Welcome to the June edition of the International Employment Committee Newsletter. Many thanks to all those who have contributed articles to make this a bumper edition.
The next issue will be published in September - please let me know if you are interested in submitting an article on an issue in your jurisdiction.
Dual qualified in NY and England & Wales
Withers Bergman LLP
Wednesday, June 20, 2012
Foreign Worker Class Action a Warning to Employers
By: Sergio R. Karas, B.A., J.D.
Certified Specialist in Canadian Citizenship and Immigration Law by the Law Society of Upper Canada. He is Past Chair of the Ontario Bar Association Citizenship and Immigration Section, Past Chair of the International Bar Association Immigration and Nationality Committee, and Editor of the Global Business Immigration Handbook. His comments and opinions are personal and do not necessarily reflect the position of any organization. He can be reached at (416) 506-1800 or email@example.com
An important case that could reshape the recruitment and employment of temporary foreign workers is moving through the courts. In a recent decision, the British Columbia Supreme Court certified a foreign worker’s claim for damages as a class action, the first case of its kind in Canada. The claim arose out of the foreign worker’s employment relationship with a corporate defendant. Although the claimwill be decided at trial, the certification as a class action should give employers some pause to evaluate their dealings with foreign workers and the international agencies they engage for recruiting them.
In the case ofDominguez v. Northland Properties Corp. (c.o.b. Denny’s Restaurants)[i] the court must deal with allegations of systematic and repeated breach of employment contract by a corporate defendant who had in its employ a large number of foreign workers, mostly from the Philippines. The nature of the claim to be decided by the court is that the breaches took place within an employment situation where the foreign workers were under a significant disadvantage in terms of protecting their own interests, and that the defendant sought to take advantage of these vulnerable individuals, given their precarious status in Canada. In its current phase, the issue was whether the case could be certified as a class action on behalf of similarly situated foreign workers in the defendant’s current and past employment. For that to be accomplished, the plaintiff had to overcome significant hurdles that would allow her to become a representative for that entire class of foreign workers.
The plaintiff, Ms. Dominguez, was a temporary foreign worker who came to Canada in 2008 to work at one of Denny’s restaurants operated by the defendant. She contends that the defendant employer failed to provide her as much work as promised, failed to pay her overtime for hours worked, and failed to reimburse her for expenses related to her employment such as travel from the Philippines and agency recruitment fees. As a result, she alleges that she suffered damages arising out of breach of contract, including breach of duty of good faith and fair dealing, and breach of fiduciary duty by the defendant. She also alleges that the defendant employer was unjustly enriched by reason of nonpayment of these wages and other expenses, and that the breaches were systemic in the sense that the defendant failed to implement the necessary procedures to ensure that she and other employees were appropriately compensated.
Ms. Dominguez sought to have the matter certified as a class action proceeding on behalf of herself and all other current and former employees who came to Canada under the Temporary Foreign Worker Program to work for the defendant. There were approximately 75 people in the putative class. The question for the court was to decide whether Ms. Dominguez was the appropriate representative plaintiff in a class action pursuant to the Class Proceedings Act[ii] of British Columbia.
There was considerable background evidence before the court. Ms. Dominguez was recruited by the defendant employeras a temporary foreign worker and she initiated her application in order to join her husband, who was already working for the defendant. As part of the process she was required to send her resume to an agency in British Columbia, designated by the defendant, which obtained the necessary approvals for the foreign workers. The agency carried out its recruitment activities in the Philippines through a counterpart. The vast majority of the foreign workers were recruited as a result of the dealings between the agency in British Columbia and its counterpart in the Philippines.
At some point the agency in Canada advised Ms. Dominguez’s husband that he would have to pay an initial $3,000.00 in order to proceed with his wife’s application. After that payment, Ms. Dominguez was contacted in the Philippines by the agency’s counterpart and advised that a positive Labour Market Opinion (LMO) had been issued by Service Canada relating to her job with the defendant employer as a food and beverage server, and that she would be paid $9.80 per hour for a 24 month period. The hours of work were not specified in the LMO. However, in the case of other putative class members the LMO specifically provided that the employees would work 40 hours per week.
