Employment & Labour Law

Employment & Labour Law

Second Edition

Contributing Editors: Charles Wynn-Evans & Georgina Rowley Published by Global Legal Group

CONTENTS Preface

Charles Wynn-Evans & Georgina Rowley, Dechert LLP

Belgium

Pieter De Koster, Allen & Overy LLP

Brazil

Isa Soter & Flávia Azevedo, Veirano Advogados

Chile

Eduardo Vásquez Silva & Cristhian Amengual Palamara, Eduardo Vásquez Silva y Compañía Abogados

Colombia

1 10

20

Claudia Lievano Triana, Maria Claudia Escandon & Maria Lucia Laserna, Alvarez Escandon & Lievano – Aesca S.A. Abogados Laboralistas

27

Costa Rica

Rocío Carro Hernández & Gabriel Espinoza Carro, Bufete Carro & Asociados

32

Cyprus

Ioanna Samara & Michalis Severis, Patrikios Pavlou & Associates LLC

Dominican Republic Lucas Guzmán López & Natachú Domínguez Alvarado, OMG

41 50

Finland

Jani Syrjänen & Tuomas Sunnari, Attorneys at Law Borenius Ltd

55

France

Guillaume Desmoulin & Brice Séguier, Fromont Briens

64

Germany

Dr. Christian Rolf, Jochen Riechwald & Martin Waśkowski, Willkie Farr & Gallagher LLP

73

Indonesia

Lia Alizia & Harris Syahni Toengkagie, Makarim & Taira S.

80

Ireland

Mary Brassil, McCann FitzGerald

86

Italy

Valeria Morosini, Toffoletto De Luca Tamajo – Ius Laboris Italy

94

Japan

Masao Torikai & Koichi Nakatani, Momo-o, Matsuo & Namba

103

Luxembourg

Guy Castegnaro & Ariane Claverie, CASTEGNARO – Ius Laboris Luxembourg

113

Malaysia

Wong Keat Ching & Muhammad Fareez Shah Bin Zainul Aberdin, Zul Raf que & Partners

119

Mexico

Eric Roel P. & Rodrigo Roel O., César Roel Abogados

133

Philippines

Lozano A. Tan, Amer Hussein N. Mambuay & Russel L. Rodriguez, SyCip Salazar Hernandez & Gatmaitan

Portugal

142

Ricardo Rodrigues Lopes & Vanessa Vicente Bexiga, Caiado Guerreiro & Associados

151

Slovenia

Martin Šafar, Law f rm Šafar & Partners, Ltd

158

South Africa

Claire Gaul, Webber Wentzel

167

Spain

Ana Alós & Inés Ríos, Uría Menéndez

175

Switzerland

Balz Gross, Roger Zuber & Nadine Mayhall, Homburger

181

Tanzania

Dr. Wilbert Kapinga & Ofotsu A. Tetteh-Kujorjie, Mkono & Co Advocates

187

Turkey

Kayra Üçer, Gülbin Olgun & Begüm Ergin, Hergüner Bilgen Özeke Attorney Partnership

190

United Kingdom

Charles Wynn-Evans & Georgina Rowley, Dechert LLP

197

USA

Ned H. Bassen, Alexander W. Bogdan & Arielle V. Garcia, Hughes Hubbard & Reed LLP

