WWL has brought together James Davies of Lewis Silkin, Enrique Stile of Marval O’Farrell & Mairal, Vikram Shroff of Nishith Desai Associates, and Angelo Zambelli of Grimaldi Studio Legaleto discuss key issues facing labour employment and benefits lawyers today.
James Davies: We have most definitely noticed a stratification in the market and an increase in in-house practitioners. As a team of over 100 employment lawyers, we have stratified our practice into three parts:
Enrique Stile: Due to market demands, a group of big firms is focused on complex litigation, as there has been a commoditisation of massive blue-collar or not complex litigation complaints. On the other hand, another group of firms is focusing on the commoditisation of massive blue-collar or not complex litigation complaints offering very low rates and making it very difficult for big firms to compete or adapt themselves to those tariffs.
Therefore, there is continuing separation of firms in the following two businesses models.
The first is a group of firms paying very high salaries to hire highly experienced lawyers to handle cases such as employment claims from highly compensated employees (CEOs, CFOs, directors, etc) with international assignments; internal investigations in cases of fraud performed by employees where international anti-corruption and anti-bribery regulations apply; harassment performed by directors or hierarchical employees; leak of confidential information; misuse of IT technology (posts on Facebook or Twitter that could affect the employer’s image or create a liability); and rightsizing processes.
The other group of firms has been focusing on reducing costs and providing representation in massive and not particularly complex cases such as overtime; salary differences; call centre employees claiming on a joint and several basis against the company to which they were assigned; personnel from outsourced companies claiming on a joint and several basis against the principal company; disability claims from employees working at factories; and lawsuits from administrative or blue-collar employees claiming severance or differences in the severance calculation.
In the past, the employment matters were administered and managed, by many companies, through the HR department and its budget. However, due to the high costs and increase of the conflicts mentioned above, companies are hiring in-house employment lawyers to deal with both needs. In-house employment lawyers are focusing on helping and assisting the law firms identified in the business model mentioned in the first group to reduce the hourly costs by internally coordinating the gathering of precedents and being the main and only point of contact. In-house lawyers are also requesting estimation of fees or fixed fees to control internal budget in complex matters.
Regarding the law firms mentioned in the second group, in-house employment lawyers coordinate the quality of work, the different quotations and the convenience or not of reaching a settlement.
Vikram Shroff: Unlike developed countries, the Indian market is yet to witness large-scale class action lawsuits by employees, which is good for the growth of the economy. Employee claims are currently limited to unlawful termination, unfair labour practices, permanency of employment, wage and benefits negotiations through collective bargaining and the like. This does not provide employment lawyers in India with an ability to focus only on complex high-level litigation. Practices relating to advisory and documentation continue to be an important part of the overall offering. At the same time, the nature of matters that we encounter on a given day are moving towards more complex issues such as CEO compensation structuring, grant of stock options, expat and secondment arrangements, code of conduct drafting, anti-harassment training, employee investigation for fraud and kickbacks, and separation negotiations.
Given that several multinational companies continue to retain a large workforce in India, clients tend to reach out to specialist employment lawyers for expert advice especially to deal with situations concerning their workforce. We typically work closely with the in-house legal and HR teams on multiple matters besides the CEO on sensitive or confidential matters.
Angelo Zambelli: We have not noticed an increase in employment in-house lawyers, at least with regard to our client companies. It is indeed true that in Italy the general counsels are normally hired from law firms but this does not seem to be the case in the labour and employment law practice. In fact, in contrast to the Anglo Saxon system, where the employment specialist roles are generally covered by lawyers reporting to the general counsel, in Italy this position is mainly occupied by personnel having a strong HR background and reporting to the HR manager so that our point of contact in the HR department is hardly ever a lawyer. Consequently, in general we did not register any change in our practice as our client companies continue to seek for the assistance of specialised employment lawyers also with the day to day activities and not only with more complex litigations.
James Davies: Certain types of disputes are booming. As has been widely reported, the introduction of fees to bring claims a few years ago resulted in a dramatic reduction of employment tribunal disputes. However, team moves and non-compete disputes have increased significantly to reflect increased competition in many industry sectors. Arbitration disputes have increased (often involving US-owned businesses). In my view, mediation has levelled off over the last few years after a surge in interest 10 or so years ago.
Enrique Stile: Lawsuits have been increasing in our jurisdiction due to changes in the different court criteria during the last years. The main source of disputes are claims for disability acquired by workers working at factories invoking a Supreme Court of Justice ruling that declared that the work risk law was unconstitutional. The second source of disputes are claims for deficient registration of employment which triggers double severance and the possibility of justifying a constructive dismissal at any moment.