The agency in British Columbia was very involved in the process to obtain LMOs for the foreign workers placed with the defendant’s restaurants. The agency’s counterpart in the Philippines copied the contents of the Human Resources and Skill Development Canada sample contract, which specified that the employees shall work 40 hours per week and would receive 50% more than the regular wages for any hours worked over that limit. In addition, the contract specified that the employer shall not recoup from the employee, through payroll deductions or any other means, any costs incurred in recruiting or retaining the employee, including, but not limited to, any amount payable to a third party recruiter. Further, the employer agreed to assume the cost of two way air transportation for the employee and to abide by the standards set out by all relevant provincial labour legislation. Ms. Dominguez and most other foreign workers were required to sign the employment contract in substantially the same fashion.
Shortly after the contract was signed, Ms. Dominguez underwent a medical examination and a work visa was approved by the authorities. At that point, she was advised by the agency’s counterpart in the Philippines that she would have to pay an additional $2,750.00 to continue with the hiring process as an “agency fee”. The court noted that all of the putative class members applying for positions with the defendant through the agency and its counterpart were similarly required to pay fees in order to complete the hiring process. Employees paid between $6,000.00 and $7,000.00 in total depending on currency conversion. In addition, Ms. Dominguez and other employees purchased their airfare for travel to Vancouver from the agency’s counterpart at a cost of approximately $1,000.00 and were not provided with a receipt for this payment.
After arriving in Canada, Ms. Dominguez began to work for the defendant as a food and beverage server at one of itsVancouver locations. The problems started almost immediately and Ms. Dominguez complained that she was often provided with less than 40 hours of work per week and was not compensated for hours she did not work despite being able to do so. There was evidence that other foreign workers were treated in a similar fashion. The defendant contended that there was a shortage of work and that it chose to cut the hours of foreign workers before reducing those of Canadian citizens or Permanent Residents.
Ms. Dominguez alleged that she occasionally worked over 8 hours a day, but she was not paid overtime, and that she lodged numerous complaints with management. The lack of payment of overtime had been the subject of a separate investigation by the Director of Employment Standards in British Columbia, which had led to a voluntary settlement by the defendant with other claimants. There was evidence that the fees charged by the agency and its counterpart in the Philippines was also the subject of a prior investigation by the Director, and other evidence disclosed that at least one employee had filed a complaint with the Employment Standards Branch and was subsequently terminated, apparently in retaliation for bringing that complaint. All these factors made for a negative work environment.
The courthad to determine whether there was an identifiable class of “two or more persons” as required by the British Columbia legislation[iii] to certify a class action.The court answered in the affirmative, dividing the class into two subsets, one comprising all current and former employees with a positive LMO allowed to work in Canada under the Temporary Foreign Worker Program who were still in Canada, and another one of all the current and former employees who had worked for the defendant as foreign workers with an LMO but were no longer resident in the province.
The allegation in the caseto be tried is that the defendant employer was in breach of employment contracts with the putative class members. In this phase of the case, the court held that although each foreign worker had a separate contract, there was sufficient commonality to deal with all of them together as the issues arising were substantially similar, if not identical in many cases.
A claim was advanced that there is a further common issue, to be decided at trial, that the defendant acted as fiduciaries in the context of the vulnerability of the temporary foreign workers and took advantage of them.In that regard, the court accepted that there was sufficient commonality of experiences of all the foreign workers who were employees of the defendant to be part of the class action.
Considering all aspects of the case, the court held that certification as a class action was warranted and would result in an efficient use of judicial resources, since the experiences of all the foreign workers in the class were substantially similar and the allegations were also substantially the same, and there appeared to be systemic issues that would best be dealt with in a class action.
While the merits of the caseare yet to be decided, the certification of this case as a class action should sound the alarm amongst employers with a large number of foreign workers. A defendant employer faces the prospect of a very large monetary award against it in a class action proceeding. This being the first case of its kind in Canada, it will no doubt attract considerable scrutiny by employers and employees alike. In addition to potential financial liability, employers should be reminded that they may be subject to significant administrative sanctions by Service Canada for breach of conditions set out in LMOs, which can result in a two-year suspension from the Temporary Foreign Worker Program.
by Gordon Feng and Kay Cai of Paul Hastings LLP
On 28 April 2012, the State Council of the People’s Republic of China (“China” or “PRC”) adopted the Special Provisions on Occupational Protection for Female Employees (the “New Provisions”) which took effect on that same date and superseded the previous Provisions on Occupational Protection for Female Employees effective September 1, 1988 (the “1988 Provisions”).
