International employment and employers exposure to claims in the UK

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1 Employment briefing August 2011 International employment and employers exposure to claims in the UK Summary and implications Welcome to the August edition of Nabarro s employment briefing. With one eye on international travel to hotter destinations, we ll be turning our mind to international assignments of employees, overseas postings and the complex subject of territorial jurisdiction. In particular, we are examining employers potential exposure to UK employment claims from employees working outside Great Britain (GB) and from employees who are employed by an overseas (usually, group) company but who work in GB ( international employees in this briefing). Our focus is on: Your potential exposure to unfair dismissal claims. The earlier and better you understand when and how international employees are able to bring unfair dismissal claims in the UK, the better you can structure your international employment arrangements; Explaining the latest position in relation to equality rights. The scope of equality protection enjoyed by international employees has become unclear following the enactment of the Equality Act 2010 (EQA). In brief, we believe that employers face greater exposure to discrimination complaints than unfair dismissal and we highlight the issues to which you should pay particular attention; Critical developments in relation to enforcement of EU-originated employment rights. We highlight the need to consider carefully the law which the parties choose to govern the employment contract and the risks associated with English law being the governing law of the contract. The law on territorial jurisdiction is notoriously fact-specific. We have seen many developments this year, with as many questions answered as those which remained unsolved. We strongly believe that employers dealing with international employees ought to adopt a case-by-case approach. This is one area where a blanket policy could result in more harm than good. Ask a question If you have any questions please contact Julie Quinn, Partner T +44 (0) j.quinn@nabarro.com The Employment team To find out more about the team, and our capabilities click here 1

2 If any of your employees work overseas or travel regularly on the job, consider early on to what extent English employment laws apply to the arrangements Carrying out an early assessment will enable you both to understand your potential exposure in advance and, if you choose, take steps to minimise it. In the UK, following termination, individuals commonly raise a number of different employment complaints at the same time, e.g. unfair dismissal, wrongful termination and/or discrimination. Unfortunately, different rules determine when UK tribunals have jurisdiction to hear each of these claims. As a result, employers may find themselves having to defend different, yet related, claims in different jurisdictions. And, unless you consider issues of jurisdiction when you plan international employment, you could find yourself facing claims from employees whom you never thought were protected by English employment laws. Employers may find themselves having to defend different, yet related, claims in different jurisdictions If you automatically choose English law to govern all your contracts of employment, you may have to think again It is important to state, in the contract of employment, the law that governs the contractual arrangements. If you do not make an express choice of law, complex international laws will determine the legal system that governs the arrangements. You need to appreciate, however, that in the context of an employment relationship, your chosen law might not govern the employment relationship exclusively. The reality is that: Normally, contractual rights and obligations (e.g. implied contractual terms, interpretation of bonus clauses etc.) will be determined in accordance with your chosen law; but Employees will continue to benefit from mandatory employment rules in the country where they work (e.g. protection from discrimination under EQA for employees working in GB); and Following recent developments, if you choose English law to govern the arrangements, a broad category of employees may also benefit from a wide range of statutory EU-originated rights and protections and even expatriate employees may be in a position to complain of unfair dismissal in UK tribunals (see below). 2

3 Only certain international employees can complain of unfair dismissal in UK tribunals - but their numbers are growing The vast majority of individuals working in GB for a UK business have a right to complain of unfair dismissal (once they meet the necessary pre-conditions). These usually include: Individuals of any nationality who, at the time of their dismissal, were employed by a UK company and were working in GB; Individuals who are working in GB, having been posted or transferred to the UK by an overseas company. A recent EAT ruling suggests that tribunals would agree to hear claims from such employees, even if the respondent company is based outside GB (see box); Individuals employed by a UK company who, in the performance of their job, regularly travel in and out of the UK, but whose base is in GB. An employee s base will be identified by reference to how the employment is carried out in practice (rather than what the contract says). A tribunal will look at the amount of time spent, and work done, in the UK and overseas; the nature of the work performed in the different jurisdictions; the location from which the employment is administered; the currency of pay and where the employee pays taxes; the employee s place of residence; and the law governing the employment contract; Expatriate employees who are based and work overseas cannot usually complain of unfair dismissal in the UK, unless they fall within certain exceptions. However, because expatriate work arrangements vary enormously, the answer to this question will depend on many factors, including the duration of the assignment, whether the employee remains on UK payroll, whether the employee is transferred to an overseas group company etc. If you have or are about to set up expatriate work arrangements, we suggest that you bear in mind the following: The starting position is that expatriate employees are not protected by UK unfair dismissal legislation. However, there are important exceptions; Expatriate employees will be able to complain of unfair dismissal if you recruited them in GB and then posted them overseas: - For the purpose of the UK business; or Pervez v Macquarie Bank Ltd In this case, the EAT held that the procedural ET rules, which require a respondent employer to carry on business in GB, must not prevent a qualifying employee from bringing an unfair dismissal claim. To this end, the EAT held that the employer carried on business in the UK by seconding an employee to work at an establishment here, even if the supply of workers to third parties is not part of [the employer s] business. - To do work for a local group company, but the employees otherwise have equally strong connections with GB and English employment law. It is this second category of expatriate employees which potentially causes the biggest headache. When does an employee have a strong connection with GB and English law? In recent months, tribunals and courts appear to have expanded this category significantly. Although the cases do not establish clear principles, we are able to make the following observations: Nationality, without more, does not establish a sufficient connection with GB; Employment under a contract which is governed by English law may lead to a finding of strong connection ; and 3

