This past year brought to the fore some challenging international labor and employment law issues that are likely to grow in importance in 2015. Some of these issues became front-page headlines—among them the recent Sony Pictures data breach, the Volkswagen union drive in Tennessee, and the Securities and Exchange Commission's award of $30 million to an overseas whistleblower.
Other developments illustrate the increasing strength of global unions and the ever-growing importance of corporate compliance. The continuing importance and expansion of these issues highlight their increased complexity and correspondingly increasing challenges for multinational employers (MNEs).
This column compiles and describes, with varying degrees of specificity, what appear, to this subjective eye, to be the top 10 global employment law issues facing employers in 2015. They are listed in reverse order, as any top-10 list worth its salt should be.
10. New Minimum Wage Requirements
Many countries have for the first time passed, or are considering, a minimum wage. Germany has passed a minimum wage law effective Jan. 1, 2015, South Africa is considering one, and Brazil just raised its minimum wage by 8.83 percent.
The new German minimum wage will affect all companies, even if they already pay their staff well over the hourly minimum, because the statutory minimum is a component part of every wage paid. Paying late or not at all constitutes an administrative offense which may carry a fine of up to EUR 500,000. The legislation will impose significant record-keeping obligations, including not only lower wage workers, but also what we call in the United States "white collar exempt" employees.
Failure to comply with the new legislation could also render a company criminally liable for not remitting social insurance contributions and/or withholding payment for work performed and usury. If the company contracts work or services to subcontractors, it is also responsible for ensuring that the subcontractor and its subcontractors pay the statutory minimum wage.
9. China as a Global Employer
Chinese companies are expanding across the globe at a rate rivaling Japan's ascendance in the 1970s. How successfully will these companies integrate into the community of global employers? They have the opportunity, if they do things right, to be leaders both in establishing high standards for quality and the success of their products, as well as in corporate compliance and fair employment practices.
In the past, U.S. multinationals were perhaps slow to recognize that cultural and legal differences may mandate a different way of doing business overseas. They sometimes defaulted to U.S.-style employment practices, such as employment at will, and U.S. concepts of workplace behavior, without regard to local customs and practices. In some cases, they preferred to use expatriate U.S. citizens to fill essential roles in developing and even developed countries. Japanese companies, too, were often the target of discrimination cases in the '80s and '90s, but, like U.S. companies, they have adjusted culturally as they have gained experience with international employment.
Chinese companies have the opportunity to learn from the experience of their predecessors in determining the degree to which they should acculturate themselves to local workplaces, while preserving their essential values.
8. Restrictions on Incentive Compensation
The United States and Europe have imposed variations on "say on pay" rules, requiring non-binding shareholder approval of compensation for senior executives of publicly traded corporations and for compensation packages payable in connection with a change of control. Many of these rules have direct and indirect international application and effect.
In Europe, the European Parliament has approved various elements of the Capital Requirements Directive (CRD) IV, regulating certain investment firms to ensure financial viability, including restrictions on bonus payments by credit institutions and investment firms.
CRD IV reaches far beyond the EU, applying to 1) all institutions and investment firms in the EU; 2) subsidiaries established outside the European Economic Area (EEA) of institutions which have their head office in the EEA; and 3) subsidiaries established inside the EEA of institutions that have their head office outside the EEA.
Implementation of these restrictions has created challenges for multinationals that face conflicting rules regarding compensation of key executives, and create competitive challenges for multinational talent across jurisdictions—a European bank that is limited by CRD IV's bonus restrictions may find itself unable to recruit in the United States, where American banks do not have these restrictions.
7. Global Integration of Employment Practices
MNEs increasingly look to implement employment practices and policies across borders, in the face of different and sometimes conflicting laws and customs. Key issues include working time, fatigue management, overtime compliance, data privacy, enforcement of post-employment restrictive covenants, and background checks.
While taking a worldwide position regarding particular employment practices may be a tempting solution, in fact it is necessary to have a detailed understanding of the local labor and employment regime in each jurisdiction where a company operates. Trying to implement one policy that would be applicable worldwide is not effective or practical.
Companies need to account for regional and local laws and cultures, and break from head office-centric mentality. Some countries require policies to be in the national language. A code should address or, at least be broad enough to allow for, divergent laws. Discrimination laws differ, for example; "bullying" and "mobbing" are prohibited conduct in some countries, but U.S. harassment law does not protect against rude behavior that is not connected to a protected category.