There are about 137 million female employees in China, and the Chinese authorities are New Provisions gave more benefits, strengthened certain protection mechanism existing in current laws and regulations and made a breakthrough on preventing and addressing sexual harassment in workplace, which will be discussed in detail below.
II. Maternity Leave
The New Provisions extended maternity leave from 90 days to 98 days, in order to meet the international labor standards. It is unclear whether employees who are already on maternity leave can be entitled to the extended leave. Some cities, e.g. Shanghai, have made it clear that only employees who take maternity leave on or after the effective date of the New Provisions will be entitled to the extended maternity leave of 14 weeks.
Female workers have more flexibility under the New Provisions to start maternity leave at their own discretion. Under the 1988 Provisions, maternity leave must start 15 days prior to the due date. But, the New Provisions provide that maternity leave “may” start 15 days prior to the due date. In other words, a female employee may choose not to take any maternity leave until her due date and thus have a longer post-delivery maternity leave.
Female workers also are entitled to extra maternity leave in certain circumstances. For a complicated delivery, female employees will receive an additional 15-days' maternity leave. Employees who give birth to multiple babies in one delivery (i.e., twins) will be entitled to an additional 15-days' maternity leave for each additional birth. Women employees also are entitled to miscarriage leave. A female employee who suffers a miscarriage within the first four months of pregnancy is entitled to 15 days' leave. An employee who suffers a miscarriage upon or after the fourth month of pregnancy is entitled to 42 days’ leave.
Besides the above standard maternity leave, a female employee may be entitled to extra maternity leave for “late birth” as an incentive for family planning under local rules. For example, a female employee in Shanghai or Beijing who gives birth to her first child at 24 years old or later is entitled to an additional 30 days of maternity leave. In Guangzhou, a female employee who bears her first child at the age of 23 years old or later will receive an additional 15 days of maternity leave. In addition, a female employee in Guangzhou is entitled to another 35 days’ leave if she complies with the Chinese “single child” policy and gives birth to only one child.
III. Maternity Pay and Maternity Insurance
Female employees receive maternity pay during maternity leave. Under the PRC Social Insurance Law, which took effect July 1, 2011, employers must enroll their male and female employees in mandatory maternity insurance. Female employers will receive maternity leave pay and reimbursement of medical expenses related to childbirth and family planning. The New Provisions provide that if an employer enrolls a female employee in the maternity insurance, the maternity insurance fund will pay the employer a maternity leave pay during her maternity leave, which equals the average wages of all of the employees of the employer in the last calendar year (“employer average wages”). If the employer fails to enroll the employee, the employer must pay the employee itself during the maternity leave, which is equal to her regular salary prior to the maternity leave.
The New Provisions, however, fail to address one crucial issue: if a female employee’s regular salary is higher than the employer average wages, must the difference be made up by the employer? The Law on the Protection of the Rights and Interests of Women (“Women’s Protection Law”) requires that a female employee’s salary may not be lowered during her maternity leave. Article 5 of the New Provisions also provides that an employer may not lower a female worker’s salary due to pregnancy, childbirth or breastfeeding. Therefore, the difference should be made up under the law, but it is unclear whether the maternity insurance fund or the employer should be responsible. We recommend that employers make up the difference to comply with the Women’s Protection Law, unless the local rules explicitly allows employer not to make the difference, e.g. Shanghai’s.
The existing practice regarding this issue varies from city to city in China. For example, Shanghai’s local rules provide that the maternity insurance fund will pay a maternity leave pay at the employer average wages. However, if the employer average wage exceeds 3 times local average wages (“cap”), the fund will only pay up to the cap. The employer must make up the difference between the employer average wages and the cap if the former exceeds the latter. However, the employer is not required to further make up the difference if the employee’s regular wages exceed the employer average wages. As a result, high-income female employees will receive less pay during their maternity leave, which contradicts the Women’s Protection Law and the New Provisions. In contrast, in Beijing and Guangzhou, although the maternity insurance fund also pays up to the cap, employers are required to make up the difference between the cap and an employee’s regular salary if the employee’s regular salary exceeds the cap.
