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Deacons HR & Pensions Newsletter - June 2012

Submitted by Firm:
Deacons
Firm Contacts:
Cynthia Chung
Article Type:
Legal Update
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Diedre Holmes Clark vs. Allen & Overy LLP.

This is a case heard in the Supreme Court of the State of New York regarding the Plaintiff's claims against the Defendant with respect to sexual harassment and discrimination allegedly suffered by the Plaintiff while working in the Defendant's Moscow office.

The Plaintiff is a United States citizen and a member of the New York State bar. She was born in the New York City, where she lived and attended school. After graduation she worked in a firm in New York from 1989 to 1994, then she left New York for two years to work for a firm in North Carolina, then she returned to another New York firm. The Plaintiff again left New York in 2002 to travel and work abroad after the traumatizing events of 9-11.

In June 2006, the Defendant offered the Plaintiff a position in its London office. She began to work at the Defendant's office in London, but as there was not enough work, she accepted an assignment to the Defendant's Singapore office in late July or early August 2007. She subsequently accepted a two year assignment at the Defendant's Moscow office commencing in March 2008.

The Plaintiff alleged that she was subjected to sexual harassment and discrimination during the period from July 18, 2008 until her employment was terminated on January 30, 2009.

After her termination, the Plaintiff filed a complaint with the UK Employment Tribunal for unfair dismissal and sex discrimination. At a pre-hearing review, the UK Employment Tribunal dismissed the Plaintiff's complaint and concluded that the Plaintiff's employment in Moscow was not subject to the Employment Rights Act as she did not work wholly or partly in the UK, the Defendant's Moscow office did not carry on work in the UK, and she was not ordinarily resident in Great Britain at any time during the course of her employment.

After the Plaintiff's return to New York, she commenced the current action against the Defendant for sexual harassment, discrimination, retaliation, wrongful termination for writing fiction, tort, and breach of contract.

The New York State Human Rights Law provides in pertinent part: "The provisions of this article shall apply as hereinafter provided to an act committed outside this state against a resident of this state, if such act would constitute an unlawful discriminatory practice if committed within this state." Therefore, by its terms, this provision extends the State Human Rights Law to act committed outside the state of New York against New York residents. The issue before the Supreme Court of the State of New York was thus whether the Plaintiff is a "resident" within the meaning of the statute, and the Court accepted that proof of domicile would satisfy the requirement of New York State resident contained in the statue.

The Defendant moved to dismiss the Plaintiff's claims contending that because the Plaintiff was not physically present in New York at the time of the complained events, she was not a resident of New York at such time.

After considered all facts, including that the Plaintiff paid United States taxes and maintained a New York driver's license and voter registration whilst outside the United States, and she is a member of the New York State bar, the only jurisdiction where she is qualified as an attorney, the Court concluded that the Plaintiff was able to establish New York domicile. The Court further commented that due to the facts available, it could not be determined that upon leaving New York to pursue work overseas, the Plaintiff exhibited an intention to relinquish her old domicile in New York or to establish a new one.

The Court denied the Defendant's motion with respect to the Plaintiff's claims on sexual harassment, discrimination and retaliation due to the New York State Human Rights Law. Yet, the Court granted the Defendant's motion with respect to the Plaintiff's claim on wrongful termination for writing fiction as the Plaintiff failed to state a claim upon which relief might be sought.

Regarding the Plaintiff's claims in relation to tort and breach of contract, as they did not fall within the ambit of the New York State Human Rights Law, the Defendant challenged the Court's jurisdictions on forum non conveniens grounds.

The Court accepted that New York courts were not compelled to retain jurisdiction over a case that lacks a substantial nexus to New York. The issue was addressed to the court's discretion and the factors to be considered included the burden that a particular action would place on the New York courts, the unavailability of an alternate forum, and the potential hardship to the Defendant. The court might also consider the location of the transaction at issue and the residence of the parties. The standard is a flexible one. However, based upon the facts and presence in this state, coupled with the fact that claims under the New York State Human Rights Law, the Court considered that they provided a nexus with the jurisdiction of New York. Therefore the Court denied the Defendant's motion regarding the Plaintiff's claims in relation to tort and breach of contracts.

