International Employment Law Update

International Employment Law Update

May 26, 2021, Covington Alert

This International Employment Update summarises recent international employment law developments in Germany, Ireland, Saudi Arabia, Spain, the United Kingdom, and the United States.

Germany

Women’s Quota on German DAX 30 Company Boards

On 7 January 2021, the German government passed the draft of the Second Leadership Positions Act (Act to Supplement and Amend the Regulations for the Equal Participation of Women in Leadership Positions in the Private and Public Sectors, or FüPoG II for short; available here). It supplements FüPoG I, which came into force in 2015 and, among other things, introduces a rigid quota of women on management boards. The clear aim is to bring about a long-term change in corporate culture towards having more women in management positions and to bring the issue into public focus. Companies should do more to ensure equal participation of women and men in management positions.

The FüPoG I set a rigid quota of at least 30 percent of both genders for supervisory boards of listed companies and companies with equal codetermination. Since then, vacant positions must be filled by the underrepresented gender. In the case of listed or co-determined companies, flexible quotas of women on supervisory boards, management bodies and the top two management levels below management must also be set. However, there is no provision for tough sanctions in the event of failure to meet the specified target.

The FüPoG II focuses on executive boards. On the boards of listed and co-determined companies with more than 2,000 employees that have more than three members on the board, at least one member must be a woman. Boards of listed or co-determined companies that do not bring a woman on board will have to justify this "zero" target in the future. Companies that do not set a target or set the "zero" target without justification can be severely sanctioned for this according to sec. 334 German Commercial Code. In case of breach of the reporting obligations by capital market-oriented corporations, fines up to (i) EUR 10 million, (ii) 5 percent of the total annual turnover or (iii) twice the economic benefit derived from the administrative offense can be imposed.

Voluntary quotas set by companies themselves have not been effective in increasing the representation of women on boards in recent years. The proportion of women on the boards of German DAX-listed corporations was 12.8 percent last year (according to the Swedish-German Allbright Foundation). Compared with other Western economies, Germany fares poorly; the proportion of women on boards in the USA, UK and Sweden averages at 25-30 percent.

In addition, the results of the rigid quotas on supervisory boards introduced in 2015 are extremely positive; studies have shown that companies with greater gender diversity at management level are more successful in terms of decision-making and achievement of corporate goals.

Although only around 70 companies in Germany are affected by FüPoG II, it is hoped that these 70 large companies will serve as role models for smaller companies with regard to diversity at management levels. Incidentally, it is expected that legislative efforts to significantly increase the proportion of women in management positions will expand in the coming years.

Irish Government Announces Steps to Promote Remote Working, including Code of Practice on the “Right to Disconnect”

The Irish government changed in late June 2020 - just as the country exited its first COVID-19 lockdown. Remote working, unsurprisingly, featured strongly in the five year Programme for Government agreed between the incoming coalition government partners. The Programme is peppered with references to the remote working concept to support broadband and digital hub development and to help transport, climate, and family supportive policies. Specifically, it included a commitment to move to a mandatory 20 percent remote working requirement for public sector employers and colleges in 2021. 

On April 1st this year, the Tánaiste (Deputy Prime Minister and Minister for Enterprise Trade and Employment) announced two additional steps in the promotion of remote working with:

1. a Code of Practice on the Right to Disconnect (the “Code”); and
2. a public consultation on legislating the right to request remote working.

The aim of the Code (which, while not legally binding, will be persuasive in workplace dispute fora) is to encourage and guide employers to adopt appropriate remote working policies. This also helps promote existing legal obligations which, in light of the pandemic, have invariably become difficult to manage. These obligations encompass the recording of working time, health and safety obligations and the right to written terms of employment with stated working hours and related information.

The Code embodies three key elements:

1. the right not to have to work routinely outside normal working hours;
2. the right not to be penalized for refusing to so work; and
3. the duty to respect another person's (e.g. colleague/client/customer) right to disconnect by not routinely ringing or emailing them outside normal working hours.

It is worth noting that these rights are tempered by the use of the word 'routinely'. The Code recognizes that some businesses and roles do not always work on a standard hours basis to meet business needs and that such flexibility should be recognized and appropriately balanced by the employer. It also recognizes that 'occasionally legitimate reasons arise when it is necessary to contact staff outside of normal working hours.' 

For businesses operating across borders, the right to disconnect policy should give clear guidance on expectations for communicating across different time zones. Also encouraged is that 'tone and sense of urgency' in written communications should be proportionate, particularly where sent out of hours, so as to avoid any misinterpretations.

A sample Right to Disconnect policy is contained at the end of the Code (see here).

Vaccines Will Be Mandatory for All Workers

The Ministry of Human Resources and Social Development has announced that all workers attending a workplace in Saudi Arabia will be required to have received a COVID-19 vaccination. The vaccines will be mandatory for workers in all sectors, and employers should begin preparations to ensure that all employees have been vaccinated before they return to work.