IV. Protected from Termination, Over-time and Night Shift
Under the Employment Contracts Law of 2007, a female employee is generally protected from termination if she is pregnant, on maternity leave or in the nursing period that is one year after childbirth. If her employment contract expires during her pregnancy, maternity leave or nursing period, the employment contract will be extended automatically to the end of the nursing period by operation of law. Nevertheless, a female employee still can be terminated under some circumstances, e.g. termination by mutual consent between the employee and the employer, for the employee’s serious misconduct, or due to the employer’s winding-up or bankruptcy.
The New Provisions also prohibit employers from requiring a female employee who is 7 months pregnant or more or is in her nursing period to work overtime or on any night shift (from 10 P.M. to 6 A.M. next day).
V. Sexual Harassment Against Females in Workplaces
A significant breakthrough under the New Provisions is that employers are required to prevent and stop sexual harassment against female employees in the workplace. This is the first time that a national level law expressly imposes such obligations on employers. However, the law still fails to provide a definition of what constitutes “sexual harassment”. Also, due to the nature of the New Provisions, the issue of woman-on-man or man-on-man sexual harassment still is not addressed.
The term “sexual harassment” was translated and introduced to China in the early 1990’s. Research showed that sexual harassment was pervasive in China, and women suffered much more harassment than males did. For example, Sina.com conducted an online survey in 2003, among 8,282 participants of the survey, 59.36% confirmed that they had been sexually harassed. In July 2003, Sina.com and a magazine called “Bi-weekly Dialogue” held another sexual harassment survey, in which 5,469 males and 2,910 females took part. 17% of the female participants said that they were frequently harassed (while only 3% male participants said they were), and 60% of the female participants replied that they were occasionally harassed, while 18% males made the same reply.
In response to sexual harassment against women and other matters regarding protection of women’s rights and interests, the China’s national legislature amended the Women’s Protection Law in 2005, which explicitly prohibits sexual harassment of women. However, the Women’s Protection Law does not impose any obligation on employers to stop and prevent sexual harassment. Indeed, in the first draft of the Amendment, there was an additional clause providing that “employers must take measures to prevent sexual harassment in workplaces.” Having reviewed the first draft, however, some legislators and scholars cast doubts on that clause and were concerned on what exactly were the preventive measures employers must take. As a result, that clause was removed from the final text of the Amendment.
Nevertheless, the provincial implementing rules of the Women’s Protection Law impose certain obligations on employers. The Women’s Protection Law authorizes provincial legislatures to promulgate implementing rules. So far, 27 of 31 provincial-level governments in the Mainland China have enacted their implementing rules of the Women’s Protection Law, which contain anti-sexual harassment provisions. Although those implementing rules vary from one to another, the common provisions are: (1) it is prohibited to harass women, against their will, by means of verbal or written words, image, electronic information, physical acts, etc., which have sexual content or are related to sexual activity; and (2) employers must take measures to prevent and stop sexual harassment against women. Today, the New Provisions finally impose these obligations on employers nationwide.
B. Employer’s Liability
Although there is no penalty on employers if they fail to stop or prevent sexual harassment, they may be subject to direct liability if their act or omission contributes to the harm to the victim of the sexual harassment conduct under the PRC Tort Law. Employers are required to take measures to stop and prevent sexual harassment in the workplace. If an employer negligently fails to establish preventive measures for sexual harassment conduct (e.g., adoption of an anti-sexual harassment policy and setup of a grievance procedure), or negligently or intentionally fails to stop the sexual harassment conduct when the employer knew or should have known it, the employer’s failure to take actions is tortious, and can be considered to contribute to the harm of the victim of sexual harassment. As a result, the victim employee can sue the employer alone or jointly with the harasser for damages.