In view of the New York State Human Rights Law, it appears that an employer outside the United States may still face legal proceedings commenced in New York courts if an employee with New York domicile alleged discriminatory claims against the employer in the course of his/ her employment outside the United States.

The Employment Ordinance Really Does Not Apply to Contractual Terms on Top of Statutory Minimum?

In the Court of Appeal case Kwan Siu Wa Becky & others vs Cathay Pacific Airways Limited [CACV 92/2010], the claimants alleged that various payments including "Line Duty Allowance", "Ground Duty Allowance", "Outport Allowance" and "Duty Free Sales Commission" should be included in calculating holiday pay and annual leave pay under section 41 and 41C of the Employment Ordinance prior to the Employment (Amendment) Ordinance.

The Court ruled that save and except the Outport Allowance, the other allowance/commission shall be included in calculating holiday pay and annual leave pay. We do not aim to discuss the reasoning of the aforesaid ruling here.

The defendant did not have objection on holiday pay under the Employment Ordinance but argued that even if the various allowance and commission should be included in calculating annual leave pay, they should only apply to statutory annual leave and not those contractual annual leave on top of the statutory minimum.

However, the Court considered that there was nothing in any of the contractual documents to suggest that annual leave pay might vary depending on whether it was part of the statutory annual leave or the contractual annual leave. Therefore, when the contract did not provide to the contrary, the parties had to be taken to have intended that the employee would be paid at the same rate of the entitled annual leave.

In view of this case, it appears that if there are no clear contractual provisions to the contrary, the Employment Ordinance will have implication on those contractual benefits on top of statutory benefits. If an employer does not prefer the Employment Ordinance to have any implication on the contractual benefits granted on top of the statutory benefits, it has to set out very clearly in the employment contract or staff handbook regarding the different treatments between the contractual benefits and the statutory benefits.

Contractually Agreed Sums Paid to an Employee on Termination of Employment are Assessable to Salaries Tax  

Background to the Court of Final Appeal ("CFA") case, Fuchs v Commissioner of Inland Revenue [2011] 2 HKC

The appellant ("Mr. Fuchs") was employed under an employment contract for a term of three years (the "Contract"). The Contract was terminated after two years whereby the Employer agreed to pay Mr. Fuchs a sum in compensation "for the loss of his position". The sum comprised of an amount equal to Mr. Fuchs' salary for the remaining term of the Contract ("Sum A"), "two annual salaries" ("Sum B") and "the average of his three previous annual bonuses" ("Sum C"). Mr. Fuchs was entitled to receive Sum B and Sum C on premature termination by the Employer under the Contract. The Inland Revenue Department ("IRD") levied salaries tax on Sum B and Sum C (but not on Sum A) on the basis that they were paid to Mr. Fuchs under the Contract. Mr. Fuchs appealed to the Court of First Instance ("CFI") contending that Sum B and Sum C were not chargeable as they were paid to him as compensation for abrogation of office.

The CFI held that Sum C was chargeable but Sum B was not as Sum C was an entitlement under the Contract while Sum B was, in nature, similar to a non-contractual redundancy payment.

The case was appealed to the Court of Appeal ("CA") where the CA held that Sum B and Sum C, which were expressly provided for in the Contract, were both chargeable. In particular, the CA disagreed that Sum B was in the nature of a redundancy payment as it would not have been paid if the Contract had continued for the full term.

Mr. Fuchs further appealed.

Ruling of the CFA

The CFA held that in cases of termination of employment, employees will often claim that their rights have been abrogated and seek a tax exemption on the payments they receive on the basis that the payments were attributable to such abrogation.

