At common law, a contract can only be amended in accordance with its terms or with the agreement of all the parties. An employment contract is no different – an employer can only change its terms if the contract allows or if the employee agrees to the changes.

It is likely that certain terms will be changed several times during the employment relationship, such as terms relating to an increase in pay or promotion. These changes are likely to occur by mutual consent and so will not cause any problems – what is more difficult is a change to terms which, arguably, is to the employee’s detriment.

Changes to terms permitted by the contract

Before making any change, the employer should first check if it is permitted by the terms of the contract itself. If so, the employer will not need the consent of the employee to make the change.

For example, there may be an express right in the contract to make the type of changes proposed, such as to the place of work or job description. This would be a specific flexibility clause. Alternatively, there may be a general flexibility clause in the contract which gives the employer a general power to vary the terms of the contract.

However, specific flexibility clauses will be interpreted narrowly by the courts – any ambiguity will be decided in favour of the employee –and if the employer seeks to rely on such a clause, it will be subject to the implied terms in the contract, such as the implied duty of trust and confidence, so that the employer’s right to make changes must be exercised reasonably.

General flexibility clauses which attempt to give the employer the right to make changes to any terms of the contract are rarely enforced by the courts, and employers are unlikely to be able to rely on such clauses to make changes which are to the employee’s detriment, such as withdrawing contractual benefits.

What if the changes are not permitted by the contract?

Where the change proposed by the employer is not permitted by the existing terms of the contract, the employer has three options:

• Obtain the employee’s express agreement to the change
• Unilaterally impose the change and rely on the employee’s conduct to establish implied agreement to the change
• Terminate the employee’s employment and offer re-employment on the new terms

The most straightforward option of course is to obtain agreement. However, if this is not possible, and the employer chooses to impose the change, the courts are likely to find that the employee has impliedly agreed if he carries on working without making any objection, and the change has an immediate practical impact on him, such as a pay cut or a change in working hours. However, if the change does not have an immediate impact, such as changes to post-termination restrictions on the employee, the employer is unlikely to be able to rely on the employee’s silence as an indication of consent.

If the employer chooses the third option of terminating the contract and offering re-employment on the new terms, there will be the risk of claims arising on the termination but he can minimise these by giving proper notice under the contract and by taking procedural steps to avoid a claim of unfair dismissal.

In addition, where a large number of employees (at least 20) are involved, the employer will be under a statutory duty to consult collectively about the dismissals.

It should be noted that specific rules apply to changing the terms of employment in the context of a business transfer, which are not covered in this post.

Under French law, the ability of an employer to alter the terms and conditions of employment of its employees is very restricted. It is generally necessary for the employer to obtain the consent of the employee if it wishes to implement a change in his/her terms and conditions of employment. The principle and procedure applicable to such changes are set out below (subject however in any case to any applicable collective bargaining agreement, which may contain specific provisions in such respect).

Change in the terms of employment: principle

In this respect, a very important distinction must be made between the modification of the employment contract, which requires the employee’s prior written consent, and a change to the employee’s working conditions which can be effected without the consent of the employee concerned.

In practice, a modification of the employment contract would be deemed to occur if it concerns the content of the employment contract in itself such as remuneration, duties, working time, etc. Conversely, a change in the employee’s working conditions such as a modification of the working hours will generally not be viewed as a modification of the employment contract. This is naturally subject to the relevant employee’s contractual terms and conditions.

Moreover, the obligation to obtain the employee’s consent cannot be circumvented by stipulating in the employment contract that certain provisions will not be considered as essential and may, as a result, be unilaterally amended by the employer. Indeed, case law tends to hold such clauses as null and void and requires that such type of provisions be based on objective criteria outside the control of the employer. A current exception to this tendency is the ability to provide for mobility clauses under which the parties agree that the place of work may be changed by the employer (such clause being valid provided that it complies with a certain number of conditions including the limitation of its geographical scope).

Change in the terms of employment: procedure

No specific procedure is applicable to the modification of the employment contract (as opposed to a simple change in the working conditions) when contemplated for personal reasons. Nevertheless, it is generally recommended to formalise the employee’s agreement in an amendment to his/her employment contract and to leave him/her a reasonable notice period to consider the modification.

On the contrary, should a modification of the employment contract be envisaged for economic reasons, legal rules require compliance with a specific procedure, failure to adhere to which renders the modification unenforceable:

– the employer must propose the modification by registered letter with acknowledgment of receipt including the details of the proposed modification and giving the employee one month to consider it;

– if the employee does not reply within such time period, he/she is deemed to have accepted the modification.

In any case for both types of modification, the mere refusal of an employee to accept the change to his/her employment contract does not constitute in itself a valid ground for dismissal. Moreover, any change of contract implemented without the employee’s consent is unenforceable and can trigger the risk of the employee claiming the equivalent of constructive dismissal (having the same effects as an unfair dismissal).

As a general principle, the occupational health physician is a major interlocutor of the employer regarding the employees’ health and safety. In particular, there exists a very specific procedure under which employees’ disability must be acknowledged by the occupational health physician in order to authorize an employer to begin a dismissal procedure.

However, such opinion of the occupational health physician is not sufficient in itself and the employer is under a general obligation to seek alternative positions for an employee whose dismissal is contemplated. As a result, a dismissal notified without complying with such reclassification obligation may lead to the termination being considered as unfair. In this respect, this obligation is strictly interpreted so that, even if the occupational health physician declares that in his/her opinion the employee is unfit for any position within the company, the employer is still formally required to seek a reclassification position for the employee. The rationale behind this is that the employer has the best knowledge of its company and therefore may envisage alternative positions / arrangements which might be suitable for the employee.

In this context, may an employer ask for clarification from the occupational health physician after the declaration of unfitness in order to demonstrate that it is not bound by a reclassification obligation?

In a recent ruling rendered by the Supreme Court on 15^th December 2015, an employee was declared unfit to work. Shortly thereafter, the employer solicited an additional opinion from the occupational health physician concerning the reclassification possibilities for the employee, following which such physician specified that no position could be proposed to the employee within the company on account of her conflictual relationship with the entire hierarchy of the company. The employer subsequently dismissed the employee on the ground of her unfitness to work. Challenging such decision, the employee brought her case to the courts arguing that her dismissal was unfair since the employer did not seek an alternative position.

