ICE August 2016 Newsletter

In this edition we have so many changes affecting Europe: the Privacy Shield comes into effect, French government passes new labour law, amended German AUG legislation, the shock of Brexit and much more.


AUSTRALIA

Temporary worker unfairly dismissed by agency

A recent case involving a staffing company and a temporary worker in Australia proves agencies (labour hire companies, as they are known in country) need to be careful when dismissing employees.

The worker, Jayleen Kool, was engaged by Adecco Australia on a casual basis, but despite that, throughout her placement with Nestle (Adecco’s client) she had regular work in excess of 38 hours per week for a total period of nearly two and half years. At no point was the worker advised of any concerns regarding her conduct or work performance, till she was advised by Adecco that her engagement at Nestle had been terminated. Adecco was still trying to find new placements for Ms. Kool when she filed the unfair dismissal claim, but the FWC (Fair Work Commission) pointed out the labour hire company failed on a few things which amounted to dismissal at their own initiative. These included:

  • The fact there was no evidence that the worker had signed or even received a copy of clear terms and conditions of her engagement;
  • Their efforts to identify alternative work for Ms Kool weren’t considered good enough as in fact she had not received any offers for further work for several weeks, and what was eventually offered was very sporadic and with significantly fewer hours when compared to her position at Nestle.

Another important thing highlighted by this case is the fact that, even though the client may have the right to exclude a labour hire employee from a specific project, agencies should still ask questions and investigate matters properly. In this particular case, the client alleged the employee had inappropriate or unprofessional behaviour, but the agency didn’t notify the worker of the reasons for her dismissal nor did they give her an opportunity to respond.

Some of the lessons MSPs, agencies and providers managing contingent workers in Australia  can take away from this are:

  • Compliance processes have to be in place to ensure every worker is sent a contract and that it is signed and returned prior to the placement starting;
  • Fair disciplinary and dismissal processes need to be put in place and a worker’s right to respond and to be accompanied by a support person during meetings related to dismissal should be protected;
  • Just because someone is engaged as a casual worker through a labour hire company that doesn’t mean they have no dismissal rights;
  • Contracts being used in the supply chain have to reflect rights and obligations agreed with the host/end client company. If the client is to have the right to unilaterally request an employee is removed from the project, this clearly needs to be mirrored in the contracts signed with the various parties involved in the chain, including the worker.

BRAZIL

New rights and rules for maternity leave due to spread of Zika virus

At the end of June a new law introduced specific rights and rules extending the duration of maternity leave for mothers of newborns infected with a disease transmitted by the yellow fever mosquito. This allows mothers to take 180 instead of the standard 120 days. All mothers who are entitled to paid maternity leave according to the general rules become eligible for the extended leave if their baby is affected by the Zika virus, Chikungunya fever and the Dengue virus and presents signs of neurological sequela.

During the additional 60 days the employee will continue to receive her normal monthly salary, and the employer will be able to deduct the respective costs from its corporate income tax liability.

Government considers labour law reforms

While a lot of the attention is on the social security reform the interim president Michel Temer has been working on a bill that would reform the labour law or CLT (Consolidacao das Leis do Trabalho) as it is known locally. The aim is to increase flexibility and consequently encourage economic productivity. The government has been reassuring workers and trade unions that all the rights guaranteed by the constitution will be protected even though the final proposal hasn’t been agreed yet.

As part of the proposal the government is also intending to conclude the issue surrounding the outsourcing of workers, which is a bill that has been sent to the Senate but has still not been approved there or voted in Congress. As the legislation stands, outsourcing of core activities is not permitted in country.

Some argue the main challenge is with the overwhelming number of rulings and regulations issued by the Employment Tribunals – so far that amounts to 1700 new decisions to be considered on top of the already existing 922 articles of the CLT, so it would be a real win for the country if the reforms could at least help harmonise all these and condense them in a coherent way under the same code.


CYPRUS

Court finds fixed-term employee eligible for contract of indefinite duration

A worker engaged on a temporary basis with the Ministry of Education and Culture in Cyprus claimed his contract should have been considered as one of an indefinite duration and in the end, the courts agreed.