208

Switzerland Balz Gross, Roger Zuber & Nadine Mayhall Homburger General labour market trends and latest/likely trends in employment litigation Despite strong immigration into Switzerland of employees from EU countries for several years, the Swiss labour market remains strong and the unemployment rate has remained low. There has been little pressure, therefore, to increase the protection of employees and Swiss labour law retains its liberal character, including the principle of ‘freedom to terminate’ employment relationships. However, new rules are coming into force with respect to compensation of senior management of listed companies and regarding social plans in case of mass dismissals (see below). The Swiss financial industry has come under pressure, and the previous strong tendencies to award very high bonuses and solicit entire teams from competitors, with all ensuing legal issues, from the enforceability of bonus plans to non-solicitation battles, have eased a little. Nevertheless, the qualification of bonus payments remains one of the key issues in Swiss labour law, and recent precedents have provided greater certainty in this area (see below). In addition, recent legislation has added statutory requirements for bonus payments in the banking sector (see below). Arbitrability of disputes arising from individual employment contracts Party autonomy and flexibility are intrinsic to the very idea of arbitration. In contrast, employment law regularly seeks to protect the “weaker party”, i.e. the employee. Not surprisingly, reconciling these two opposing principles has turned out to be challenging. The coming into force of the new Swiss Civil Procedure Code (the CPC) on January 1, 2011, and recent case-law, have provided some clarification on these issues, while other aspects still remain subject to controversy. Swiss legislation applies, as a rule, to arbitral tribunals having their seat in Switzerland. Switzerland distinguishes between international and domestic arbitration. An arbitration qualifies as international if at least one of the parties to an arbitration was, when concluding the agreement to arbitrate, neither domiciled nor habitually resident in Switzerland. The fact that the parties to an arbitration have changed their domicile or their residency after the conclusion of the agreement to arbitrate has no impact on this qualification. Disputes arising out of “international” individual employment contracts may, generally, be submitted to arbitration. The arbitrability of disputes arising in “international” individual employment contracts results from the definition of arbitrability which applies to international arbitrations. Under Swiss legislation governing international arbitrations, all pecuniary claims may be submitted to arbitration. On the other hand, disputes arising out of “domestic” employment agreements may not, as a rule, be subject to arbitration. According to the provisions governing Swiss domestic arbitration, only claims over which the parties may freely dispose can be the object of a domestic arbitration agreement. Whether a party may freely dispose over a claim has to be decided in light of the applicable lex causae. However, the parties to a domestic arbitration dispute may not circumvent this restriction by choosing a more convenient substantive law. Contracting parties which are both domiciled in Switzerland may not choose to submit their dispute to a different substantive law than Swiss law.

GLI - Employment & Labour Law Second Edition

181

© Published and reproduced with kind permission by Global Legal Group Ltd, London

www.globallegalinsights.com

Homburger

Switzerland

Under Swiss employment law, the employee may not waive claims arising from mandatory provisions of law or the mandatory provisions of a collective employment contract, for the period of the employment relationship and for one month after its end. By way of example, claims arising from mandatory provisions relate to: • the assignment and pledge of salary claims, reimbursement and advance of expenses, maturity of claims; • overtime, holiday pay, consecutive weeks and timing of holidays, days off work, maternity leave, salary where the employer fails to accept work, or salary where the employee is prevented from working; • employee’s liability, termination of employment relationships, compensation in the event of wrongful termination, termination with immediate effect for good cause, consequences of justified termination, liability in the event of transfer of employment relationships; • protection of the employee’s personality rights in general, protection when handling personal data; and • requirements for prohibition of competition, restrictions on prohibition of competition, extinction of prohibition of competition. As an employee may, for the period of the employment relationship and for one month after its end, not waive such claims arising from mandatory provisions of labour law, such claims are not considered to be freely disposable. Therefore, the Swiss Federal Court held that claims arising from mandatory provisions of labour law may not be the object of a domestic arbitration agreement, if this arbitration agreement has been concluded before the above-mentioned period has elapsed. This recent case leads, in a domestic context, to a bifurcation. On one hand, all claims arising from mandatory provisions have to be pursued in state courts. On the other hand, claims arising from nonmandatory provisions may be subject to arbitration. Most importantly, claims arising for the payment (or re-payment) of a bonus are arbitrable. In light of these restrictions, two solutions have recently been put forward. One solution is the so-called “opting-out” approach. In fact, the parties to a domestic arbitration may, by making an express declaration to this effect in the arbitration agreement or a subsequent agreement, exclude the application of the CPC and instead agree that the provisions of the Twelfth Chapter of the Swiss Private International Law Act (the PILA) apply. This declaration must be made in writing, or in any other form allowing it to be evidenced by text. Some authors argue that, by opting for the applicability of the PILA instead of the CPC, the question of arbitrability will also be governed by the PILA. According to these authors, all pecuniary claims, and therefore, all disputes arising of individual employment contracts, may be submitted to arbitration. However, according to certain legal opinion, the arbitrability of disputes arising out of individual employment agreements should, even in such “opting out” cases, be governed by the restrictive provisions of the CPC. The Swiss Federal Court has not yet decided on the issue. The alternative would be an agreement to arbitrate which provides for an arbitral tribunal with its seat outside of the territory of Switzerland. In fact, the Swiss legislation on arbitration and, therefore, the provisions governing arbitrability, are only applicable to arbitral tribunals having their seat in Switzerland. In case, in disregard of the agreement to arbitrate, one of the contracting parties does file a claim with a Swiss state court, the court in question will probably have to decide on its competence. In this context, the court will have to decide, as a preliminary question, whether a valid arbitration agreement has been concluded by the parties. Notwithstanding Article V ciph. 2 lett. a of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, prevailing Swiss legal doctrine argues that the question of arbitrability is solely governed by the lex fori. Accordingly, the validity of such an agreement to arbitrate would have to be decided by applying either the PILA or the CPC. However, a state court may leave this question unanswered and opt to apply the more restrictive provisions of the CPC based on public policy reasons. GLI - Employment & Labour Law Second Edition