4 Other relevant indicators include payment of UK taxes and the absence of connection with the local community in which the individual is working. Territorial jurisdiction grey areas Can an employee complain of unfair dismissal where s/he was dismissed shortly after relocating from London to New York? Whether the employee can complain of unfair dismissal depends on whether the transfer was permanent, the nationality of the company for which the employee was working at the time s/he were dismissed and the nature of the employee s remaining connection with the UK. Can an employee complain of unfair dismissal if, at the time of the dismissal, the employee was not working anywhere? If the employee is still overseas, his/her status will be determined in accordance with the principles outlined above (e.g. is the employee based in GB or is s/he an expatriate). But, if the employee returned to the UK (e.g. for medical treatment), additional factors become relevant. In brief, it seems that if the employee does no work in the UK, and would not have been entitled to complain of unfair dismissal when his/her absence began, then no claim may be made. This is the type of case where we would suggest that you obtain specialist legal advice. Exposure to discrimination claims in the UK: more rather than less We take the view that, despite the uncertainty created by changes introduced by the EQA, your potential exposure to discrimination claims in UK employment tribunals is significant and wider than in relation to unfair dismissal. At the very least, we believe that employees who enjoyed protection under the old equality legislation continue to be protected under the EQA. Up until October 2010, the following employees could complain of discrimination in UK tribunals, even if the discrimination took place outside GB: Any employee who did some, or all of his/her work, in GB; and Any employee who, despite not doing any work in GB, was employed by a UK company; carried out his/her work for a UK company; and was resident in GB either at the time s/he applied for the employment, was hired, or performed their job. In addition, in relation to discrimination claims, the following principles emerge from recent case law: Employees working or based in GB are likely to be able to bring EQA claims in UK tribunals either against a UK employer or against an overseas employer; Employees working outside GB may be able to bring EQA complaints, even if the alleged acts of discrimination took place outside GB, provided they can establish jurisdiction in relation to the time the discrimination took place; Expatriate employees who are based in an EU member state will be able to complain of discrimination in their host state under its own laws (by virtue of the Posted Workers Directive). If a tribunal has 4

5 jurisdiction to hear their claim, they will also be able to proceed under the EQA; Expatriate employees who are based outside the EU will have to convince a tribunal that it has jurisdiction to hear their EQA complaint; The Supreme Court is expected to clarify in due course whether expatriate employees who allege that they have been discriminated on a work visit to the UK can bring a claim in the UK. International employees get a second bite of the cherry: the special case of EU employment rights In 2007, a German lorry driver who never lived or worked in the UK, did not pay UK taxes nor have any other strong connections with the UK, managed to proceed with a holiday pay claim under UK legislation, against his UK employer. Mr Bleuse, whose contract of employment was governed by English law, has single-handedly changed the law on territorial jurisdiction for good. And, it is only fair to admit that those of us who thought that the EAT s decision in Bleuse would never survive were well and truly wrong. In brief, Mr Bleuse was allowed to proceed with a claim under the Working Time Regulations despite falling outside any of the categories of employees who may complain of unfair dismissal. The EAT decided that because Mr Bleuse s holiday rights under the Working Time Regulations were derived from a directly effective European Directive, the effect of EU law was that it had to be extended so as to apply. The Bleuse principle has since been adopted by the higher courts. Alarmingly, in one case, both the Court of Appeal and the Supreme Court allowed employees to bring unfair dismissal claims even though they fell outside the usual categories of protected employees. Why? Because this was the only effective remedy in relation to their altogether separate EU rights (which the employees had under EU laws on fixed-term employment). Although the employer in the case was a public body, the Supreme Court thought that a similar conclusion would be justified in relation to a private employer. The crux of the matter seems to be employment under a contract governed by English law. It is therefore advisable to consider in every case whether English law is indeed the most suitable law of the contract. The answer to this question must depend on a multitude of factors, of which employment rights under EU law is only one. Mr Bleuse has single-handedly changed the law on territorial jurisdiction for good. And, it is only fair to admit that those of us who thought that the EAT s decision in Bleuse would never survive were well and truly wrong Alarmingly, in one case, both the Court of Appeal and the Supreme Court allowed employees to bring unfair dismissal claims even though they fell outside the usual categories of protected employees. Why? Because this was the only effective remedy in relation to their altogether separate EU rights (which the employees had under EU laws on fixed-term employment) 5

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