Employment agreements

"Employee-Shareholder" Status to be Introduced

By Richard Lister

StockCertificate.jpgThe UK Government is pressing ahead with plans for a new type of employment contract for "employee shareholders", with a view to implementing the scheme in April 2013.

The proposal, first announced by the Chancellor George Osborne in October, originally referred to "employee owner" status. In essence, the idea is that employees would give up certain employment rights, such as unfair dismissal and statutory redundancy pay, in return for between £2,000 and £50,000 of shares in the company which would be exempt from capital gains tax (CGT). Employers could determine the type of shares offered, including whether they carry voting rights or the right to receive dividends.

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Working as a Student after Completion of Studies?

An employee is considered a student when he/she is no longer subject to an obligation of full-time compulsory attendance at school but continues to follow a full-time education or part-time education (under certain conditions).

The question arose whether a student who graduated in June who made clear he/she did not want to pursue his/her studies, e.g., by registering as a jobseeker, could still be employed under an agreement for student employment, with a solidarity contribution, until 30 September of the year in which he/she graduated.

The NSSO concluded that, under this scenario, employment cannot, under any circumstances, be used as a disguised probation period under an ordinary employment agreement

Nothing changes for graduates pursuing further study: they continue to be considered as students.

For more information on student employment, we refer to our Newsletter of 23 January 2012.

Action points

  • There is no need to worry about plans to engage a recently graduated student under a student employment agreement during the summer.
  • Remain cautious if the objective is to engage the student under an ordinary employment agreement as of October.

New Decision Highlights the Importance of Forum Selection Clauses in Cross-Border Employment Agreements

Multinational employers often negotiate, with their key employees, employment agreements and restrictive covenants that prohibit unfair competition across borders. To prevent inconsistent judgments and give the parties a firmer expectation regarding their rights, many employers negotiate choice-of-law and choice-of-forum provisions that select one jurisdiction's laws or forum over another's.

The enforceability of these provisions in the United States was recently affirmed by the U.S. District Court for the Southern District of New York in Martinez v. Bloomberg LP, 2012 U.S. Dist. LEXIS 113227 (S.D.N.Y. Aug. 10, 2012). This decision holds important lessons for multinational employers concerning the enforceability and limitations of these clauses.

To learn more about the decisions and its potential implications for employers, please continue reading Littler's ASAP, New Decision Highlights the Importance of Forum Selection Clauses in Cross-Border Employment Agreements, by Philip Berkowitz, Laurent Badoux, and Trent Sutton.

The Implied Term of Mutual Trust and Confidence and an Employer's Compliance with Its Own Policies

By Ben Dudley, Partner, and Adam Lambert, Solicitor, Sydney.

The Federal Court has recently handed down a decision which found that a 'serious' breach of a redundancy policy by an employer amounted to a breach of the implied term of mutual trust and confidence, even though the relevant policy was expressly excluded from being incorporated into the contract of employment.

Employers will need to carefully review and consider the interaction between their policies and contracts of employment.

Employers should consider taking advice on steps available to minimise risks in this area, including by careful drafting of relevant policy and contractual documents.

Read the full post here.

The New Hungarian Labour Code Enters into Force

By Boglárka Kricskovics-Béli of CLV Partners (the Hungary member of Ius Laboris)

ChangesII.jpgThe new Hungarian Labour Code promises a fundamental overhaul of that country's labour law. Intended to improve competitiveness and increase employment in the face of the current economic crisis, the revised Labour Code introduces new forms of employment, and significantly changes employment rules from hiring to termination.

The new Code recognizes atypical or flexible forms of employment, and expressly allows employees to work for different employers in the same position simultaneously.

Different salaries may be paid to employees of the same employer who work in different regions.

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Extensive Changes to Italian Labour Law to Take Effect on July 18

By Valeria Morosini of Toffoletto De Luca Tamajo e Soci (the Italy member of Ius Laboris)

ItalyII.jpgA bill that will significantly reform the Italian labour market was approved last week and published into the official journal on July 3.

The reforms introduce a wide variety of changes to the employment rules from the hiring to the firing of employees. Reinstatement is no longer the only remedy for unfair dismissals; while it remains applicable in some cases, the judge can order the employer to pay capped compensation. In the case of redundancy, a new procedure is to be followed before the Labour Office whereby the parties must try to settle the dispute before giving notice of the dismissal. New rules will also apply before the court when the employee challenges the fairness of a dismissal.

Furthermore, new regulations dealing with flexible contracts have been introduced. These regulations include an increase to the social contribution rate due on fixed-term contracts as well as a stricter use of contracts with independent contractors, which can lead under specific circumstances, to their relabeling as open-ended employment contracts. It therefore will become very risky for companies to engage under these types of contracts.

