Worldwide: Employment Immigration And Pensions International Newsletter - June 2015

In this issue...

This quarter, we cover secondments into the UK, and have updates from Australia, Hong Kong, India, Qatar and the UAE on a variety of issues. From our international alliance partners L&E Global, we have updates from France and the US.

On page 20 we introduce you to Mark Howard, pensions partner in our Clyde & Co London office.

We also continue our series of Employment "at a glance" guides, with a summary of employment law in India.

27 countries guide

We have updated our guide to employment law across 27 countries, to see this click here.

International seminars

On 6 July 2015, we will be holding a seminar in our Clyde & Co London office on managing a workforce in the Middle East and North Africa. Our MENA Employment team will be delivering a scenario-based interactive session on the issues involved in establishing a business in the region, recruiting and engaging employees, employee mobility within the region and termination of employment.

Last month, in collaboration with L&E Global, we held a seminar on how to navigate the requirements for collective consultation and negotiation across the European Union. Our panel from the UK, France, Germany, the Netherlands and Italy discussed:

  • The requirements for setting up a national works council
  • The matters in which representatives need to be involved, and whether employers have to secure their agreement or merely consult with them
  • Consulting about confidential and price-sensitive corporate activity
  • The potential consequences of non-compliance
  • How in practice employers should chart a path through the differing obligations across Europe, timelines and common roadblocks
  • European Works Councils

APAC newsletter

Following the successful webinar in March 2015 by members of our Asia Pacific employment team on restrictive covenants, their next newsletter will have a special feature on restrictive covenants in the APAC region.

EMPLOYMENT "AT A GLANCE" GUIDE – INDIA

By Vineet Aneja and Vikram Bhargava

Indian labour and employment laws have not kept pace with India's fast track liberalisation policies. Hiring and firing employees must be carefully considered because of the legal, regulatory, social and cultural idiosyncrasies that arise when doing business in India.

Indian law distinguishes between 'workmen', who are entitled to various statutory protections, and 'non-workmen' who receive only limited statutory protection. Foreign nationals can be employed by an entity in India, or employed overseas and seconded to an Indian entity. Foreign companies can also consider employing consultants directly in India.

Issues arising on hiring individuals

Immigration

All foreign nationals wanting to work in or visit India will require a visa. The decision of whether to enter India on an Employment visa or Business visa depends on the nature of activity to be conducted in India. Foreign nationals must earn a minimum salary of USD 25,000 per annum to be eligible to apply for an Indian Employment visa (amongst other qualifying factors).

Foreign nationals must obtain the employment visa to work in India from their country of origin or habitual domicile whether employed directly by or seconded to work for an entity in India. The time spent in India is no longer an indicator of the type of visa required. Post-arrival formalities are required to be completed within the stipulated time lines, failing which exit from India can be delayed.

Foreign nationals are subject to payment of all applicable taxes in India whether employed directly by or seconded to work for an entity in India.

Employment structuring and documentation

Employers should offer employees working in India a clear written contract of employment. Often an "Offer Letter" is used for this purpose – however appropriate terms and conditions should be inserted in this Offer Letter to avoid ambiguity. Further, Indian employment law contracts can be for a fixed term or open term, although it is common to use a fixed term contract as it can assist with termination strategies.

Companies should ensure they comply with all foreign direct investment and exchange control regulations in India when structuring employment agreements in India. In addition, employers must ensure that all handbooks, rules and policies are suitable for use in India and enforceable under Indian law.

Finally, employers have certain obligations under specific legislation towards part time employees and may be held liable even where such employees are hired through an agent.

Issues arising during the employment relationship

Wages, annual leave and working time

Terms and conditions of employment are regulated by an employee's employment contract which must meet minimum statutory requirements set out in the respective Shops and Establishment Act (SEA) of the state where the employee is based. The payment of overtime, notice periods, annual leave and sick leave can vary depending on both the state where an employee is based and the seniority of the employee. State specific compliance is required and varying terms of employment may need to be offered to different employees based in different states in India.

India has legislation that offers maternity benefits like maternity leave and pay, but there is no statutory provision for paternity leave.

