Combatting wage-fixing and no-poaching agreements in the Turkish labour market

Introduction

In recent years, the Turkish Competition Board (‘TCB’) has increasingly focused on the labour market, especially on the targeting agreements that may hinder competition, such as gentleman’s agreements and no-poaching clauses. In this article, by analysing TCB’s rulings on this matter, we aim to delineate the criteria of the TCB in regulating labour market competition and provide practical recommendations.

Gentleman’s agreements in the labour market

Gentleman’s agreements and informal understandings agreed without being legally binding, can significantly impact competition. The TCB has recently scrutinised such agreements to assess their effect on labour market dynamics.

1. First case study: private hospitals

No-poaching agreements, where firms agree not to hire each other’s employees, aim to restrict employee mobility. In the healthcare sector, such agreements can be particularly detrimental given the high demand in the market post-Covid 19 for specialised medical professionals.

In 2020, the TCB initiated an investigation into price-fixing in health services, extending it to include no-poaching and wage-fixing agreements among several private hospitals in Türkiye. These agreements aimed to prevent hospitals from recruiting each other’s medical staff to maintain stable workforces and reduce turnover costs. In its decision dated 24 February 2022 and numbered 22-10/152-62, similar to the European Commission’s1 and the European Court of Justice’s2 approaches, the TCB ruled that such agreements can be deemed as a buyer’s cartel: ‘agreements to fix the salaries of employees/agreements and not to poach employees, which constitute the main part of competition law enforcement in labour markets, are not different from cartels established on the buyer’s market.’

In its decision, the TCB noted several anti-competitive effects: (i) suppressing wage growth of medical professionals, (ii) reducing labour mobility by restricting career advancement opportunities for medical professionals and thus leading to a less dynamic labour market, and (iii) reducing service quality by limiting hospitals’ ability to improve their services by hiring skilled professionals. Accordingly, the TCB found these agreements unlawful as they distorted competition by artificially restricting the labour market for medical professionals, and imposed severe administrative fines on private hospitals, by emphasising that such agreements could be justified if they were ancillary to a legitimate business transaction, such as a merger or acquisition.

2. Second wave in TCB decisions

Following the private hospitals’ investigation, the TCB has also initiated another investigation into 32 undertakings from various sectors regarding gentleman’s agreements aiming for no-poaching of their employees among themselves. In its announcement regarding its decision dated 26 July 2023 and numbered 23-34/649-218 in respect of the said investigtion, the TCB stated that gentleman’s agreements reduce labour mobility among undertakings and suppress the real value of salaries, and no-poaching clauses in service procurement or cooperation agreements may be anti-competitive if they are too broad. Accordingly, the TCB imposed administrative fines on 16 undertakings, concluding they infringed fair competition with their gentleman’s agreement.

The TCB has further deepened its scrutiny and initiated another investigation on telecommunication entities. In its decision dated 27 February 2024 and numbered 24-10/170-66, the TCB resolved that eight of the relevant undertakings infringed fair competition with a gentleman’s agreement aiming for no-poaching of employees, with similar grounds to its previous decision explained above.

3. Ecoles privées located in Istanbul

The latest TCB decision on wage-fixing by way of a gentleman’s agreement involved four French private high schools in 2022. At the end of the investigation, the TCB found the private high schools determined the salaries of their Turkish professors together and decided that their agreements are anticompetitive and imposed administrative fines to such schools.

Assessment and recommendations

For no-poaching arrangements within service or cooperation agreements, the recent global trends generally accept that they do not infringe fair competition, in case they are necessary for legitimate business interests and are limited to the duration of services without imposing a disproportionate burden on employees.

A pioneer decision accepting such an approach is the eBay decision of the Department of Justice of the United States (DOJ). In the final judgment, the DOJ decided that the no-poaching agreements which are ancillary to the agreements such as service may not infringe fair competition, to the extent that they: (i) identify with specificity the agreement to which it is ancillary, (ii) are narrowly tailored to affect only employees directly involved in the agreement, (iii) identify with reasonable specificity the employees subject to the agreement, (iv) contain a specific termination date or event, and (v) are signed by all parties to the agreement, including any modifications.

