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Asia-Pacific Labor & Employment News

Asia-Pacific Labor & Employment News

Autumn 2016

Read the full Asia-Pacific Labor & Employment Newsletter.

Upcoming and Recent Changes in the Law

China: Details of Major Labor Law Violators to be Made Public

Elizabeth Cole and Cathleen Sun

On September 1, 2016, the PRC Ministry of Human Resources and Social Security ("MOHRSS") issued the Public Announcement of Major Labor and Social Security Violation Acts Measures ("Measures"), which will take effect on January 1, 2017. Under the Measures, major labor and social security law violations will be announced through labor authorities' official websites and major local media, as well as recorded in the employer's labor and social security credit file. In addition, they will be included in a human resources social security credit system, as part of the national society credit system, to be shared with other government agencies and organizations. Municipal and county-level labor authorities are required to announce major violation cases once a quarter, and MOHRSS and provincial level labor authorities are required to make announcements twice a year.

Major labor and social security violations include: (i) delaying or deducting salary payments or refusing to make salary payments; (ii) refusing to enroll in the social insurance system or refusing to make social insurance contributions; (iii) serious violations of rules on working time, rest time, holidays, protection of female employees and minor employees (under the age of 18 but reaching the age of 16), or prohibition of hiring child laborers (under the age of 16); and (iv) violations causing severe adverse impact to society.

What is regarded as "serious" or "severe" will be determined by local labor authorities according to their applicable standards.

China: New Salary Payment Measures in Shanghai

Elizabeth Cole and Cathleen Sun

The Shanghai Municipal Human Resources and Social Security Bureau issued new Shanghai Enterprise Salary Payment Measures ("New Salary Measures"), effective from August 1, 2016 to July 31, 2021. The New Salary Measures include a number of changes to the prior measures issued in 2003 to ensure consistency with the Labor Contract Law 2008 and its amendments. The New Salary Measures also provide guidance on some issues that are not covered or clearly stated in the Labor Contract Law, including: (i) the calculation base for overtime payment and leave payments; (ii) the timing of payment of final payroll upon termination; and (iii) the circumstances and extent to which an employer may decrease or deduct wages in the event of violations of rules and policies.

China: Decrease of Social Insurance Contribution Ratio

Elizabeth Cole and Cathleen Sun

In order to ease the burden on companies and boost the economy, the central government has decided to decrease the contribution ratio of pension insurance, unemployment insurance, and housing fund for two years from May 1, 2016. Social security contribution ratios continue to vary by location, so employers should review their local requirements to see how this policy will be applicable to their businesses. Many local authorities have issued updates to their rules following the announcement of the national policy.

Hong Kong: New and Revised Guidance Issued for Employers under Personal Data (Privacy) Ordinance

Elizabeth Cole

In April 2016, the Hong Kong Privacy Commissioner for Personal Data issued a Revised Code of Practice on Human Resource Management ("HRM Code") and new Guidelines on Monitoring and Personal Data Privacy at Work ("Monitoring Guidelines") under the Personal Data (Privacy) Ordinance ("Ordinance"). The HRM Code was issued together with a related Compliance Guide and Responses to Common Questions. The HRM Code is intended to provide practical guidance to employers on how to properly handle personal data for each phase of the employment process, from recruitment through to former employee.

Failure to abide by the mandatory provisions of the HRM Code will be considered, and could be viewed unfavorably, by the Privacy Commissioner in any case against the employer. The Monitoring Guidelines provide guidance to employers on the application of the provisions of the Ordinance to monitoring and collection of employee data and how and when such activity is appropriate. While not mandatory, the Monitoring Guidelines do provide suggested best practices for employers.

Japan: Amendments to the "Ordinance for Enforcement of the Act on the Succession to Labor Contracts upon Company Split" etc.

Yuichiro Mori and Yuto Watanabe

Amendments to the "Ordinance for Enforcement of the Act on the Succession to Labor Contracts upon a Company Split" ("Succession Act Ordinance") and the "Guideline for Appropriate Implementation of Measures to be Taken by a Split Company or Succeeding Company Related to the Succession to Labor Contracts or Collective Agreements Executed by a Split Company" ("Succession Act Guideline") came into effect as of September 1, 2016.

