Transcript UK legal issues

Practical Employment Law in
Europe
Second Session: Practical
Employment Scenarios
7 July 2014
Speaker details
Speaker
Contact details
UK perspective
Oliver Harris, Asserson Law Offices
E-mail: [email protected]
Tel: 03 744 9191
French perspective
Jerome Bersay, Bersay Associes
E-mail: [email protected]
Tel: +33 1 56 88 30 00
German perspective
Dr. Mark Lembke and Dr. Pascal M.
Ludwig, GREENFORT
E-mail: [email protected] and
[email protected]
Tel: +49 69 979958 0
These slides are not intended to constitute legal advice. For further information,
please contact the relevant speakers, whose details are set out above.
Scenario 1: Employment vs Consultancy
“A company is discussing engaging an individual for a
sales/marketing role in UK/France/Germany.
What type of employment or consultancy arrangement
should it choose and what are the main considerations?”
Scenario 1 - UK perspective
Pros
 Control over work and supervision
 Attract committed employee
 No issue of commercial agents
 Ownership of IP
Cons
 Expense – benefits and tax
 Administration
 Exposure to claims
 Statutory rights
Consultant



Tax treatment
Less statutory rights
Attract someone wants more
independence




Less control
Risk of being deemed an employee
Rights as ‘worker’
IP ownership and confidentiality
Independent
sales agent




Cash-flow benefit if based on
commissions
Degree of control over sales process
Commercial agents regulations
Less control and identification with
company


No commercial agents issue
Financial risk of consignment stock



Ownership of customers
Higher commission
Competition issues
Employee
Distributor
Scenario 1 - UK perspective
Issue of employment status:
 ‘Sham’ contracts
 Mutuality of obligations
 Personal service
 Control
 Other factors: exclusivity; integration; equipment;
financial risk
 Tips for drafting contracts
 Status as worker
Scenario 1 – German perspective
Definition of an employee:
• performs "dependent" work subject to instructions of another person
• is integrated into the working organization of the employer
• based on a private law contract
Note:
Whether a person is an employee or a freelancer / independent
contractor depends on how the services are actually rendered and not on
the text of the agreement!
If an independent consultant actually qualifies as an employee (so called "Fake
Self-Employment"):
• All protective provisions under German employment law apply.
• Employer has to pay social security contributions and wage taxes.
• Risk of criminal offences
Scenario 1 – German perspective
Issues in relation to independent sales agents and
consultants:
•
•
•
•
Commission entitlement
Claim for compensation after the end of the contractual relationship
Risks in case of "Fake Self-Employment"
Has to be compensated for any post-contractual non-compete covenant like
an employee.
Scenario 1 - French perspective
Employee
(including
commercial
agents)
Consultant
Pros
 Control over work and supervision
 Attract committed employee
 No issue of commercial agents
 Ownership of IP
Cons
 Expense – benefits and tax
 Administration
 Exposure to claims
 Statutory rights







Tax treatment
Less statutory rights
Attract someone wants more
independence
No control
Risk of being deemed an employee
Rights as ‘worker’. Criminal offense
IP ownership and confidentiality
Scenario 1 - French perspective
Issue of employment status: ‘Sham’ contracts:
 Control
 Other factors: Exclusivity; Integration; Equipment;
Financial risk
 Tips for drafting contracts
Scenario 2: Protecting your clients and
business
“The company wants to employ a senior employee, who
is going to have lots of client contact. What steps can it
take to protect itself against the employee leaving and
taking clients and business.”
Scenario 2 - French perspective
• Restrictive obligations/covenants
 Confidentiality/secrecy clause
 Non-compete clause/non-solicitation clause
 Non-poaching clause
 IP/IT
 Equipment and documents restitution clause.
• Practical aspects - Penalty clause:
 It fixes in advance, regardless of the injury, the amount of
damages payable by the party which breach its obligation.
 It applies only regarding the breach; The creditor does not
have to prove any damage.
Scenario 2 – German perspective
Confidentiality
• Even without a contractual arrangement, employees are obliged to keep any
business and trade secrets of their employer confidential during the term of
employment
• Confidentiality can be contractually extended to other information designated as
confidential by the employer and to a period of time after the termination of the
employment
Non-compete covenant
• Competition is prohibited during employment
• Post-contractual restrictive covenants or non-competition can be agreed
• Common types:


Post-contractual prohibition of competition
Non-solicitation (customers, employees)
• Maximum term: two years from termination
• Compensation: 50% of the employee's last total remuneration for the term of the
prohibition
• Prohibition must be reasonable to be valid (legitimate interest of employer/must
not unfairly interfere with the employee's career)
Scenario 2 – German perspective
Practical approach: Long notice period and "garden leave"
• During the notice period all contractual duties of the employee are still
enforceable.
• Even if the employee is released from his duty to work, he has to comply with
the contractual confidentiality obligation and the implied non-compete
covenant.
• If the employee wants to leave the company and join a new employer, he has
to observe the agreed notice periods. Leaving earlier is only possible with the
consent of the employer. Remedy for employer in case of employee's breach:
injunctive relief.
Scenario 2 - UK perspective
• Confidential information
 Separate NDA or clauses in contract
 Practical protections
 Return of information on termination
• Garden leave
• Restrictive covenants
 Test: legitimate proprietary interests; not more than
reasonable
 Non-solicitation vs non-competition
 Factors: level of seniority; customer contact etc.
Scenario 3: Business acquisitions
“A company is considering buying a business in the
UK/France/Germany. It wants to keep some of the
employees involved with the business, but not all of
them. What are the main considerations?”
Scenario 3 – German perspective
Share Deal:
SPA
Seller
Buyer
Transfer of Shares
Target
Target
Employees
Employees
Asset Deal:
Asset Purchase Agreement
Seller
Buyer
Target
Transfer of Undertaking
Employees
Employees
Scenario 3 – German perspective
What is a transfer of undertaking?
•
Required: Transfer of an economic entity which retains its identity
•
Factors for determination:
–
–
–
–
–
–
–
type of business which shall be transferred (e.g. service business; production unit etc.)
transfer of material assets (e.g. buildings, machines, equipment)
transfer of immaterial goods (e.g. name of company, goodwill, location) and existing organization
degree of similarity of the new and the old business
(voluntary) take-over of the main staff by transferee, especially of employees with specific know-how
transfer of clients and suppliers
duration of a potential break in the operation of the business.
•
The employment relationships of an employee working in the transferred (part of the)
business transfer to the Buyer by operation of law, unless the employee exercises the right to
object to the transfer within one month after proper information
•
Obligation to inform each individual employee in writing about
–
–
–
–
•
the proposed date of/reasons for transfer
legal, economic and social implications
planned measures
right to object to the transfer of the employment relationship
Failure to inform (correctly) results in right to object beyond the one-month-deadline.
Scenario 3 – German perspective
Restructuring after a transfer of undertaking?
• Notices of termination because of the transfer are invalid! However, the right
of the employer to issue a notice of termination due to other reasons (e.g.,
restructuring) is not affected.
• If the new employer wants to issue notice of terminations for operational
reasons, he has to perform a so-called "social selection".
 The employees who are less worthy of social protection (due to age, length
of service, maintenance obligations, disability) have to leave.
• Any material changes of the establishment must be discussed with the works
council (if any) and a reconciliation of interests should be agreed. The works
council can enforce a social plan including provisions regarding e.g., severance
compensation for the employees.
• If a specific number of employees shall be dismissed, the local labor agency
has to be informed (notification in case of a mass-redundancy)
Scenario 3 - UK perspective
• When will TUPE apply on a business transfer?
 Transfer of economic entity
 Retains its identity
 Undertaking is in UK before transfer
• Key consequences:
 Automatic transfer of employment and liabilities
 Limitation on changes to contracts (e.g. for harmonisation)
 Dismissals automatically unfair (if sole or principal reasons
is transfer, unless ETO reason)
 Obligations to inform and consult (if measures taken)
Scenario 3 - UK perspective
• Economic, technical or organisational reason
 Reason was ETO and procedurally fair
 Changes in workforce – e.g. numbers (i.e. genuine
redundancy), functions or place
• Redundancy procedure
 If 20 or more employees at one establishment - double
consultation obligations and issues; notification
 Selection pool and selection criteria
 Scoring and meetings
 Dismissal and appeal