182



Homburger

Switzerland

Key case law affecting employers’ decision making over dismissals, redundancies dismissals etc. Enforceability of the provisions of employee incentive schemes Swiss statutory labour law has no specific rules for employee incentive schemes (employee stock option plans, cash plans, bonus schemes, etc.). Rather, all such benefits must be qualified as one of several forms of compensation under Swiss law. Benefits awarded under employee incentive schemes regularly qualify as either salary or gratification. The distinction between salary and gratification is crucial in Swiss labour law. While the payment or clawback of a gratification may depend on various conditions, clauses which limit the right to salary are generally unenforceable. For example, incentive schemes often provide that the employee forfeits awards and loses the right to further grants if the employee has given notice of termination of the employment relationship. The enforceability of such provisions depends on whether the respective benefits are qualified as salary or as gratification under Swiss law. The qualification of a benefit as either salary or gratification will firstly depend on the agreement of both the employer and the employee. In addition to the wording of the employment agreement and of special incentive plans or bonus schemes, the communication of the employer when granting the yearly benefit is considered important. However, even if the agreement between the parties provides that the benefit is not mandatory and the grant of payments remains in the full discretion of the employer, the benefit may still be qualified as salary. This is the case if the benefit and its amount actually does not depend on the employer’s discretion, but exclusively on objective factors, e.g., if the amount of the benefit is guaranteed or fixed, or if it can be calculated based on targets or a formula. Further, the payment of “gratification” might become mandatory if it has been paid for three consecutive years, unless the employer has made a respective reservation. Moreover, even if there was discretion and if the employer expressly stated that the payments were discretionary, the employee might have a right to payment of the benefit, if the employer’s reservation after several years has become pure rhetoric without actual meaning. Finally, the Swiss Federal Court held that only benefits that are of “secondary nature” or “secondary importance”, as compared to the total compensation, can be considered gratification. Excessive payments are re-qualified as salary. Regrettably, despite various published precedents, there is little settled law regarding the abovementioned issues. In particular, the courts have not defined a specific ratio which would determine the acceptable amount for a benefit bonus to still qualify as gratification. After all, it follows from the jurisprudence that the higher the base salary, the higher the allowed percentage of the benefit. In any event, the Federal Supreme Court held that amounts paid under any bonus scheme that are equal or exceed the amount paid as salary are (at least partly) deemed to be variable salary. In two recent decisions, both relating to claims brought by senior bank employees, the Swiss Federal Court distinguished previous precedents regarding the above-mentioned criteria of “secondary nature”. In a decision handed down on February 26, 2013, it was held that this criterion will not apply in case of very high salaries (BG 4A_520/2012). The court stated that there is no reason to interfere with the contractual arrangements and to protect the employee in such situations. Given that the employee was paid a salary above CHF 2m, his claim with respect to restricted share awards was dismissed. It is not clear above what size of salary will be considered as “very high” in the sense of the precedent mentioned before. The Swiss Federal Court stated that this will be the case if the salary reaches a threshold which ensures the economic existence and/or costs of living of the employee by far. Further, it was held that the salary may be regarded as “very high” if it exceeds by several times the average salary. The reasoning in a Swiss Federal Court judgment rendered on May 16, 2013, indicates that even a salary below CHF 830,000 could be considered as “very high” (BG 4A_721/721). However, this reasoning GLI - Employment & Labour Law Second Edition

