ICE August 2015 Newsletter

As laws and regulations are constantly changing, here is a snapshot of some of these changes over the last couple of months.

In case you have any queries or need assistance with anything, please don’t hesitate to contact me.

Happy reading J,


Action plan against social fraud and social dumping

The federal government and the different inspectorates have come together for an intense cooperation in order to target social fraud, having undeclared work and fictitious self-employment amongst the top priorities. An action plan with 85 action points has been put together and it is hoped this effort will lead to an increase in the quality of the controls conducted.

Specific actions will also be taken in order to fight against social dumping, especially as it relates to cross-border fraud.

As a result the government is expecting to increase revenues as it sees more social security contributions and taxes being paid.

Innovation premiums

Initially designed with the objective to encourage and compensate innovations by employees in the workplace, innovation premiums are not considered remuneration and therefore are not subject to income tax or social security contributions. The possibility of granting such premiums expired at the end of 2014 but the Parliament is currently discussing an extension of the regime which would reinstate these until the end of 2016.


Potential changes to Outsourcing laws

There is currently no specific law regarding outsourcing in Brazil. All such legal provisions are set out in Precedent 331 of the Superior Appeal Labour Court which forbids a company from outsourcing its core business to another company, meaning only non-essential activities can be outsourced (i.e.: cleaning, security and back office services), otherwise it is seen as unlawful.

Under the current regime the contracting company is also considered to have subsidiary liability for all debts due to outsourced employees. This is mandatory and cannot be waived or negotiated. Further, depending on the circumstances of the case, the Labour Court may grant employment recognition between the contracting company and the outsourced employee, meaning that the outsourced employee may be entitled to labour and employment rights provided by that company.

However, with the Draft Law 4,330/2004 currently being discussed in the Federal Senate, changes to the above restrictions could soon be coming. The Bill (if passed) would allow for any part of a company’s business to be outsourced, paving the way for companies to outsource both core and non-core activities. Other additional aspects include allowing for a contracting company to be jointly liable for any employment debt due to outsourced employees as well as making the contracting company responsible for withholding taxes applied to the outsourcing service. The new law would also impose a restriction on a company hiring the same outsourcing provider for at least 12 months upon termination of a service agreement.

The enactment of the law is anxiously awaited by both companies and workers – the former expecting the outsourcing market to become less bureaucratic and consequently more competitive and the latter hoping for improved labour and employment rights within the industry.


Permanent Residence via new Immigration streams under the Express Entry system

Further to the launch of the Express Entry system in January by the Citizenship and Immigration Canada (CIC), the province of Ontario followed with the launch a provincial nominee programme, which would allow it to actively participate in immigration selection based on its needs and priorities. The Ontario programme is run via the Express Entry system and allows skilled foreign workers to apply for permanent residence under one of two provincial economic immigration streams, namely the Human Capital Priorities Stream and the French-Speaking Skilled Worker Stream.

The foreign workers who meet the eligibility requirements under one of the three federal economic immigration programmes will be placed into the Express Entry pool and have to follow a number of steps for further application and assessment, until those meeting the final eligibility criteria receive a Nomination from the Province of Ontario, which guarantees an invitation to apply for permanent residence from CIC.

Prior to the introduction of these new streams, workers had to obtain a positive Labour Market Impact Assessment (LMIA) meaning the process was very costly, time consuming and tedious. The new streams should considerably improve the process and applicant experience.


Restriction on private employment agencies

In our April Newsletter, we highlighted that the German government had proposed changes to the rules on the use of temporary workers calling for temporary workers to receive the same pay as permanent employees after 9 months of engagement and for the duration of temporary employment to be limited to a maximum of 18 months. The German Association of Temporary Employment Agencies (iGZ) expressed concerns with the proposals specifically as it relates to limiting an assignment to 18 months since in their view some temporary assignments can take longer than that especially when it comes to parental leave, care leave, illness-cover, or long-term projects in companies. The iGZ also stated that most temporary workers already earn equal levels of pay within the first six months. Despite all the concerns, the German Labour Minister is expected to add further changes and restrictions on Private Employment Agencies by the end of September/beginning of October and a cabinet decision possibly being made before the end of the year.