Based on the TCB’s general approach, no-poaching clauses related to mergers, acquisitions and joint ventures (concentrations) are considered ancillary restrictions and do not constitute an infringement as they serve legitimate business interests. Nevertheless, in its two recent decisions3, the TCB also argued that no-poaching clauses ancillary to the agreements such as service agreements may also not infringe fair competition, potentially aligning with the DOJ’s approach in its eBay decision.

On the other hand, practices of wage-fixing are always considered anti competitive per se by competition authorities worldwide4, as well as by the TCB5.

The TCB’s thorough review of labour market agreements demonstrates its commitment to competitive labour markets. Therefore, for businesses, it would be crucial to consider the following when entering into no-poaching agreements that might affect employee mobility: legitimacy, transparency, and employee impact.

Notes

  1. European Commission, Competition Policy Brief, Antitrust in Labour Markets, Issue 2, May 2024.
  2. Please see European Court of Justice decision EDP – Energias de Portugal, Case C-331/21-EDP.
  3. In its decision Container Drivers (02.01.2020/20-01/3-2), the TCB indicated ‘it is deemed appropriate to approach labour market restrictions in legitimate cooperation or agreements with impact-based assessments’. Furthermore, in its BFIT decision (07.02.2019/19-06/64-27), the TCB decided that the no-poaching clause may not infringe the fair competition to the extent that it can be justified by a legitimate commercial interest (such as maintaining the service standard provided within the franchise relationship) and its possible impact on the labour market is not disproportionate in terms of its duration and scope.
  4. Please see United States v Arizona Hosp. & Healthcare Ass’n & AzHHA Service Corp., No. CV07-1030-PHX (D. Ariz. 2007); In the Matter of Your Therapy Source LLC, F.T.C. 171 0134 (2018); Fleischman v Albany Med. Ctr., 728 F. Supp. 2d 130; Conduct in the Modelling Sector, Case CE/9859-14, UK Competition and Market Authority; Décision 16-D-20 du 29 septembre 2016, Autorité de la concurrence (France).
  5. TV series producers decision (28.07.2005/05-49/710-195); Container Drivers supra; Ecoles Privées decision.

Recent developments in employment regulations in Japan

Protection of freelancers

In recent years in Japan, more people are working as freelancers in search of more flexible work styles. The increase in the number of workers who want side jobs and the number of companies that allow them after the Covid-19 pandemic has also contributed to the growth of freelancers. According to a unified survey conducted by the Cabinet Secretariat in 2020 and other surveys conducted by the Cabinet Office, the Small and Medium Enterprise Agency, and the Ministry of Health, Labour and Welfare in 2019, between 3.41 and 4.72 million workers are working as freelancers.

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Navigating employment rules: Kenya vs Democratic Republic of Congo

Navigating international employment laws is crucial for multinational companies. Employment laws vary widely between jurisdictions, requiring legal counsel to understand each region’s nuances. Non-compliance can lead to legal claims that can damage a company’s reputation. To highlight these differences, in this guide we focus on two jurisdictions, the nascent Democratic Republic of Congo and the well known Kenya

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Employer of Record – (how) does it work in Poland?

In recent years, Poland has seen significant changes in its labour laws, creating both challenges and opportunities for businesses. One innovative solution for navigating these complexities is the Employer of Record (EOR) model. This model allows companies to hire employees in Poland without the need to establish a legal entity. But how exactly does it work in Poland, and what are the potential risks and opportunities?

Understanding the Employer of Record (EOR) model

An Employer of Record (EOR) is a third-party organisation that takes on the legal responsibilities of employing staff on behalf of another company. The EOR handles all employment-related tasks, including payroll, taxes, benefits, and compliance with local labour laws, allowing the client company to focus on managing the employee’s day-to-day activities.

In Poland, where labour regulations are strict and continuously evolving, the EOR model can be particularly advantageous. It simplifies the complexities associated with hiring and managing employees in a foreign country.