Under the Japanese laws, labor contracts are automatically transferred upon a company split (Kaisha-Bunkatsu) without requiring the individual consent of the employees, pursuant to a company split agreement. However, employees who do not engage in the primary activities of the successor business ("Non-Essential Employees") may choose not to have their labor contracts transferred pursuant to the company split.

The Act on the Succession to Labor Contracts upon a Company Split ("Succession Act"), Succession Act Ordinance, and Succession Act Guideline all contain procedures designed to increase employee awareness of the effect of employment transfers. They encourage communication between employers and employees by imposing obligations on companies to consult with their employees and ensure they are well informed before embarking on the company split process. Specifically, companies must: (i) consult with the union or other representative that represents the majority of employees and inform them about the reasons for the company split (and any other relevant matters); (ii) conduct individual consultations with relevant employees regarding the succeeding company and the impact of the company split; and (iii) issue notices to the employees who will be transferred, outlining any changes to their employment conditions as a result of the company split.

Under the previous Succession Act Guideline, companies were not required to conduct individual consultations with Non-Essential Employees under the step in (ii) above but were required to issue a notice under the step in (iii). The amended Succession Act Guideline includes Non-Essential Employees among the employees with whom companies are required to individually consult, and as a result, Non-Essential Employees will be given greater notice of the intended transfer and more time to determine whether or not to consent to it.

In addition, the "Guideline for Matters to be Noted by Company Carrying Out Business Transfers or Mergers" ("Business Transfer Guideline") also came into effect as of September 1, 2016. Under Japanese law, an employee's individual consent is required to transfer a labor contract upon a business transfer (Jigyo-Joto). However, since there were previously no rules governing how employee consent should be obtained, employees often consented without being fully informed about the business transfer. The Business Transfer Guideline now provides a number of requirements with which companies must comply in obtaining employee consent to a transfer of their contract. These procedures are similar to those stated above in respect of company splits and are similarly designed to increase employee awareness regarding business transfers. For example, the Business Transfer Guideline requires that the assignor company fully explain the business transfer to employees whose employment will be transferred and to consult with them so as to gain their informed consent.

These ordinances and guidelines have not made any fundamental changes to the laws governing succession to labor contracts upon a company split, but they do impose stricter procedural requirements on companies. Companies should be careful to ensure they comply with these ordinances and guidelines in order to avoid any doubt as to the validity of employment transfers.

Singapore: Australia–Singapore Comprehensive Strategic Partners

David Longstaff

On May 6, 2016, Australia and Singapore announced a new package of initiatives to advance Australia's economic and defensive partnership with Singapore.

The wide-ranging initiatives include greater certainty for Australians entering and working temporarily in Singapore, with reduced barriers to labor mobility. Singapore will provide new guaranteed access for Australians to stay and work in Singapore in the following categories: (i) Australian independent executives and contractual service suppliers, up from three months to two years; (ii) Australian intra-corporate transferees, up from two years to three years (with a new maximum stay of 15 years); (iii) Australians offering services relating to installation and servicing of machinery and equipment for up to three months; and (iv) spouses and dependants of Australians granted entry as intra-corporate transferees, independent executives, and contractual service suppliers.

Singapore will also establish a help desk and streamlined processes for Australian businesspeople seeking to enter and work in Singapore.

Singapore: Increase in Qualifying Salary for Singapore Employment Pass from January 1, 2017

David Longstaff

Foreign professionals, managers, and executives require an employment pass or permanent resident status to work in Singapore. From January 1, 2017, the qualifying salary for Singapore Employment Pass ("EP") applications will increase from $3,300 to $3,600 per month. This change is part of the Ministry of Manpower's regular updating of the EP qualifying salary to keep pace with rising local wages and maintain the quality of Singapore's foreign workforce.