The Supreme Court upheld the decision of the Court of Appeal and ruled that the information provided by the occupational health physician following the official declaration of unfitness was to be taken into account in assessing the employer’s compliance with the reclassification obligation. Consequently, and taking into account the replies given by the occupational health physician in this case, the Supreme Court ruled that the impossibility of reclassifying the employee was demonstrated.

This ruling is interesting as it reflects a new tendency in case law which affords more flexibility to employers when dealing with the consequences of a declaration of unfitness to work. In application of such tendency, employers can use the opinions provided by the occupational health physician that there are in fact no reclassification possibilities open for the employee. However, such option is in any case dependent on the appreciation made by the physician who remains free to assess whether or not the health of an employee allows him/her to be reclassified. Moreover, such determinations are made on a case by case basis, and the opinions given by the occupational health physician should be taken as intimations of the employer’s impossibility to reclassify the employee rather than as clear evidence. Finally, it should be noted that the current government has just published a draft bill which intends to extend the cases in which the employer can be released from its reclassification obligation.

At first sight, the answer to this question would be: only by mutual agreement. But once you take a closer look there are many ways and situations that make it possible for an employer to unilaterally change the contractual terms.

• Collective bargaining agreements (CBAs) are binding for members of those employers’ associations (firms)  and labour unions (employees) who have concluded the respective agreements. In such case, any existing or newly concluded CBA will constitute new rules and obligations for the employee unless expressly stated otherwise in the employment contract. Since employers who are members of the employers’ associations do not know which employees are members of labour unions, they often include so-called “dynamic reference clauses” to extend the binding effect of the CBAs to all their employees whether or not they are part of the respective labour union. If the CBA is modified, the dynamic reference clause will include changes made in the employment contract.
• Terms of employment contracts can be changed if the contract is designed to be subject to modification by works agreement between the employer and the works council.  According to the German Federal Labour Court (Bundesarbeitsgericht), this is the case for all contractual terms with a so-called “collective nature” or if the possibility to modify the contract by works agreement is expressly stated. German labour courts have e.g. assumed a “collective nature” for contractual terms regulating working time accounts and overtime.
• The contract itself can include a reservation of revocation or of a voluntary status. Such provisions are often found in clauses regulating variable remuneration. The German Federal Labour Court has tightened the rules on when such reservations can be enforceable in relation to remuneration. In particular, the Court has ruled that remuneration which has already been earned by the employee cannot be taken away later due to a contractual reservation.
• Another way to unilaterally change the terms of a contract would be by way of a dismissal with the offer of altered employment conditions. Although this method can in theory be used to change only particular employment conditions such as remuneration, the Federal German Labour Court has set very high standards under which such alteration is legally possible.
• The easiest way to change the conditions of employment for the employer would be to exercise his right to give instructions. Even though such exercise would not change the terms of the employment contract, it could result in severe consequences for an employee such as a permanent relocation to another part of the country. The right to give instructions is limited by contract, works agreements, collective bargaining agreements and statutory provisions and may only be exercised under reasonable consideration of the employee’s legitimate interests.
• Last but not least, employment contracts can be altered by so-called “company practice” even without intention of the employer. If an employer provides his employees with a certain benefit and the employee can rely on the fact that such benefit will be provided in the future as well, this behaviour may bind the employer to do so. Technically, the company practice leads to a change of the employment contract. To prevent such “company practice”, most employment contracts include a clause that changes to the employment contract may only be valid in written form and that this clause itself may only be altered by written agreement.

Back in the day, the concept of vicarious liability (that is the situation in which one party is held liable for the acts or omissions of another) was largely confined to the employer/employee relationship. However, as working relationships have become more complex and diverse, and fewer people are entering into classic employer/employee relationships, vicarious liability has changed as well. Two recent cases demonstrate how far we have come.

In one case, the Supreme Court questioned whether an unincorporated association (a school) could be held vicariously liable for the acts of individuals who taught at their schools, but were employed by another body. That other body had also been held vicariously liable for the acts of the teachers. The Supreme Court decided that the school could be held liable. Essentially, the court decided that where the relationship was “akin to that between an employer and employee”, the “employer” could be held vicariously liable.

The case referred to above was heard in 2013, but was one in a line of cases which had decided that not only employers were liable for the acts of people who work for them in various capacities. As such, a nightclub was held vicariously liable for the violent acts of a bouncer employed by an agency whose business it was to supply bouncers, and a contractor was held liable for the acts of an employee of a sub-contractor.

In a 2016 case, however, the prison service was fixed with liability in respect of the acts of an individual who was not employed by anyone. In Cox v Ministry of Justice, Mrs Cox was employed by the prison service as catering manager and ran a prison kitchen. The kitchen staff consisted of employees and prisoners who worked alongside those employees. One of the prisoners accidentally dropped a sack of rice on Mrs Cox and injured her. The question for the court was whether the prison service should be vicariously liable for the acts of the prisoner. The Supreme Court held that this was a case where vicarious liability should be imposed – what the prisoner was doing was sufficiently similar to employment for the principle to apply.

So – where does that leave businesses? They may think that because someone who works for them is employed by someone else, or is not even employed by anyone, they will not be responsible for their actions. However, as we can see from the discussion above, there may be cases in which such a business may be either jointly or solely liable for the acts of those individuals. What can businesses do to protect themselves? Often they have no or very little knowledge of who agencies and sub-contractors hire, so the usual checks they would undertake if employing someone themselves, such as interviews and reference checks, are not possible. Indemnification under the contract with the agency or sub-contractor may help – but will only be as valuable as the entity giving it. If that entity is a limited liability company with few assets and no insurance, businesses may want to consider the scope of their own insurance and whether it covers both employees and those who, whilst not employees in the conventional sense, might be held to be in such a relationship for vicarious liability purposes.

This post was also contributed by Ebru Tirel, Trainee, Norton Rose Fulbright LLP (Munich).