Although new employment structures are increasingly emerging in Poland, Polish labour law struggles to keep pace with market changes, which in some situations can create risks for employers using such forms of employment, particularly due to the definition of an employer in the Polish Labour Code.

The EOR appears to be an intriguing alternative to hiring through a temporary employment agency, which comes with time limitations on the period a worker can be assigned to a specific company, and to employee outsourcing, which in its legally permissible form should involve delineating and contracting out specific services or functions that would normally be performed by in-house employees.

Opportunities of using an EOR in Poland

Compliance with local labour laws
Poland has seen significant changes in its labour laws, with recent updates including new regulations on sobriety testing, remote work frameworks, and compliance with various EU directives. An EOR stays abreast of these legal changes and ensures that the client company remains compliant, thereby mitigating the risk of legal penalties and fines.

Cost savings
Establishing a legal entity in Poland involves substantial costs, including registration fees, legal expenses, and ongoing administrative overheads. Using an EOR can result in significant cost savings, allowing companies to allocate resources more efficiently.

Access to local expertise
An EOR in Poland brings local expertise and knowledge to the table. This includes understanding cultural nuances, market trends, and local employment practices, which can be invaluable for a company looking to build a strong presence in the Polish market.

Navigating the dynamic Polish labour landscape
The Polish labour market is characterised by its ongoing regulatory changes. The first half of 2023 alone saw the introduction of new laws regarding sobriety testing, remote work frameworks, and compliance with EU directives on transparent and predictable working conditions and work-life balance. These changes require businesses to continuously adapt their HR practices and ensure compliance.

For companies utilising the EOR model, staying compliant amidst these changes is significantly simplified. The EOR assumes the responsibility of implementing necessary adjustments in response to new laws, providing the client company with a buffer against regulatory shifts.

Moreover, upcoming changes such as the implementation of the Whistleblowing Directive, ESG measures, and the Pay Transparency Directive will further impact the HR landscape in Poland. An EOR can help businesses navigate these new requirements by providing updated guidance and ensuring compliance.

Risks associated with the EOR model in Poland

Control and dependence
One of the primary risks of using an EOR is the potential loss of control over certain employment-related aspects. Companies must rely on the EOR to manage compliance and HR functions, which can sometimes lead to misalignment of expectations and objectives.

Potential conflicts
There may be potential conflicts between the client company and the EOR regarding employment terms, performance management, and other HR-related issues. Clear communication and well-defined agreements are essential to prevent and resolve such conflicts.

Intellectual property rights
When using EOR services, it is crucial to pay attention to the acquisition of intellectual property rights. Since the EOR is the formal employer, it is the EOR who acquires IP rights related to the work created by employees unless specified otherwise in the contract. Mismanagement in this area can lead to disputes over IP ownership, potentially hindering a company’s ability to protect and leverage its innovations.

Determining the existence of an employment relationship
The lack of precise definition of an employer in the Polish Labour Code means that, despite having a formal employer ‘on paper’, there is a risk that the employment relationship could be established between the foreign company (the actual employer) and the employee. What matters is not just the contract’s wording but how the employment relationship is genuinely structured.

Both the employee and control bodies, such as the National Labour Inspectorate, can seek such a determination through the courts. If it is determined that the employment relationship exists between the employee and the actual employer (the foreign company), that company will be treated as the employer from the start of employment. The most significant risk arising from this is financial. The newly determined employer will have to retroactively settle all overdue contributions and tax advances, along with interest.

Conclusion

The Employer of Record model presents a viable and attractive solution for companies looking to expand their operations into Poland. By simplifying market entry, ensuring compliance with local labour laws, and allowing businesses to focus on their core activities, an EOR can significantly enhance operational efficiency.

This solution, like employee outsourcing, raises concerns under Polish regulations as it is not directly governed by them. The risk, especially from the perspective of a Polish entity using the services of a foreign employee formally employed abroad by an EOR, is the determination of an employment relationship between the Polish entity and the foreign employee.

In summary, while the EOR model offers significant advantages, it is essential for companies to maintain clear communication, establish well-defined agreements, and stay informed about local labour law changes to maximise the benefits and minimise the risks associated with this employment strategy in Poland.