183



Homburger

Switzerland

was not relevant for the decision to be made, and nor did the court discuss whether lower salaries might be above the threshold. Moreover, it was held that, even if the criteria of “secondary nature” will apply because the base salary is not considered to be “very high”, only the re-qualification of a part of the bonus as salary might be required. The court stated that a re-qualification of the complete bonus would not be reasonable in cases in which such re-qualification would result in a “very high” salary. In other words, if only the total compensation, but not the base salary, is considered to be “very high”, the bonus will partly be qualified as variable salary. Use of spyware to monitor employees The Swiss Federal Court found that the use of spyware to record and monitor each and any activity of an employee on his workplace computer for a period of three months violated a Swiss labour law provision that prohibits systems for monitoring employee behaviour. The employer in question had used the recorded materials as evidence to justify the dismissal of the employee in question, who had spent 22% of his work time on the computer for the purposes of private activities. The court found that the evidence had been gathered illegally and removed it from the file. The court held that there would have been other, less intrusive means of dealing with the matter (including using filters and analysing central log files without analysing the actual content of the employee’s private communications). Although the decision was not formally based on data protection law, the outcome would have been the same if one were to apply the rules of the Swiss Data Protection Act. Likely or impending reforms to employment legislation and enforcement procedures Social Plan requirements If larger companies terminate the employment contract of at least 30 employees in 30 days (mass dismissal), the employer will be obliged to negotiate a Social Plan with the employee representative or its employees. If the parties fail to reach an agreement, an arbitral tribunal will establish the Social Plan. The referendum period for these new provisions expires on October 10, 2013, and the bill is expected to enter into force on January 1, 2014. Not all employers will be obliged to adopt a Social Plan. An employer will have, mandatorily, to negotiate a Social Plan if: • he employs at least 250 employees; and/or • at least 30 employment contracts are terminated for economic reasons in 30 days (mass dismissal). With regard to the number of employees concerned, the legislator refers to the term “employees” employed by an “employer”, instead of the commonly used factor of “business unit”. However, the accompanying documents suggest that the number of employees employed in a business unit will be decisive for the question of whether the threshold criterion is met. The negotiating partner of the employer is, if the employer has concluded a collective labour agreement, the trade union. Otherwise, the employer may negotiate the Social Plan with the employee representative or directly with the employees. Concerning the content, a Social Plan aims to avoid or to minimise the number of dismissals, or to soften their effects. A Social Plan encompasses measures like paid occupational redeployment, job placement, wage increases to compensate the effects of adopting a different job, or redundancy payments. The legal qualification of a Social Plan, pursuant to Article 335h para. 1 of the revised Swiss Civil Code of Obligations (CO), is to be determined. If the Swiss Federal Supreme Court continues its case law, Social Plans concluded between the employer and a trade union qualify as collective labour agreements. The employees are entitled to invoke the contracted guaranteed rights directly. Social Plans concluded between the employer and the employee representation have, according to this case law, also a normative effect.. However, Social Plans which have been negotiated between the employer and an employee form part of the individual employment contract. If the employer and the employee fail to conclude a Social Plan, an Arbitral Tribunal has to be constituted. The parties are free to choose their arbitrators. In particular, if an applicable collective GLI - Employment & Labour Law Second Edition