C. Damages for Sexual Harassment
Since the first sexual harassment case appeared in the PRC in 2001, there have been only a handful of workplace sexual harassment cases reported by media, which appears extremely disproportionate with the sexual harassment incidents actually happening in reality. One reason for such a lower number of the lawsuits may be the culture, i.e. victims are concerned that public disclosure of their sexual harassment experience is detrimental to their reputation in their community. Another principal reason is that the damages that a victim can receive through litigation are very low. In the two reported sexual harassment cases where the plaintiff prevailed, the court awarded RMB2,000 ($317) and RMB3,000 ($476) for emotional distress, respectively. Damages for emotional distress usually are awarded in an extremely conservative manner in practice. For example, some courts have the internal rule that damages generally should not exceed RMB50,000 ($7,937). Thus far, the highest amount of emotional damages awarded was RMB300,000 ($47,619) and this was in a murder case. Therefore, many victims do not think it is worth bringing the harassers to court, because the potential award is low, but the potential damage to reputation is huge.
This lack of appetite for litigation may change, however, since now employees may sue or implead employers for failure to stop and prevent sexual harassment, and thus may receive significantly higher damages. Many employers may choose to settle with the employees for reasons of potential injury to image and reputation due to the sexual harassment in their workplace, and thus may decide to pay a much higher amount in order to settle an employee’s sexual harassment claim.
D. Remedial Actions
The New Provisions and the provincial implementing rules of the Women’s Protection Law are silent regarding what appropriate measures an employer should take to prevent or stop sexual harassment in the workplace. This may make it difficult for a victim to hold an employer liable for its failure to take the required measures. The law on sexual harassment in the U.S. may be helpful on this issue. For example, regarding preventive measures, companies are generally required to have an anti-harassment policy suitable to the employment circumstance. Courts also have explained several factors determining what constitutes an “effective” harassment-prevention policy. These factors include 1) sufficient training for supervisors regarding sexual harassment, 2) an express anti-retaliation provision, and 3) multiple complaint channels for reporting the harassing conduct, enabling the victim to bypass his/her harassing supervisor.
The New Provisions not only give more benefits to female employees, but they also impose more obligations on employers. It is, therefore, necessary for employers to review their internal policies to ensure full compliance with the New Provisions, including with respect to the extended maternity leave and the overtime policy for female employees.
In order to fulfill the obligations imposed by the New Provisions regarding the prohibition on sexual harassment, employers should formulate an anti-harassment policy suitable to the employment circumstance, provide sufficient training for supervisors regarding sexual harassment, and set up multiple complaint channels for reporting the harassing conduct.
Liability of Parent Companies for the Actions of their French Subsidiaries
By Roselyn Sands & Corinne Bourdelot – Ernst & Young Société d’Avocats, Paris, France
When there is a “confusion of interests, activities and management” between a parent company and its subsidiary, resulting in the parent company interfering directly with the running of the subsidiary, the parent company is deemed to be a co-employer of the employees of this subsidiary, so ruled the French High Court in a decision dated November 30, 2011.
The case brought before the French High Court was the following: in 2004, the French company MIC, which was indirectly controlled by the German company Jungheinrich AG (“grand-mother” company), closed down its activities in France and made all its employees redundant. The employees challenged the redundancies and claimed for the payment of damages against the companies MIC and Jungheinrich AG.
The French High Court considered that there was a “confusion of interests, activities and management” between both companies, for the following reasons:
- There was a common management between both companies, under the supervision of Jungheinrich AG,
- The decisions taken by Jungheinrich AG had deprived MIC of any industrial, commercial and administrative autonomy,
- Jungheinrich AG was the owner of all trademarks and patents of MIC,
- The strategic decisions were taken by Jungheinrich AG, which also dealt with human resources management and had decided the closing down of activities of MIC,
- The managing director of MIC had no real power and was entirely submitted to the instructions of Jungheinrich AG.
Consequently, Jungheinrich AG was deemed to be co-employer of the employees of its subsidiary and could be held directly responsible for the damages claimed by these employees.
What is the importance of this decision?
In multinational companies involving complex decisional structure, it may be difficult to determine who is the “employer” and who should take responsibility for the obligations arising from labor & employment laws.
Generally, an employee has only one employer, the company with whom he/she signed the employment contracts. However the facts may show a loss of autonomy of the employer, the French subsidiary. In this case, the French courts are pragmatic: they judge that an employee may sue the subsidiary and the parent company as co-employers.
