, agrees to pay $400 million to resolve allegations that it misled the Defense and State Departments about its efforts to comply with the FCPA. § Department of Justice has more than 140 open investigations centering on foreign bribes
Recent Increase in FCPA Prosecutions
Countries with the Toughest Enforcement Standards 1. Australia 7. Portugal 2. Bulgaria 8. Romania 3. Germany 9. Spain 4. Israel 10. Latvia 5. Japan 11. USA 6. Poland Source: Global Integrity Report
FCPA Compliance? § A poll of over 1, 000 executives conducted by Deloitte Financial Advisory Services found the following: – 72% anticipated a rise in FCPA enforcement. . . – Yet 34% have no comprehensive compliance plan • National Law Journal, Sept. 15, 2009
Can You Stave Off Liability? Department of Justice “The goal is self regulation. If you have a strong compliance program, you respond quickly and you hold people accountable, the DOJ is either not going to prosecute, or reduce your fine. ” (Department of Justice Representative speaking at the 2009 Ethisphere Conference)
Effective Compliance 1. Exercise due diligence to prevent and detect criminal conduct 2. Otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law
Effective Compliance § United States Sentencing Guidelines 1. Exercise due diligence to prevent and detect criminal conduct and establish standards and procedures to prevent and detect criminal conduct; 2. Promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law; 3. Ensure that the corporation’s or organization’s governing authority is knowledgeable about the compliance and ethics program and that specific individuals have day-to-day responsibility for the program; and 4. Take reasonable steps to ensure that the compliance and ethics program is followed, enforced and evaluated.
Non. Competition Agreements Across International Borders: Design and Enforcement
Drafting § Consideration § Permissible scope of restrictions § “Garden leave" and related forms of payment for noncompetition
Enforcement § Court's ability/inclination to modify ("blue pencil") § Challenges presented by mobility of workforce across jurisdictions § Restraining orders, injunctions and other remedies
Drafting and Enforcement § See handout for overview of noncompetition agreements in Canada, France and the UK
International Assignments: Overseeing Expatriate Programs
Formation of local business entity § Does the host country require the formation of a local subsidiary, joint venture or other entity which will be the “employer”? § Allocation of ownership interests between US and foreign investors?
Expatriate Agreement § U. S. choice of law and possible conflicts with home country public policy: – EC Convention on the Law applicable to Contractual Obligations (the “Rome Convention”) provides that “a contract shall be governed by the law chosen by the parties” (Article 3).
Expatriate Agreement § U. S. choice of law and possible conflicts with home country public policy: – Article 6: A contractual choice of law in an employment agreement shall not have the result of depriving the employees of the protection afforded to them by the mandatory rules of the law that would apply in the absence of such choice.
Expatriate Agreement § Practical tips for ensuring application of U. S. law: – Clear and conspicuous contractual choice of U. S. law, applying to the entire employment relationship and to the secondment (posting) arrangement. See Article 3 of Rome Convention.
Expatriate Agreement § Practical tips for ensuring application of U. S. law: – Consider repatriating the seconded employee to the U. S. before termination of employment. – Temporary and limited nature of assignment, with expectation of repatriation after a defined period of time.
Expatriate Agreement § Termination of assignment for any reason, with or without notice. § Repatriation at end of assignment – at a defined point in time, or subject to the Company’s sole and absolute discretion. § Expected duration of assignment – reserve Company’s right to terminate temporary assignment early. § Conflicts of Interest § Confidentiality and trade secrets provisions.
Collective Bargaining Agreements § For example, in France and Germany, the employer must inform, and in some cases consult, the local works council when hiring a foreign employee.
Language Requirements § Mandatory Host Country Language Requirements: – E. g. , France: if employer fails to draft employment agreement in French, cannot enforce it against employee
Compliance With Home Country (U. S. ) Laws § Assignee agrees to comply with all applicable home country laws and regulations, including U. S. laws that have extraterritorial reach, e. g. : – The Foreign Corrupt Practices Act – Sarbanes-Oxley Act accounting fraud, reporting and “whistleblower” provisions (and possible conflicts with EU Directives, CNIL decisions) – Anti-discrimination laws.
Termination and Repatriation If repatriation to the U. S. before termination is not practicable, evaluate the risks and potential exposure for “abusive” or wrongful termination under host country’s laws.
Thank You for your time COPYRIGHT 2010, LITTLER MENDELSON, P. C.