Discrimination

The Constitution of India guarantees the right to life, liberty and equality, and the right not to be discriminated against on the grounds of nationality, race, sex, religion or disability. However, such right is ordinarily available only against the State and its instrumentalities and not against private persons. An important new law relating to discrimination is aimed at preventing and prohibiting sexual harassment of women in the workplace and mandates a complaint mechanism to deal with complaints relating to sexual harassment. This new law also places an onus on employers to educate their work force on the respective rights and remedies.

Trade unions

The Trade Union Act 1926 allows workers to organise themselves and form trade unions. Current trends suggest however that with the expansion of the service sector, there has been a decline in the importance of trade unions in the overall landscape of industrial relations in India. Political patronage to trade unions has also decreased over the years.

Tax and social insurance

Employees have an obligation to pay individual income tax. Further, companies must comply with corporate tax obligations which include an obligation to withhold tax on salary and pay this to the local tax authorities. In addition, both employers and employees have a statutory obligation to make a contribution to applicable social security schemes including provident fund, pensions and employee state insurance. India does not offer a universal social security scheme and courts seek strict enforcement of the obligations with respect to social security related laws.

India has signed social security agreements with countries including Belgium, Germany, Switzerland, Denmark, Luxembourg, Netherlands, Hungary, South Korea and France. This exempts expatriates from these countries from making social security contributions in India in accordance with the terms of the respective social security agreement. Foreign nationals of all other countries are required to make contributions towards provident funds in case they work at establishments that are subject to provident fund legislation.

Issues arising on termination of the employment relationship

Business transfers

The Industrial Disputes Act 1947 (IDA) provides protection to employees falling into the category of "workmen". In the event of a transfer of an undertaking, eligible workmen are deemed to be "retrenched" (i.e. redundant) and will be entitled to notice and severance compensation only if the transfer results in adverse working conditions or an interruption in the continuity of service. In other words, no special rights or benefits are given if services have not been interrupted and the terms and conditions of employment are not altered to the detriment of the workman.

Employees who are "non-workmen" do not have statutory rights in the case of a transfer of an undertaking. However, employees will be entitled to contractual rights and/or benefits. An action may also lie against the employer in the case of a premature termination of employment or wrongful termination caused due to the transfer.

Terminating employment

The IDA sets out the rules, processes and procedures to be followed by employers when terminating the employment of workmen. Certain categories of employees such as managers and those discharging supervisory duties and earning more than INR 10,000 per month are exempt from this statutory protection set out in the IDA. In such cases the terms and conditions of individual contracts of employment, or the applicable SEA, will dictate the process of termination.

All employers must comply with the minimum statutory requirements for notice periods and payments in lieu of notice as set out in the applicable SEA.

Redundancy (commonly known as retrenchment) or termination without cause is permitted under Indian law subject to necessary compliances. Further, in the case of proven misconduct, or termination for cause, an employer may be entitled to terminate without notice or payment in lieu. Rules and procedures can vary depending on the nature of activity of the entity, or state where operations are based and the number of employees employed.

Above all, the cultural idiosyncrasies of operating in India must always be considered when terminating employment in India.

AUSTRALIA: WHEN IS AN EMPLOYMENT POLICY MORE THAN JUST A POLICY?

By Jenni Priestley and Leah Hewish

Jenni Priestley, Partner and Leah Hewish, Associate at Clyde & Co's Australia office report on a recent decision of the Supreme Court of New South Wales.

Two former directors of ABN AMRO Australia Holdings Limited (AAAH) have claimed employment entitlements they argued were owed to them on the basis of policies in place at the time they were made redundant. In a wide-ranging judgment1, the NSW Supreme Court considered the issue of the contractual force of company employment policies in Australia.

The Court's finding that a redundancy policy formed part of Mr James' employment contract will be of interest to Australian employers, who may be prompted to review the interplay between their employment contracts and employment policies.

The Redundancy Policy

Mr Angus James was the CEO of an ABN AMRO Group company. In October 2008, ABN AMRO Group was sold to a consortium, including Royal Bank of Scotland plc (RBS), which gained control of AAAH.

