Do you need to pay redundancy when you lose a client contract?

Section 119(1)(a) of the Fair Work Act 2009 (Cth) states that an employee is entitled to be paid redundancy pay by the employer  if the employment is terminated at the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour (the Exception).

The Exception was most recently considered by a Full Bench of the Fair Work Commission in December 2015 in Compass Group (Australia) Pty Ltd v National Union of Workers and another [2015] FWCFB8040 (Compass) in the context of employees whose employment was terminated as a result of the employer no longer holding a particular client contract, which those employees were specifically employed to service.  The employer, Compass,  provided  fire rescue services to the Department of Defence and in the circumstances of this case, had made a commercial decision not to tender for a replacement contract in respect of those services.  Compass relied on the Exception and withheld redundancy pay from the terminated employees.

The Full Bench said that in order to determine whether the Exception applies in a given case it is necessary to:

  1. Consider the normal features of the business; and
  1. Then determine whether the relevant terminations are properly described as falling within the ordinary and customary turnover of labour in that particular business.

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VAR-declaration replaced by model agreements as of May 1, 2016

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.

What measures are in place (or proposed) in the UK to address gender pay inequality in the workplace?

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.

Nepotism creates a conflict of interest

This article was written by Shenaaz Munga, a Candidate Attorney at Norton Rose Fulbright South Africa

The non-disclosure of a close personal relationship with someone being interviewed for employment results in a conflict of interest between an employee and an employer and is a dismissible offence.

In Coega Development Corporation (Pty) Ltd v Commissioner for Conciliation, Mediation and Arbitration and Others (2016) 37 ILJ 923 (LC), the Labour Court found that a senior employee was under an obligation to make full disclosure of her close personal relationship with two applicants for employment before the selection occurred.  She was required to recuse herself from the selection process.  Her failure to do so, placed her in conflict with her employer’s interests.

The employee in question was the unit head of Safety, Health, Environment and Quality operation.  She was a senior manager earning around R 1 million per annum and had approximately 20 subordinates reporting to her.

The employee assisted in the appointment of two applicants, namely Coetzer and Ebrahim.  These appointments were tainted by her personal relationship with Tony Corleoni who was the cousin and brother of Coetzer and Ebrahim respectively.  She assisted both candidates by making the relevant enquiries with Human Resources and by sitting as a panellist during their interviews.

After being charged with conflict of interest amounting to gross misconduct, the employee was dismissed.  The Commission for Conciliation, Mediation and Arbitration found that her dismissal was substantively unfair because she was not guilty of misconduct. 

On review, the court found that the employee’s actions amounted to serious misconduct.  Accordingly, the dismissal was found both procedurally and substantively fair for the following reasons:

  • Employees are under an obligation to make a full and frank disclosure of any personal dealings with applicants for employment;
  • The failure to make such a disclosure places the employee in a conflict of interest with the employer;
  • A personal connection with an applicant results in a favourable enhancement of the employment application;
  • Treating job applicants with favouritism amounts to serious misconduct; and
  • The sanction of dismissal is warranted in cases of conflict of interest which amounts to serious misconduct.

The Labour Court said the following:

“It amounts to nepotism and corruption to become involved in the recruitment process of people to whom you feel favourable, in circumstances where you do not make full disclosure.”

Conflicts of interest and nepotism can be avoided when employees remain impartial in all dealings with the appointment of applicants for employment.  Therefore, both employers and employees should be vigilant regarding such practices and the sanctions warranted in the circumstances.

OHRC Takes a Stand on Gendered Dress Codes

The Human Rights Commission of Ontario (“HRCO”) very recently clarified its stance on gender-specific dress codes by issuing a policy position on the subject.  The policy takes aim at sexualized dress codes found mainly in the restaurant and bar industries.  Of particular concern to the HRTO were any formal or informal policies requiring women to wear high heels, tight dresses, low-cut tops and short skirts.