Imagine a forklift truck driver damaging the car of a customer of the employer, resulting in a loss of EUR 200,000. Who will be liable for the damage?

Generally speaking, of course, the employee is directly liable for the damage caused by a negligent act or intentional fault. However, the employer can also be held responsible for wrongful acts of employees, even if the employer has not committed any wrongful act himself, provided that the fault occurred in the course of the employment and while fulfilling an obligation of the employer: It is the employer’s enterprise that created the risk in the first place.

When performing contractual obligations, employers usually do not perform all obligations towards third parties themselves, but use employees. It could appear that the employees would bear the full risk of any damage they cause, while the employers who benefit from using employees, bear none of the risk themselves.

To avoid such a result, an employee has recourse against his employer according to a principle developed in German jurisdiction since 1957 (called ‘innerbetrieblicher Schadensausgleich’). According to this principle, the employee’s claim against the employer, in cases where the damage was caused by an action arising from and in the course of employment, depends on the level of negligence.

• If the employee acted in a slightly negligent manner, he is not liable at all. In this case the employee can claim a full indemnity from the employer.
• In a case of “average” negligence (mittlere Fahrlässigkeit), the liability is proportional. For example a proportional liability of fifty percent could be reasonable when considering all the circumstances such as the period of employment and the employee’s reliability in the past.

It should also be noted that the employer is obliged to maintain adequate insurance to cover the risk of such damage. If the employer could have taken out such insurance but failed to do so, he will be liable as though insurance cover were in place. If the damage caused is fundamentally disproportionate to the employee’s salary, the employee’s liability is further limited, generally speaking, to a maximum of three months’ salary.

• If the wrongful act of the employee is due to his malicious intent or gross negligence (grobe Fahrlässigkeit), generally speaking, the employee cannot claim recourse from the employer at all.

The issue of the liability the employers can face as a result of the acts and/or omissions of their employees is a recurring aspect of employee management in France.

There are no specific employment rules per se governing the extent to which the employers can be held vicariously liable for the acts of their employees. However, the general tort rules applicable in France contain specific provisions pursuant to which a person (or legal entity) is liable not only for the damages he caused by his own behaviour, but also for that which is caused by the behaviour of persons for whom he is responsible (therefore including employers’ liability for the behaviour of their employees).

In this context, the liability of an employer can be triggered provided that:

– there is a fault committed by an employee (or more generally a person under the subordination of the employer) which caused a loss to a third party;

– the employee’s behaviour can be linked to the performance of his/her duties.

The employer can be exonerated from its liability if it can demonstrate that the employee was guilty of an “abuse of office” (“abus de fonctions”). This is generally the case where an employee, acting without any authorisation from his/her employer (whether express or implied), placed himself/herself outside his/her duties, and acted for purposes unrelated to work. In practice however, case law is generally not inclined to exonerate the employer from its liability (even if the employee has committed a penal offence). The ability to benefit from such exoneration is therefore extremely limited and the employer will, in the vast majority of cases, be held responsible for the behaviour of its employees.

The above rules do not mean however that an employee’s liability may not be sought. Case law admits that an employee is still liable for his/her acts when, through his/her actions, he/she exceeded the limits of the missions assigned to him/her (for example in case of penal offence committed intentionally). Such rule is however mainly theoretical as third parties generally prefer to seek compensation from the employer and because employment rules provide that an employee can only be held liable toward his/her employer when it can be demonstrated that he/she has committed a wilful misconduct in the context of his/her duties (meaning that the employee had the intention of causing harm to the employer).

Under French employment law, there is a classic distinction between dismissals for “gross misconduct” (faute grave) and willful misconduct (faute lourde) regarding the consequences of such misconduct for the employee. Although in both cases the employee loses his/her entitlement to a notice period and to a dismissal indemnity, an employee dismissed for willful misconduct will also be deprived of his/her indemnity in lieu of paid leave for his/her rights to annual leave accrued but non taken at the time of dismissal.

The logic underlying such distinction can be found in the fact that the willful misconduct implies that the employee had the intention of causing actual harm to his/her employer, meaning that the deprivation of the employee’s right to his/her paid leave indemnity is considered as a penalty resulting from his/her malicious intent.

However, the justification for such rule has over time been considered as increasingly questionable as the employees’ right to actual rest and leave was simultaneously being interpreted as widely as possible by the French Supreme Court and the European Court of Justice.

In this context, and in a recent case, the Supreme Court referred to the Constitutional Council a question as to the constitutionality of such rule, such question having been raised by an employee, dismissed for willful misconduct, who argued that the deprivation of the indemnity in lieu of paid leave infringed his rights to health and to rest which are guaranteed by the French Constitution.

The Constitutional Council did find that the deprivation of the indemnity in lieu of paid leave was unconstitutional but based its reasoning on a different argument which was not raised by the employee. Instead, the Constitutional Council pointed to the fact that exemption of the payment of the paid leave indemnity in case of willful misconduct was not applicable to employers affiliated with a paid leave fund (which is particularly the case in the construction industry). In this context, the Constitutional Council held that such distinction between employers affiliated with a paid leave fund and those who were not was not justified and therefore ruled that this distinction shall be abolished. As a consequence, the Constitutional Council held that all employees should benefit from the more favourable provisions of the law, i.e., the benefit of the paid leave indemnity even in case of willful misconduct.

As a result, and as of 4^th March 2016 (date of publication of the decision), any employee dismissed for willful misconduct continues to be entitled to his/her indemnity in lieu of paid leave. Even though there will as a result be less interest in being able to show that the employee’s misconduct constituted willful misconduct, employers should remain aware that such qualification is the only one which entitles an employer to seek the financial liability of his/her former employee.

This post was contributed by Daniel Jacobs, Trainee Solicitor, Norton Rose Fulbright LLP, London

Gender Pay Gap Reporting

What is the gender pay gap?

Despite a longstanding prohibition on gender discrimination, on average, woman still earn less than men in the UK. According to the Office for National Statistics, in 2015, the gap between average female earnings and average male earnings for full-time employees was 9.4% and 19.2% for all employees.