The claimant was Sotos Koullouros, and he carried out the same job with the same duties for the same employer on successive fixed-term contracts for over 30 months.  His employer argued he had been employed as a substitute teacher and that there had been objective reasons for his fixed-term employment. However the court held that there had been successive contracts between 2003 until 2011, and then from 2012 till present with intermittent pauses. Furthermore the court held that as of 2006 the worker had been employed for over 30 months and, by the time the claim was submitted, he had therefore been employed for eight years, which gave him the entitlement to be treated as a permanent employee. It transpired during the case that the employer had used fixed-term contracts to fulfil both a temporary and a permanent need, but for that reason, the worker had been deprived from a stable employment situation with no justification, so the courts decided the remedy was the relabelling of the engagement as a permanent one and the reinstatement of the worker to his former role.

This case serves as a reminder that the motivation for choosing fixed-term contracts needs to be carefully considered and checked against local legislation. The number of extensions and total duration of assignments also need to be closely monitored, even if the legislation of the country in question does not impose clear or strict rules on tenure. As is often the case, various aspects will be analysed together when evaluating employment claims, so no one factor should be considered in isolation when justifying the choice of engagement type.


CZECH REPUBLIC

Paternity leave in the Czech Republic to apply from 2017

The Czech Government has approved a proposed amendment to the sickness insurance act which will allow new fathers to use the benefit to take paternity leave. Only those that are currently paying into the system will be entitled to the benefit though. The leave to be granted is for one week and should be used within six weeks of the child’s birth. The benefit will amount to 70% of the employee’s average monthly income. The amendment still awaits Parliament approval but it should all go through allowing the change to take effect from 1 January 2017.


EUROPEAN UNION

EU – US Privacy Shield comes into effect

On 8 July 2016 the EU Member States approved the EU-US Privacy Shield, and the European Commission subsequently adopted it on 12 July 2016. The Privacy Shield permits data transfers between the EU and US in compliance with EU data protection laws and replaces Safe Harbour.

Those seeking certification under the new compliance mechanism should note the new policy requirements, more stringent onward transfer requirements, stronger supervision and enforcement activities as well as new redress timelines and process for misuse of data by commercial companies. The US Department of Commerce will accept certifications starting 1 August 2016. companies certifying within the first two months of the effective date of Privacy Shield will have nine months from their date of certification to bring contracts into compliance.

Some of the changes worth highlighting in the updated agreement are:

  • the new rules on data retention requiring companies to delete data that no longer serves the purpose for which it was collected;
  • a written commitment from the White House that bulk data collection will not occur unless specific preconditions are in place; and
  • that the Ombudsman will be independent from national security services.

FRANCE

Government forces through contentious labour bill

After months of often violent protests and damaging political division, France adopted on 20 July 2016 the contentious labour bill. In order to get to this point the government had to use a special constitutional measure  in order to force it through Parliament without a vote as there was no agreement between left and right.

The bill, among other things, changes union powers, makes layoffs easier and extends the work week – the Prime Minister argued the changes are needed so that new jobs can be created and help make the French economy more globally competitive.

The same way the bill caused polemic and divisions prior to being adopted, it continues to do so with conservative critics saying it doesn’t go far enough and that more needs to be done. Some of the employers and businesses’ unions agree stating the law will not help in any way to create jobs, even though some progress has been made in some areas. The leftist critics, on the other hand, say they will continue to fight after the summer to see the law scrapped.


GERMANY

Temporary employment re-regulation

The draft bill amending existing labour leasing laws (The Temporary Employment Act/ Arbeitnehmerüberlassungsgesetz – AÜG)) has been fiercely criticised and faced numerous setbacks  but was eventually agreed by the government coalition committee and here is a recap of the main changes that will be introduced.