To provide lead time for businesses to make adjustments, existing EP holders whose passes expire: (i) before January 1, 2017, will be able to renew, for a duration of up to three years, based on existing EP criteria; (ii) between  January 1, 2017 and June 30, 2017 (dates inclusive), will be able to renew, for a duration of one year, based on the existing EP criteria; and (iii) from July 1, 2017 onwards, will have to meet the new criteria for renewal, for a duration of up to three years.

Singapore: Itemized Pay Slips and Employment Records

David Longstaff

From April 1, 2016, all employers must issue itemized pay slips to employees covered under the Employment Act.

Itemized pay slips can be in soft or hard copy and are to be given within three days of payment. Pay slips must include the following: full name of employer; full name of employee; date of payment (or dates, if the pay slips consolidates multiple payments); basic salary; start and end date of salary period; allowances paid for salary period; any other additional payment for each salary period, such as bonuses, rest day pay, or public holiday pay; deductions made for each salary period (including employee's CPF contribution); overtime hours worked; and net salary paid in total.

Employers must keep a record of all pay slips issued in soft or hard copy for the last two years. From April 1, 2016, all employers must maintain detailed employment and salary records of employees covered under the Employment Act in soft or hard copy for two years.

Employee records must record the following: address; NRIC number; for non-citizens, work pass number and expiry date; date of birth; gender; date of starting employment; date of leaving employment; working hours, including duration of meals and tea breaks; and dates and other details of public holidays and leave taken.

The salary records must contain the same items required for itemized pay slips (listed above).

Taiwan: Implementation of Adequate Funding of the Labor Pension Reserve Fund under the Amended Labor Standards Act Begins in 2016

John Lin, Raymond Wang, and Jean Kuo

In Taiwan, the labor pension reserve fund is the fund from which employees eligible for the pension scheme under the Labor Standards Act ("LSA") (generally referred to as the "Old Pension Scheme") receive their pension payments upon retirement. Pursuant to the old LSA, employers were required to contribute between 2 percent and 15 percent of their total monthly payroll to the labor pension reserves fund. Employers were required to take into consideration the length of service of their employees, their employee wage structures, employee turnover rates, and other factors when determining their contribution rate. However, more than 80 percent of employers have been contributing to the labor pension reserves fund at just the 2 percent minimum contribution rate.

In recent years, the insufficient funding of the labor pension reserve fund has led to an uptick in disputes between employees and employers over outstanding pension and severance payments after the employer had ceased operations or been declared bankrupt. In light of this, the LSA was amended on February 4, 2015, to require employers to annually review whether their funding of the labor pension reserve fund is sufficient to cover the total amount of pension payments to employees who are eligible for retirement within a year. If necessary, employers must make up for any shortfalls by March 31 of the following year. In conjunction with the amendment of the LSA, the Ministry of Labor has also introduced rules on how to calculate the adequate level of funding of the labor pension reserve fund, so that employers are prepared for the implementation of the LSA amendments.

As a consequence of the amendments, employers can no longer contribute to the fund at just the 2 percent minimum contribution rate. Any employer who fails to fulfill the funding requirements will be liable for fines ranging from NT$90,000 to NT$450,000. Local governments have begun issuing such fines as of July 2016. Since the implementation of the amended LSA, labor pension reserves fund contributions by employers have skyrocketed. According to statistics released by the Ministry of Labor in July 2016, historic yearly contributions to the labor pension reserve fund by employers averaged approximately NT$60 billion per year. By way of comparison, in 2015, employer contributions to the labor pension reserve fund totaled NT$83.6 billion, whereas in the first six months of 2016, employer contributions had already reached NT$167.4 billion. Additionally, the number of employers who have met the funding requirements has grown to 98,000, representing more than 80 percent of all employers.