Additional changes to legislation coming

Over recent years Hong Kong has gone through a number of reforms that have slowly changed the general perception of it being a very ‘employer-friendly’ jurisdiction and 2015 has just reinforced that. In February we saw the introduction of statutory paternity leave come into effect and there are still several other changes coming into effect still this year such as:

  • Enhanced power to Labour Tribunals to make compulsory orders for re-instatement of employees where an employee has been unfairly dismissed or had his/her contract unreasonably varied (currently this can only be achieved with the consent of the employer);
  • The expansion of discrimination legislations such as introduction of a statutory duty of reasonable accommodation on employers in relation to employees with a disability and considerations as to whether the law should provide protection from sexual harassment in common workplaces even if outside of the employment relationship.

Employers are advised to consider these impending changes, analyse how they may impact existing employment terms and conditions and ascertain any necessary changes are made to future employment terms or employment practices to guarantee compliance is still met.


More Labour reforms

In June, the Council of Ministers approved four draft Framework Legislative Decrees, implementing additional labour reforms. Of notable importance would be the decree which simplifies the execution, management and possible termination of working relationships via electronic means. The same decree addresses the integration of disabled workers within the working environment as well as communication between INAIL and employers concerning occupational health and safety. It also enables the more feasible utilisation of surveillance devices for the indirect monitoring of employees and allows for the exchange of vacation days for the medical needs of dependents.


Categorising Workers under a Fixed Term Contract

The use of fixed-term contract in Luxembourg should be approached with caution as recent case law shows that incorrect drafting or overly broad definition of a fixed-term contract’s object calls into question the validity of the contract itself, regardless of the tasks actually executed by the employee.

Subsequent attempts by employers to fill gaps in a contract by merely defining an employee’s tasks or issuing a job description or summary statement of the employee’s objectives will not do the trick either and the contract may be reclassified as an indefinite term one.

A fixed-term employment contract cannot be used as a disguised probationary period and should be limited to projects that are clearly of a temporary nature. Using a fixed-term contract for incorrect or imprecise reasons exposes the employer to breach of compliance and legal uncertainty.

By default, where an employment contract does not specify the purpose of the job or refer to the execution of specific temporary tasks, the working relationship will be reclassified from the outset as an indefinite employment contract, with all the related consequences. An example is if a company tries justifying that an employee is hired due to an “increase in activity…” – this has previously been deemed by the Labour Tribunal as an imprecise justification for a fixed-term contract.

The correct approach would have been ensuring the fixed-term contract specifies items that would include:

  • The nature of the precise and non-permanent task assigned to the employee;
  • The significant and temporary increase in the company’s activity by indicating the circumstances which made the hiring of the worker necessary for the period mentioned in the contract;
  • The employee’s exact role and designate the companies to which the employee was assigned.

One should note that even after the employment relationship ends upon expiry of the fixed-term contract there could still be issues. In situations where the employer provides no further work to the employee and indicates that the expiry date of the fixed-term contract is his or her last day of work, using this as an oral dismissal, may actually be found in a situation of abusive termination, with damages possibly being awarded by the Courts where applicable.

To avoid some of these pitfalls, a company should consider the guidance provided by the Court of Appeal on the necessary particulars that should be included in a fixed-term contract so it is not at risk of reclassification as an indefinite contract. Amongst other points, the guidance suggests the contract should clearly state the reason why the employee’s role was exceptional and the function was precise and temporary and it did not fall within the scope of a company’s normal and permanent business.


New Employment Pass Category announced

Malaysia’s Expatriate Services Division (ESD) announced a new employment pass category, known as EPIII (Employment Pass III) which was effective from 15th July 2015. The EPIII allows workers to provide services for a monthly salary between MYR 2,500 (USD 657) and what used to be the standard minimum of MYR 5,000 (USD 1,313) for a period of up to 12 months.

The EPIII is only permitted in industries that fall within the National Key Economic Areas (NKEA) such as business services, electronic, financial services, oil, gas and energy, communication content and infrastructure etc.