Maximum total duration of assignments: the general rule is 18 months but there are provisions to agree a maximum term of 24 months by way of collective bargaining agreement of the sector of the hiring company (note this does not apply to temporary employment collective bargaining agreements – CBAs) or by works agreement in case the company isn’t bound by a CBA. Also worth noting that the interruption period that resets the clock has been confirmed as three months – this means the temporary worker can then be re-employed by the same company for up to 18 months.

Equal pay: the draft bill previously provided that the equal pay principle would apply to all assignments, even those that commenced before the law’s planned entry into force, but the latest version has been amended so that the principle applies only to assignments that commence after the law’s entry into force. That being the case, employers have a transition period (also applicable to the maximum duration of assignments)  and the earliest that the mandatory equal pay entitlement can apply is 1 October 2017 – assuming the changes really enter into force on 1 January 2017, which is still something to be clarified.

Some challenges remain, including the fact that equal pay has still not been clearly defined, but it is hoped this will still be addressed for practical implementation purposes.

Agencies supplying pilots to Ryanair investigated for suspected tax evasion

German authorities searched Ryanair’s offices in six airports in country and the homes of some pilots as part of an ongoing investigation into social security payments and tax evasion by UK recruitment agencies Brookfield Aviation International and McGinley Aviation.

The investigation is alledgedly looking into some 1600 contracts signed by the agencies with the pilots and there are concerns around the fact that the pilots are only paid for time spent in flight and there is no provision for sick pay. It’s been reported that pilots were interviewed and that electronic devices and other evidence seized.  Ryanair issued a statement confiming it has agreed to assist the German tax authorities into their investigation.

While Ryanair says the company itself is not being investigated, German prosecutors have said that their business model is a central part of the investigation, so we will keep an eye on this situation and address it again in our next edition.


LITHUANIA

New labour code approved by Parliament in Lithuania

On the 22 June the Lithuanian Parliament voted in favour of a more liberal Labour Code despite all the controversy around the issue. The new legislation should come into force in January 2017. The changes will enable employers to dismiss employees more easily and decrease the amount of severance pay from six average monthly salaries to two. The government claims these changes are essential to modernise the local labour market.

The new code also introduces a new form of employment agreement which is very similar to a zero-hour agreement, save the fact that the employer has the obligation to pay for a minimum of 8 hours of work per month, even if the employee is not called in to work. Additionally, the employer will have the ability to conclude fixed-term contracts for the jobs of permanent nature as well as hire employees in order to carry out specific project work. Prior to the changes, the Labour Code clearly favoured open-ended employment agreements.


UNITED KINGDOM

Brexit

On 23 June 2016 the UK voted to leave the European Union. As a consequence, David Cameron resigned and on the 13 July Theresa May became the new Prime Minister. Many inside the country and across the world were taken by surprise with the referendum results and the many changes to the political landscape that followed the vote; markets across the world reacted in a very dramatic way, with the pound losing value in a way that hadn’t been seen for 30 years.  Despite all that, Mrs May and her new cabinet have expressed they are in no rush to activate the famous article 50 of the Lisbon Treaty, which will trigger the official negotiations with the remaining 27 member states that will lead to the permanent exit of the EU.  The negotiation process takes at least two years and can be extended, but only if all 27 countries agree.

So the questions are many and they will potentially remain unanswered for a while, but for now we look at some potential changes:

  • Employment law: as mentioned in the last edition and explained above, nothing will change straightaway. A great proportion of UK employment law comes from Brussels such as those related to discrimination, collective consultation, transfer of undertakings, family leave, working time and duties to agency workers, however many of the protections provided by these already existed in some form in the UK before they were imposed by Europe. These rights are widely accepted and recognised ultimately as a good thing, so it is unlikely the UK would rescind any of these rights. Any changes, if happening at all, will most likely be gradual. Having said that, a number of experts have suggested the Agency Workers Regulations is a potential contender for complete revocation, but this remains to be seen.
  • VAT: transactions between the United Kingdom and the countries of the European Union are currently considered to be intra-community transactions, but with Brexit becoming a reality the reverse charge mechanism used for VAT purposes will not be applicable anymore. Instead UK entities operating in other EU countries are likely to have to identify themselves as non-residents for VAT purposes through the appointment of a local tax representative and comply with the specific requirements of each country they are trading with.
  • Data privacy legislation: the main piece of UK data privacy legislation (the Data Protection Act 1998) is a stand-alone Act of Parliament, so Brexit will not have any immediate impact on this area. However there are questions around adequacy of the UK legislation in relation to the new EU General Data Protection Regulation (GDPR), which is scheduled to come into force in May 2018. That could be an area of difficulty for businesses processing the personal data of EU citizens or supplying goods and services to the EU from the UK as they will still have to comply with the GDPR. It is likely UK entities in this position would have to implement cumbersome mechanisms or even an equivalent of the EU-US Privacy Shield in order to be able to lawfully transfer data from the sites and servers of their customers or affiliated entities located in the EEA to those servers of the UK business that are located in the UK. Data flows in the opposite direction would need to comply with UK data protection legislation. An eventual move away from harmonising UK data privacy law with the GDPR would translate in an increased compliance challenge for many businesses as they would end up operating under two regulatory regimes instead of one. For its part, the UK Information Commissioner’s Office has recommended that UK businesses continue to plan to implement the GDPR.

Reform of the intermediaries legislation (IR35) continues to spark criticism and concerns

HMRC published back in May a consultation on reforming IR35 in the public sector and the closing date for comments was the 18 August 2016.  The customs authorities called it a bid to “improve the effectiveness of the rules in the public sector”. It is part of the plans to transfer responsibility to apply IR35 from the contractor the public sector body , recruitment agency or other third party paying the worker’s company; the same party will then also be liable to pay the appropriate tax and NICs via the RTI system. The changes are due to apply from April 2017.

During the consultation period a number of contracting experts and associations representing contractors as well as employer organisations have voiced their concerns with the proposed changes, but it seems the government is pretty determined to proceed with the proposals regardless. Details of a complete timetable for the reform emerged at the end of July confirming fears that despite the ongoing consultation, a final decision has been made with regard to making the proposals law, with the remaining question being not ‘whether it will happen’, but actually ‘when’.

Among the many criticisms and concerns raised with this reform is the fact that the consultation makes it clear that employment rights will be outside the scope, which will result in a number of individuals paying tax as an employee but without automatically having the corresponding employment rights and security.

We will continue to follow this issue as new details emerge over the next few weeks and months, but for those who require further information or assistance, please feel free to email me directly.


UNITED STATES

Final overtime rule to come into effect on 1 December

The final rule on overtime regulations under the Fair Labour Standards Act was released by the DOL (Department of Labour) – it is expected to extend the overtime protections to approximately 4.2 million more US workers By having the weekly salary threshold raised from USD455 per week to USD913 per week,  employers have to be prepared to pay overtime to a wider proportion of their workforce or increase their salaries to the new minimum so more of their workers qualify for the ‘white-collar exemption’.  The increase in the salary threshold is to take effect from 1 December 2016.

The salary threshold will automatically update every three years instead of annually, as originally proposed. For the first time, incentive and bonus payments can comprise up to 10% of the new salary threshold. There are also new rules that apply to the exemption of highly compensated employees from the overtime regulations.

Employers will have approximately 200 days to comply with the new regulation following its final publication and can refer to three technical guidance documents issued by the DOL, specifically aimed at private employers, non-profit organisations and institutions of higher education.

Misclassification litigation cases continue to increase

While Netflix faces the beginning of their legal battle against contract workers hired to watch shows, FedEx Group Package Systems Inc is getting to the end of 12 years of litigation – the recurring theme: misclassification of independent contractors. FedEx had to agree to pay USD240million to settle class-action lawsuits in 20 states where drivers claim they were misclassified. This follows a separate settlement last year when the company agreed to pay USD228 million to settle lawsuits with drivers in two other states (California and Oregon). Other companies going through very similar situations are Uber and Lyft, having to pay settlements amounting to USD100 million and USD27 million respectively.

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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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