ABA International Labor and Employment Law Committee Newsletter

Issue: November 2018

Editor: Rick Bales

Message from the Chairs

Dear Friends and Colleagues:

The world may be becoming politically more divided, but here at the ABA International Labor and Employment Law Committee we are becoming ever more globally inclusive. Our ambition is to expand our reach as far afield as possible to labor and employment law experts around the world, to welcome them into our committee and to share with them and with each other the fantastic knowledge and networking opportunities afforded by both the upcoming Annual Section of Labor and Employment Law Conference in San Francisco and by the International Labor and Employment Law Committee Midyear Meeting in Buenos Aires (May 5-9, 2019).

We have a strong representation within the committee from North America and Western Europe, and we are always keen for more members from those regions. Latin America, Asia-Pacific, Africa and Eastern Europe are key areas of focus for the future. Our meeting in Argentina is the committee’s first major step into Latin America. If you know great employment lawyers from across the region who you think would be interested in joining the committee, and in participating in our Buenos Aires event, please send us their details or encourage them to get in touch with us.

And if you are an International Labor and Employment Law Committee member who would like to become more involved – including in planning, speaking at and sponsoring our Buenos Aires meeting, then please get in contact. The International Labor and Employment Law Committee is your committee, and we want to hear from you and involve you.

But first, San Francisco! To whet your appetite for our May 2019 Argentinian extravaganza, we have planned a special treat for you all at the 12th Annual Labor and Employment Law Conference Welcome Reception and Committee Expo on November 7 from 6:00 to 8:00 pm at the Hilton San Francisco Union Square. This is not to be missed! Don’t forget to come and say hello to your committee co-chairs at the International Labor and Employment Law Committee booth, to share your ideas and offers of help with us and to get into the Argentinian vibe.

Other important highlights of this year’s Conference include the following International Track sessions:

  • A panel on gender-based violence and harassment will discuss the continued evolution of the #MeToo movement and recent issues in human trafficking and gender violence in the workplace;
  • A program on the Gig Economy will ask the tough questions of where we are and where we are going and whether the Gig Economy is in fact “working” anywhere and for anyone around the world.
  • Finally, we will present a session focusing on how advocacy and litigation compare around the world in labor and employment disputes.

Thank you very much to the moderators and panelists who have put so much thought and effort into these programs to make them as internationally relevant and insightful as possible. We really appreciate your immense support and look forward to your panels, and we encourage other committee members to attend, as well.

And don’t miss the Committee Business Meeting on Thursday, November 8 from 5:15 to 6:00 pm, to help shape and influence our future activities and to register your interest in participating. This will be followed by the International Labor and Employment Law Committee Dinner, which is always a fantastic opportunity to catch up with old friends from around the world and to make new ones. Book now through the ABA Service Center or online at www.ambar.org/laborconference if you haven’t already done so, as tickets are selling out fast.

As if all of this weren’t exciting enough, here is a heads up of another major International Committee event in the pipeline for later in 2019: the 6th One Day ABA/ELA Transatlantic Event in London. This program is currently being planned between the International Labor and Employment Law Committee and the UK Employment Lawyers Association. The provisional dates are September 23-24, 2019, so please be sure to put them in your diary now and prepare for the biggest Transatlantic Conference to date. Please contact Mike Delikat [INSERT LINK TO EMAIL] in the first instance to register your interest in participating.

Te veo pronto!

Warm regards,

Clare Murray (International Co-Chair), Owen Herrnstadt (Union & Employee Co-chair), David Garland (Employer Co-Chair) and Katherine Blostein (Employee Co-chair)

GERMANY - Right of Co-determination of the German Works Council on Stock Options of U.S. Parent?

By: André Zimmermann, Orrick, Herrington & Sutcliffe LLP, Düsseldorf/Munich, article first published at the Orrick Employment Law and Litigation Blog (reprinted here with permission of authors and original publisher).

The German Federal Labor Court (judgment of March 20, 2018 – 1 ABR 15/17) has recently clarified a matter of considerable practical relevance for U.S. companies offering stock options to employees of their Germany-based subsidiaries: Does the German subsidiary’s works council have a right to be involved when it comes to offering stock options?

In its judgment, the German Federal Labor Court held that it was not necessary for the information to be provided.  The works council had not explained which of its specific responsibilities under the BetrVG required the provision of this information. The required information related to the grant of stock options etc. by the group parent as well as their number. Moreover, the Federal Labor Court held that the legal principle of equal treatment under labor law was only directed at the employer.

