SubscribeRecent events in China underscore the importance of dealing effectively with whistleblowers.
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Whistleblowing in China and the United States
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Employment
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Employee Shareholders
The much publicized “employee shareholder” status came into effect yesterday, September 1, 2013, offering employers a more flexible way to structure their workforce. The new legislation applies to companies of all sizes, but is specifically targeted at high-growth, low-value companies that want a flexible workforce.
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The French Legal Framework Relating to Profit-Sharing Premiums
by Bertrand Delafaye and Benoit Zagdoun
The French legal system provides a variety of ways to secure the involvement of employees in the growth and profits of their company, including compulsory deferred profit-sharing plans (accords de participation), optional voluntary cash-based profit-sharing plans (intéressement), and other similar mechanisms.
The Amended Social Security Financing Law of 2011 provided for a new legal framework entitled “profit-sharing” premium (prime de partage des profits), which set forth rules to allocate premiums to the benefit of employees in the event their company decides to increase dividend distributions to its equityholder(s) (the “Premium Allocation Rules”). These Premium Allocation Rules are in force but have not yet been codified. According to recent government declarations, however, the Premium Allocation Rules could be abrogated by the end of 2013.
Overview
Generally, the Premium Allocation Rules apply to privately held companies with at least 50 employees as well as to public corporations under certain specific conditions. If a company subject to the Premium Allocation Rules decides to distribute dividends in excess of the average amount of dividends distributed during the two previous fiscal years (an “Increased Dividend Distribution”), then the company must grant a premium (typically a cash payment) to its employees (the “Employee Premium”). Importantly, the determination of whether an Increased Dividend Distribution has occurred does not include any amounts, whether in cash or in kind, distributed to the equity-holders of the company as a result of other non-dividend corporate actions, such as share buy-backs.
If the parent company of a “group” (as defined by the French Code of Commerce) engages in an Increased Dividend Distribution, then each company within the consolidated group that employs at least 50 people must grant the Employee Premium to its employees.
The Employee Premium must be determined by an agreement executed between the company and a representative of the employees within three months of the date on which the company decided to engage in an Increased Dividend Distribution. Similar to collective bargaining agreements, the Employee Premium agreements may also be negotiated and executed at the industry level, as opposed to the company level. If such an agreement is not reached, then the company must issue a statement setting out the premium amount that the company unilaterally agrees to pay, which the employee representative cannot block. In order to avoid repeating the agreement negotiation process each time a company makes an Increased Dividend Distribution, it is possible for a company or a consolidated group to negotiate a long term agreement with the relevant employee representatives that provides the framework for, among other things, calculating and paying the Employee Premium.
An employer (whether the board of directors and its chairman, the manager(s) or the president, depending on the corporate form) that defaults on the obligation to implement the profit-sharing premium process, will risk the following penalties: up to one year of imprisonment and/or a fine of €3,750.
Practical examples
1. Foreign companies
A foreign company incorporated outside of France and its direct French [...]
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Update on Holiday Pay and Sickness: “Right to Carry Forward” Limited to Four Weeks Per Year
by Paul McGrath and Sharon Tan
The Employment Appeal Tribunal (EAT) has handed down an important decision for UK employers, limiting the right of workers to carry forward holiday entitlement accrued during a period of long-term sickness absence.
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Two Federal Courts Recognize Same-Sex Spousal Rights for Residents of States Not Permitting Same-Sex Marriage
by Joseph S. Adams, Todd A. Solomon and Jacob Mattinson
Obergefell v. Kasich and Cozen O’Connor v. Tobits may reflect a growing trend of courts and other bodies to recognize same-sex marriages validly celebrated elsewhere even if the couple’s current state of residence does not recognize such marriages. Pending further guidance, employers should begin discussing plan amendments and administrative procedures that may be necessary to clarify benefit eligibility for same-sex spouses and partners.
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Illinois Appellate Court Decision Requires More Than At-Will Employment As Consideration For Non-Compete Agreements
On June 24, 2013, the Appellate Court of Illinois (First District) issued a decision in Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, that will make it more difficult for Illinois employers to enforce post-employment non-compete agreements against newly hired employees who are employed for less than two years and leave, for whatever reason, and join a competitor. The issue in Fifield was whether the promise of at-will employment to a new employee, without more, constitutes consideration adequate to support post-employment restrictive covenants. Fifield lost his job after his employer was acquired but was subsequently offered employment with the successor company. As a condition to his employment with the successor company, Fifield signed a two-year post-employment non-compete agreement. The agreement contained a carve-out allowing Fifield to work for a competitor if he was fired without cause within the first year of employment. Three months later, Fifield resigned and joined a competitor. He and his new employer obtained a declaratory judgment that Fifield’s non-compete agreement was not enforceable because Fifield had not received adequate consideration. The Illinois Appellate Court upheld that decision.