However, whether payments received by an employee on termination of employment were chargeable turned on the construction of section 8(1) of the Inland Revenue Ordinance (i.e. whether the payments were income from any office or employment of profit). The test to be applied involves asking the following questions:

"In light of the terms on which the taxpayer was employed and the circumstances of the termination, is the sum in substance 'income from employment'? Was it paid in return for his acting as or being an employee? Was it an entitlement earned as a result of past services or an entitlement accorded to him as an inducement to enter into the employment?"

If the answer is 'Yes', the payments would be chargeable even though it might be linguistically acceptable to also refer to the payments as "compensation for loss of office or something similar". This is the case where the payment is clearly an entitlement under the employment contract (such as, an amount stated to be payable on early termination or paid according to a clause which entitles the employer to make payment in lieu of notice of termination).

However, if the answer is 'No', the payments would not be chargeable (such as where a payment was made in consideration of the employee forgoing or surrendering certain rights under the employment contract).

In the present case, Mr. Fuchs' right to Sum B and C "were not contingent in any material sense". Mr. Fuchs was assessed on Sum B and Sum C because he had received them on termination of his employment under
the Contract. As soon as the Employer exercised its right to terminate
Mr. Fuchs' employment, Mr. Fuchs accrued an enforceable right to be paid under the Contract, and Sum B and C were paid in satisfaction of that right.

The CFA further considered that the right to be given compensation on early termination without cause was an important part of the contractual consideration and self-evidently an inducement for Mr. Fuchs to sign the Contract.

Therefore, Sum B and Sum C were clearly amounts derived from Mr. Fuchs employment and were chargeable. Mr. Fuchs was not paid the sums in consideration of the abrogation of his rights under the Contract, and indeed, he surrendered no rights.

Implications for Employers and Employees

Previously, payments in lieu of notice paid to and received by an employee were not required to be reported to the IRD and were not chargeable to salaries tax.

However, in light of the CFA's ruling above, from 1 April 2012 onwards, payments in lieu of notice accrued to an employee (whether under an express term in the employment contract or in accordance with the Employment Ordinance) will be chargeable.

This means that from the 2012/13 year of assessment onwards, employers will be required to report payments in lieu of notice made to their departing employees to the IRD on the "Notification by an employer of an employee who is about to cease to be employed" or "Notification by an employer of an employee who is about to depart from Hong Kong".

Employees will also be required to report any payments in lieu of notice received by them on their "Tax Return – Individuals".

New Guidance Note on Collection of Fingerprint Data 

On 14 May 2012, the Privacy Commissioner for Personal Data ("Privacy Commissioner") released a revised guidance note on the Collection of Fingerprint Data ("Guidance Note") to assist those who wish to collect fingerprint data to comply with the Personal Data (Privacy) Ordinance,
Cap 486 ("PDPO"). The Guidance Note was first published in 2007.

The Guidance Note should be read by data users (such as employers) before they decide whether to collect fingerprint data from individuals (such as employees) and should be regularly referred to if data users decide that fingerprint data should be collected. In this article, we will provide an outline of the topics addressed in the Guidance Note.

Why are fingerprint data personal data?

The Privacy Commissioner acknowledged that there are varying views as to the practicality of identifying an individual from a fingerprint image (and thereby whether it constitutes personal data under the PDPO). However, the Privacy Commissioner clarified that while a person may not be able to identify an individual just by looking at the individual’s fingerprint, if by linking the fingerprint image with another database containing other identifying data, the identity of the individual could be ascertained then the fingerprint image when combined with such other identifying data would constitute personal data under the PDPO.

Whether or not fingerprint data should be collected?

Under this section, the Privacy Commissioner explains that while fingerprint data may be personal data, not all cases involving fingerprint data fall within the scope of the PDPO. If there is no collection of the fingerprint data then the matter would not be regulated by the PDPO.

What are the principal requirements under the PDPO on data collection?