184



Homburger

Switzerland

labour agreement provides for a conciliation committee, this committee can be entrusted with this task. The Arbitral Tribunal is empowered to adopt a Social Plan by rendering a binding sentence. However, the discretionary power of the Arbitral Tribunal is limited by the legal provision according to which a Social Plan shall not impede the economic advancement of the company (Article 335h of the revised CO). The new provisions on the adoption of a Social Plan by an Arbitral Tribunal do not, however, provide for the applicable procedural law. Pursuant to the accompanying documents, the Swiss Civil Procedure Code (CPC) governs the proceedings before the Arbitral Tribunal. Some authors suggest that the CPC will also govern the constitution of the Arbitral Tribunal if the parties fail to reach an agreement. As the new legal framework does not explicitly govern the proceedings before the Arbitral Tribunal, several procedural issues remain open. For instance, it is unclear whether the “binding” sentence rendered by the Arbitral Tribunal (Article 335j para. 2 CO) will be subject to an appeal to the Swiss Federal Supreme Court (Article 389 et sqq CPC). Pursuant to leading case law, “binding” arbitral sentences cannot be appealed by legal means which allow a complete review of the case (“ordentliches Rechtsmittel”), but are, nevertheless, subject to appeals limited to the grounds of appeal (“ausserordentliches Rechtsmittel”). As the grounds of the appeal to the Federal Supreme Court as set forth in Article 393 CPC are limited to breaches of fundamental procedural rights, the “binding” arbitral sentence according to Article 335j para. 2 CO should, considering the case law mentioned above, be subject to an appeal to the Swiss Federal Supreme Court. However, if the employer has to terminate at least 30 employment contracts in 30 days during bankruptcy or composition proceedings, he is not obliged to negotiate a Social Plan (Article 335k revised CO). Say on pay – draft minder ordinance Since March 3, 2013, the so-called “Rip-off” legislative initiative has been adopted. This new legal framework applies to stock-listed Swiss corporations and focuses on severance payments, advance payments, transaction bonuses, shareholder approval of board and executive compensation, compensation reports and independent proxy. The ordinance (Ordinance) implementing this initiative provides, further, for criminal sanctions and transition periods, and is expected to enter into force on January 1, 2014. First, the Ordinance bars severance pay in any form. According to the explanatory report, excessive termination periods in employment contracts could qualify as a type of prohibited severance payment. Non-compete covenants are, as a rule, not subject to the severance pay prohibition. Also, advance payments are prohibited by the Ordinance. However, sign-on bonuses, such as payments to compensate benefits and other entitlements, continue to be admissible. The decisive element to distinguish advance payments from other types of payments is the point in time when the payment is effected. Further, the Ordinance provides for shareholders’ rights and on independent proxies. The prohibitions regarding severance compensation, advance payments, and “commissions” for the acquisition or transfer of enterprises, or parts thereof, are effective as of January 1, 2014. These provisions immediately apply to new employment relationships. Existing employment agreements must be brought in line with the ordinance by January 1, 2015. All violations of the law are sanctioned by imprisonment of up to three years and a fine of up to six annual salaries.

GLI - Employment & Labour Law Second Edition

185



Homburger

Switzerland

Balz Gross Tel: +41 43 222 16 39 / Email: [email protected] Balz Gross is the Deputy Head of Homburger’s Litigation | Arbitration practice and Head of the employment law group. He has extensive experience regarding all aspects of international arbitration and complex litigation. Recommended in Chambers (2013) for his robust approach, born of his experience as both a litigator and arbitration counsel. Sources highly recommend his responsive and client-oriented service. Roger Zuber Tel: +41 43 222 10 00 / Email: [email protected] Roger Zuber’s practice focuses on domestic and international litigation and arbitration. Furthermore, he has extensive experience in rendering advice on employment law and he frequently represents clients in related court proceedings.

Nadine Mayhall Tel: +41 43 222 10 00 / Email: [email protected] Nadine Mayhall’s practice focuses on domestic and international litigation and arbitration. She is also a member of Homburger’s Employment Law working group.

Homburger Prime Tower, Hardstrasse 201, CH-8005 Zurich, Switzerland Tel: +41 43 222 1000 / Fax: +41 43 222 1500 / URL: http://www.homburger.ch GLI - Employment & Labour Law Second Edition

186



Strategic partners:
