DELVACCA Presents:

The Top Ten Things U.S. Employers Need to Know About International Employment and Labor LawDELVACCA thanks Littler Mendelson, P.C. for sponsoring this event

presented by:Eric A. Savage, Esq.Littler Mendelson, P.C., Newark, NJ973.848.4706, esavage@littler.com

Marguerite Walsh, Esq. Littler Mendelson, P.C., Philadelphia, PA 267.402.3016, mwalsh@littler.com

Eric A. Tilles, Esq. Arkema Inc., Philadelphia, PA 215.419.7317 eric.tilles@arkema.com

Today’s Agenda1. The continued rapid pace of

globalization impacts employers

2. How the employment relationship differs outside the U.S.

3. Risks unique to the international arena

4. Managing a globally-mobile workforce

Companies Pushing Globalization Forward

Procter & Gamble – next 15 years will double annual sales focusing on Africa, Asia & Latin America

Royal Philips Electronics – increasing their presence in emerging markets, esp. healthcare business in China

PepsiCo – building 6 new plants in China; $1B over 4 years Microsoft – increased presence in India LG Electronics – 15% overall increase in sales in 2009 (India

– primary market) Far Eastern International Bank –acquiring AIG international

credit card business China Petroleum – acquired ADDIX Petroleums to give them

oil resources in Africa & Kurdish region of Iraq Qualcomm & Zeebo joint venture – video-game console sold

all over the world, first hit market in Sao Paulo and Mexico City, next other Latin American countries, then India

What Does Globalization Mean for Employers?

It boils down to.....– Anticipating compliance

issues, especially regarding:

• Employment agreements

• Termination of employment

• Anti-corruption measures

• Data privacy

– Effectively managing employee movement/ migration

• Expatriate assignments

• Unfair competition concerns

How Does the Employment Relationship Differ Outside of the

US?

To understand global differences in legal aspects of the employment relationship,

first need to briefly consider the differences in legal systems....

Comparative Legal Systems

Three types of legal systems:

– Common Law

– Civil Law

– Mixed Systems

Common Law Systems

Laws made by judges

– England and most former/current colonies

• US (except Louisiana)

• Canada (except Quebec)

• Singapore

• Hong Kong

• Ireland

• India

Civil Law

Laws are codified and judicial decisions have little precedential value

– Continental Europe

– Mexico

– China

– Japan

Mixed Systems

Elements of both common and civil law

– Israel

– South Africa

– Scotland

– Quebec

– California

Comparative Legal Systems Wrap-up

This is boring – why should I care about the differences between legal systems?

Lines are blurring but the substantive distinction isn’t

The bluffer’s guide to international employment law

Always keep cultural differences in mind

Moving on to specific differences in the employment context...

Key Differences Between the US and Other Jurisdictions

Employment at will

– Generally unheard of outside the US because employees have employment contracts

Wage and hour laws

– Very different outside of the US

– Generally covered by contract

– Vacations and public holidays treated very differently

Key Differences (cont.)

Leaves of absence

– Most jurisdictions provide much more generous pregnancy leave and parental leave

– Civil law jurisdictions generally provide much more sick leave

Key Differences (cont.)

Discrimination

– Varies widely

– May cover categories not recognized in the US, e.g., philosophical beliefs (recent case in UK: strong belief in acting to stop climate change potentially protected)

Key Differences (cont.)

Arbitration clauses

– Almost never seen or allowed outside the US

Termination as a tort

Employee handbooks

Employment Contracts

Generally required outside of the US for all employees

– Written or oral

– Some jurisdictions have language requirements (i.e., contract must be in local language)

– Some minimum terms often required:

• Names of parties

• Job title

• Pay rate

• Place of work

• Working hours

• Pension plan

Employment Contracts (cont.)

Term of contract

– Fixed term (e.g., 1 year)

– Open ended

Probationary period

– Duration often limited by law to 3-6 months

Notice period for termination

Termination of Employment

Common Law

– Relatively easy

– Notice period

– Pay in lieu

Civil Law

– Not as easy

– Often must obtain permission from court or government

– Often easiest to negotiate severance

Termination Notice

Generally required everywhere but the US

Minimum length mandated by statute

In common law countries, length often must be “reasonable,” which may differ from the statutory period

Tip – Specify notice period in employment contract

Pay in Lieu of Notice

Same amount of pay as length of notice (i.e., choice between 20 weeks’ notice or 20 weeks’ pay)

Use must be specified in employment contract in some jurisdictions

Lump sum or salary continuance?

Various Termination Issues

Constructive discharge

Which jurisdiction’s law applies?

Can we get a release? Will it be effective?

Post-employment restrictive covenants

Group Terminations

Most jurisdictions have special rules for group terminations and/or redundancies

Information, consultation and/or bargaining obligations

– Employee representatives

– Works council

– Trade union

Cost Cutting

Different analysis than in the US

Generally based on contract principles

Unilateral change/ bilateral change

Information, consultation and/or bargaining obligations

Collective Issues

Works councils

Trade unions

Works Councils

Q: What is a works council and what does it do?

A: A body of employees who must be provided information about and consulted on various matters affecting the workplace.

Works Councils (cont.)

Voluntary

Whether they are allowed depends on the number of employees

– Minimum number is 5 in Germany but 50 in Ireland

Depending on the jurisdiction, the works council may have decision-making authority over some matters

Works Councils (cont.)

Two types of works councils:

1. Domestic

2. European

Domestic works councils

– Established pursuant to the EU Information and Consultation Directive, but many jurisdictions had them already

Works Councils (cont.)

European works councils

– EU Directive on European Works Councils

– Handle issues affecting more than one country

– Revised Directive effective June 2011: establishes link between European and national level information and consultation, and will result in more complex multi-stage consultation

Trade Unions

Most jurisdictions have laws allowing employees to be represented by a trade union

Power and prevalence of unions varies widely from country to country

Method of becoming unionized (e.g., card check, vote etc...) varies widely from country to country

Employment Law Issues in Global Restructurings

The key is to know which questions to ask

Risks Unique to the International Arena

Anti-Corruption Laws and

the Reach of Sarbanes-

Oxley (“SOX”)

SOX Civil Protections

Section 806:

Prohibits any “officer, employee, contractor, subcontractor, or agent” of a company from “discharging, demoting, suspending, threatening, harassing, or discriminating” against an employee who reports conduct he “reasonably believes” violates SOX or any federal/state securities laws

SOX Civil Protections

Section 1107:

– Bars retaliation (including interfering with lawful employment of person) against:

• Employee

• Who reports truthful information to a law enforcement officer

• About the actual or possible commission of any federal offense

– Penalties can include fines and/or imprisonment of up to 10 years

SOX Civil Protections

Section 301:

– Requires public companies to create mechanisms for reporting financial concerns

• Specifically requires mechanisms for handling anonymous complaints by employees

Extraterritorial Application of SOX

All foreign companies listed on US exchanges must comply with SOX

Where conduct has substantial nexus to the US, courts will apply SOX whistleblower provisions to foreign subsidiaries

What’s at Stake for Noncompliance with SOX

Delisting from US exchanges

SOX criminal sanctions apply abroad

Civil penalties

Whistleblowing Hotlines

Not only admitted, but also mandatory under SOX: § 301 requires Companies to institute procedures for handling «confidential, anonymous» employee complaints about accounting or auditing matters

Is it in compliance with EU Laws? In general, NO.

Possible conflicts with:

Privacy and data protection laws

Employment laws

Labor relations laws (“co-determination”)

Hotlines Investigations

Privacy and Whistleblowing Hotlines Under EU Law

Whistleblowing schemes (including SOX hotlines) imply data collection and so they “must be implemented in compliance with EU data protection rules” (Opinion of the EU Data Protection Working Party set up under Article 29 of the Data Protection Directive 95/46/EC, “WP117”, 2006)

SOX perspective:

Need to ensure financial security in international financial markets and to prevent frauds and misconduct through internal controls and reports

EU Directive perspective:

Need to guarantee the fundamental right to protect personal data of both the whistleblower and the accused person

WP 117: Need for a balance-of-interest-test in adopting whistleblowing schemes

Anonymous Complaints Across Europe

In the EU, the adoption of a whistleblowing hotline or of an investigation scheme based on anonymous complaints can come up against several issues:

Data protection issues

Employment law issues

Labor law issues

McDonalds France and CEAC/Exide Technologies cases: French data privacy regulator (CNIL) refused permission to establish anonymous hotlines because of the risk of collecting personal data in violation of the French data protection law and of not informing adequately the accused employees about the collecting and processing of their personal data

Wal-Mart case: the Employment Court of Wuppertal (Germany) held that a Code of Conduct providing rules for employees to use a hotline to report suspected Code violations by co-workers needs the consent of the Work Councils under the co-determination procedure provided by the German labor law

Italian law: Italian Employment Courts held that, generally, anonymous complaints are not relevant and do not oblige the employer to activate a disciplinary procedure.

In any case, a disciplinary procedure must comply with specific obligations provided by law and CBAs (procedure to be adopted, right of reply from the accused person, proportionally).