Companies should seek approval from the Ministry of Home Affairs (MOHA) to gain exemption from the minimum basic salary requirement prior to submitting application to the ESD.


Proposal on contractual restrictive covenants

The government has introduced a Bill (Prop 85L) setting out new rules on restrictive covenants in the labour market, hoping to enhance mobility, promote competition and innovation and increase overall employment. It is currently before the Parliamentary Committee for Labour and Social Affairs for debate. As there is no set date for the parliamentary discussions and voting, the new rules are unlikely to enter into force before 2016.

The legislation shall apply to all existing agreements, but not until 12 months following implementation. Employers will have to review their employment contracts in order to evaluate the need for possible amendments.

At present only non-compete clauses are subject to legislative regulation and given validity via a “reasonableness test” (Section 38 of the Contract Act). The new restrictions to non-compete clauses would require these to be stated in writing in order to be valid and not apply for longer than 12 months after termination of employment. Further, at the employee’s request, the employer must provide a written statement as to what extent the employer will assert the non-compete clause and the employee will be entitled to specific compensation equal to his/her salary for the entire period for which the non-compete clause applies up to a determined ceiling.

The bill also proposes contractual provisions restricting the employee’s right to contact the employer’s customers in specific scenarios and under determined timeframes following termination of the employment relationship. It (the bill) would however prohibit the inclusion in the employment contract of provisions on the non-solicitation of employees, with the exception of two specific scenarios.


Salary threshold for highly qualified specialists

A new procedure for determining the minimum salary for foreign highly qualified specialists (HQS) came into force, specifying a minimum monthly salary and not an annual amount as was the case before. As a general rule, the monthly salary of an HQS should be at least RUB 167,000 (approx. USD 3,040). The annual salary threshold, therefore, is RUB 2,004,000 (approx. USD 36,440), a little higher than the minimum annual salary which was previously set at RUB 2,000,000 (approx. USD 36,360). The amendments in relation to HQS salary also provide that an employee’s quarterly salary should be at least RUB 501,000 (approx. USD 9,824), even if the employee was absent due to illness, unpaid leave or did not receive his/her full salary for other reasons.

Passport expiration dates for foreign citizens applying for Russian work permits

The Federal Migration Service applied new rules pertaining to the issuing of work permits for foreign employees, which establish, among other things, new requirements relating to identification documents of foreign citizens applying for work permits. As a general rule, identification documents should expire at least one year after the date of application for a work permit, but more stringent rules apply to those wanting to work as an HQS (highly qualified specialist) or those working in a foreign company in Russia as their documents should expire at least three years after the date of application for the work permit.


The UK has enacted the Modern Slavery Act 2015, which should take effect in October of this year. The law is the first of its kind in Europe, aimed at eliminating modern slavery and human trafficking from supply chains.

Under the Act, large companies and partnerships that meet a certain minimum global turnover requirement, and carry on any business or part of a business anywhere in the UK, will have to produce a statement each financial year detailing their efforts to ensure their supply chains are free from slavery and human trafficking. The fact that a global turnover will be considered as opposed to UK only means foreign based companies could be covered by the legislation even if their business in the UK represents a very small portion of their overall operations. The UK Act applies to business that supply either goods or services, so it has a broader reach than its Californian version, which is limited to retail and manufacturing companies only.

Companies covered by the Act should, amongst others, consider the following steps: ensure they appoint someone within the organisation to be in charge of compliance with the law; carry out due diligence of suppliers and contractors to verify how they operate and prioritise those identified as potential higher risk; consider carefully the approach to the statement required on a yearly basis as this may impact the company’s reputation and could be a differentiator to customers depending on what their own requirements are.

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I hope you find this newsletter useful. However please note that the content of this newsletter is to be used for informational purposes only and is not to be construed as legal or financial advice. While ICE tries to ensure the information is accurate at the time of writing, due to the nature of Global Compliance, all such information is subject to change AT ANY TIME based on country laws and regulations. ICE shall therefore not be held responsible in any way, and you are strongly advised to contact ICE directly should you wish to obtain further details on a specific country.

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