Companies are increasingly challenged, in short, to account for multiculturalism and differing views of law and ethics throughout the world. On the other hand, to protect their brands in places like Europe and North America, companies sometimes have to drive ethical change in countries where cultures accept more questionable behavior.
6. Global Expansion of Women's Rights
We are seeing increasing protection against harassment of female workers. India has recently adopted a sexual harassment act, and the Japanese Supreme Court, in a recent decision, recognized increased maternity rights. The Japanese case increased the burden for employers who make changes to a pregnant employee's job duties, even with their consent.
In Japan, cases of pregnant women and young mothers being harassed at work or pressured to quit have become so commonplace they have recently earned a new Japanese term: "matahara," a shortened form of "maternity harassment."1 The verdict came amid efforts by the Japanese government to boost the role of women in the economy. Prime Minister Shinzo Abe has brought the issue to the forefront of his Abenomics, proclaiming a goal to fill 30 percent of leadership positions in Japan with women by 2020.2
In India, much attention has been given recently to the harassment and assault of women. After much public outrage over a gang rape in December 2013, the Legislature passed the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act. In general, the act prohibits sexual harassment in the workplace, including physical contact and advances; a demand or request for sexual favors; making sexually colored remarks; showing pornography; or any other unwelcome physical, verbal or non-verbal conduct of a sexual nature.
Employers' obligations extend to all women who may be subjected to workplace sexual harassment, including trainees, regular, temporary, and daily workers, including contractors' employees, whether or not working for remuneration. The act also requires all employers with more than 10 employees to set up an internal committee to investigate allegations of harassment.
5. Re-Emergence of Organized Labor and Social Activism
According to the International Monetary Fund, income inequality has increased in both advanced and developing economies in recent decades, and evidence from public surveys indicates that widening income inequality has been accompanied by growing public demand for income redistribution.3 With the various "Occupy" movements around the world, we are seeing increasing activism and civil disobedience focusing on this and related issues.
Fast Food Forward, an SEIU-funded coalition with the goal of unionizing restaurant employees in New York City chain restaurants, is going global. In 2014, the group organized strikes in Morocco, Japan, India, Belgium, Germany, Brazil, Argentina and New Zealand.4 We can expect to see related efforts continue in 2015, as the issue of income inequality increasingly becomes the focus of governments and NGOs around the world.
4. The Volkswagen Organization Drive
Volkswagen has engaged with Works Councils—organizations of workers that represent employees in various employment disputes and negotiations—in almost all overseas jurisdictions where it manufactures cars. In Europe, there exist three distinct levels of formal employee representation. First, trade unions can represent employees. These generally act on a sectoral basis, for all workers in an industry, including workers who are not in an organization that has a union. Their operations are governed by local countries' laws.
Second, local works councils receive information from a company's management, and consult with them on a range of issues. Again, the operation of works councils is governed by local countries' laws.
Finally, European Union law has established "European Works Councils." The law applies to any company employing over 1,000 Europeans with at least 150 employees in each of two Member States. A request by 100 employees from two countries or an initiative by the employer triggers the process of creating a new European Works Council. These receive information from employers and consult regarding company-specific issues that apply Europe-wide.
In Tennessee, the United Auto Workers (UAW) claimed a union was necessary for the formation of a works council. Representatives of the Global Works Council supported the recognition efforts of the UAW through a secret ballot election process recognized in the United States. Nonetheless, the UAW lost the election.
Efforts persist, however, for the UAW and another employee organization, the American Council of Employees, to achieve some kind of "representation" rights among the VW employees. This "experiment" is receiving worldwide attention as VW attempts to blend corporate culture and a European system of representation with a legal system in the United States that, arguably, does not embrace such concepts, while keeping in mind the paramount desires of its U.S. employees in the process.
Some believe that this initiative marks a major turning point for unions, certainly in the U.S., and perhaps throughout the world. Clearly it presents unique challenges, not confined to VW, but for many other worldwide enterprises subject to an extremely complex array of laws, cultures, brand identity issues, attack points, political considerations and practical strategies as organizations attempt to achieve their economic goals.
3. Expansion of Whistleblower Rights
• International Whistleblowers. In September 2014, the SEC made its largest Dodd-Frank whistleblower bounty award ever—$30 million—to a foreign national who submitted to the SEC, from overseas, evidence of his employer's alleged unlawful conduct, which occurred entirely overseas. In explaining the award, the SEC stated: "It makes no difference whether…the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas."5
• Continued Ascendance of "C-Suite" Whistleblowers. The typical plaintiff in a whistleblower claim is a white-collar employee with access to highly confidential company information. The notion of loyalty to a company is being subsumed by the potential of high recovery in a whistleblower lawsuit. Japanese company Olympus Corporation was embarrassed when its former CEO Michael Woodford made claims of corrupt financial practices and sued in London. And in a recent decision, Lawson v. FMR,6 the U.S. Supreme Court expanded the definition of protected whistleblowers under the Sarbanes-Oxley Act to include contractors, including lawyers and accountants, who perform services for publicly traded companies.