What U.S. Companies Must Doin Implementing SOX in EU

Limit whistleblowing schemes to the relevant areas (e.g., financial and accounting)

Need to focus on the fundamental rights of individuals (especially for data protection issues)

Must comply with procedures set by law or CBAs in monitoring and/or sanctioning employees

If needed, involve works councils and negotiate whistleblowing schemes with them

What U.S. Companies Must Doin Implementing SOX in EU

Maintain strict confidentiality on the complaint and any investigative materials

Use information obtained only to investigate alleged misconduct

Comply with local labor provisions on disciplinary procedures

The Foreign Corrupt Practices Act (FCPA)

Enforced by the SEC and DOJ

Anti-bribery + recordkeeping requirements

SOX being used to enforce the FCPA

FCPA prosecutions have greatly increased in recent years

Recent Crackdown on Foreign Bribes

February 2010: BAE Systems, the world's second-largest defense contractor, agrees to pay $400 million to resolve allegations that it misled the Defense and State Departments about its efforts to comply with the FCPA.

Department of Justice has more than 140 open investigations centering on foreign bribes

Recent Increase in

FCPA Prosecutions

Countries with the Toughest Enforcement

Standards1. Australia

2. Bulgaria

3. Germany

4. Israel

5. Japan

6. Poland

7. Portugal

8. Romania

9. Spain

10.Latvia

11. USA

Source: Global Integrity Report

FCPA Compliance?

A poll of over 1,000 executives conducted by Deloitte Financial Advisory Services found the following:

– 72% anticipated a rise in FCPA enforcement...

– Yet 34% have no comprehensive compliance plan

• National Law Journal, Sept. 15, 2009

Can You Stave Off Liability?

Department of Justice

“The goal is self regulation. If you have a strong compliance program, you respond quickly and you hold people accountable, the DOJ is either not going to prosecute,

or reduce your fine.”

(Department of Justice Representative speaking at the 2009 Ethisphere Conference)

Effective Compliance

1. Exercise due diligence to prevent and detect criminal conduct

2. Otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law

Effective Compliance

United States Sentencing Guidelines

1. Exercise due diligence to prevent and detect criminal conduct and establish standards and procedures to prevent and detect criminal conduct; 2. Promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law; 3. Ensure that the corporation’s or organization’s governing authority is knowledgeable about the compliance and ethics program and that specific individuals have day-to-day responsibility for the program; and 4. Take reasonable steps to ensure that the compliance and ethics program is followed, enforced and evaluated.

Non-Competitio

n Agreement

s Across International Borders:Design and

Enforcement

Drafting

Consideration

Permissible scope of restrictions

“Garden leave" and related forms of payment for non-competition

Enforcement

Court's ability/inclination to modify ("blue pencil")

Challenges presented by mobility of workforce across jurisdictions

Restraining orders, injunctions and other remedies

Drafting and Enforcement

See handout for overview of non-competition agreements in Canada, France and the UK

International

Assignments:

Overseeing Expatriate Programs

Formation of local business entity

Does the host country require the formation of a local subsidiary, joint venture or other entity which will be the “employer”?

Allocation of ownership interests between US and foreign investors?

Expatriate Agreement

U.S. choice of law and possible conflicts with home country public policy:

– EC Convention on the Law applicable to Contractual Obligations (the “RomeConvention”) provides that “a contract shall be governed by the law chosen by the parties” (Article 3).

Expatriate Agreement

U.S. choice of law and possible conflicts with home country public policy:

– Article 6: A contractual choice of law in an employment agreement shall not have the result of depriving the employees of the protection afforded to them by the mandatory rules of the law that would apply in the absence of such choice.

Expatriate Agreement

Practical tips for ensuring application of U.S. law:

– Clear and conspicuous contractual choice of U.S. law, applying to the entire employment relationship and to the secondment (posting) arrangement. See Article 3 of Rome Convention.

Expatriate Agreement

Practical tips for ensuring application of U.S. law:

– Consider repatriating the seconded employee to the U.S. before termination of employment.

– Temporary and limited nature of assignment, with expectation of repatriation after a defined period of time.

Expatriate Agreement

Termination of assignment for any reason, with or without notice.

Repatriation at end of assignment – at a defined point in time, or subject to the Company’s sole and absolute discretion.

Expected duration of assignment – reserve Company’s right to terminate temporary assignment early.

Conflicts of Interest

Confidentiality and trade secrets provisions.

Collective Bargaining Agreements

For example, in France and Germany, the employer must inform, and in some cases consult, the local works council when hiring a foreign employee.

Language Requirements

Mandatory Host Country Language

Requirements:

– E.g., France: if employer fails to draft employment agreement in French, cannot enforce it against employee

Compliance With Home Country (U.S.) Laws

Assignee agrees to comply with all applicable home country laws and regulations, including U.S. laws that have extraterritorial reach, e.g.:

– The Foreign Corrupt Practices Act

– Sarbanes-Oxley Act accounting fraud, reporting and “whistleblower” provisions (and possible conflicts with EU Directives, CNIL decisions)

– Anti-discrimination laws.

Termination and Repatriation

If repatriation to the U.S. before termination is not practicable, evaluate the risks and potential exposure for “abusive” or wrongful termination under host country’s laws.

QUESTIONS?

Thank You for your time

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