Employment law in Hungary

After a significant amendment to the Labour Code in 2023, Hungary has made considerable legislative changes to its laws pertaining to labour, occupational health and workplace safety, platform work and foreign workforce. These amendments impact several key laws and affect both employers and workers generating new challenges seeking to comply with the new legal conditions.

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Retrenchments in Singapore

The first half of 2024 has been marked by mass retrenchment exercises by major companies in the technology and finance sectors worldwide. The same has been observed in Singapore, although the layoffs have occurred in the wholesale trade and electronics manufacturing space as well.

There has also emerged a TikTok trend of Gen Z employees filming and posting videos of them reacting to being laid off over video call. Such videos can sometimes obtain millions of views. This viral TikTok trend demonstrates that an increasing number of younger employees are not afraid of speaking up against what they perceive to be unfair practices in the workplace – and seeking to hold their employers liable by harnessing the effect of social media. Companies who are shown to be unempathetic to employees may struggle to attract top talent in future, and at the very least, may face a period of intense public backlash and scrutiny.

Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchments

So how should employers conduct retrenchments? Unlike some jurisdictions, Singapore does not have any specific laws dealing with retrenchments that impose specific obligations on employers.

Instead, what employers are expected to do in the event of a retrenchment are set out in the ‘Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment’ (Advisory), an advisory issued by the tripartite partners in Singapore comprising Ministry of Manpower, the National Trades Union Congress, and the Singapore National Employers Federation. This tripartism approach is a unique feature of Singapore’s employment landscape. Many of Singapore’s labour policies, guidelines and advisories are formulated through consultation and collaboration amongst the tripartite partners.

Employers need to note that non-compliance with these tripartite advisories frequently trigger investigations and regulatory action by the Ministry of Manpower, who can impose administrative punishments such as curtailing an employer’s work pass privileges. In 2019, a well-known retailer laid off around 50 staff with immediate effect, without complying with the Advisory – the employer provided no prior warning of the retrenchment and employees were offered retrenchment benefits below those stated in the Advisory. The retailer’s mishandling of the retrenchment exercise garnered extensive media coverage and even drew public criticism from the Minister of Manpower who commented that the retailer ‘could have better handled’ the retrenchment. Consequently, many retrenched employees voiced their complaints and frustrations through the media which gave the incident extensive coverage. In addition, the Tripartite Alliance for Fair and Progressive Employment Practices also stepped into the matter to engage with the retailer who eventually increased the retrenchment benefits offered to the retrenched employees.

Under the Advisory, employers’ responsibilities in managing retrenchments can be categorised into three main areas:

Pre-retrenchment considerations

As a starting point, retrenchment should be considered only as a measure of last resort. Employers are required to explore job preservation and cost-saving measures before deciding on retrenchment. For example, employers should consider reskilling, training and redeployment opportunities for employees.

Where such options have been exhausted and retrenchment is inevitable, employers must use objective criteria when selecting employees for retrenchment. Objective criteria include the ability, experience, and skills of the employee to support the company’s sustainability, workforce transformation and/or future business needs. Discrimination on grounds such as age, race, gender, religion, marital status, family responsibilities, or disability is strictly prohibited. Additionally, employers are encouraged to maintain a strong Singaporean core and should not have a reduced proportion of local employees after the retrenchment.

Notification to employees, unions, and the government

Employers should notify affected employees of retrenchment in a sensitive and responsible manner. Before notifying individual employees of their retrenchment, employers should communicate early about the company’s efforts to manage business challenges, the circumstances necessitating the retrenchment exercise, the process involved in the retrenchment exercise, and the assistance that will be provided to affected employees.

For unionised companies, employers should notify and consult with the relevant unions early, before affected employees are notified. This collaborative approach ensures that employee interests are represented and considered throughout the process.

Companies with at least 10 employees have a statutory obligation under the Employment Act to notify the Ministry of Manpower on the retrenchment of any employee within five working days after the employee is informed of their retrenchment. Failure to comply constitutes a civil contravention under the Employment Act and administrative penalties may be imposed.