Benefits such as the provision of car, parking, cell phone and gym have been considered by our judges as unregistered remuneration triggering the risks mentioned above. The third main source of claims are employees from call centres, personnel from outsourced companies and independent contractors claiming “real” employment with the company benefiting from their services.
In the City of Buenos Aires, which is the main country jurisdiction, and other big states, there is a mandatory pre-litigation conciliatory process with the participation of a mediator appointed by the Labor Ministry where many cases are settled.
Vikram Shroff: In general, it can be said that the overall relationship between the management and workers in India has been cordial over the past decade or so. Various companies have been promoting employee-friendly schemes, besides focusing on workers’ health, safety, welfare and security. The workers continue to focus on increasing production and productivity so that they tend to mutually benefit as well. The government on their part continues to play a key role in maintain a conducive environment. All of this has not allowed employee disputes to increase significantly. Trade unions continue to be fairly strong and active in India. However, their reach remains limited to the industrial sectors. The large services sector, which contributes significantly to the country’s GDP, is yet to be unionized to that extent. Accordingly, while regular employment disputes tend to continue in some of the traditional sectors, there has not been much litigation in the services sector, especially information technology, software development and outsourcing, which employs a large number of employees.
Indian labour laws allow for mediation and arbitration of disputes, but given the high associated costs, workers are not in favour of using such means to resolve disputes. They prefer to directly approach the labour courts or the industrial courts, given the fact that some of these courts are more employee-friendly.
Angelo Zambelli: Due to the economic crisis faced since 2008, in Italy there has been an increase in disputes, particularly regarding unfair dismissal that indeed represents today the largest source of disputes. As a reaction, the government has enacted in 2015 a wide reform of the protections of the newly hired employees (hired from 7 March 2015) in case of unfair dismissal, reducing the cases of reinstatement in the event of unfair dismissal and providing the newly hired employees with a progressive increase of protection during the employment relationship, with an indemnity that will increase along with the employees’ length of service. This reform has also introduced a new “quick” settlement agreement consisting in an offer made by the employer to the employee – within 60 days from the date of the dismissal – of a predetermined amount set forth by the law that is not subject to tax or social security contributions and will be immediately paid by the employer via a “cash cheque”.
As far as the alternative dispute resolution methods are concerned, it has to be highlighted that in Italy as of today – there is a draft of law currently under discussion - mediation cannot be used for employment disputes. As for arbitration, we have not registered an increase in its use as this continues to be much more expensive than the ordinary trial and therefore is not commonly used for labour and employment matters.
James Davies: There has been a surge in litigation arising out of individual and team moves. This arises partly from the challenging economics in certain sectors with strong businesses looking to take people or teams from weaker businesses. In the UK, it may also reflect a perceived increased willingness of the UK courts to enforce non-compete restrictions. A particular area of growth has involved jurisdictional issues where more than one legal system is involved. This highlights further how ill-equipped national employment laws are in the context of global business.
Enrique Stile: Due to constitutional rights granting freedom to work and to perform any legal business, the enforceability of post- employment restrictive covenants is doubtful.
There are very few cases relating to restrictive covenants and poaching in Argentina. Most of the restrictive covenants agreements are structured under the civil law as an obligation of not to make, limited on time and, the former-executives collect a consideration for binding his/her right to work. The market practice has been paying a consideration in an amount similar to half of what the former employee would have collected in case he/she continue working. The consideration is paid in monthly instalments or, preferably, at the end of the restrictive covenant.
If the former employee breaches the restrictive covenant, most companies discontinue payments. Only very few companies bring a damages claim for breach of contract as the result is uncertain and the costs are high.
Vikram Shroff: The Indian employment market continues to be volatile. The attrition rate recorded by some businesses, especially those operating in the call centre and business process outsourcing sector, remains very high. This however has not led to an increase in litigation given the fact that post-termination restrictive covenants are generally not enforceable against employees in India. There are however cases relating to breach of confidentiality, theft of information, poaching of clients and employees, etc. that have witnessed a marked increase over the years. Some of these breaches also lead to criminal consequences against the defaulting employees.
Additionally, the last decade has witnessed a reverse “brain-drain” for India. In fact, several foreigners are keen to come and work, and be a part of the India growth story. To that extent and given that the Indian tax authorities have been scrutinising such arrangement fairly closely, it becomes necessary to ensure that the secondment and deputation of personnel to India is done based on legal advice.
