International Employment Contracts- From Marriage to Divorce!

The role of the contract in the relationshipbetween Employer and Employee

Jeanette Wheeler

Partner, Eversheds, UK

Darryl WeissGeneral Counsel, TVA Fire & Life Safety, USA

June 2005

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International employment contracts

• From Marriage to Divorce – The role of the contract in therelationship between Employer and Employee:Agenda:

• Courtship and engagement - the Pre-nup?• The wedding - status counts - employee, self employed

contractor or agent?• The divorce – case study• Before the breakdown – Checklist of terms and conditions

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Approach

• Europe• England & Wales• France• Germany

• Australasia and India• Singapore• Australia• India

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The Courtship, Engagement & pre-nup

• What type of engagement?– Self employed?– Contractor?– Commercial Agent? (England:

2 years)– Worker?

• Sources of the contract:• Pre-nup = Offer letters –

conditional references etc• Handbook• Collective Agreements• Mandatory terms

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The wedding

• Status– Employee?– Worker?– Self Employed Contractor?– Commercial Agent?

• A Pre-nup? Written contract?What law?

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The Divorce!Case Study Facts

• Bob Maddog is a Senior Area Sales & Account Manager with IT Global Incand as well as having his own sales accounts he is responsible for a team of10 Sales & Account representatives across Europe and Asia. He has a US “atwill” style contract subject to the laws and Courts of California.

• Bob has 5 years service and in the past has bought in some very profitablenew accounts although in recent months his performance has been less thanbrilliant and his client expenses account is extortionate. Bob says this is thecost of keeping his client accounts happy however Global’s FD suspects hespends too much time on the golf course!

• Bob reports to the new VP of Sales, Top Dog who finds Bob difficult tomanage and says he doesn’t fit with the company’s new style and culture.Top Dog tells the Head of HR, Molly Brown that he wants Maddog to goasap.

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The Divorce Continued…

• The FD is worried about the impact on the sales figures if IT Global inc losekey accounts as a result of Bob’s departure and wonders whether he canwithold any outstanding commission or bonus payments.

• Molly Brown is worried about the impact on the rest of the sales team someof whom she suspects might leave with Bob if he gets a comparable positionwith one of a number of competitors in the area.

• The IT director is worried about protecting trade secrets in relation to somenew products the company has been developing and which are just about tobe launched.

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The Divorce Continued…….

• Counsel is passed a copy of Bob’s contract of employment and is asked toreport on the following questions:

1. Can the company rely on the contract and dismiss forthwith?2. Will there be any financial penalties or compensation due?3. Does the contract contain any terms that might assuage some of the

Boards fears around confidentiality and loss of accounts and staff?4. Are there any mandatory rules that will supersede anything in the

contract?5. Anything else they should note?

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“Divorce” in England & Wales

• Assume Bob is living and working in England

Applicable law? (Contractual/mandatory rights)• Notice period (statutory & what is reasonable?)• Termination provisions• Garden Leave (or other duties?)• PILON clause (affects quantum, tax position and

validity of post-termination restrictions)• Benefits (car allowance, pension, accrued untaken

holiday pay)• Confidentiality provisions• Post-termination restrictions – staff,

customers/suppliers, non-compete• IP rights, power attorney (capturing IP)• Share options• Commissions and bonuses• Resignation of Directorships• Expenses, company property

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“Divorce” in France

• Assume Bob is living and working in France:

Applicable law? (Contractual/mandatory rights/ PublicOrder rules)• Notice period (as provided in CBA/Contract of

employment if more favourable)• Termination provisions (statutory / CBA)• Severance payment (CBA)• Benefits (car allowance, accrued untaken holiday

pay)• Post-termination – non-compete, confidentiality

provisions• Commissions and bonuses• Resignation / Revocation of Directorships

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“Divorce” in Germany

Assume Bob is living and working in Germany:

• Statutory notice periods mandatory• Garden Leave only if agreed• PILON not possible• Benefits payable until effective date of termination• Confidentiality provisions• Post-termination restrictions attracts compensation payment• IP - Act on Employee Inventions applicable• Commission - may even be payable for certain period post-

termination if the deal due to ex-employees efforts and onlyconcluded after exit of employee

• bonuses - in most cases to be paid until effective date oftermination on pro rata basis

• Resignation of Directorships -shareholders resolution requiredunless director resigns voluntarily. Please note: statutorycompany directors do not enjoy unfair dismissal protection asthey are not seen as "employees" under German law

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“Divorce” in Australia

• Assume Bob is living and working inAustralia:

– Notice period (Breach of Notice)– Workplace Relations Act governs EE’s under a

certain salary– No written contract of employment required– Notice periods increase if EE is over age 45– May not contract out of statutory awards– Confidentiality– Commissions and bonuses– Expenses, company property

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“Divorce” in India

• Assume Bob is living and working inIndia:

– Written letter of appointment required– Governed by the Industrial Disputes Act– Dismissal versus Removal– PILON– Statutory benefits cannot be denied

(Provident Fund etc)– Benefits entitlement– Confidentiality clauses

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“Divorce” in Singapore

• Assume Bob is living and working inSingapore:

– Notice period (Breach of Notice)– Leave to offset notice– Termination provisions– Employment Act does not allow less

favourable conditions– PILON– Not meeting the terms of the contract– Appeals go to the Ministry of Manpower

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Termination Agreements:

• England & Wales – negotiating the compromise agreement• France – agreement to reach a settlement agreement!

• Australia – Not required• India – Not required• Singapore – Not required

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Summary Checklist of Clauses – England & Wales

• “Termination Provisions” (as per earlier slide)• Mandatory laws:

– Holiday & holiday pay– Working time – hours of work– Equal pay– Maternity and parental time off (& pay provisions)– Protection of part-timers and temporary workers (pro-rata)– Statutory sick pay vs contractual sick pay– Unfair dismissal & discrimination law

• Data protection• Fixed term contracts• Permanent Health Insurance, life assurance, pension and other

benefits…. “rules from time to time in force”

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Summary checklist of clauses – England & Walescontinued…

• Expenses• Duties• Place of work• Deductions from salary• Remuneration• No golden handshakes or parachutes

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Summary checklist of clauses - France

• Start date• Duration of the contract (indefinite term or fixed term as rules are different)• Information on relevant Collective Bargaining Agreement (“CBA”)• Duration of probationary period (CBA)• Notice period (as provided in CBA/Contract of employment if more

favourable)• Duties and job description (reference to classification as provided by CBA)• Holiday entitlement (statutory/CBA)• Working time (statutory/CBA)• Remuneration and its components• Place of work + mobility clause if needed• Confidentiality clause• Exclusivity clause (if full time contract)• Restrictive covenants (non compete – must be paid)

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Summary checklist of clauses - Germany

MUST haves:• Names and address of employer/employee• Commencement of employment• Place of work• Job description• short description of job duties• Remuneration basic salary, overtime, bonus scheme, commission, benefits in kind)• (Note: If bonus makes up substantial amount of package it will usually be considered

contractual)• working time• holiday entitlement• notice periods• Any collective agreement applicable?

Good to have:• Probationary Period (if appropriate)• Confidentiality• Data protection clause - especially if personal data to be transferred outside the EEA• company car clause• deductions from salary• Expenses

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Summary checklist of Clauses - Australia

• No statutory requirement for an employment contract ormemorandum in writing

• If you do choose to make one the contents are determined by theparties

• Australian Workplace Agreements (AWA) and Certified Agreements(CA) are negotiated collectively but signed individually

• Employers cannot contract out of statutory awards• Compulsory unionism is prohibited• Statutory right of entry to the workplace by unions

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Summary checklist of Clauses - India

• Written letters of appointment are generally required– Terms and conditions of service, pay, benefits, etc

• Industrial Employment (Standing Orders) Act requires the employerto define, with sufficient precision:– Rules of salary determination– Time scale of pay grade– Contributory or other compulsory deductions– Other benefits– Termination– Retirement benefits– Misconduct

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Summary checklist of Clauses - Singapore

• The employment relationship is guided by the law of contractsubject to statutory requirements

• There is no requirement as to the form of the contract of servicewhether in writing or oral, express or implied

• No preference in hiring must be given with the exception thatemployers of more than 10 employees must not employ anyonewho is not registered as having completed full time national service(with some exceptions listed under the various NationalServicemen’s Acts.

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Summary checklist of issues - Europe

• Type of contract – employment, commercial agent?• Applicable law & Courts?• Care: Mandatory laws• Termination provisions (see earlier slides)• Collective agreements• Restrictions on variation! – Consent required• TUPE – no harmonisation of terms!

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Summary checklist of issues - Asia

• Extended notice• Unpaid commissions• Statutory notice periods• Non-compete clauses• Confidentiality• Entitlements• Government approvals

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Thank you for listening.

If you would like further information, please contact

Jeanette at jeanettewheeler@eversheds.com or Darryl at

dweiss@tvafiresafety.com