Supporting displaced employees

Employers are strongly encouraged to provide support for employees displaced by retrenchment, including retrenchment benefits, employment facilitation measures and outplacement assistance.

Retrenchment benefits, if stipulated in employment contracts or collective agreements with the unions, must be disbursed accordingly. Where retrenchment benefits are not contractually provided for, employers are still expected to offer retrenchment benefits to employees with two or more years of service. The prevailing norm is to pay a retrenchment benefit varying between two weeks to one month salary per year of service, depending on the financial position of the company and taking into consideration the industry norm. Employees with less than two years of service could be offered an ex gratia payment.

Re-employment support scheme

Looking forward, a new re-employment support scheme is set to be rolled out by the Singapore government by the end of 2024. The scheme aims to provide retrenched employees with temporary financial support, so that they can focus on upgrading their skills to secure a good long-term job. The Minister of Manpower has said that the government has reviewed best practices globally and is close to finalising the scheme parameters.

The importance of fair and responsible retrenchment practices in Singapore cannot be overlooked. Such practices not only ensure compliance with legal frameworks and advisories but also reflect a company’s commitment to ethical standards and social responsibility. By prioritising transparency, fairness, and employee welfare, employers can mitigate the adverse impacts of retrenchments on affected employees, safeguard their own reputation and credibility, and build trust and loyalty among remaining and future employees. In today’s competitive and rapidly evolving business landscape, employers that embrace these principles will be better poised to navigate economic challenges and emerge stronger than before.

Employment law in Brazil

What are the key aspects of Brazilian employment law that differ significantly from those in other jurisdictions, and how can global companies ensure compliance with these regulations?

The main differences from other jurisdictions is that Brazilian labour rights are deemed to be of public interest and may not be waived. In addition Brazil is widely known for being highly litigious in employment-related matters and for having substantial regulations on union representation (both to the employee and employers, according to their business activities, regardless their affiliation) once all employment relationships are subject to bargaining agreements.

To ensure compliance with Brazilian regulations, it is important that global companies have a comprehensive understanding of the local environment and evolving legal framework, including case law and upcoming reforms. Having an adequate exit process for employees, enhancing the mandatory benefit packaged, can be a successful strategy to mitigate the filing of new claims. Similarly, maintaining a good relationship with the employee unions is an important element for smoother employee relations.

How does the Brazilian Labour Code (Consolidação das Leis do Trabalho – CLT) impact the hiring process, employee contracts, and termination procedures for multinational corporations operating in Brazil?

The Brazilian Labour Code provides for detailed rules of the employment relationship, including hiring and terminating employees, as well as managing the employment relationship.

Under Brazilian labour laws, substance prevails over form. Therefore, written employment agreements are not required to evidence an employment relationship and are used to address specific matters, such as any form of special compensation, benefits, confidentiality and poste termination restrictive covenants. However, employers must complete certain sections of the employee’s employment booklet, and have similar records in the company’s books. The information is included in the eSocial system, which is an electronic system implemented by the federal government and mandatory for all companies in Brazil.

In Brazil, employment can be ended by decision of the company (with or without cause); of employee (resignation) or both (mutual consent). The required payments will vary depending on the way employment is ended.

Termination of employment triggers a statute of limitations for the filing of claims – up to two years after termination of the relationship, relating to period of five years counted backwards from the illing of the case.

What are the mandatory employee benefits in Brazil, such as vacation, 13th salary, and social security contributions, and how should global companies manage these obligations?

Under Brazilian law, an employee is entitled to the following mandatory rights and benefits (in addition to those provided by company or collective bargaining agreement):

  1. Minimum wage – national or established in the collective bargaining agreement.
  2. Annual mandatory salary increase.
  3. Annual Christmas bonus (‘13th month salary’).
  4. Annual vacation of 30 calendar days, plus vacation bonus.
  5. Severance fund (FGTS) equivalent to 8% of the employee’s monthly compensation.
  6. Other payments set forth in the collective bargaining agreement.

To ensure compliance with all above obligations, global companies must closely track not only federal legal framework, but also the applicable collective bargaining agreements.