Spain Announces New Legislation that Gives Gig Economy Workers Employee Rights

A new law in Spain, which was given royal decree this month, requires employers in the food delivery and courier sector to employ any workers currently working for them on a freelance basis by mid-August 2021. The legislation reflects a recent decision of the Spanish supreme court that ruled that people working for Glovo, a Spanish food delivery app, were employees, allowing them to gain formal contracts and benefits. The new law gives these freelance workers employee status and corresponding rights, and will also give unions the right to access the algorithms used by employers to manage their workforce. The aim is to ensure workers are not underpaid if demand for the service fails, and to monitor working hours and conditions. Some companies and delivery drivers have complained that the new regulations will restrict drivers’ ability to work for multiple companies and to have flexible work schedules.

Details of UK employment law developments can be found in our recent client alert addressing the “Top Five UK Workforce Issues of 2021”, available here.

Department of Labour (“DOL”) Withdraws Independent Contractor Rule

On 7 January 2021, DOL under the Trump Administration published a new rule (known as the “Independent Contractor Rule”) for determining whether workers are employees under the Fair Labor Standards Act (“FLSA”). However, the new rule was short-lived: The Independent Contractor Rule was delayed on 20 January 2021 as part of President Biden’s “Regulatory Freeze Pending Review,” and DOL withdrew the rule entirely on 6 May 2021. 

The Independent Contractor Rule would have broadened the FLSA test for independent contractor status by focusing on the “economic realities” of the work arrangement and whether the supposed employer has actual control over the worker. Now that rule has been withdrawn,  the test to determine worker classification under the FLSA will return to the traditional, and stricter, balancing approach, where businesses must consider the totality of the circumstances to determine whether there exists an employee/employer relationship.

DOL Proposes New Joint Employer Rule

On 23 February 2021, DOL proposed a new regulation on joint employment status under the FLSA to the White House for regulatory review. DOL’s action indicates that new guidance will follow for determining joint employer status when an employee performs work that benefits more than one employer.

In March 2020 DOL under the Trump Administration released a joint employer rule that adopted a four-factor test to determine whether one or more employers could be deemed joint employers when exercising control and supervision over an employee. The four-factor test assessed whether the alleged joint employer: (1) hired or fired the employee; (2) supervised and controlled the employee’s work schedule or conditions of employment to a substantial degree; (3) determined the employee’s rate and method of payment; and (4) maintained the employee’s employment records. The appropriate weight given to each factor varied based on the circumstances.

In September 2020 the U.S. District Court for the Southern District of New York struck down DOL’s joint employer rule, as the court took the view that the rule conflicted with and unlawfully limited the FLSA’s broad definitions of the terms “employer,” “employee,” and “employ.” The court also found that DOL did not adequately justify the reasoning behind its departure from its prior interpretations of the joint employment concept, and it did not adequately consider the cost to workers. DOL, along with several franchise and trade associations, appealed the decision in support of the rule’s legality.

Notwithstanding the pending litigation, DOL now plans to release a new proposed joint employer rule once it receives approval from the White House. It is unclear at this stage whether the newly proposed rule would rescind the March 2020 rule, modify it, or replace it.

Potential Changes to Pay Equity Laws

The topic of pay equity is under increasing scrutiny and, under the Biden Administration, the scrutiny is likely to manifest in changes in the law. It has been clear for some time that, at a federal level, the Equal Pay Act of 1963 (“EPA”) has been generally unsuccessful in closing the gender pay gap. A number of lawmakers have vowed to take action over the years, but with Democrat-controlled legislative and executive branches, amendments to the EPA are now highly likely.

The Paycheck Fairness Act (“PFA”), which previously faced resistance in the prior Republican-majority Senate, is expected to be enacted under the new administration. The proposed legislative changes intend to address some of the loopholes in the EPA and expand employer obligations to combat the gender pay gap. For example, the PFA would ban asking job candidates about their previous salary history and would make it easier for employees to pursue individual and class action discrimination claims against their employers. The PFA would also narrow the list of factors that allow for an employee to be paid more than an employee of another gender, limiting them to only “bona fide factors other than sex,” such as education, training, or experience. President Biden has also expressed his intentions to restore Obama-era rules that expanded the EEO-1 reporting process to require certain employers to collect and disclose compensation information in order to provide government agencies insight into pay disparities that would assist with targeting enforcement efforts.

In addition to expected changes on the federal level, employers also need to pay attention to the growing web of state pay equity laws imposing various requirements on employers. These are challenging as they often differ from state to state, and employers have to comply with the laws of each state they operate in. Recently, Colorado became the latest state to begin enforcing its own pay equity law, effective 1 January 2021; the law requires employers to include pay and benefit information with each job opening post and to communicate promotion and job opportunity information to all current employees working within the state. California has also implemented new reporting requirements that require employers with at least one worker in California and 100 or more company-wide to annually submit to the Department of Fair Employment and Housing pay data by specified job categories and by race, ethnicity and sex.

In response to these developments, employers should be diligent in identifying and rectifying unjustified pay disparities, for example by undertaking a pay equity audit. Such audits are not only good practice, but they can provide an affirmative defence against discrimination claims.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Employment practice.