The decision of the French High Court of November 2011 highlights that parent companies, foreign and non-foreign, in multinational groups could be held liable for the actions of their French subsidiaries towards the employees of these subsidiaries. This may be the case, for example, in the context of restructuring and economic redundancies if it can be prove that the parent company closely interferes with the management and decisions of its French subsidiary.
The financial consequences may be heavy for the parent company, especially if the French subsidiary is winding up its operations in the context of an insolvency. In a decision dated December 13, 2011, a Court of Appeal ordered the parent company of a French group to pay EUR 12 million towards the financing of the collective redundancy implemented as part of the winding up of its French subsidiary because the court considered that the parent company had directly interfered with the management of its subsidiary and “confused its interests” with the interests of the subsidiary company.
More recently, a Court of Appeal went even further in its reasoning, judging that the employees dismissed by a French company that is winding up its operations are entitled to sue the parent company controlling the French company on the basis of the general rules of civil responsibility, even though the parent company is not considered as a co-employer of the employees.
These decisions show a trend of the French courts to make parent companies bear the consequences of the actions of their subsidiaries.
This trend now seems to extend to criminal law too: in April 10, 2012, the airline company Air France as well as its chairman, Jean-Cyril Spinetta, were sentenced by the criminal court of Bobigny (first instance court) to pay fines for complicity of undeclared work (which is a French criminal offense) by its Irish subsidiary, Cityjet, as well as damages to each of the 21 employees concerned.
A warning for all multinational companies closely involved in the running and human resources management of their subsidiaries…
 Cass. soc. November 30, 2011, n°10-22964, n°10-22965, n°10-22994
 Court of appeal of Nîmes, December 13, 2011, SAS Fayat
 Court of appeal of Pau, April 30, 2012, n° 1862/12, SAS Financière GMS Investissements et autres
Works Councils in International Matrix Structures
The Five Must-dos and Frequently Asked Questions
By Bernd Weller, Lawyer, Certified Specialist Lawyer in Employment Law, Heuking Kühn
Lüer Wojtek, Frankfurt am Main
Matrix is the magic formula when it comes to a group management structure, especially when a corporation's top management is in another country (USA, UK).
Matrix structure - what is it?
A matrix structure is a term used in a corporation's / group's organizational structure in which two reporting lines intersect. Each and every employee is integrated into two reporting or instruction channels.
As relates to an employee's responsibilities, the departments (Finance, Controlling, Marketing, HR, Service, Manufacturing, IT, etc.) are typically arranged on a vertical line. Here, the employee faces his disciplinary supervisor, meaning the person in charge of human resources issues. The reporting channel in place between the employee and his disciplinary supervisor is referred to as a "solid line". This reporting channel is the responsible authority for written warnings, terminations and salary increases as well as any topics relating to bonuses.
On a horizontal level, the employee is positioned face to face with a supervisor on the "dotted line" who is responsible for a product or a region for several departments.
It is not our intention to review the objectives behind an organizational form of this kind. The fact remains that each employee reports to two different supervisors. In international matrix structures, generally one of the supervisors is in another country, and in some cases both of them are. The special circumstances that arise from these kinds of structures for the enterprise and for the works councils are the subject matter of this report.
It is the nature of international structures that there are many managers who are responsible for employees from different cultural circles and different jurisdictions. Not only does this lead to the many known and often discussed cultural misunderstandings, but many times also to serious disputes with works councils.
Works councils insist, and rightly so, that when foreign supervisors exercise their rights to issue instructions to "German" employees that they must fully observe the works council's rights to be informed, consulted and involved. If this does not happen once, or even repeatedly, the situation will escalate. Despite how often the foreign supervisors may argue they simply cannot be expected to know each and every law of a specific country and that they would treat all of their employees equally or that their actions would be common day-to-day practice in the USA, the UK or elsewhere: Arguing in this manner is simply wrong.