Multinational companies will continue to be challenged by claims from high-level executives, particularly as huge bounty awards become more commonplace.
2. Third-Party Compliance Liability
Outsourcing is often seen as a solution for MNEs who face continually increasing and challenging global regulations while their internal resources shrink. But numerous risks may arise from an organization's use of third parties for compliance-related tasks.7
Failing to prevent or mitigate these risks can expose an organization to financial loss, litigation, and reputation damage. The board of directors and senior management of a public company are ultimately responsible for managing activities conducted through third-party relationships, and identifying and controlling the risks arising from such relationships, to the same extent as if the activity were handled within the organization.
An organization must develop a clearly defined system of risk management controls governing the organization's compliance operations, including controls over activities conducted by affiliates and third-party vendors. The more significant the third-party program, the more important it is that the organization conduct regular periodic reviews of the adequacy of its oversight and controls over third-party relationships.
1. Data Privacy
• Keeping Data in the Cloud. MNEs increasingly keep their employee data "in the cloud," so that it can be available to employees without regard to their physical location. How concerned should a U.S. subsidiary of a foreign MNE be about the parent's access to the personal data of the subsidiary's employees? What risks does this impose under anti-discrimination laws, the Health Insurance Portability and Accountability Act, and other statutes? MNEs must implement rules and safeguards regarding the use of and access to this data, as well as procedures to safeguard it, in an environment where data privacy is of increasing concern worldwide.
• Theft of Trade Secrets and Data Breaches. The recent Sony Pictures data breach highlights the risks and concerns of multinational companies in preserving trade secrets as well as the confidentiality of internal discussions and deliberations. Quite literally, what one says in an email can, and far too frequently does, end up on the front page (or website) of an international newspaper…or gossip sheet.
• E-Discovery and the Expansion of Discovery and Privilege Issues (in Domestic and Cross-Border Litigation). Cross-border litigation and conflicting rules on discovery and privilege pose continuing labor-intensive and costly challenges for multinationals. In the United States, discovery and the attorney-client privilege are familiar problems, but overseas, where discovery in civil litigation is virtually non-existent, the attorney-client privilege usually is not as developed as it is in the U.S.—or it may not exist at all. Thus, without careful planning, communications or information exchanged in cross-border litigation and investigations may be discovered in a U.S. civil or criminal proceeding.
• Uncertainty in the Law. The European Union (EU) likely will approve broad changes in its data protection framework by the end of 2015. The Safe Harbor (a streamlined process for U.S. companies to comply with the EU Directives on the protection of personal data) likely will change in some respects in 2015. Further, many countries have recently enacted data protection regimes and there likely will be new guidance, case law, and/or enforcement actions in 2015.
These are a small portion of workplace and legal/regulatory challenges that will face employers in 2015, whether their operations are regional or worldwide.
1. "Japan's top court orders retrial in 'maternity harassment' case," Reuters (Oct. 23, 2014), reported at http://uk.reuters.com/article/2014/10/23/uk-japan-women-courts-idUKKCN0IC10F20141023.
2. T. Sekiguchi, "Abe Wants to Get Japan's Women Working," Wall Street Journal, reported at http://www.wsj.com/articles/abes-goal-for-more-women-in-japans-workforce-prompts-debate-1410446737.
3. See IMF web site, http://www.imf.org/external/np/fad/inequality/, viewed Jan. 2, 2015.
4. L. De Bode, "Fast-food workers announce global protest, walkouts set for 33 countries," Aljazeera America (May 7, 2014), http://america.aljazeera.com/articles/2014/5/7/fast-food-workersuniteactivistsannounceglobalprotest.html.
5. See Order Determining Whistleblower Award Claim, SEC Release No. 73174, File No. 2014-10 (Sept. 22, 2014).
6. 134 S. Ct. 1158 (2014).
7. See, e.g., FDIC Compliance Manual, https://www.fdic.gov/regulations/compliance/manual/pdf/VII-5.1.pdf.
Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group. He is based in the firm’s New York City office. This article is reprinted with permission from the January 8, 2015 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.