Key Decisions of Local Courts and Regulators

Australia: Arrium Workers Agree to 10 Percent Pay Cut as Administrator Seeks to Secure the Company's Future

Adam Salter and Claire Goulding

Workers at embattled steelmaking and iron ore mining company Arrium have accepted a new enterprise agreement that provides for a 10 percent pay cut. Arrium entered voluntary administration in April of this year, and since that time, there have been around 250 job losses coupled with reductions in hours for the remaining employees at the Whyalla steelworks and iron ore mine in South Australia. The enterprise agreement was negotiated by union representatives and put to a formal vote before approximately 1,600 workers this month. It was the second time the agreement had been presented to employees, after it was narrowly rejected in late August 2016. The previous enterprise agreement expired at the end of August 2016.

The new enterprise agreement, which runs for four years, contains a 10 percent pay cut in the first year, a pay freeze in the second year and 3 per cent increases in the third and fourth years. The agreed pay cut is intended to provide greater security for the workforce and assist administrators in attracting a new buyer for the business (possibly from overseas). Indeed, it has been regarded by the administrators as a critical part of the sale process. Meanwhile, both major political parties have pledged to provide financial support to the company to ensure the survival of the mining industry in South Australia.

Australia: Fair Work Commission Rules that Redundancy Payments Must Take into Account Prior Casual Employment in Certain Circumstances

Adam Salter and Claire Goulding

In a surprising decision that is likely to have far-reaching implications, the Full Bench of the Fair Work Commission ("Commission") has ruled that, in calculating redundancy payments, the employee's period of continuous service must take into account certain periods of prior casual employment.

The employer, Forgacs Engineering Pty Ltd ("Forgacs"), and its employees were covered by an enterprise agreement ("Agreement"). As part of a large-scale redundancy, Forgacs calculated redundancy payments for workers, some of whom were employed on a permanent basis but had prior contiguous periods of casual service. In doing so, Forgacs counted the prior casual service for the purpose of long service leave, but not for calculating notice or severance payments. At first instance, the Commission held that Forgacs had acted correctly in not counting periods of casual service as "continuous service." On appeal, the Full Bench of the Commission overturned the decision.

The Agreement in question specified that redundancy payments should be calculated by reference to periods of "continuous service," a term defined in section 22 of the Fair Work Act 2009 (Cth) ("Act"). The Commission observed that, while it might seem contrary to "industrial justice" to allow an employee who has received a casual loading to have the same period of employment counted toward severance payments, neither the Agreement nor section 22 of the Act excluded a period of regular and systematic casual employment from the definition of "service" or "continuous service." As a result, where a worker completes a period of regular and systematic casual employment and immediately thereafter commences permanent employment, the earlier period should be included in the calculation of that worker's years of continuous service. In dissent, Commissioner Cambridge disagreed with the majority's interpretation of section 22 of the Act and asserted that casual employment, by its very nature, does not count as service and is not intended to attract service-related benefits under the Act.

As a result of this decision, employers who have a practice of transitioning casual employees to permanent employment should be aware that any future redundancy entitlements may include casual periods of service completed immediately prior to the commencement of permanent employment. This decision has divided many, especially employer associations. Indeed, in a submission to the Commission as part of its four-yearly review of modern awards, the Australian Industry Group asked the Commission to reject the majority finding in this decision and follow the dissenting judgment, which is more consistent with previous authorities.

Australia: Supreme Court Upholds Validity of a Six-Month Restraint to Prevent Senior Executive Commencing Employment with Competitor

Adam Salter and Claire Goulding

The Supreme Court of New South Wales recently considered an application for an interlocutory injunction by an employer who sought to prevent an employee commencing employment with a competitor company by relying on a restraint clause in his contract of employment.

The first defendant, Mr Guy, was employed by the plaintiff, DP World Sydney Ltd ("DPW"). On April 28, 2016, pursuant to his employment contract, Mr Guy gave notice that he had accepted a position with a competitor company. In accordance with the termination clause (clause 17), Mr Guy was required to stay at home during the three-month notice period ("gardening leave") but remain contactable and available to work. Mr Guy was informed that he would remain an employee until the notice period had elapsed and termination of his employment was effective (July 28, 2016). Thereafter, the post-employment restraint would commence for three months. In response, Mr Guy argued that the gardening leave should count toward the three-month restraint period, so that he was entitled to commence employment on July 29, 2016. DPW sought an interlocutory injunction to restrain Mr Guy from commencing employment with the competitor until October 27, 2016.

At common law, in order for a restraint to be enforced, it must be: (i) reasonable, having regard to the interests of the parties; and (ii) not unreasonable in the public interest. A restraint of trade is "reasonable" if the employer has a legitimate protectable interest and the restraint does no more than is reasonably necessary for the protection of that interest. A "legitimate protectable interest" may include an interest in trade secrets, confidential information, goodwill, and customer connections.

In relation to the restraint period commencement date, the Court held that placing Mr Guy on gardening leave did not have the effect of terminating the employment relationship, as during the notice period, neither party repudiated the contract and both acknowledged ongoing rights and obligations under it. As a result, the restraint period commenced on July 28, 2016. Therefore, the "notice period," operating in conjunction with the "restraint period," effectively produced a six-month restraint period. In relation to the validity of this six-month restraint, the Court found that Mr Guy occupied a senior position and would have been privy to confidential information and trade secrets relating to DPW's operating costs, throughput and efficiency, and client contracts. Further, any financial hardship caused by the injunction would be mitigated by DPW's offer to pay Mr Guy the equivalent of three months' salary. Having regard to Mr Guy's position, the nature of DPW's business, the small number of competitors in the market, and the confidentiality of the information, the six-month restraint was no longer than reasonably necessary to protect the legitimate interests of DPW in preserving its confidential information.

This decision provides guidance on the factors that courts will consider to be relevant in assessing the validity of a restraint of trade. While a restraint cannot protect against mere competition, it may be justifiable to prevent an employee commencing work with a competitor in order to protect the confidential information and/or trade secrets of the employer. Further, there is no hard-and-fast rule as to the permissible length of a restraint.

Japan: Increasing Litigation Relating to Article 20 of the Labor Contract Act

Yuichiro Mori and Yusuke Hanada

Article 20 of the Japanese Labor Contract Act ("Article 20"), which was enacted in April 2013, prohibits employers from establishing unreasonable differences between the working conditions of fixed-term employees and indefinite-term (namely, permanent) employees, taking into account the following circumstances: the content of the employees' duties and the responsibility that accompanies those duties ("content of duties, etc."); the extent of changes in the content of duties, etc.; the location of work; and any other relevant circumstances. Recently, there has been an increasing number of cases brought by employees against employers invoking Article 20.

In the recent Nagasawa-Unyu decision, a regular employee was rehired as a fixed-term employee upon reaching the age of retirement. The Tokyo District Court held that there was an unreasonable difference in the amount of wages paid to fixed-term employees and indefinite-term employees because the content of duties, etc. in respect of both were essentially the same. Such treatment resulted in a violation of Article 20 by the employer. This decision will affect companies that have a practice of re-employing retired employees under less-favorable employment conditions, where the content of duties, etc. remains unchanged.

Further, in the recent Hamakyorex decision, a fixed-term employee claimed that there were unreasonable differences in the allowances paid to fixed-term employees and indefinite-term employees and that this amounted to a violation of Article 20 by the employer. At first instance, the court found that the only unreasonable difference between the conditions of regular and fixed-term employees was the nonpayment of commuting allowances. However, on appeal, the Osaka High Court found that there were further unreasonable differences by way of nonpayment of four types of allowances, including food allowances. These arbitrary differences were held to be unreasonable and constituted a violation of Article 20, and the court subsequently ordered that Hamakyorex pay approximately 770,000 JPY to the plaintiff.

In both of these decisions, the courts used Article 20 to rule in favor of the fixed-term employees, including employees who had been re-employed after reaching the age of retirement. While it is common for companies to have generally established differences in the conditions of fixed-term and indefinite-term employees, as a result of these decisions, companies should carefully review their employees' working conditions to ensure there are no unreasonable differences in circumstances where the content of the employees' duties, etc. is the same.

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