The Case

The German group company belongs to an international group headquartered in the U.S. Each year, the parent company allocates, among other things, stock options to the employees of the German subsidiary based on a long-term incentive program, for instance a stock option plan. The German company is neither involved in the structuring of the program nor the specific allocations. The stock options are not mentioned in the employment contracts of the employees of the German subsidiary, but regulated by a spate agreement between the U.S. parent and the employees.

The works council elected at the German subsidiary would like to be involved in the procedure to select the employees and the allocation of the number of stock options in accordance with section 87(1) no. 10 of the German Works Constitution Act (Betriebsverfassungsgesetz, “BetrVG”).

Inconsistent Case Law of Regional Labor Courts

There is considerable debate among employment law scholars whether there is a right of co-determination in such constellations. The case law of the Regional Labor Courts (Landesarbeitsgericht, “LAG”) is not yet consistent either.

LAG of Hesse: No Right of Co-determination

If the German subsidiary in its capacity as the employer does not have its own decision-making right and no say in which employees will participate in the option program and to what extent, there is nothing for the works council to have a right of co-determination about, as the LAG of Hesse recently found in its judgment of August 3, 2017 (5 TaBV 23/17).

LAG of Baden-Württemberg: No Right of Co-determination, but Right to Information

While the LAG of Baden-Württemberg (judgment of 17 January 2017 – 19 TaBV 3/16) agreed in principle, it did however hold that the German works council had a right to be informed by the Germany subsidiary as to which employees were granted stock options and the scope of such grant in order to allow the works council to fulfill the responsibilities incumbent upon it pursuant to section 75(1) BetrVG to monitor compliance with the principles of good faith and, in particular, non-discriminatory treatment. The LAG Baden-Württemberg held that, if necessary, the employer was obligated to obtain this information from the parent company if it was not aware of the details of the allocation.

But in the view of the LAG, too, the works council did not have a right of co-determination in accordance with section 87(1) no. 10 BetrVG. It is not an act of wage-setting if an employee enters into an agreement on the grant of stock options with another group company rather than with his or her employer; such claims do not become part of the employment relationship. Instead a legally independent contract has been entered into between the employee and the parent company; this does not involve any remuneration paid by the employer and, according to the LAG, therefore, there is no right of co-determination of the works council. A possible link between the granting of stock options and the employment relationship did not suffice in the view of the LAG; these only constitute remuneration if the third party (i.e. the parent company) granted the options in accordance with the provisions of the employment contract either instead of or in addition to the agreed remuneration for the employment. The LAG held that there is no room for maneuver since the standards set out by the group’s parent company were mandatory and thus constituted the limit of co-determination. A different conclusion could only be reached if representatives of the subsidiary had played a part in the decision on the allocation of the options and had their own scope for deciding how the stock option plan should be structured in detail.

German Subsidiary Ordered to Provide Information to Works Council

The LAG Baden-Württemberg, however, held that the conditions for a right to information pursuant to sections 80 and 75 BetrVG of the German subsidiary were met. The court ordered the German subsidiary to provide information to the works council as to which employees were granted how many stock options by the U.S. parent company in a particular period of time.

The LAG said that only if this information were provided would the works council be able to carry out its general obligation of monitoring that all people working in the company were treated in accordance with the principles of good faith, that there was no discriminatory treatment and that the principle of equal treatment was complied with.

Federal Labor Court: No Right to Information of the Works Council

The Federal Labor Court quashed the judgment of the LAG. This means that the employer did not engage in any conduct which could be assessed on the basis of the standards of the general principle of equal treatment and in relation to which the requested information would be required. The court found that section 75(1) BetrVG did not contain a more extensive, comprehensive monitoring obligation of the employer, which included measures taken by the parent company regarding any allocations in the context of contracts entered into between the parent and the employees.

Good Practice Advice

If an application of co-determination rights is to be avoided, the involvement of the German subsidiary in the allocation and distribution of stock options should be avoided at all cost. There must be no involvement beyond a mere right to make recommendations; notably, the German company may not include any information on the stock option package in the employment contract.

Offer letters, if they are to be signed by the German company, should not make any mention of such packages either. Instead, the U.S. parent company and the employee should enter into a separate agreement. The employer is well advised to point out vis-à-vis works council and employees that it did not take the decisions in question but that it, too, had merely requested to be provided with the information.

GERMANY - Time to Review Standard Employment Contracts in Germany

By: André Zimmermann, Orrick, Herrington & Sutcliffe LLP, Düsseldorf/Munich, article first published at the Orrick Employment Law and Litigation Blog (reprinted here with permission of authors and original publisher).