Gender pay gap report

In July 2015, the Prime Minister announced an ambition to “end the gender pay gap in a generation”. Following numerous consultations, and in order to begin to achieve this aim, the government has released a draft set of regulations. These draft regulations set out that private and voluntary sector employers with at least 250 employees will be required to publish an annual gender pay gap report. The final regulations are expected to come into force in October 2016.

The gender pay gap report will require affected employers to publish:

• overall gender pay gap figures;
• the numbers of men and woman in different pay bands (which will show how the gender pay gap differs at different levels of seniority);
• gender bonus gap figures; and
• the proportion of male and female employees who received a bonus.

The data for the information will be taken from a snapshot of the position on 30 April 2017 and annually thereafter.

Each year, by no later than 29 April, the gender pay gap report must be published on the employer’s own website in the UK and uploaded to a government website. Employers will have the option to include a narrative to accompany the figures, which will enable employers to explain any gender pay gap and the actions being taken to reduce it.

Penalty for non-compliance

Interestingly, the draft regulations do not contain any enforcement provisions or penalties for non-compliance. Rather, the government seems to be relying on the threat of negative publicity to be a sufficient motivator for employers to comply. Acrding to figures cited by the government, 84% of women aged 16 to 30 would consider an employer’s gender pay gap when applying for a job and 76% thought that companies should publish gender pay data in a prominent place on their website.

The government has stated that it may publish league tables of the gender pay gap and may publish the identity of non-compliant employers. This would increase the pressure on employers to comply with the regulations.

What can employers do to prepare?

Although the final regulations are still being drafted, employers should begin to prepare for the new regime, to ensure that they are in the strongest possible position. For example, it would be prudent to undertake a pay and bonus audit, so that any necessary changes can be made in advance.

As of May 1, 2016, the VAR-declaration (Verklaring Arbeidsrelatie) will be replaced by model agreements approved by the Dutch Tax Authorities for each sector or professional field. This is due to the implementation of the Assessment of Employment Relationships (Deregulation) Act (Wet deregulering beoordeling arbeidsrelaties) (the Act). As a result, companies run the risk additional tax assessments will be imposed on them by the Dutch Tax Authorities. The new system and the differences with the VAR-declaration are explained below.

VAR-declaration

As of May 1, any issued VAR-declaration does no longer have effect. A VAR-declaration indemnified companies that hired freelancers from any potential claims by the Dutch Tax Authorities for wages and social security premiums, should it (later) appear the relationship factually qualified as employment agreement. Before, if a VAR-declaration had been issued and the relationship nonetheless qualified as employment agreement, no additional tax assessment would be imposed on the company in relation to that freelancer. Any additional taxes had to be paid by the freelancer as sole risk barrier.

Whether or not the relationship between the company and the freelancer qualifies as employment agreement depends mainly on whether the following three factors are present: (i) labour, (ii) wages and (iii) authority.

Model agreements

As of May 1, companies can use model agreements that are made available on the website of the Dutch Tax Authorities. Also, companies can submit their own envisaged agreement to the Dutch Tax Authorities for an agreement vetted beforehand. Using a model agreement or having an individual contract vetted beforehand provides assurance that the relationship with the freelancer shall not qualify as (fictitious) employment agreement, provided that the agreement is actually carried out exactly as described in the agreement.

However, this does not prevent the Dutch Tax Authorities from imposing additional tax assessments on the company, should the factual relationship qualify as employment agreement. As a result, the new system provides for less assurance upfront and bigger financial risks for companies than was the case under the VAR-regime.

The factual relationship between the company and freelancers always determines whether or not payroll taxes are due and potentially with retrospective effect. One important element which is decisive in the assessment is the relationship of authority. The freelancer should to a large extent be non-restrictive in the way he performs the services. Should this not be the case, it is likely that the relationship qualifies as employment relationship and the Dutch Tax Authorities will impose additional tax assessments on the company.

Transitional arrangements

Until May 1, 2017 a transitional period applies to allow companies to adjust to the new system. During this period, the Dutch Tax Authorities will be reticently in taking repressive measures.

Should you want assistance with drawing up a suitable freelance agreement or require further information in respect of the above, please feel free to contact Maartje Govaert or Thomas Timmermans.

This post was also contributed by Ebru Tirel, Trainee, Norton Rose Fulbright LLP (Munich).

In Germany, “Equal Pay Day” is widely observed. It marks the day from which women are deemed to start to earn wages in that calendar year, where men have started to earn wages since January 1st. This year, Equal Pay Day was on 19 March.

According to a report of the German Federal Statistical Office DESTATIS dated 16 March 2016 regarding the gender pay gap in 2015, women earn 21 percent less than men. This inequality is due to various factors: Women often choose professions in social and personal services sectors where lower wages are usually paid than, for example, in more male dominated industrial or chemical sectors; career interruptions due to maternity leave; and widespread part time and short term jobs being carried out by women.

Even if these factors are not taken into account and only men and women with similar qualifications, professions and cv’s are compared, the adjusted gender pay gap still amounts to 7 percent. This is remarkable as the Federal German Constitution (GG) provides gender equality as a fundamental right under Article 3. Also, the General Equal Treatment Act (AGG) prohibits discrimination due to gender in the workplace, this principle also being set out in European law.

Several measures such as: The Girls’ Day and Boys’ Day, which encourages girls to show interest in male dominated professions and vice versa; the introduction of a minimum wage of EUR 8.50 per hour in 2015; the adoption of the law on equal participation of women and men in leadership positions in the private and public sector, in force since 1 January 2016, which implements a women’s quota in certain companies; and the development of parental leave have already been effective to increase female earnings.

However, the gender gap still exists which finally led to the publication of a draft law on equal pay (Entgeltgleichheitsgesetz). After previously being rejected in 2013 it is expected to come before the Bundestag this year. In particular, it includes the following:

• Transparency is the key to detect unequal payment. To ensure this, employees will have the right to obtain information from the employer about the average salaries of employees doing equal work or work for equal value.
• Confidentiality clauses in employment contracts relating to information about wages will be void.
• In the event of violations of these provisions, class actions will be possible and fines may be imposed on the employer.

