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New rules of engagement

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New rules of engagement

A promised outcome of Brexit was that UK businesses will be more free to trade outside the EU. It is uncertain at this stage how this promise will pan out, and what special new trading relationships the UK will develop, so companies should have one eye on new opportunities, and the other on the many and varied rules, regulations laws and cultures evident in the big wide world.

Global business expansion, of course, always has to be carefully planned for and the cultural, social, legal and economic realities are extensive and complex, take; import and export regulations, taxation, agency laws, liability laws, intellectual property regulation, producer/distributor liability risks and other governmental and regulatory barriers. Where staff will operate in a new market, whether they are individuals recruited directly overseas, or UK employees who travel to work abroad, either on short or long term assignments, understanding and complying with local employment and immigration laws will be crucial, and getting to grips with the diverse patchwork of worldwide employment regulation, there are some key areas where compliance can be tricky.

Business transfer rules will be relevant where the business enters a new jurisdiction via a business acquisition, a business merger or through outsourcing or insourcing. Employee transfer rules differ significantly across the globe, from automatic transfer under the Acquired Rights Directive across the European Union, to termination and re-hire which is the device used in the US and much of Asia. The required timeframes, employee consultation obligations and risks involved also vary significantly between jurisdictions. In Russia, Japan and the UAE, for example, there are no specific regulations, whereas other countries, such as France, Germany and the Netherlands, are heavily regulated and getting it wrong there could be costly and, in France, even halt the progress of the business transaction. Timing is often crucial, particularly in relation to employee consultation processes which can often be one of the most complex issues to get right.

Any business investing in operations in a new country will want to protect its local business assets. These assets are likely to comprise not only trade secrets and confidential information, but customer and other trade connections and workforce stability. Although there can be external threats, the biggest threat to these assets often comes from inside the business. Local employees will have access to valuable customer, financial and strategic business information; they will be the crucial link in local trade relationships, and hold significant sway over colleagues. As such, losing a key employee in any jurisdiction can cause significant damage to the business. Employers should consider mitigating this risk at the start of an employment relationship by using contractual non-compete restrictive covenants and other restraints on post-termination activity. Expanding businesses must, however, understand the differences and commonalities between jurisdictions when implementing provisions of this type in employment contracts for staff overseas. In some countries, such as India and Mexico, non-compete restraints are simply not permitted. In others, such as Germany, Belgium and France, substantial compensation must be paid in respect of a restraint from work. Certain jurisdictions, like the UK and the UAE, take a more relaxed approach and permit restraints so long as they are necessary to protect a legitimate business interest.

Just as business operations and practices have been globalised over recent years, there have also been changes to industrial relations systems across the world. Labour relations, which were previously more central and controlled by sectoral or national collective bargaining, are becoming increasingly decentralised and the world’s largest unions have formed international affiliations to enhance their scope and capabilities. These changes, coupled with general compliance risks, make it essential for businesses to be aware of the collective employee relations requirements and climate in any country into which they are expanding. Industry wide collective bargaining agreements remain common in a number of diverse countries, such as Belgium, Singapore, Brazil, Sweden and South Africa. On the other hand, they are rare in significant parts of Asia such as China, Japan and Hong Kong but also in Canada and the UK.

Works councils play an important role in workplace relations in many parts of the European Union with elected councils required in, for example, Austria, Belgium, Italy, France and the Netherlands once certain staffing levels are reached. This is not an exclusively European concept, however, and elected employee committees are also required in, for example, Thailand and South Korea, again subject to staff numbers. The jurisdiction where works councils have perhaps the largest influence is in Germany where the elected works council plays a major role in the everyday life of a business. By law, employees in every business of at least five employees may form a works council at their own initiative. The works council has information, consultation and co-decision rights in relation to hiring, positioning and dismissals, the internal organisation of the business, restructuring and personnel planning, among other topics. This year (2016) has continued to see high levels of activity in the development of data protection regulation around the world which is profoundly impacting the way in which global businesses are required to approach collecting and managing personal information, including employee data.

The transfer of data from the EU to the US continues to be a significant concern following the ECJ’s decision in late 2015 to strike down the Safe Harbour Agreement, which provided a mechanism for valid transfers of personal data from the EU to the US. Although the European Commission and the US Department of Commerce recently approved a replacement scheme, the Privacy Shield, threats of a legal challenge and doubts about the long term validity of this scheme mean it is not a silver bullet for trans-Atlantic data transfers. Also at EU level, agreement has been reached on the General Data Protection Regulation which will come into force in 2018, but will require considerable advance compliance activity. Of equal significance is the toughening of legal requirements and of enforcement in countries such as Korea, Hong Kong and Singapore. Furthermore, the emergence of laws in countries which previously had no data protection law in place, including a large number of countries in Asia, Latin America and the Middle East, continues and could create considerable enforcement risk in the future. Expanding businesses must keep track of these requirements to avoid committing violations in this highly regulated area.

Two other recent developments which impact on global business expansion are the increased security risks of business travel in view of the recent terrorist attacks across the globe and an increased focus on worker welfare in global supply chains. A business with an expanding global footprint may require staff to travel to parts of the world where there are security risks such as crime, civil disorder and health threats. This, coupled with the recent increased incidence of terrorist attacks at transport hubs, make it more important than ever for employers to consider how to comply with their duty of care towards their employees who need to be properly prepared for and supported during periods of travel and overseas working. Key components of exercising this duty of care are risk mitigation strategies and an effective company travel policy which will cover topics such as planning for business travel, health guidelines, security guidelines, and how to respond to or report any incidents.

Historically, worker welfare in global supply chains has been governed by voluntary initiatives, such as the UN Guiding Principles, but now there is increasing momentum towards compulsory reporting by multi-national businesses. This will move further forward in the EU when the Non-Financial Reporting Directive comes into force in December 2016. Under this Directive, around 6,500 companies will be required to report on their human rights position, including labour matters. In the UK, the landmark Modern Slavery Act 2015 (MSA) came into force in October 2015. This requires businesses supplying goods or services in the UK, with total global turnover of £36 million or more, to produce an annual statement of steps taken to ensure that there is no slavery or human trafficking in any aspect of their supply chain. MSA compliance is, without doubt, a significant challenge for international business. Human rights within the supply chain should be assessed as part of any global expansion programme, particularly for those in high-risk industries or where operations in a high risk location are being considered. Where a foreign subsidiary is part of a parent company’s business or supply chain, the parent’s statement must cover actions taken in relation to the subsidiary to prevent modern slavery. It may reflect badly on a parent company if it is seen to be ignoring the behaviour of its non-UK subsidiaries. For businesses considering expanding into new markets, getting a handle on the employment law issues will typically be high on the list of priorities. Navigating through the laws and local practices of each jurisdiction can be daunting, but is essential to the success of any new venture.

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