EuroResource--Deals and Debt | Special Labour Edition

Recent Developments

Europe—Several significant changes in European labour and pension laws have recently been enacted or are anticipated in the near term.

Spain—Changes in the social security system are expected, including in the retirement age and allowance. These changes will affect how pensions are calculated and will include ways to review the final pension amount depending on factors such as health, life expectancy, unemployment and sick leave allowance. This will result in a reduction of social security allowances, ensuring the viability of the pension system in the mid/long term. Although the EU is requesting a reform of the employment dismissal laws and the creation of "mini job" contracts for young workers, the Spanish government so far has resisted such reforms.


Italy—Italian labour and pension laws were significantly amended in 2011 and 2012. The labour law reform included modifications to the rules governing fixed-term employment contracts, apprenticeships, dismissals and the social security allowances available to companies suffering from the financial crisis. The 2011 pension reform increased the retirement age and modified the criteria for the accrual of social security contributions. While "minor" labour law amendments are currently being discussed, including making it easier and more efficient to use fixed-term employment agreements (e.g., by eliminating the necessary gap period between two fixed term agreements or by introducing a maximum number of possible renewals to such agreements), they are not expected to be approved in the near future.


France—In early 2013, the main French employees' and employers' unions entered into an Inter-Professional National Agreement in an effort to balance increased flexibility for employers and additional rights and guarantees for employees. This agreement became law on 14 June and took effect on 1 July. It includes the following changes to French labour laws: (i) modifications to employee redundancy procedures for distressed employers; (ii) increased flexibility for employers confronting serious temporary economic difficulties, including the option to unilaterally reduce work hours or compensation for up to two years pending negotiations with employees; (iii) modifications to employment litigation procedures to promote early-stage settlement discussions, as well as the shortening of the statute of limitations for termination and salary-related disputes; (iv) an increase in employer unemployment contributions from 4.5 percent up to 7 percent for fixed-term employees, depending upon the duration of the fixed-term agreement; and (v) augmentation of the information available to employees and their representatives by the creation of information databases and, for companies with at least 10,000 employees worldwide or at least 5,000 employees in France, by providing employee representatives with access to board meetings.


The UK—In an attempt to simplify employment laws, the government has introduced a range of legislative reforms aimed at promoting economic growth and making employment laws less restrictive for employers. For example, the Enterprise and Regulatory Reform Act 2013 ("ERRA") will give shareholders of listed companies more control over directors' pay. These companies will be prevented from making any remuneration payment (including a termination payment) without shareholder scrutiny. ERRA will also amend existing whistleblowing legislation to ensure that all protected disclosures are in the public interest, which will prevent whistleblowing claims based solely upon the breach of an employment contract.


A controversial change coming into force in September 2013 is the ability of employees to sacrifice some of their statutory employment rights in exchange for shares in their employer company valued at between £2,000 and £50,000. For example, if an employee elects to accept shares, he or she will waive any right to a statutory redundancy payment and the right to bring an unfair dismissal case.


There has also been a recent change in the rules governing collective consultation during a redundancy process. Now, if an employer proposes to make 100 or more employees redundant within a 90-day period, the minimum consultation period that must be undertaken with the affected employees before the first redundancy can take effect is 45 days. Previously, the time period was 90 days.


Germany—In October 2012, the German Federal Labour Court (Bundesarbeitsgericht) rejected an attempt by the acquirer of an insolvent company to circumvent European transfer of undertaking rules. The acquirer attempted to contractually transfer employees to a so-called "transitional company" (Transfergesellschaft) for a few hours only. The employees involved had previously signed five different employment offers presented by the acquirer, some of them limited, some unlimited in time. The acquirer subsequently accepted one of the offers, which was a fixed term contract. The court held that this was an unlawful circumvention of the business transfer rules, which are intended to safeguard the continuation of the employment relationship in the event a business is acquired by a new owner. This represents a fairly blunt example of an attempt to avoid statutory laws. However, a purchaser could conceivably acquire solely the assets of an insolvent company after the employees have been transferred to a transitional company, and acquire the employees from the transitional company at a later time. Due to increased scrutiny from the labour courts, precise planning of any such transfer would be required.