A recent ruling of the Federal Labor Court will invalidate thousands of forfeiture clauses in employment contracts in Germany. Companies need to review and revise their standard employment contracts now and explore options to amend existing contracts to exclude potential liabilities. Otherwise there may be significant exposure for the employer. The time to act is now!

What Happened?

On September 18, 2018 the Federal Labor Court held that forfeiture clauses (i.e., language providing that any claims arising under the employment contract are forfeited if not exercised within a specific period) that do not explicitly exclude claims for the minimum wage under the Minimum Wage Act (Mindestlohngesetz) are invalid. This results in the ineffectiveness of thousands of forfeiture clauses in employment contracts in Germany.

What Does That Mean for Employers?

  • If the forfeiture clause does not meet these requirements, any claims of the employees are subject to the general statutory limitation period only. Depending on the nature of the claim, this period regularly is at least three years (commencing at the end of the year in which the claim becomes due).
  • Consequently, the lack of a valid forfeiture clause in the employment contract can lead to quite some uncertainty and financial exposure for the employer. For example, a terminated employee may bring substantial claims for overtime payments even a long time after having left the company.

What to do Now to Comply and Limit Liabilities?

  • Standard employment contracts used in Germany must now be adjusted to the new legal situation. Entitlements to the minimum wage under the Minimum Wage Act must be explicitly excluded from the scope of forfeiture clauses.
  • In addition, as for existing employment contracts, forfeiture clauses should be reviewed and adjusted in order to comply with these new requirements.

What is the Full Background?

In Germany, it is market standard to have forfeiture clauses in employment contracts, i.e., language providing that any claims arising under the contract are forfeited if not exercised within three months after their due date. This creates legal certainty, especially for the employer, since there is a clear cut-off date for any potential liabilities.

However, such clauses are subject to a specific terms and conditions control since they are considered to be standard business terms (Allgemeine Geschäftsbedingungen). Inter alia, such clause needs to be clear and understandable and may not unreasonably put the employee at a disadvantage. If a forfeiture clause does not comply with these requirements, it is deemed to be invalid.

Against this background, the Federal Labor Court held that forfeiture clauses that do not explicitly exclude entitlements under the Minimum Wage Act are null and void. The court is of the opinion that the forfeiture clause in the case at hand constitutes an unreasonable disadvantage to the employee, as it is not sufficiently clear and understandable to the employee that the minimum wage is not covered.

The Minimum Wage Act explicitly provides that any agreements limiting entitlements under the Minimum Wage Act are in effective. Until now, it was not clear how to handle this provision in standard employment contracts, particularly whether due to the terms and conditions control, particularly whether the forfeiture clauses need to specifically address that any entitlements to the statutory minimum wage are excluded.

While prevailing case law of local and regional labor courts tends to not consider this to be required, the Federal Labor Court now has come to believe the opposite is true. According to the ruling, this at least applies to employment contracts concluded after December 31, 2014, as the Minimum Wage Act entered into force on January 1, 2015.

To-Do’s for Employers

Companies with employees in Germany should now review their standard employment contracts and modify the wording of forfeiture clauses in their standard employment contracts and existing contracts. Otherwise, the forfeiture clauses may be ineffective and claims of employees would not lapse after expiry of the period laid down in the employment contract, but will generally continue to exist for three years after the due date.

INDONESIA - New Work Permit Procedure Expected Before the End of 2018

By: HHP Law Firm (a member firm of Baker & McKenzie International).

A new process for obtaining permits for foreigners working in Indonesia is expected to be in place when the new Online Foreign Manpower Permit Application System ("TKA Online") comes on stream on 1 November 2018. This new process is outlined in Minister of Employment Regulation No. 10 of 2018 on the Procedures on the Use of Foreign Workers ("Regulation 10") which was issued on 11 July 2018.

As with the current process, an Indonesian entity intending to employ a foreigner will still need to obtain approval of a Foreign Manpower Utilization Plan ("RPTKA") from the Ministry of Employment ("MOE"). However, once the new process is in place, the Indonesian entity will no longer have to obtain a separate work permit for each foreigner (commonly referred to as "IMTA") as the RPTKA will also serve as a "permit" for the Indonesian entity to employ the foreigner.

Although an IMTA will no longer be required once the new TKA Online is up and running, the Indonesian entity will still need to process a "Notification" to the MOE. In the application for the Notification, the Indonesian entity will need to provide the MOE with details of the foreigner who will hold the position/job set out in the approved RPTKA, e.g., name, education background, job experience, and passport number.

When the new process is implemented, it is expected that obtaining the RPTKA approval and the Notification will take around four working days (provided that all required documents and information are complete). By comparison, currently it takes around 30 working days to obtain the RPTKA approval and the IMTA.

It should be noted that the foreigner will still need to obtain:

  •  a Limited Stay Visa (commonly referred to as a "VITAS") for the purpose of working before entering Indonesia
  • a Limited Stay Permit (commonly referred to as an "ITAS") and a Re-Entry Permit upon arrival in Indonesia

However, instead of the foreigner having to go to the relevant Immigration Office in Indonesia after arrival to get the ITAS and Re-Entry Permit, the foreigner will receive the ITAS and Re-Entry Permit upon arrival in Indonesia, e.g., at the Soekarno-Hatta International Airport of Jakarta.

Issues Still Pending

While the process for obtaining the RPTKA approval, the Notification, the ITAS and the Re-Entry Permit will be much simpler than before, there are still a number of issues that remain unclear with regard to foreigners working in Indonesia. We briefly describe some of these issues below.

  • Employment Status of Foreigners Working in Indonesia

In Indonesia there has always been a question surrounding the employment status of foreigners working in Indonesia, i.e., whether they are deemed as indefinite-period or definite-period employees. In December 2017, the Supreme Court of Indonesia issued a circular letter stating that foreigners should only be employed in Indonesia for a definite period.

Regulation 10 seems to be taking a similar position that foreigners should be employed only as definite-period employees. This is because Regulation 10 includes (as one of its Attachments) a template definite-period employment agreement that the Indonesian entity employing the foreigner will need to submit to the MOE when applying for the RPTKA approval.

Definite-period employment agreements are highly regulated in Indonesia. Indonesian labor laws and regulations set out a number of strict requirements for an employer to employ an employee on a definite period basis, e.g., type of work (it must be temporary in nature), maximum contract period, extension and renewal, etc. If some of the requirements are violated, by law the employment is deemed to be permanent employment. The question is whether these strict requirements for definite-period employment will also apply to foreigners working in Indonesia, particularly where the foreigners will work in Indonesia longer than the maximum contract periods for definite-period employment and will not be filling a temporary role.  It remains to be seen how the view of the Supreme Court in the circular letter in relation to the status of the employment of foreigners, and the requirements set out in prevailing laws and regulations in relation to definite-period employment, will be applied in practice.

  • Status of Foreign Director and Foreign Commissioner

A director (i.e., a member of the board of directors ("BOD") of a company) and a commissioner (i.e., a member of the board of commissioners ("BOC") of a company) of an Indonesian company can also be an employee of the company. However, it is also possible for a director to be a director only (or a commissioner to be a commissioner only), i.e., not also an employee of the company. Where such an approach is taken, steps need to be taken (and documents entered in to) to ensure that the director or commissioner is not also regarded as an employee.

Under the current process, to apply for a work permit for a director (or commissioner) of an Indonesian company, the company needs to provide the MOE only with evidence of the appointment of the individual to the BOD or BOC (as the case may be). That is, there is no requirement to provide the MOE with an employment agreement between the director (or commissioner) and the Indonesian company.

Regulation 10 does not address the situation where a director or a commissioner of an Indonesian company is not also an employee of the company. It also does not address a situation where a director or a commissioner of an Indonesian company who is a foreigner does not work and reside in Indonesia. It seems that under Regulation 10 as long as long as a director or a commissioner is:

* a foreigner; and

* not a shareholder of the Indonesian company

the Indonesian company will still need to obtain the RPTKA approval for the director or the commissioner.

The issue with this is that there is no exception under Regulation 10 in relation to the requirement to submit a template definite-period employment agreement (when applying for the RPTKA approval) if the foreigner is a director or commissioner of the company and is not a shareholder of the company. If the intention is for the director or the commissioner to not also be an employee of the company, if a definite-period employment agreement is put in place this would create an employment relationship between the foreign director (or commissioner) and the company. Again, it remains to be seen how this requirement will be applied in practice.

  • Indonesian Language for Foreigners Working in Indonesia

Under Regulation 10, all Indonesian entities that employ foreigners must facilitate Indonesian language training for the foreigner. A 2013 regulation requires foreigners to be able to communicate in Indonesian but makes no reference to the obligation of an employer to facilitate language training.

It remains unclear how this language training requirement will be implemented and how the MOE will (in practice) check compliance with this requirement.

Practical Note

Laws and regulations in Indonesia are, in part, implemented based on unwritten policy of the relevant government department (which can change at any time and without notice). It is possible that in implementing Regulation 10 the MOE will apply some unwritten policy in relation to the process and requirements to apply for work permits for foreign workers.