Angelo Zambelli: In 2015 the Italian government has passed a new reform according to which the newly hired employees have generally less protection than the “old” employees in case of unfair dismissal. This has been indeed considered as an incentive for the employers to hire new resources, thus creating a movement in terms of personnel. However, the employees hired before 7 March 2015 might be reluctant to change job as by doing this they will lose their higher protections. Despite this, the general perception is that there has been a movement of personnel especially in the financial institutions and banks sector where there is a sort of “war for talent”. As a consequence, such movement has entailed a rise in the number of litigations relating to restrictive covenants, poaching and unfair competition in this sector.
James Davies: I would say that there has been a steady stream in our practice. So far, I get the impression that the UK has not suffered to the same extent as some other jurisdictions though this might be about to change following the Brexit vote and consequent economic uncertainly. Also, the increase in in-house employment lawyers undertaking work which might, in previous years, have been sent to outside counsel has affected case numbers. A particular area of growth has been multi-jurisdictional restructurings.
Enrique Stile: There are still a number of restructurings and dismissals due to mergers and acquisitions were there is an overlapping of functions and personnel.
Technology is also affecting companies and many positions are replaced while there are new posts that require fewer employees.
Employers need to motivate new generations and provide them with a fast career which is directly affecting employees with many years of service which, most of the times, have very high salaries and difficulties to adapt to the new technologies and times.
Collective bargaining cases are very active in Argentina due to high inflation and the consequent need to increase and adjust salaries.
Vikram Shroff: Several leading multinational companies continue to retain a large workforce in India. Any global restructuring decision tends to have a huge impact in India. That results in continuing activity surrounding dismissals as a result of redundancy, downsising and reduction in force.
Additionally, global mergers and acquisition activity would typically end up having an India element, with employee transfers. We are often called upon by clients to assist them with post-merger integration as a result of a global merger.
Finally, as a result of technological developments in robotics and artificial intelligence, jobs that are fundamentally routine and predictable are likely to be significantly impacted. People-intensive businesses in India face a huge risk as a result. Automation of several processes is likely to disrupt any existing workforce strategies leading to large-scale restructuring and redundancies, equally in relation to blue-collared and white-collared jobs.
Angelo Zambelli: In Italy, that together with the other Southern Europe countries (such as Greece, Spain and Portugal) has been one of the countries most affected by the economic crisis, there has been during the last years an increase in the number of restructuring plans having an impact on the personnel. Although the Italian economics is slowly recovering, the companies continue to put in place such plans thus seeking the assistance of lawyers for implementing them. Therefore, we are indeed occupied with bargaining cases related to collective dismissals but for the most of time we are engaged in the activity related to the carrying out of collective dismissals procedures.
James Davies: As a member of the Ius Laboris alliance for a dozen or so years, we have benefitted greatly from the support of alliance colleagues in managing all types of employment work, not only compensation and benefits. This work has increased significantly year on year.
Enrique Stile: Multinationals are looking to harmonise benefits and compensation plans because employees are connected worldwide, travel frequently and differences may lead to a discrimination or equal remuneration for the same work claims. Due to the territoriality principle of employment law applied in various jurisdictions, the harmonization of benefits and compensations may not be possible or enforceable and/or may generate employment, tax or social security risks or exposures. However, a general harmonisation is possible with caveats or side letters applied to the different countries detailing particular rules applicable to the beneficiaries in those jurisdictions in addition to the translation of documents to local language.
Coordination with lawyers experienced in this kind of international and cross border work in other jurisdictions is essential to provide a cost effective and timing answer for clients. Alliances and networks are key to coordinate quality of services, timing and quotations.
Vikram Shroff: Harmonisation of compensation and benefit structures is one of the newer areas where employment lawyers in India get involved and end up playing a key role. Often, as a result of global M&A activity, there is a need to integrate and align the compensation and benefit structures and at the same ensure that it complies with the legal requirements. This also allows companies to move their senior level officers across countries seamlessly.
Given our firm’s focus and expertise on HR Law, we often work in close coordination with some of the leading global law firms as part of the team to assist clients on planning and implementation of the integration across multiple jurisdictions.
Angelo Zambelli: Multinationals are generally looking to apply uniformly benefits and compensation plans for all their personnel across all subsidiaries. This brings the need for a due analysis of the compliance of such benefits and compensation plans with local laws. In fact, the different national legislation in various countries, especially in terms of social contributions and tax payment, has an impact on their application. In this regards, Italy certainly not distinguishes for having an incentivising legislation due to a quite high tax pressure although the government recently enacted some new welfare measures for employees that aim to redistribute wealth to employees also by lowering taxes on specific amounts.
As a member of the Employment Law Alliance (a network of over 3,000 attorneys providing employment and labor expertise in more than 120 countries around the world in addition to all 50 US States) I have experienced that alliances or networks indeed help to facilitate this type of cross-border operations.