This draft law has been subject to criticism, notably for causing overwhelming bureaucracy, breaching the principle of tariff freedom and causing a climate of mistrust between colleagues. On the other hand, the proposal has been praised: As women often demand lower wages than men, knowing what others in a similar position earn could help them in salary negotiations.

Gender pay inequality remains a topical issue in France despite the introduction of numerous pieces of legislation intended to suppress the persistent pay gap in average remuneration between women and men. Although French employment law theoretically prohibits any discrimination based on gender and requires that employers ensure equal remuneration between women and men occupying a similar employment or an employment of similar value, there was still a global gap of approximately 19% in 2013 (10% when taking into account equivalent positions and conditions).

One of the main tools of gender pay equality policies in the workplace has been and remains the obligation of companies to conduct negotiations relating to the issue of professional equality and particularly regarding the gap in remuneration between women and men. The purpose of such negotiation is to reach an agreement with trade unions on the adoption of specific measures aiming in particular at reducing the salary gap and suppressing differences of treatment between women and men in general.

However, such obligation does not mean that employers are required to reach an agreement with trade unions and subsequently conclude a binding collective agreement with them. Consequently, French law provides that in the absence of an agreement on such issues, companies employing at least 50 employees are required to adopt a gender equality plan intended to suppress the gender salary gap. If the company fails to adopt such plan, it can be liable to a financial penalty of up to 1% of the total remuneration paid to its employees during the period of breach of the legislation.

In any event, for companies not meeting such criteria (i.e. companies which are not required to negotiate with trade unions and companies employing less than 50 employees), there is a general obligation pursuant to which they must take into account the issue of professional equality and provide for specific measures in order to achieve it.

There also exist various voluntary schemes through which employers can implement specific measures in order to remedy professional inequality between women and men in return for state subsidies or financial aid. An “equality label” has even been created in order to reward companies which proactively implement exemplary gender equality measures.

Do you wish to keep valuable employees who are about to retire, but are you afraid termination will be difficult if they remain employed? As of this year, risks related to hiring employees who have reached the state pension age (an Older Employee) are considerably reduced, e.g. the duration of the prohibition to terminate and the obligation to continue to pay wages during illness is significantly shortened. This is due to the implementation of the Working after state pension age Act (the Act). The most important changes resulting from the Act are discussed below.

Long-term illness

Long-term sick leave and the related financial risks are common concerns when hiring Older Employees. These financial risks result from the fact that during illness the employer (i) has the obligation to continue payment of wages, (ii) has reintegration obligations and (iii) is prohibited to terminate the employment agreement. To encourage employers to keep Older Employees employed, the Act reduces the normal period during which the employer has the aforementioned obligations, from (at least) 104 weeks to 13 weeks. This does not apply for employees who reach the state pension age before 1 July 2016 and have been suffering from long-term illness since before January 1, 2016.

Further, the remedy period for Older Employees is shortened from 26 weeks to 13 weeks. Only if recovery is not to be expected within the remedy period, the employment agreement of an ill employee can be terminated. In any case, the obligation to continue payment of wages ceases after 13 weeks.

Please note that the statutory provisions regarding (i), (ii) and (iii) mention a term of six weeks. However, this is currently not the applicable term. Based on transitional law the aforementioned term of 13 weeks applies. In 2018 the legislator will evaluate the Act, including transitional law. After this evaluation will be decided if the term of six weeks shall become applicable.

Employment under fixed term agreement

Since July 1, 2015, unlike before, it is possible to re-employ Older Employees under a fixed term agreement after termination of the indefinite employment agreement based on the ground that the employee reached the state pension age. In general an indefinite employment agreement ends by operation of law when an employee reaches the state pension age. The employer may also terminate the indefinite employment agreement by giving notice on or after that day, without a UWV dismissal permit or a court decision being required and without having to pay any severance payment.

Under the Act, Older Employees can now be employed under fixed-term agreements for up to 48 months and under six subsequent agreements. Prior to implementation of the Act, an fixed term employment would convert into an indefinite employment in case: i) the employee has been employed for more than 24 months under several fixed term agreements or ii) the employee has worked under more than three subsequent fixed-term agreements. This conversion into an indefinite employment agreement creates the risk of long and expensive dismissal procedures. This is because a so-called reasonable ground for dismissal is needed to be able to terminate such an employment agreement.

The possibility to keep Older Employees employed for longer under fixed-term agreements is favourable for employers since it reduces the risks of conversion and expensive dismissal procedures.

Other changes

• The Act provides that in case of termination of an indefinite employment agreement with an Older Employee, a statutory notice period of only one month has to be observed, irrespective of the duration of the employment. Exceptions in favour of the employee can be made.
• The Act provides that, unlike before, the rules on minimum wages apply to Older Employees.
• The Working Hours (Adjustment) Act does no longer apply to Older Employees. As a result Older Employees can no longer request an increase of their working hours.

Should you have any further questions on the above, please feel free to contact Maartje Govaert or Saskia de Schutter.

This post was also contributed by Bastian Semmel, International Trainee, Norton Rose Fulbright LLP (Frankfurt).

With effect from 1 January 2017, the German legislation on temporary employment will be reformed, as the Federal Cabinet recently passed a draft law regarding this matter on 1 June 2016. These changes are designed to address the misuse of temporary employment and to strengthen the position of temporary employees. The following article provides a short overview of the main modifications that will be made to the German Law on Temporary Employment (Arbeitnehmerüberlassungsgesetz – AÜG).

In future, a temporary employee will only be allowed to work for the same hirer for a maximum term of 18 consecutive months. After that time, either the hirer will have to engage the temporary employee as his regular employee or the temporary employment agency will have to withdraw the employee from this workplace. Any interruption in the temporary employee’s working period of 3 months or less will be ignored for the purposes of calculating the 18 month maximum term. If the interruption is longer than 3 months, the past period of employment will not be taken into account.