While not legally binding, the policy states that employers must “make sure that any uniform or dress code policy does not undermine employees’ dignity and right to fully take place in the workplace because of Code grounds, including sex, gender identity, gender expression and creed (religion).”  Specifically, women should not have more onerous dress requirements than men and should not be expected to dress in a sexualized way for the benefit of customers or clients.

The statements made by the HRCO do not represent a marked change in policy, but merely a restatement of existing policy.  These same principles have been supported by human rights tribunal decisions dating as far back as the 1980s.

The HRCO policy was issued before the implementation of planned amendments to Ontario’s Occupational Health and Safety Act aimed at preventing sexual assault in the workplace.  With this restatement of HRCO policy and increased media attention on the subject, employers should be careful when setting formal policy and informal expectations regarding staff dress.

Written with the assistance of Markus Liik, articling student.

US DOL finalizes new rule expanding overtime coverage

The US Department of Labor (DOL) has finalized a new rule expanding the number of employees entitled to receive overtime pay for work in excess of 40 hours in a regular workweek, by doubling the salary needed for executive, administrative, and professional workers to qualify as exempt and by raising the compensation needed to qualify as a highly compensated employee.

The rule will take effect December 1, 2016 and is expected to affect at least 4.2 million full-time exempt employees.

It supposedly represents the DOL’s effort to better distinguish overtime-eligible white collar employees, whom Congress intended to protect under the Fair Labor Standards Act, from bona fide executive employees, whom it intended to exempt. The salary level required to qualify for the FLSA “white collar” exemption had now moved from $23,600 to $47,476 annually, or $913 weekly.

For highly compensated employees, the new rule raises the minimum salary from $100,000 to $134,004 annually. These numbers will be automatically updated every three years, beginning in 2020.

Background

The FLSA generally requires covered employers to pay their employees overtime pay of one and one-half times the employee’s regular rate of pay for all hours worked over 40 hours in a workweek.

But the FLSA provides a number of exemptions from this overtime requirement, including what is known as the “white collar” exemption for executive, administrative, and professional workers.

Since first issuing regulations defining the scope of these exemptions in 1938, the DOL has updated the salary level requirements seven times. For quite some time, these updates included both a “long duties test,” which limited the amount of time an exempt employee could spend on nonexempt work, and a “short duties test,” which did not contain a limit on nonexempt work but required a higher salary level than the long duties test.

The last update occurred in 2004, and it eliminated the short and long duties tests in favor of a standard duties test requiring a $23,660 annual salary for a full-time worker. It also set the highly compensated employee exemption at a minimum annual salary of $100,000.

On March 13, 2014, President Obama issued a presidential memorandum to the DOL directing it to update the regulations defining which white collar workers are protected under the FLSA.  The memorandum specifically instructed the DOL to modernize and streamline the overtime regulations. Following the President’s memorandum, the DOL published a proposal to update the overtime exemptions on July 6, 2015.

Final Rule

The DOL’s stated goal for the new rule was to rectify “the inappropriate classification of employees as EAP exempt who pass the standard duties test but would have failed the long duties test.”

In other words, the DOL believes that the 2004 update created many exempt employees whose work was indistinguishable from other nonexempt workers who were overtime-eligible.

The DOL stated that the “most appropriate line of demarcation” between workers who are EAP exempt and workers who should receive overtime is the salary level equal to 40th percentile of earnings of full-time salaried workers in the lowest-wage census region (currently the South), which resulted in a salary level of $913 per week, or $47,476 annually.

For highly compensated employees, the DOL set the salary level at the 90th percentile of earnings of full-time salaried workers nationwide, or $134,004.

In order to prevent the salary levels from becoming outdated, the DOL has included a mechanism to automatically update the threshold every three years, with the first update on January 1, 2020.

For the first time, the DOL will allow employers to count nondiscretionary bonuses, incentives, and commissions toward up to 10 percent of the required salary level for the standard exemption. These amounts must be paid on a quarterly or more frequent basis.  This portion of the rule does not apply to highly compensated employees.

Implications

The DOL estimates that this rule will cost employers $592.7 million in the first year and $194.2 million per year for the next decade. The DOL envisions higher employee earnings, with a $1,482.5 million increase in the next year and $872.9 million annually for the next decade.

We expect the rule will have other consequences that are less easily measured.  For example, the National Retail Federation predicts a “’hollowing out’ of low-level professional and administrative functions, as firms centralize their management structures to rely on a smaller number of genuine managers and professionals.”  The National Retail Federation also predicts a shift away from full-time workers to part-time, entry-level workers, creating more inequality in the workforce. The Society for Human Resource Management warns that the rule could lower employee morale if employees feel they lose professional status by becoming nonexempt.

To prepare for the effective date of the rule, employers should review and reassess the classifications of full-time employees with annual salaries under $47,476.

For each employee who is currently classified as exempt under the executive, administrative, or professional exemption, an employer must consider whether to raise the employee’s salary to at least $47,476 and maintain the exempt status, reclassify the employee as nonexempt and pay overtime as needed, or investigate other options, such as restructuring positions and job duties or considering a program to limit employees’ overtime work.

Employers will also need to reevaluate their policies and practices related to overtime and recordkeeping.

FLSA claims and lawsuits have been on the rise, and this rule is unlikely to change that trend. Employers should begin their preparations now to be ready for the rule’s December 1, 2016 effective date.

DOL’s new salary rule is a mixed bag for employers

Norton Rose Fulbright - DOL’s new salary rule is a mixed bag for employers

By Pete Souza from The White House, Washington, DC – Public Domain

Adding to the recent flurry of federal regulatory activity, on May 18, 2016, the United States Department of Labor‘s Wage and Hour Division issued a final rule on overtime that raises the salary threshold for exempt employees under the Fair Labor Standards Act.

Defining and delimiting the exemptions for executive, administrative, professional, outside sales and computer employees under the Fair Labor Standards Act, the Department of Labor’s final rule updates overtime regulations, automatically extending overtime pay protections to “over 4 million workers within the first year of implementation.”

Learn how this new DOL final rule will impact your business by reading our legal update, DOL’s new salary rule is a mixed bag for employers.

Retaliation and whistleblower claims in healthcare expected to remain high

The number of retaliation and whistleblower claims in the US continue to rise. According to data released by the Equal Employment Opportunity Commission (EEOC), retaliation claims made up 44.5 percent of all charges filed in 2015.  Also, the Occupational Safety and Health Administration (OSHA) reported a 6 percent increase in the number of whistleblower cases filed in FY 2015.  The increase in retaliation and whistleblowing claims is especially felt in the healthcare industry where whistleblowers collected a little over $330 million in rewards from False Claims Act (FCA) cases.  Under the FCA, individuals who report fraud and false claims against the government are entitled to a share of the government’s recovery. Given the expansion of whistleblower protections and rights, and the government’s increased focus on fraud, employees are continually encouraged to report any perceived fraud or abuse.  Thus, employers must be prepared for the likely inevitability of retaliation or whistleblower claims when disciplining, discharging, or dealing with employees regarding any material personnel decisions.

Retaliation lawsuits are not uncommon under employment law statutes. However, there are also an increasing amount of statutes at both the federal and state level that include non-retaliation provisions for individuals and employees that report, or blow the whistle on, perceived misconduct, fraud or abuse.  In addition to Title VII of the Civil Rights Act of 1964, anti-retaliation provisions can be found in the Fair Labor Standards Act, the Occupational Safety and Health Act, the Affordable Care Act, and the False Claims Act (FCA), to name a few.  Generally, the three basic elements of a retaliation lawsuit are: (1) the employee engages in protected activity; (2) the employee suffers an adverse employment action; and (3) there is a causal connection between the employee’s protected activity and the adverse employment action.  The employee must show that but for his protected activity the employer would not have taken the adverse employment action.  Protected activity may include participating in investigative actions, reporting actual or perceived violations of law, or opposing activity that may violate a law, rule or regulation.  In the healthcare context, this may include an employee’s objections to a certain course of patient care or business practice related to patient billing, among other things.  Adverse employment actions include such things as termination, suspension, demotion or transfer.

In September of 2015, the Department of Justice issued a memorandum expressing its increased focus on individual accountability for corporate wrongdoing and its commitment to utilize the FCA to redress fraud by individuals as well as corporations. The memorandum, which has become known as the “Yates Memo” (so named after its author Deputy Attorney General Sally Quillian Yates) will likely have the effect of further increasing whistleblower, or qui tam, lawsuits under the FCA, wherein the whistleblower is entitled to a share of the government’s recovery for his part in helping to expose fraud and recover government funds.  Importantly, if the whistleblower also files a retaliation claim, he may recover damages up to two times the amount of back pay to which he is entitled, as well as special damages, including attorneys’ fees and costs, in addition to a share of the government’s recovery.

Of the $3.5 billion obtained by the Department of Justice in settlements and judgments from FCA cases in fiscal year 2015, $1.9 billion came from cases against companies and individuals in the healthcare industry. Given the ever increasing rate of retaliation and whistleblower cases, the Department of Justice’s renewed focus and commitment to individual accountability under the FCA will undoubtedly have a large impact on healthcare professionals and employers.  In order to be prepared should such a claim arise, healthcare employers should familiarize themselves with and ensure they understand the laws, rules and regulations that govern the business of healthcare.  There are myriad state and federal laws and rules governing the healthcare industry with which companies and individuals must ensure they are compliant.  Designating a compliance officer to monitor and ensure compliance with all applicable laws, rules and regulations is recommended.  Employers should also develop and implement a code of conduct or ethics which instructs employees on  how they are expected to behave and perform, and provide an internal reporting structure for employees to report any violations of the code or industry laws, rules and regulations.  A policy prohibiting retaliation against employees who report issues should also be adopted.

Ontario Divisional Court Clarifies the Meaning of a Probationary Period

What is the meaning of a “probationary” period for an employee? This is the question the Ontario Divisional Court wrestled with in the recent case of Nagribianko v. Select Wine Merchants. The facts of the case are fairly straightforward. Upon agreeing to work for the defendant, the plaintiff agreed to an employment contract that expressly provided for a 6-month probationary period. The plaintiff had been working for the defendant for just under 6 months when his employment was “after careful consideration” terminated on the grounds that the plaintiff was deemed “unsuitable for regular employment”. The plaintiff subsequently sued the defendant for wrongful dismissal.

The trial judge sided with the plaintiff and awarded him common law damages equivalent to four months’ salary and benefits in lieu of reasonable notice. In reaching this decision, the trial judge relied on the defendant’s Employee Handbook to determine the meaning of a “probationary period”,  stating he could not determine what the probationary period means “just by the contract”.

On appeal, Justice Sanderson found that the meaning of a “probationary period” should be based on what a reasonable person in the circumstances would understand it to mean. A “probationary period” is reasonably understood to mean a testing period during which an employer assesses an employee’s suitability for permanent employment. An employee’s suitability, Justice Sanderson added, includes considerations of the employee’s character, ability to work with others and overall performance. In this instance, the defendant acted in good faith in determining the probationary employee was unsuitable for regular employment and was therefore entitled to dismiss the plaintiff without notice.

This is a good case for employers as it indicates that, absent clear evidence to the contrary (contractual or otherwise), courts will likely be inclined to define a “probationary period” as it is ordinarily understood – a test period during which an employer assesses an employee’s suitability for regular employment and limiting notice if the employee is found to be unsuitable.

Written with the assistance of Michael Viner, articling student.

The occurrence of willful misconduct no longer constitutes an exception to the payment of the indemnity in lieu of paid leave in France

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 4th 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.

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