EY Human Capital Conference 2012: Global employee mobility - managing the legal minefield

2012 Human Capital Conference23–26 October

Managing the legal minefield

Disclaimer

► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US.

► This presentation is ©2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical,distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP Any reproduction transmission orpermission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or itsdisclaims any liability in connection with use of this presentation or its contents by any third party.

► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP


those of Ernst & Young LLP.

Presenters

► Jos Griffioen ► Roselyn S. Sands► Cargill Inc.► [email protected]

y► Ernst & Young Société

d'Avocats

► Dr. Karsten UmnussErnst & Yo ng La GmbH

► [email protected]

► Ernst & Young Law GmbH► [email protected]


Agenda

► Introductions► Why it is important to consider employment law issues► Why it is important to consider employment law issues► Employment law throughout the assignment life cycle:

► Transfer of personnel — use and status of secondment agreementsp g► Assignment letters► Assignment policies ► Provision of local benefits to assignees► Provision of local benefits to assignees► Repatriation considerations► Termination of assignees during the assignment► Post-assignment considerations► Tracking of amounts owed to the company► Localizations


► Localizations

Global mobility: why employment law mattersmatters

► Cross-border movement of employees means that p ymultiple jurisdictions’ laws could apply; therefore, increased clarity is required.

► In many cases, assignees will be working in the host location under work authorization — increasing onus on th l t i li t t t tithe employer to remain compliant to prevent negative immigration consequences.

► The high compensation cost of the assignees means that► The high compensation cost of the assignees means that mistakes may become very costly.

► Addressing employment law considerations in advance► Addressing employment law considerations in advance and ensuring documentation is in place saves the company time compared to resolving issues later.


p y p g

Global mobility: basic law matters

Legal aspects on cross-border movement of employees

Rules for applicable employment law

Between EU members: Rom-I-Convention

Between an EU member and all other countries/between all other countries:

bilateral/international contracts regarding

Rules for relevant court of jurisdiction

bilateral/international contracts regarding conflict of laws

Between an EU member and all other countries/between all other countries:

Between EU members: Council Regulation (EC) No 44/2001 of countries/between all other countries:

bilateral/international contracts regarding conflict of laws

Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and

the recognition and enforcement of judgments in civil and commercial

matters (“Brussels I”)


matters (“Brussels I”)

Global mobility: basic law matters

Correlation between immigration/work authorization/employment law in the host location — no one-size-fits-all for different countries

Who is the employer? Different legal rules apply, and that determines the

Immigration regulation requires specific structure

of the employmentand that determines the immigration means.

p yrelationships (e.g.,

necessary host country employment contract).


Employment law issues throughout the life cycle: secondment agreementscycle: secondment agreements

► Within Cargill’s program, an initial determination is g p g ,undertaken to determine whether an assignee will generate a host tax liability; this then determines whether:► A secondment agreement is put in place

Or ► A service agreement► A service agreement

► Typically, such agreements will determine the allocation of costs for the assignment and also protect againstcosts for the assignment and also protect against permanent establishment risks:► Such agreements are not directly shared with the assignee.► What are the potential employment law considerations and legal

status of such agreements?


Employment law issues throughout the life cycle: secondment agreementscycle: secondment agreements

► Clarification of the legal terms:g► What is the definition and the content of the secondment

agreement? ► What is the content of the service agreement?

► Potential employment law considerations and legal status:► Which law is applicable?► Who is the employer of the assignee?► Who has the right of direction?:

► Which authorization is granted to the assignee?► Differentiation from temporary employment work► Differentiation from temporary employment work► Violation of immigration regulations


Employment law issues throughout the life cycle: assignment letterscycle: assignment letters

► At the outset of an assignment, the assignee is provided g , g pwith a letter of assignment, which sets out the terms of their impending assignment.

► Typically such agreements would outline broad terms relating to their new role, assignment allowances and

t i tirepatriation.► What is the legal status of an assignment letter?

Wh t if i ti l t t t i i fli t ith► What if an existing employment contract is in conflict with terms of the assignment letter?

► Does the assignment letter create employment rights?► Does the assignment letter create employment rights?► Is the assignment letter the most appropriate document to

address data privacy or intellectual property matters?Managing the legal minefield

address data privacy or intellectual property matters?

Employment law issues throughout the life cycle: assignment letterscycle: assignment letters

► What is the content of the letter of assignment, which sets g ,out the terms of the assignment?

► Is it only descriptive to document a common y punderstanding about the assignment in general without any legally binding effect?