When collecting fingerprint data, a data user should ensure that it complies with Data Protection Principle 1 of the PDPO which requires that the collection must be for a lawful purpose directly related to the data user’s function or activity and that the collection is necessary but not excessive in relation to achieving that purpose.

What is a privacy impact assessment and what needs to be considered in conducting the assessment?

A privacy impact assessment aims to assist users to evaluate the impact to which a proposal to collect fingerprint data has on personal data privacy and whether collection of fingerprint data is necessary and not excessive. It requires the data user to answer a series of questions relating to the purpose of collecting fingerprint data, whose fingerprint data are intended to be collected and the extent of the data to be collected. Data users should keep written records of their reasons for collecting fingerprint data to help them explain why the collection was necessary in the event that they face any legal challenge under the PDPO.

What should be considered in ensuring that the individuals have free and informed choice and can make a conscious decision on whether or not to supply the fingerprint data?

Data users should provide those individuals whose fingerprint data will be collected with a full explanation of the impact of the collection on their personal data privacy and as far as practicable, provide the individuals with the free choice of a less privacy intrusive alternative to fingerprint data collection. Data users should also adopt all practicable measures to protect the personal data privacy of those individuals.

An individual’s consent to fingerprint data collection should be voluntarily and expressly given (and preferably recorded in writing). In this connection, the Privacy Commissioner considers it critical that (i) the individual has the requisite mental capacity to understand the adverse impact of the collection on his personal data privacy and (ii) there is no undue influence on the individual when his consent is sought.

What should be addressed after having decided to collect fingerprint data?

Upon being satisfied that collecting fingerprint data is necessary and not excessive, data users have an ongoing obligation to protect the fingerprint data collected. Data users will need to implement measures to:

1. Inform the individuals whose fingerprint data will be collected on or before the collection;

2. Establish controls for access to, use and transfer of fingerprint data;

3. Regularly and frequently purge fingerprint data which are no longer required for the purpose for which they were collected;

4. Ensure that the fingerprint data collected are accurate;

5. Ensure that fingerprint data are protected against unauthorized or accidental access, processing and erasure;

6. Formulate privacy policies that set out the rules and practices to be followed when collecting, holding, processing and using fingerprint data and make those policies available to those individuals who may be affected;

7. Provide proper training, guidance and supervision to the staff responsible for collecting and managing fingerprint data to ensure that the acts done and practices engaged in comply with the PDPO.

New Regulations in Respect of Women’s Employment Rights in China 

The State Council of PRC has recently promulgated the "Special Provisions on Labour Protection for Female Employees" (the "Special Provisions"), which took effect on 28 April 2012. The Special Provisions supersede the "Provisions on Labour Protection for Female Employees" dated 21 July 1988, and provide better protection for female employees in China.

Some main points in the Special Provisions are highlighted below:

Prohibited work for female employees

The Special Provisions contain a list of prohibited work for female employees which is re-categorised in accordance with four types of circumstances, namely "under normal conditions", "during menstrual period", "during pregnancy", and "during nursing period". The category "the period of preparation for giving birth after marriage" has been deleted to make the list more consistent with the classification in the PRC Labour Law.

The Special Provisions have strengthened protection for female employees during pregnancy and nursing periods. On the other hand, the protection during menstrual period has been weakened.

Maternity leave and miscarriage leave for female employees

Pursuant to the Special Provisions, the maternity leave for female employees has been extended from 90 days to 98 days.

For the first time it is made clear that female employees who suffer miscarriage in the first 4 months of pregnancy are entitled to 15-day leave whereas after 4 months of pregnancy, 42-day leave.

Maternity insurance

The Special Provisions provide that if employers have contributed to maternity insurance, the maternity allowance at an amount equivalent to the average monthly salary of all employees of the company in the previous year would be paid out of the insurance fund. In the case where employers have failed to make such contributions, they are obliged to pay the maternity allowance the amount of which is equivalent to the salary of that particular employee before the maternity leave. Maternity insurance also covers medical expenses of maternity or miscarriage.