Illinois Courts have long since held that the promise of continued “at-will” employment may not be sufficient consideration to support a non-compete agreement signed by a current employee, due to the illusory nature of the promise. In particular, many Illinois Courts have held that if the employee remains employed for less than two years, the non-compete may not be valid unless it is supported by other consideration. The Fifield Court applied that rule to circumstances where a new employee is required to sign a non-compete agreement as a condition of employment.
Unless the Fifield decision is narrowed or reversed, employers in Illinois should evaluate whether they need a post-employment restrictive covenant from a new-hire and, if so, offer additional consideration beyond the job. Employers should also consider the need for post-employment restrictive covenants when making acquisition strategy decisions and calculating acquisition costs. In the deal context, it is common for employees to be terminated by the seller before the deal closes and hired by the buyer after the deal closes. In light of Fifield, buyers should carefully consider which of the seller’s employees have trade secrets or other information such that it is important to restrict that employee from working for a competitor. If that is the case, the buyer should consider offering a fixed-term employment agreement or other consideration such as a signing bonus to avoid the result in Fifield. Alternatively, the buyer may consider structuring the deal so that key employees of the seller are bound by non-compete agreements with the seller that are transferred upon the closing of the transaction.
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Announcements at Town Hall Meetings Can Create Enforceable Individual Contractual Entitlements
by Katie Clark and Paul McGrath
In Dresdner Kleinwort and Commerzbank v Attrill & others, the Court of Appeal of England and Wales has upheld a High Court decision that 104 former employees were contractually entitled to bonuses totaling more than £50 million. Significantly for employers, the entitlement arose out of an announcement made by the bank’s then CEO to a group of employees in a Town Hall meeting.
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Seventh Circuit Makes Damages More Available for Employees Given Wrong Information About Benefits
by Prashant Kolluri and Nancy G. Ross
Kenseth v. Dean Health Plan, Inc., represents a significant departure from the decades of law prior to Cigna v. Amara holding that employees could not recover for misrepresentations by employers over benefit coverage if the plan terms were clear.
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Supreme Court Ruling on DOMA Could Lead to Refunds of Federal Taxes
by Todd A. Solomon, Ruth Wimer and Brian J. Tiemann
Employers providing benefits for employees’ same-sex spouses may want to consider the availability of federal payroll tax refunds if the Supreme Court of the United States finds Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Employers currently must impute income to an employee for the fair market value of benefit coverage for a non-dependent same-sex spouse. Such imputed income is subject to federal income and payroll taxes, as well as state income taxes in the majority of states.
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Webcast – DOMA and Proposition 8: Immediate Implications for Employee Benefit Plan Sponsors
July 2, 2013
11:00 am – 12:00 pm EDT
To register, click here.
As a result of the federal Defense of Marriage Act (DOMA), same-sex relationships have not been recognized for any purpose under any federal law, including the Employee Retirement Income Security Act, the Internal Revenue Code and COBRA. Historically, this has created significant implications for the administration of benefit plans covering same-sex partners, including the taxation of health, dental and vision benefits and survivor benefits under retirement plans. Employers that have extended equal benefits to lesbian, gay, bisexual and transgender employees have faced significant administrative and other challenges. Employers that have not extended benefits to same-sex partners have struggled to understand their legal obligations.
Earlier this year, the Supreme Court of the United States heard arguments on the constitutionality of DOMA and on California’s “Proposition 8,” which denies same-sex couples the right to marry in that state. The Supreme Court is expected to issue its rulings in these cases in June. Based on this, McDermott Will & Emery invites you to a webcast to discuss the impact of these landmark decisions on employee benefit plan sponsors and to address key considerations for employer-provided plans, including:
- An up-to-date description of the federal taxation of health and welfare benefits
- A summary of steps employers must take in light of the Supreme Court’s decisions
- What benefits must employers offer to same-sex partners
McDermott Speakers
Joseph S. Adams, Partner
Todd A. Solomon, Partner
Brian J. Tiemann, Associate
For more information, please contact Carolyn Verscaj.
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