► With legally binding effect:► Is it an amendment of the existing employment contract? ► Is it a separate contract — who are the parties; who is the

employer?► Are there any regulations about prevailing terms and► Are there any regulations about prevailing terms and

conditions?► Which law is applicable?


pp

Employment law issues throughout the life cycle: assignment policiescycle: assignment policies

► Most companies should have a set of policies to provide p p pconsistency and guidance for the provision of assignment benefits and allowances.

► One problem that we have encountered historically is the agreement of exceptions to the policy either locally or di tl ith li h ti tdirectly with a line manager — such exceptions are not always well tracked or documented.

► What is the best practice to avoid future problems in such► What is the best practice to avoid future problems in such situations?

► What is the legal status of an assignment policy?► What is the legal status of an assignment policy?► Does the policy have to be shared with employees or

accessible in any way?


accessible in any way?

Employment law issues throughout the life cycle: assignment policiescycle: assignment policies

► Depending on the applicable law on the assignment p g pp grelationship/employment contract, conditions of the policies might not be valid/enforceable in different jurisdictions.

► A practical issue is to avoid/track exceptions► Legal status of an assignment policy:

► Is part of the contractual assignment relationship — therefore, the policy has to be shared with employees or accessible in any waypolicy has to be shared with employees or accessible in any way.

► Is a collective regulation — possible rights of employee representation bodies have to be observed (e.g., co-determination right of Works Councils in Germany).


Employment law issues throughout the life cycle: provision of local benefitscycle: provision of local benefits

► Many countries legally mandate minimum levels of y g ybenefits be provided to employees, for instance, vacation entitlements, 13th-month pay, meal tickets, etc.

► Within most assignments, the assignee will normally remain subject to home-country benefits and remain in

i t f threceipt of these.► How can the company “equalize” or “neutralize” these

additional entitlements?additional entitlements?► Can a letter of assignment or home country employment

contract take precedence over local benefits rules?contract take precedence over local benefits rules?


Employment law issues throughout the life cycle: provision of local benefitscycle: provision of local benefits

Differentiation between l l b fit b d

Individual (contractual) entitlement, equal treatment

local benefits based on:

( )

Local collective regulations

Local mandatory and/or public law regulations

If the assignee remains subject to home-country benefits, a setting-off clause

di h t b fit

y p g

I l l tt f i t h

regarding home-country benefits may “equalize” or “neutralize” these additional

entitlements.

In general a letter of assignment or home-country employment contract cannot take

precedence over local benefit rules.


Employment law issues throughout the life cycle: repatriation considerationscycle: repatriation considerations

► The repatriation process is an extremely critical stage in p p y gany assignment and if mishandled can lead to disgruntled employees.

► Repatriation considerations may include:► How should the host employment relationship be ended?► What promises can or should the employer be making to

employees during this process?► What requirements exist with respect to the position or role the► What requirements exist with respect to the position or role the

assignee will be returning to?

► In certain circumstances, the cessation of the host employment relationship may create an entitlement for the employee to receive a severance payment. Can the home employer seek reimbursement of such payments?


employer seek reimbursement of such payments?


► Termination of the host employment relationship depends on the► Termination of the host employment relationship depends on the applicable law.

► Requirements with respect to the position or role of the assignee after returning are in general depending on the home-country employment relationship and/or additional agreements.

► When the cessation of the host employment relationship creates► When the cessation of the host employment relationship creates an entitlement for the employee to receive a severance payment, in case the home-country employment relationship p y y p y pcontinues, a special clause in the home-country employment contract might help so that the home-country employer can seek reimbursement of such paymentsreimbursement of such payments.


Employment law issues throughout the life cycle: termination of assigneescycle: termination of assignees

► Recent economic circumstances have led many ycompanies to consider the positions of all employees, including those on assignment.

► Termination of assignees can be a complex matter because multiple jurisdictions are involved and there is th l it f l b i f th i hthe complexity of employees being away from their home location.

► Can assignees receive additional employment protection► Can assignees receive additional employment protection due to their assignments or assignment location?

► What are the essential steps to achieving a successful► What are the essential steps to achieving a successful termination of assignees?

► Would regular notice periods apply?


► Would regular notice periods apply?

European employment laws: protections in redundancies

► What to consider before and during redundancy

redundancies

g y

InvolvementInformation and Involvement of an existing supervisory board

consultation of the European Works Council/local works Directive

2009/38/ECDirective

2005/56/EC boardcouncils 2009/38/EC 2005/56/EC

Di tiComply with local procedure required in case of collective redundancies

Directive 98/59/EEC


of collective redundancies

Key issues in redundancies: Summary

Costs Timing► Understand compensation

and benefits packages of different employee populations

► Harmonization design

g► Phased or blow out

approach► Start together/finish

together► Factor in risks of delay

Manage local l t► Harmonization design

and costs► Calculation of termination

costs and tax optimization

► Factor in risks of delay► Controlling the timeline

regulatory complianceKey to manage:► Costs

Works councils/ unions management

Implementation► Manage the intricacies

► Costs► Timing► Works councils/

unionsunions management► Key in Europe► Drive and control the

process► Must do prior to

i l t ti

► Manage the intricacies of multiple players (works councils, unions, labor authorities, employees, courts)

► Must have game plan

► Implementation

implementation► Documentation is key► Significant potential impact

on timeline and costs

► Must have game plan before you start

► Documentation is key► Manage litigation risks



► Termination of assignees is a complex matter because multiple jurisdictions are involved and the local requirements for termination are different.

► Additional employment protection due to assignments or► Additional employment protection due to assignments or assignment location as well as the applicable notice period depends on the applicable law.

► Essential steps to achieve a successful termination of assignees:

D i h i d i h di ( l )► Determine what is agreed in the contracts regarding (early) termination

► Determine which law is applicable, and what the specific pp , prequirements for termination are

► Involve local counsel to take the right action


Employment law issues throughout the life cycle: post assignment considerationscycle: post assignment considerations

► Generally during the course of an assignment, tax y g g ,equalization policies or their equivalent can determine many questions relating to an assignee’s personal tax obligations.

► However, a number of countries have favorable or i l l l t t t t h i di id lconcessional local tax treatment when an individual may

have spent a certain period of time outside that location.► It is not always possible to address this within a policy or► It is not always possible to address this within a policy or

framework. What is a good rule of thumb for dealing with such conflicts?such conflicts?

► How can such conflicts be resolved without reverting to legal action?


g

Employment law issues throughout the life cycle: post assignment considerationscycle: post assignment considerations

When tax equalization applies during assignment and countries have favorable i l l l i l l f b fi l i for concessional local tax treatment, a special clause for benefits resulting from

such favorable tax treatment should be agreed on with the assignee individually, regulating the details and the extent.

Ideas from a practical point of view, to be reviewed under applicable lawapplicable law

Possible assignment of the claims of the

i i t th

Agreement on withholding or claw-

back clauses

Necessary legal action in cases

where the contract isassignee against the local tax authorities

to the employer

back clauses regarding other

benefits or contractual fines

where the contract is terminated and the

former assignee refuses to cooperate


Employment law issues throughout the life cycle: tracking assignee paymentscycle: tracking assignee payments

► Following the end of an assignment, there are a number of g g ,reasons assignees may continue to have amounts owed to the company:

T li ti b l► Tax equalization balances► Unused foreign tax credit carryforwards► Future claims of right► Future claims of right► Host-country tax refunds

► Most assignees who remain employees will abide by existing policies and reimburse amounts owed.

► What legal recourse or challenges exist with obtaining t f f l if th f ?payments from former employees if they refuse?

► What course of action should companies follow to obtain reimbursement?


reimbursement?

Employment law issues throughout the life cycle: tracking assignee paymentscycle: tracking assignee payments

► Legal challenges for obtaining payments from former g g g p yemployees if they refuse:► Where does the employee live today? p y y► Where is the right place of venue?► Which law is applicable? ► Is any preliminary legal protection possible?► Are the regulations/policies enforceable under the applicable law?► How long might court procedures take?► How long might court procedures take?► In case I get a favorable court judgment, how can I enforce the

judgment? Do I need an authentication of another country because the former employee lives now in another country?


Employment law issues throughout the life cycle: localizationcycle: localization

► It is becoming a more common trend at Cargill and other g gcompanies to localize assignees either when they have been on assignment for a number of years or directly from their home to the new host location.

► A localization represents a movement of employers and in t t i ti i ti f th hmost cases a termination or resignation of the home-

country employment relationship — this has an impact on the employee’s benefits retirement provisions socialthe employee s benefits, retirement provisions, social security, etc.

► What is the best practice in dealing with such► What is the best practice in dealing with such localizations.


Employment law issues throughout the life cycle: localizationcycle: localization

As localization also represents a movement of different social security systems and (local) benefits, each change has an impact on the employees benefits, retirement provisions, social security, etc.

Trends in dealing with such localizations

Local employment

contracts agreed for a fixed term

A balance on the loss of local

benefits, whichMost critical: different

statutory pensionGroupwide

benefit plansfor a fixed term, not unlimited

benefits, which depends on the

individual situation and should be

agreed individually

statutory pension entitlements, possibly

balanced by global pension schemes

benefit plans


g y

Questions


EY Human Capital Conference 2012: Global employee mobility - managing the legal minefield

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Transcript of EY Human Capital Conference 2012: Global employee mobility - managing the legal minefield