 Settlement or compromise of claims
Scenario 3 - French perspective
•
Article L.1224-1 of the French Labour Code:
 Transfer of an “autonomous economic entity”, i.e. a set of assets
(customers, furniture, offices, etc.) and employees dedicated to a
specific activity. A partial transfer is therefore possible.
 Which retains its identity into the new business.
• Key consequences:
 Automatic transfer of all existing employment contracts. The transferee
must take on the employees on the same terms and conditions as are
set out in their transferred employment contracts.
 Dismissals are automatically unfair for the transferor and the transferee
if they have the effect of circumventing the transfer procedure
(dismissals are admitted for the transferee in the context of the
restructuring related to the transfer).
 Special rules applies concerning the fate of the collective status and
staff representative bodies.
 Consultation with staff representatives is mandatory.
Scenario 3 - French perspective
•
Restructurations:
 Redundancy procedures:
• Economic ground where:
 An employee is to be dismissed because of (i) the necessity to safeguard the
competitiveness of the employer or (ii) economic difficulties or (iii) technological changes,
occurring within the employer; and
 Which results in the (i) elimination or (ii) transformation of the job performed by the
employee, or (iii) in a modification of an essential element of the employee’s employment
contract which the employee has refused.
• Appreciation of the economic at the level of the sector of activity of the group to which the
company belong.
• Specific procedures depending upon the number of contemplated redundancies (above a specific
threshold a social plan (“plan de sauvegarde de l'emploi”) must be issued: Companies whose
workforce is at least of 50, and where the contemplated redundancies is at least 10 within the
same period of 30 days, or at least 10 within the same period of 3 months if the number of 10 is
not reach every month, or at least 18 within the same calendar year).
• Information/consultation of the staff representatives (Works Council or staff delegates, Health
Committee).
• Involvement of the Labour Administration.
• Redeployment measures (even abroad).
 Voluntary departures plans: roughly the same procedure as the redundancy procedures.
Scenario 4: Performance issues
“An employee’s performance has not met expectations
and the company might want to end the employment.
What are the main considerations?”
Scenario 4 – German perspective
What is low performance?
The employee insufficiently performs in terms of quantity/quality or does not
render the performance as agreed upon in the employment contract
What is the required performance?
• Objective requirements:
 Contractual performance, job specification, target agreements
 Employer's instructions
• Subjective requirements:
 The employee's personal performance capacity
 The employee must do what he is supposed to do and has to do it as good as he
can.
Scenario 4 – German perspective
Potential measures:
•
•
•
•
•
Keep records of performance of low performer and comparable employees
Training measures
Inform employee/serve warning letter
Termination already during probationary period
In case of increase of performance: "extension" of probationary period (by way of
termination agreement)
In case of low performance, termination of employment relationship can be based
on:
• conduct (verhaltensbedingte Kündigung)
• personal capacity (personenbedingte Kündigung)
• distinction: personal ability to meet requirements
Very difficult to state and to prove by the employer!
Scenario 4 - UK perspective
• Managing poor performance
 risks of a heavy-handed approach
 identifying reasons – e.g. Ill-health, disability, poor management,
harassment
• Unfair dismissal
 “…capability or qualifications…for performing work of the kind
which he was employed…to do”
 Evidence – honest belief on reasonable grounds
 Procedure (ACAS code) – investigation; improvement; support;
hearings
• Practical suggestions:
 Probationary periods and ‘two year’ mark
 Settlement and compromise
 Alternatives – redundancy (if genuine)
Scenario 4 - French perspective
• Managing poor performance:
 The appreciation belongs to the employer who has however to call upon
specific, objective and verifiable facts.
• Insufficiency of results:
 Obligation of setting business objectives by the employer to the employee
before the period of assessment begins;
 Appraisals;
 The objectives have to be realistic, compatible with the market and the
company has to provide its employee with the sufficient means to permit
him to reach his objectives;
 Comparison with other employees at the same level.
• Dismissal procedure:
 Pre-dismissal summons;
 Pre-dismissal meeting;
 Dismissal letter.
Thank you!