1st Must-do: Train executives and translate works council agreements
When foreign executives supervise "German" employees, it should go without saying that they must observe German law, the working hour limitations (despite problems with time zones) as well as works constitution and employee termination laws. This includes not only the mandatory German laws, but also company internal agreements with the works council (works council agreements) that define the daily interactions among the staff and the works council's rights to be informed, consulted and involved in the operation. German executives observe these (at least as best practice) as a matter of course when issuing instructions (e.g., with regard to overtime).
Translations of the most important German laws can be found online (www.gesetze-im-internet.de) and in several books. At most, there may be some internal policies why these translations would not be made available to executive overseas (especially after problems have occurred). Where works council agreements are concerned, what needs to be considered is that the content of these agreements must either be explained to foreign executives in English as to their core clauses, or these works council agreements should be composed in a bilingual version from the start. In the process, it is certainly possible to differentiate between separate operations and works council agreements for economic reasons - depending on the international relevance. Of course, the works council does not have a right to have the agreement translated; it can "only" demand the German version.
At the very least, however, those executives with a notable number of "German" employees should not be left alone with the complex array of subjects that play a role in German law. In addition to the - in part obligatory - cultural awareness training, they should also be given a crash course in German labor laws. After all, in most of the larger German companies it is customary that German executives receive this kind of training - and for good reason.
2nd Must-do: Distance creates a void with no works council involvement
When foreign executives are trained, the works council only has a right to be consulted and involved if the supervisor in question is in fact integrated in the German operation. He is not automatically so just because he can issue instructions to the German employees. In order to be employed in an operation within the meaning of Section 99 German Works Constitution Act, and therefore to be considered an operation employee with (active and passive) voting rights in the works council elections, there is one more thing that needs to apply: the supervisor must be in the operation on site on a regular basis and he must remain there. A regular (monthly, for example) visit is not sufficient. One full day of work a week at the German location, however, does come with its own set of opportunities and risks of being integrated into the operation.
Warning: Frequently working on location will make a foreign executive an employee of the German operation (irrespective of the contractual employer)!
Once a "foreigner's" presence in a German operation is as frequent as this and he is thus considered employed there, then he will at the same time be fully subject to the German employee co-determination rules. "Fully" in this example means that the works council must not only be consulted and involved on matters of relocation or hiring (or replacement), but that its co-determination rights would also apply to the foreign supervisor with regard to his "foreign" activities. In practice, this has only rarely been a problem because German works councils do not feel responsible for the foreign supervisor - according to the principle of no plaintiff, no judge. There have, however, been examples when works councils have used this knowledge as leverage to push through their interests in Germany.
Keeping a healthy distance from the German operation, therefore, not only keeps the foreign executive from having to deal with complex tax-related issues, it also limits the extent of the works council's rights to be informed and involved. With regard to employees – regardless of whether they supervise thousands of "German" employees – that are not integrated in the German operation, there are in fact no rights to information, to be consulted or to be involved. These rights are limited to the German operation and the employees working there. Thus, it is only logical that the rights of the works council only apply to the effects of "foreign" decisions relating to German operations.
3rd Must-do: Bundle communication - create one central point of contact
One of the greatest challenges facing those trying to make a matrix structure work properly - and one issue that is known to be the greatest weakness of the matrix concept - is communication between the horizontal and vertical supervisors. As regards works constitution issues, there is yet another matter that complicates communication: just as in purely "German" operations, the Human Resources Department should always be firmly integrated in the flow of information and remain solely responsible for communicating with the works council. This is already quite difficult when it comes to German operations. The degree of complexity increases manifold in an international matrix structure. After all, how is a foreign executive expected to reliably know, even after training, whether and to what extent his decisions affect works constitution issues? How should someone who is only responsible for a specific product line in a diversified group be expected to know that his decisions might have legal consequences in operations and for other product lines? The employer side often wears "blinders" of its own making in this regard. Oftentimes only the works council sees the whole picture and keeps various bits of information bundled on its own desk.
If the employer on the one hand demands to negotiate with the works council and on the other hand wants to avoid actions that violate the works constitution, then it simply needs to accept the high degree of expense and effort required to communicate properly. There is no other way. There must be at least one office where information is bundled. Even if this does to a certain extent contradict the matrix structure, it is highly recommended that "social partner contacts" be installed at a central position. Only this office should communicate with the works council. To the extent possible, this office should be informed about all plans.
4th Must-do: Consult and involve the German HR Managers in matters relating to bonus negotiations
The more people are involved in decisions about compensation, the more difficult it becomes to pay fair compensation. If not only German, but also foreign executives are involved in setting target objectives, in defining which targets should be achieved and the bonus sums to be paid, this is one lesson that most definitely holds true. Typically, the compensation schemes, including the target agreement components, are governed with the involvement of the works council in works council agreements. In order to assure they are complied with, it is recommended that a foreign supervisor has a German HR manager at his side - at least as needed - who can provide support in the decision making process.
5th Must-do: Make use of the limits within an operation and within an enterprise
The usual differences between an enterprise ("legal entity") and an operation as defined under German law have in the past at times created huge problems for matrix organizations. Their organization almost always exceeds traditional limits as found in Germany. On the other hand, though, it is these limitations that can be of great benefit to a matrix organization. A works council's limits end within the operation, those of the joint works council (“Gesamtbetriebsrat”) and the economic committee end in the enterprise. Only the corporate works council (“Konzernbetriebsrat”), provided there is a separate corporation in Germany within the meaning of the German Stock Corporation Act, may in fact exceed these limits. According to mandatory provisions in the German Works Constitution Act, in cases of doubt the employee representation that is regionally the closest is always the responsible authority, thus more often than not the works council as opposed to the joint works council.
Matrix structures can, and in fact should, take advantage of this.
Frequently Asked Questions
Most of the time, the questions asked about matrix structures are more or less the same.
1. Can a works council insist on traveling to a foreign country in order to meet there with foreign executives who bear responsibility for German employees? Works council expenses - which include travel expenses - would in such cases only be reimbursed if they are necessary for the work of the works council in accordance with Section 40 German Works Constitution Act. Typically, this does not include travel to a foreign country. After all, the works council can make use of telephone conference calls or it can wait until the executive visits the operation in Germany.
2. May the works council / economic committee request information about foreign business issues? A works council's rights to information end within the operation, those of the economic committee end in the enterprise. As such, all rights to information and for the works council to be consulted are limited per se. So the joint works council / economic committee only has a right to information about activities or financial data in a foreign company if an enterprise (thus the legal entity) comprises both German and foreign business activities. Moreover, in these cases any corporate success (or lack thereof) in another country or investments in the foreign business activities would obviously also be of significance to the German business activities. Consequently, the (joint) works council and the economic committee may then also demand information about foreign activities - in some cases in an arbitration committee (“Einigungsstelle”). If the company is limited to German business activities, however, these rights do not apply. This is because the German Works Constitution Act does not recognize a "corporate economic committee." At most, the European works council would need to be notified of information of this nature.
3. Must the works council be consulted and involved when a foreign executive is being replaced? Generally, the works council does not have a right to be consulted, informed and involved according to Section 99 or Section 105 German Works Constitution Act. If, however, the foreign executive does work in the German operation on a regular basis so that one would assume he had been integrated into the German operation, then neither his nationality nor the contractual employer or the foreign focus of the activity will have any limiting effect on the works council's responsibility.
4. To what extent does the works council need to be consulted and involved in "re-hanging" various departments? In matrix structures especially, often there is a "musical chairs" type game being played. The game typically involves entire departments being "re-hung" from division 1 to division 2. Alternatively, German executives are replaced with foreign executives as a result of a regional decision or a decision to consolidate that concerns a business division. The works council is only involved if this means any changes to the activities and the jobs of the German employees concerned. If they stay intact as a team and their activities remain (for the most part) unchanged, the works council does not have a right to be consulted and to be involved.
5. May the works council take legal action against activities by foreign decision makers? Naturally, the works council does not need to tolerate a violation against its rights to be consulted, informed and involved only because such violations occurred in a foreign country. The works council cannot sue foreign employees or a corporation's holding company in a foreign country directly. The German business management / executive board must, however, allow claims to be asserted against it. For example, if the foreign office conducts an employer survey that violates the works council’s co-determination rights, then the right to cease and desist is directed against the German executive board. The fact that, from the standpoint of the matrix, the board itself had neither been informed nor consulted is irrelevant. In this case, the German CEO represents the international group.