Practical Employment Law in Europe

Practical Employment Law in Europe

Second Session: Practical Employment Scenarios

7 July 2014

Speaker details

These slides are not intended to constitute legal advice. For further information, please contact the relevant speakers, whose details are set out above.

  Speaker Contact details

UK perspective Oliver Harris, Asserson Law Offices E-mail: [email protected]: 03 744 9191

French perspective Jerome Bersay, Bersay Associes E-mail: [email protected]: +33 1 56 88 30 00

German perspective Dr. Mark Lembke and Dr. Pascal M. Ludwig, GREENFORT

E-mail: [email protected] and [email protected]: +49 69 979958 0

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 ConsEmployee Control over work and supervision

Attract committed employee No issue of commercial agents Ownership of IP

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

Distributor No commercial agents issue Financial risk of consignment stock

Ownership of customers Higher commission Competition issues

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 - UK 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 – German perspective

Scenario 1 - French perspective  Pros ConsEmployee (including commercial agents)

Control over work and supervision Attract committed employee No issue of commercial agents Ownership of IP

Expense – benefits and tax Administration Exposure to claims Statutory rights

Consultant 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

Issue of employment status: ‘Sham’ contracts: Control Other factors: Exclusivity; Integration; Equipment;

Financial risk Tips for drafting contracts

Scenario 1 - French perspective

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 clauseNon-compete clause/non-solicitation clauseNon-poaching clause IP/ITEquipment 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.

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 – German perspective

Scenario 2 - UK perspective• Confidential information

Separate NDA or clauses in contractPractical protectionsReturn 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 perspectiveShare Deal:

Seller BuyerSPA

Employees Employees

Target Target

Seller

Target

Employees

Buyer

Employees

Asset Purchase Agreement

Transfer of Shares

Transfer of Undertaking

Asset Deal:

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 – German perspective

Scenario 3 - UK perspective• When will TUPE apply on a business transfer?

Transfer of economic entityRetains its identityUndertaking 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 fairChanges 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 meetingsDismissal 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?”

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 – German perspective

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!