This maximum hire term can be extended by collective bargaining agreements (concluded between a trade union and an employers’ association or an employer) or by works agreements (concluded between a works council elected by the employees and the employer) based on a collective bargaining agreement. Hirers, who are not bound by a collective bargaining agreement (i.e. who are neither member of an employers’ association nor have concluded a collective bargaining agreement with a trade union themselves), can adapt a representative collective bargaining agreement from their respective branch via a works agreement. But if the related collective bargaining agreement provides for the possibility of an extension without specifying a maximum hire term, it can only be increased to up to 24 months by the hirer (who is not bound by a collective bargaining agreement). Where the adapted collective bargaining agreement stipulates a higher limit, for example, 48 months, then the hirer (who is not bound by a collective bargaining agreement) can conclude a works agreement up to the same maximum length.

The temporary employees will be entitled to receive pay equal to that of comparable regular employees of the hirer after a period of 9 months in the same company. A difference in pay for a longer period of up to 15 months is possible, if an existing collective bargaining agreement on branch surcharges within the temporary employment industry enables the hirer to do so. The rates of pay must start being equalised after a period of no more than 6 weeks.

In addition, it will be prohibited to use temporary employees as strike-breakers. No temporary employee hired by a strikebound business will be able to take over the work of a striking employee.

To counter bogus contracts for work and service, the employer will have to declare the engagement of a temporary employee from the outset. This prevents the subsequent declaration by the employer of a contract as temporary employment.

Additionally, the employer will have to inform the works council about the length of the assignment, location of assignment and tasks when hiring external staff.

Apart from the well-known Wiki-leaks, recent prominent cases of whistleblowing such as Lux-leaks, the Panama Papers or the case of the German geriatric nurse Brigitte Heinisch, who was dismissed after revealing the ill-treatment of elderly people in a Berlin retirement home, continue to highlight the continued relevance of the topic “whistleblowing”. While this has resulted in an increased public awareness and consequent expectation of global corporate accountability, the subject remains a complex matter of opposing interests: on the one hand, the public interest in ensuring that companies, authorities and organisations comply with the law, and on the other hand, the importance of an employee’s duty of fidelity owed to his employer and the employer’s interest in protecting its reputation and desire to remedy any possible misconduct internally before having to go public. In the midst of this stands the uncertainty for the employee who “blows the whistle” as to what legal consequences he risks when reporting misconduct or irregularities.

In Germany, there is no specific legislation dealing with whistleblowing procedures and protection. Some laws such as the German Data Protection Act (Bundesdatenschutzgesetz), the German Labour Protection Act (Arbeitsschutzgesetz), the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz) and the German Works Council Constitution Act (Betriebsverfassungsgesetz) stipulate disclosing rights and duties in specific situations, but general principles on whistleblowing are only provided for by case law (for more details regarding the general legal situation in Germany see our previous blog).

At a recent conference, the ministers of justice of the German federal states criticised this fragmentary protection provided for whistleblowers under German law and called for more effective protection. In this context, the ministers explicitly pointed out the social significance of employees reporting internal misconduct or breaches of law in companies, authorities and organisations at an early stage, and requested that the German Federal Government assess to what extent a legal framework is required in order to protect whistleblowers. Whether, and if so to what extent, a legal framework for all employees will be introduced remains to be seen.

With effect from 2 July 2016, and irrespective of the demands of the ministers, such a legal framework will be provided, at least, for employees of all companies subject to the supervision of the German Federal Financial Supervisory Authority (BaFin): The amendment of the German Act on Financial Services Supervision (Finanzdienstleistungsaufsichtsgesetz) then comes into effect following requirements of European law. It stipulates that employees working for, for example, banks, financial services institutions, insurance-companies, capital management companies, stock-listed companies subject to the German Securities Trading Act (WpHG) and pension funds, who report potential or actual breaches of law may not be held liable for this either by their employer under employment law or by the state under criminal law, unless the notification was false and issued intentionally or by gross negligence. Furthermore, the Federal Financial Supervisory Authority must implement the organisational means for enabling employees falling under the scope of the law to report such breaches of law anonymously and centrally (e.g. by means of a whistleblower-hotline/homepage).

Currently, a duty to implement such reporting structures (directed towards employers) is provided by the German Banking Act (Kreditwesengesetz). However the Act extends only to credit institutions (most banks) and financial services institutions (investment brokerage/advice, financial portfolio management etc.) and in particular does not extend to insurance companies. These institutions must provide for an effective whistleblowing procedure which includes a process which allows employees to report any violation to an appropriate body within the company. The aforementioned amendment of the German Act on Financial Services Supervision now provides for a centralised rather than a decentralised reporting system as stipulated by the German Banking Act. Although the amendment is widely criticised, in particular for providing protection limited only to a certain sector (most likely excluding auditing companies), and not giving detailed specifications as to how such protection is to be ensured, it is a step in the right direction and at least shows that the matter is acknowledged both socially and politically.

For further information and an extensive guide to whistleblowing laws worldwide see our “A global guide to Whistleblowing laws”.

French employment law does not yet provide for a comprehensive and consistent set of rules for the purpose of protecting whistleblowers. Instead, French employment law tackles issues arising out of whistleblowing situations through a relatively meager set of legislative provisions.

Current legislation

Under currently applicable legislation, no employee can be disciplined, dismissed or discriminated against for having reported, in good faith, various sets of facts such as moral and sexual harassment, discrimination, corruption, facts representing a serious risk to public health or environment, facts constituting a crime or an offence, etc.

Aside from such specific regulations, whistleblowers may also benefit from wider protection under case law which tends to consider that whistleblowers are exercising their rights to freedom of speech (to which only very limited restrictions are permitted). Thus, provided that the whistleblower does not act in bad faith or in a culpably thoughtless manner and that his/her denunciation does not contain offensive, defamatory or excessive statements, the employer is not entitled to discipline, dismiss or discriminate him/her.

Under French regulations, any measures taken in disregard of such protection are deemed to be null and void, and if the employee has been dismissed on the basis of his/her whistleblowing, he/she is entitled to be reinstated in his/her previous situation. In addition, an employee victim of such illicit measure is entitled to seek damages in an action brought in the special employment tribunal for the loss suffered and even to lodge a claim for constructive dismissal, amounting to unfair dismissal.