AAAH had a "closed" redundancy policy in place. The redundancy policy was kept by HR and while employees knew of its existence, it was not available on the company's intranet and its contents were never published.

The redundancy policy stated that it provided "...principles and guidelines to follow in the event that an individual or group of staff is made redundant", and stated that "In all cases where redundancy arises, staff will be treated fairly, equitably and consistent with the organisations values."

Specifically, the redundancy policy stipulated that redundancies were to be calculated in accordance with the policy to include accrued contractual and statutory entitlements, a severance payment and, depending on the circumstances, an "ex-gratia payment" based on the average of the prior two years' bonuses.

A "communications pack" was also developed to allay the concerns of the employees of AAAH following the takeover. That pack included the following response in relation to FAQs about employee conditions:

Q: Will there be redundancies?

"...in the case of redundancy, the consortium has guaranteed to all staff that all existing ABN AMRO policies and practices related to redundancies will remain in place for a period of at least two years after the bid goes unconditional..."

The communications pack was announced to all staff of AAAH, but did not result in any publication of the redundancy policy to staff.

Incorporation of the redundancy policy into Mr James' contract

Mr James claimed that the redundancy policy was incorporated into his contract of employment and so he was owed a severance payment and an ex-gratia payment equal to the average of the bonuses he received for the previous two years.

His contract of employment specified, in relation to the policies of the company, that he "...agree[d] to be bound by the policies of ABN AMRO as may exist from time to time." It also expressly stated that ABN AMRO was able "to vary, change or terminate existing policies" as its prerogative.

The Court found that the redundancy policy had contractual effect as between Mr James and his employer as it was incorporated into his contract of employment. The judge observed that, while the language of the contract clearly showed that the intention was to impose an obligation on Mr James to obey company policies as they exist from time to time, the parties could not have intended that the company would not also be so bound. He said:

"To my mind, the undertaking by the employee to be bound by the employer's policies as they exist from time to time makes sense only if, implicitly at least, the employer also undertakes to be bound by, or to observe, the terms of those policies."

It was held that the language used in Mr James' employment contract, whereby he agreed to be bound by the company's policies, suggested that he agreed to be bound because the policies form part of the contract of employment. The Court determined that the company policies, and specifically the redundancy policy, equally bound the employer as the obligations that policy set out were not unilateral.

Specifically, the redundancy policy was drafted in terms of imperatives placed on the company in circumstances where an employee was made redundant. For example, it stipulated the "Process and Procedures" to be followed, the functions of the HR team in preparing the calculations, the benefits to be provided and the terms of the letter to be sent to the employee in the case of redundancy.

Another factor considered by the Court was that, because of his position, Mr James knew of the existence of the redundancy policy and had some knowledge of its substance, including specifically that it provided for an ex-gratia payment in some circumstances.

The evidence revealed that there was not only a practice of affording an ex-gratia payment to redundant employees, but also a presumption of making such a payment for senior employees. The result was an award to Mr James of close to AUD 3 million by way of redundancy payment.

The conundrum of company policies

This decision demonstrates the fine balance employers face in attempting to create and impose obligations on employees through written company policies without inadvertently creating a situation where those same policies are deemed to have contractual force with a detrimental result for employers.

The lesson for employers to take from this judgment is two-fold:

First, employers should take the opportunity to review standard clauses in offer letters and contracts of employment to check that, where reference is made to company policies, their intention in relation to compliance with those policies is unambiguous.

Secondly, employers should consider the content of their existing internal policies and whether there are aspects of those policies that, if enforced, could be costly for the business. The tendency in recent years has been for Australian employers to draft very detailed and prescriptive policies and company manuals – this case suggests that if there is a possibility that those policies may (although this was not the intention) be held to have contractual force it may in some cases be that less detail is actually better than more.

In the case of both employment contracts and policies, clear and careful drafting of key documents can go some way to protecting the employer's interests and avoiding unintended consequences.

To read this Newsletter in full, please click here.

Footnote

1. James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland [2015] NSWSC 243

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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