The policy is likely to encourage employers to contribute to maternity insurance as it can mitigate their responsibility for the payment of maternity allowance and various medical expenses.

Sanctions

Administrative sanctions for violating the rights of female employees have been duly introduced. These include rectification and fines up to RMB5,000 per affected female employee. Some serious violations, such as requiring pregnant or breastfeeding employees to perform prohibited work, would result in fines up to RMB300,000, or, if worst comes to worst, cessation of business. In extreme circumstances, criminal liability may be pursued.

***

Employers in China should familiarise and make sure that they are in compliance with the new requirements under the Special Provisions.

The Top 10 Questions to Ask When You Hire or Fire an Employee in Indonesia
by Richard D. Emmerson, Partner of SOEWITO SUHARDIMAN EDDYMURTHY KARDONO

Hiring

1. Does the employee have a right to work in Indonesia or does the employee need a work visa?

2. Is the employment offer subject to any condition precedent (e.g. satisfactory reference check, obtaining the necessary qualification)?

3. Is the recruitment screening and decision making process fair and free from challenge of discrimination?

4. Is the employee free from restrictive covenants to take up the job?

5. Is the personal data of the candidate/employee collected or dealt with in accordance with Indonesian law?

6. Does the employee need to be a member of the mandatory social security program (JAMSOSTEK) in Indonesia or is the employee exempt?

7. Does the remuneration of the employee meet the statutory minimum wage requirement?

8. Is the employee fixed term which requires an Indonesian language or bilingual written contract and is subject to maximum first term of two years? Is the employee intended to be hired on a permanent basis subject to the maximum permitted 3 month probationary period with or without a written employment agreement? If a written contract is used for a permanent employee, is it in the Indonesian language or bilingual? All employees are entitled to statutory required benefits granted under Indonesian law (e.g., statutory annual leave, statutory holidays, rest days, and generous termination benefits etc.), but should the company be considering special secondment arrangements for expatriate employees to lawfully avoid the termination procedures and benefits under Indonesian law?

9. Are mandatory safety training or medical checkup required for the position of the employee based on the employer's internal requirements?

10. Have all the legal requirements with respect to occupational safety and health been complied with?

Firing

1. Does the employer have a valid reason for the termination?

2. Does the employer have sufficient evidence to terminate the employment of an employee on the alleged ground?

3. Is the employee on paid sick leave for less than one year, or on maternity leave or other types of leave regulated by Indonesian law, which need to be taken into account when planning a termination?

4. Is the termination free from challenge that one of the grounds of termination was sex, disability, family status or race discrimination?

5. What termination payments (e.g. outstanding wages, annual leave pay, severance payment, long service payment, and the so-called health and housing allowance) will the employee be entitled to given the specific reason for termination? Has the employer expressly provided for notice of termination or pay in lieu of notice which does not apply in Indonesia (and should never be included in employment documentation in Indonesia), but if so provided, may give rise to a supplementary claim for pay in lieu of notice?

6. What restrictive covenants are relevant to the subject employee (confidentiality or less commonly non-solicitation and non-competition) and what are the requirements for such covenants to be enforceable?

7. Any special treatment required with respect to any unvested share options or other benefits after termination of employment?

8. Will the employer pay an ex-gratia payment in return for the employee entering into settlement agreement in full and final settlement of all claims which the employee has or may have recognizing that termination at will is not recognized in Indonesia and that employees are entitled to full salary until their individual termination is approved by the Labour Court and all applicable appeal periods have expired or appeal decisions rendered?

9. Has the requisite withholding tax filing been made to the Indonesian Tax Office informing the authority regarding the relevant termination payments and related withholdings?

10. Has the Immigration Department been informed regarding the termination of employment in the circumstances that the employee is under work visa and has the employer obtained the necessary Exit Permit (EPO)?