In any case, the protection of whistleblowers, both under specific regulations and case law decisions, is not absolute and entails a certain level of responsibility for the whistleblowers. In particular, the employee can be held liable for penal charges such as slanderous denunciation (punishable by up to 5 years of imprisonment and a fine of up to 45,000 Euros) and be subject to claims for damages should his/her reporting be made with malicious intent, or with the knowledge that the facts reported are inaccurate or incorrect. Obviously, the employee could also face disciplinary sanctions by the employer.

New developments

There is currently a draft law under discussion before the French parliament which aims at providing for a general protection for whistleblowers and replacing the current varied set of rules.

Under the current version of the draft law, a whistleblower would be defined as a person who reports or reveals, in the general interest and in good faith, a crime or an offence, a serious violation of the law or of a regulation, or facts which pose a serious risk to the environment or public health and safety.

It is further specified that the whistleblower should not exercise his/her right with the intention to cause harm or with a view to obtaining any advantage whatsoever. In any case, such right to report or reveal the above types of facts may not violate legal secrecy (national defense, medical secrecy and attorney-client privilege).

The draft law also creates a specific procedure pursuant which the right to report or reveal the aforementioned facts can be exercised. In this regard, an initial report would have to be made to the employer (or a person designated for such purposes or the employee’s manager) and, in the absence of any response or reaction within a reasonable time period, the facts can be reported to the authorities, the employees representatives or other specific bodies such as associations whose purpose is to assist whistleblowers. If such institutions or organizations do not take into account the report, then the whistleblower can make the report public. It would also be provided that appropriate procedures aiming at collecting such reports must be established within companies employing at least 50 employees.

Under such legal framework, the whistleblower would be protected and could not be subject to any disciplinary sanctions, termination of employment or be discriminated in any manner whatsoever on the basis of his/her report or revelation, any such measures taken in violation of this protection being deemed to be null and void. Finally, the current draft law states that any person impeding the whistleblower’s right to report the facts listed above can be punished by a fine of up to 15,000 Euros and an imprisonment of up to one year.

Under French employment law, the definition of a disciplinary sanction is broad as it is defined by law as being “any measure, other than a verbal observation, taken by an employer in response to an act of an employee which the employer considers incorrect, whether or not such measure has an immediate effect upon the continued presence of the employee in the company, his/her duties, career or remuneration”.

In this framework, the disciplinary power of the employer is strictly regulated and French law requires in most cases that a procedure be complied with before disciplining an employee and provides that an employer cannot discipline an employee twice for the same fact. In addition, and most importantly, any disciplinary measure taken against an employee must be proportionate to the facts complained of. This means that, should the employee lodge a claim to challenge the sanction imposed upon him/her, the court can order that the sanction be cancelled (except if the sanction is a dismissal, in which case only unfair dismissal may be triggered) if it finds that the sanction was unjustified or disproportionate. The concerned employee may even be awarded damages if the judge considers that he/she has suffered a loss as a result of the unjustified disciplinary action.

In a recent case (Supreme Court ruling of 6^th April 2016), an employee recruited as a specialised educator in a re-education facility received a warning for having slapped a teenager who was a resident of the boarding school where she was performing her duties. Such misconduct was duly evidenced and the employee did not contest the facts reproached to her. However, the employee subsequently lodged a claim so as to have the sanction annulled by the employment judge.

The Court of Appeal found in favour of the employee and consequently cancelled the warning made against her on the ground that such sanction was not proportionate in light of the specific context. The employer appealed the decision and argued in particular that the warning was all the more justified in that the internal rules of the facility expressly provided that any violent behaviour against the young residents was strictly prohibited. Notwithstanding such arguments, the Supreme Court confirmed the decision of the appellate judges in light of the particular context, i.e. the alleged misconduct remained an isolated event (the employee had around 25 years of seniority) and occurred in the particular case of a conflict situation the handling of which was difficult (altercation between teenagers) and the employee was a well-balanced person whose professional qualities were unanimously appreciated. Therefore, the warning given by the employer was annulled and the Supreme Court even approved the decision of the Court of Appeal to sentence the employer to pay 100 Euros as damages for the moral harm suffered by the employee.

The decision of the Supreme Court is totally in line with the applicable legislation which gives the employment judges wide powers to assess whether or not a disciplinary sanction is proportionate to the facts. Such decision is also a reminder that the employment judges can also cancel even the lowest sanction, i.e. in this case a simple warning.

In October 2015 the UK regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), released new whistleblowing rules for certain regulated entities in the UK (the New Rules). The New Rules impose obligations on these entities in addition to the requirements of existing whistleblowing legislation found in the Public Interest Disclosure Act 1998 (PIDA) and the Employment Rights Act 1996 (ERA).  Whilst they have until 7 September 2016 to comply with most of the requirements of the New Rules, 7 March 2016 was the deadline for the appointment of a whistleblowers’ champion.

Application

The New Rules will apply to UK regulated banks, building societies and credit unions with total gross assets exceeding £250 million, PRA designated investment firms, and insurance and re-insurance firms regulated by the PRA. In relation to other regulated entities, the New Rules will act as non-binding guidance.

Key requirements

• The whistleblowers’ champion

With effect from 7 March 2016 the relevant entities were required to appoint a “whistleblowers’ champion”. This is a non-executive director who is a Senior Manager subject to the Senior Managers’ Regime or the Senior Insurance Managers’ Regime and who takes on the prescribed responsibility for whistleblowing. Where there are no non-executive directors, the whistleblowers’ champion should be an appropriate Senior Manager.

As part of the role, the whistleblowers’ champion must oversee the preparation of an annual report to the entity’s board (which will also be available to the regulator, but not the public at large) addressing the operation and effectiveness of the whistleblowing system.

• Changes to internal whistleblowing arrangements

The New Rules require relevant entities to have internal procedures in place that reassure staff that they can raise concerns and will be listened to without detriment to themselves in their employment.