On the positive side, it is now possible to enter into a first time fixed-term employment or agency contract with an employee for a period that does not exceed 12 months, without having to specify the reasons for the fixed term.

These reforms introduce considerable changes to the Italian labour market and will enter into force on July 18th.

Pre-Retirement Protection in Case of Fixed-Term Contract

The pre-retirement protection applies in case of a fixed-term contract only if the contract is supposed to expire after the employee reaches the retirement age. If not, there are no obstacles to serve a notice of termination (Supreme Court judgment of 27 July 2011, II PK 20/11). If the protection does apply, that is when the contract is supposed to expire after the employee reaches the retirement age, and the employer breaches it by giving the employee a termination notice, he only risks paying monetary compensation. According to the judgment of 9 January 2012 (II PK 82/11), the employee may not demand reinstatement in the job. Despite the protection, there is no duty to reinstate the employee, because the principle is that termination upon notice of a fixed-term employment contract, even in breach of law, only gives the employee a claim for compensation.

Substantial Banker Bonus Claim Upheld

By Colin Leckey

WrappedEurosII.jpgThe High Court has upheld a claim by 104 investment bankers for unpaid bonuses totalling EUR 52 million (Attrill and others v Dresdner Kleinwort and Commerzbank). The claim was based on verbal promises as to the size of a bonus pool which were found to have contractual effect.

The judgment, though lengthy, is at heart a straightforward breach of contract claim. It is very fact-specific, and care should be taken not to read too much into its broader implications.

Nevertheless, it serves as a salutary warning to staff involved in the annual compensation process in banks and other financial services institutions - from the CEO and the board down - of the need to exercise caution in the nature and content of communications about bonus pools and individual awards. Failure to do so may mean that binding commitments, later regretted, come into effect.

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Tags: Bonus

Non-compete Agreement Concluded After the Severance Notification But Before the Effective End of the Employment Contract: Indemnity Exempt from Social Security Contributions

It was generally admitted that a non-compete indemnity was exempt from social security contributions only if, among other things, the non-compete agreement was concluded after the effective end of the employment contract.

The Supreme Court nuances this principle in a judgment of 19 March 2012. In this case, two agreements were concluded on the same day between an employee and his employer: on the one hand, a transactional agreement on the termination of the employment contract (after the severance notice), and on the other hand, a non-compete agreement. Parties also agreed that the employment contract would effectively end only on the second day after the conclusion of those agreements. In addition, the employment contract did not contain a non-compete clause.

The Supreme Court decided that even if paid by virtue of an agreement concluded after the severance notification, but before the effective end of the employment contract, the non-compete indemnity is not necessarily awarded because of the termination of the employment contract: it does not therefore constitute remuneration subject to social security contributions.

This ruling reduces the importance of the exact moment of the conclusion of a non-compete agreement concluded within the framework of the termination of an employment contract. In order for a non-compete indemnity to be exempted from social security contributions, such an agreement should not necessarily be concluded after the effective end of the employment contract. Note that the exemption from social security contributions always requires that the non-compete indemnity does not constitute, in reality, a veiled indemnity in lieu of notice.

Note that this judgment does not concern the validity conditions of the non-compete clause.

Limitations on the Employee's Free Choice as Regards Where He Lives Must Be Justified and Proportionate

By Jean-Benoît Cottin

Since 1999, the French Supreme Court has ruled that, under the provisions of the European Convention on Human Rights and the French Labour Code, everyone has the right to "respect for his home". A free choice as regards the place of residence for self and family is one of the elements of that right. A restriction on that freedom by the employer is valid only on condition of it being essential to protect the legitimate interests of the company and proportionate to the aim pursued (Cass. soc. January 12, 1999, No. 96-40755).

For example, a business development manager living with his family in Paris should not be compelled to move his family residence to Montpellier, 750 km away where he was supposed to work (Cass. soc. January 12, 1999, No. 96-40755). A building janitor doesn't have to live in the building he works for, if he can execute his tasks properly while living elsewhere (Cass. Soc., November 12, 2008, No 07-42601). A contract clause stating that a lawyer must live where his firm is settled because of the necessary "integration into the local environment" isn't sufficiently justified (Cass. soc. July 12, 2005, No. 04-13342; Cass. soc., March 7, 2007, No. 05-21017).

In another more recent case, the Court ruled that dismissing a social worker, in charge of the physical and mental welfare of adults under guardianship, who lived 20km away (25 minutes) from their residence instead of the 200 meters maximum distance stipulated in the employment contract, is unlawful (Cass. soc., February 28, 2012, No. 10-18308).