• Extensions of scope

The New Rules extend the types of disclosures which should be covered by internal whistleblowing arrangements beyond those matters identified as “qualifying disclosures” in section 43 ERA. This extended scope will cover a failure to comply with policies and procedures, and the extremely broad concept of any behaviour that harms, or is likely to harm, the entity’s reputation or financial well-being.

The New Rules also require that the internal arrangements cover disclosures by any person, not just persons who would fall within the definition of “worker” in Section 43K ERA (being the category of persons who are protected against detriment by PIDA and the ERA).

• Settlement agreements

The New Rules require that relevant entities include language in settlement agreements rendering void any provision between a worker and employer which purports to prevent a worker from making a protected disclosure.

• Informing the regulators

As well as making available to the regulators the annual report referred to above, entities are required to report promptly to the FCA each case the firm contested but lost at tribunal where the claimant successfully based all or part of their claim on the fact that they had suffered a detriment as a result of making a protected disclosure or had been unfairly dismissed under section 103A ERA.

• FCA and PRA whistleblowing services

All employees of affected entities who are based in the UK, should be informed about the whistleblowing services provided by the PRA and the FCA, including how to contact them, the protections they offer and the kinds of disclosures it would be appropriate to make. Entities should also inform such employees in a policy document that they can make disclosures to the regulators at any stage, regardless of whether they have raised concern internally first.

Practical issues for affected entities

The New Rules are likely to represent a significant change for affected entities and could result in an increase in the number of “whistleblowing” disclosures received. A “whistleblowers’ champion” should have already been appointed who will take on the responsibility for ensuring compliance with the New Rules.

Entities will also need to review and update their whistleblowing policies to accommodate the New Rules and provide training for employees, including those who will be responsible for administering and implementing the New Rules and the whistleblowers’ champion.

On 23 June 2016, voters in the UK referendum chose to leave the European Union. Exit from the EU will require the government to make a formal application under Article 50 of the Treaty on European Union.  This provides for a period of negotiation of up to two years (which can be extended if agreed).  During this period the UK remains a member of the EU but businesses are facing a period of uncertainty and are seeking a view as to what “Brexit” will mean for their business and their employees.  The implications for employers will very much depend on the negotiated exit and the form of the UK’s continuing trading relationship with the EU.  There are unlikely to be any immediate changes.

Key parts of UK employment law are derived from European law, and in theory withdrawal from the EU could result in the repeal of those areas of employment legislation. However, despite the fact that the government may come under pressure to repeal or amend certain laws it is unlikely that there will be wholesale change.  For example, large parts of the Equality Act 2010 are derived from EU law, such as protection from discrimination on grounds of sexual orientation, religion and belief and age, but it is unlikely that the UK government will wish to repeal that legislation and so be seen to be denying equality to these groups. The areas which are most likely to be subject to change will be rules on working time, agency workers and aspects of holiday pay.  However, if the UK wishes to secure access to the single European market there may be pressure to continue to apply EU employment legislation and the ability to amend these areas may be limited.

The ability to employ EU nationals in the UK or to transfer UK nationals within the EU is also not clear. It might be politically difficult for the UK Government to agree to the free movement of workers as part of the withdrawal negotiations; if it doesn’t there will at some point be implications for the permissions required for EU nationals to work in the UK and for UK nationals to work in the EU.  It is to be hoped that those who currently work outside their home jurisdictions will be “grandfathered” into any new regime.

So what steps should an employer currently be taking in relation to its employees? Whilst we are in this period of uncertainty, there is little definitive action to be taken.  However, HR teams could consider the following:

• Are there any contractual terms which may be affected, including in relation to the way in which staff are remunerated?
• Which key employees may require a change in their permission to work in the UK?
• Is there likely to be any structural reorganisation required and, if so, will this require consultation with the work force?

As matters become clearer, so too will the steps that employers should be taking.

The UK Government has published its response to a consultation on the taxation of termination payments. In 2015, the Government issued a consultation paper containing various different proposals for simplifying the regime. The paper published on 10 August is the Government response and also includes draft legislation for further consultation.

Currently under UK legislation payments and other benefits “received directly or indirectly in consideration or in consequence of, or otherwise in connection with” a termination of employment are taxable under sections 401 to 416 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). However, the first £30,000 of any such payment is tax free and the employers National Insurance Contributions (NICs) are not payable on the whole of the payment. The tax treatment of certain payments, for example payments in lieu of notice (PILONs), will depend on the nature of the payment, including whether it is contractual. There are also various specific exemptions, including for injury, disability or death and for employment performed outside the UK for particularly long periods, known as foreign service relief.

On 10 August 2016, the Government published a paper confirming that it proposes to:

• Remove the distinction between contractual and non-contractual PILONs. This will mean that all PILONs will be paid subject to income tax, employer NICs and employee NICs regardless of whether or not a contract of employment permits the employer to pay in lieu of notice. In fact contractual PILONs have become increasingly common as including a PILON in the contract ensures that an employer does not commit a breach of contract by early payment on termination. As a result an employer can rely on the post termination restrictive covenants.
• Retain the exemption from income tax and employers’ and employees NICs for payments relating to the termination, up to the current threshold of £30,000. However, for termination payments over that amount it will align the rules for income tax and employers’ NICs so that employers’ NICs will become payable on the excess over £30,000. This will result in the cost of termination payments being more for employers and may therefore have an effect on the amount that an employer is prepared to pay to an employee.
• Abolish foreign service relief, except in relation to seafarers. The Government argues that today there is a global workforce and that this exceptional treatment is no longer justifiable.
• Clarify that the exemption from tax for payments for injury excludes injury to feelings. The exemption will only apply where there is an injury or disability of a physical or psychological nature that is sufficient to cause the employee to be unable to perform his or her job properly.

The Government has not included many of its original proposals, which included only allowing the tax free payments in certain scenarios such as redundancy and changing the level of the tax free exemption from £30,000. This means that the current rules on redundancy payments are not intended to be affected.

The Government has invited views on whether the published draft legislation achieves the stated objective. The consultation is open until 5 October. The changes are intended to come into force with effect from April 2018.