What are the regulations surrounding employee dismissals and layoffs in Brazil, including severance payments, notice periods, and the role of labour unions in these processes?

Employee dismissal by decision of the company can be made at any time, for any reason (subject to few exceptions of job security), provided that notice of at least 30 days, up to 90 days total, is granted and the following titles are paid within ten calendar days after the last day of work, or the day after the last day worked in case of worked prior notice:

  1. Severance fund penalty: 40% of the balance of the employee’s FGTS.
  2. Compensation due until the day of termination.
  3. Accrued and prorated vacation, plus vacation bonus.
  4. Accrued or prorated Christmas bonus.
  5. Any additional labour rights provided in the employment agreement or applicable CBA.

It is possible to terminate employment for cause only in the specific situations provided for in art. 482, of the Labour Code.

Brazilian labour law does not provide specific criteria as to when a termination should be treated as collective, but the labour courts usually characterise lay-offs as collective when a large number of employees are terminated in connection with a definitive reduction of the workforce and as a result of an economic/business decision. According to the 2017 reform, a mass lay-off of employees did not require the union’s prior participation. However, the Brazilian Federal Supreme Court established through a general repercussion thesis that union’s participation is essential for mass layoffs. Thus, currently collective mass dismissals will require ‘prior union intervention’, but not conditioned to its prior authorisation.

How do Brazil’s anti-discrimination and workplace harassment laws affect company policies and practices, and what measures should be implemented to prevent and address violations?

In Brazil, companies are responsible for providing a safe work space, free of discrimination and harassment (both moral and sexual), and shall combat harassment through policies, trainings at least once every 12 months, for all employees, on topics related to violence, harassment, equality, and diversity; to provide internal channels that allows employees to file anonymous complaints, as well as internal procedures for receiving and following up on complaints.

These laws prohibit any discriminatory and restrictive practices regarding a person’s access to an employment relationship, or its maintenance, due to gender, origin, race, marital status, family status or age, also providing equal pay for equal work setting forth parameters through which the equalisation can be assessed. Labour courts in Brazil treat the termination of an employee with a serious disease (such as AIDS) as presumptively discriminatory.

The above actions will not only ensure legal compliance, but also help create a respectful and healthy workplace, protecting companies against potential lawsuits and reputational damages.

Employment law in India

What are the key employment laws and regulations in India that companies must comply with?

Some of the key employment legislations in India that are relevant to all businesses are as follows:

  • The Industrial Disputes Act, 1947: regulates industrial dispute resolution and conditions for layoffs and closures.
  • The Factories Act, 1948: ensures health, safety, and welfare in manufacturing establishments.
  • The Employees Provident Funds Act, 1952: mandates retirement benefits schemes.
  • The Payment of Gratuity Act, 1972: provides gratuity payments for long-term employees.
  • The Payment of Bonus Act, 1965: mandates bonuses for eligible employees.
  • The Minimum Wages Act, 1948: sets minimum wage rates.
  • The Payment of Wages Act, 1936: regulates timely wage payments.
  • The Maternity Benefit Act, 1961: provides maternity leave and benefits.
  • The Equal Remuneration Act, 1976: ensures equal pay for equal work.
  • The Sexual Harassment of Women at Workplace Act, 2013 (‘POSH Act’): protects against workplace sexual harassment.
  • The Employees State Insurance Act, 1948: provides social security and health insurance.
  • State-specific Shops and Establishments Acts: regulate working conditions in commercial establishments.
  • Industrial Employment (Standing Orders) Act, 1946 along with state wise regulations under the same.
  • Contract Labour (Regulation and Abolition) Act: regulates contract labour

It is to be noted that some of these laws become applicable, eg, laws related to Provident Fund and ESIC only upon the business undertaking reaching a minimum threshold number of employees – these thresholds are different for different regulations. Further, state governments are empowered and typically do have their own set of rules for implementation of statutes in their respective states, which creates a degree of variance in the implementation of the statutes from state to state. Compliance with these laws is critical for businesses operating in India as non-compliance often carries the risk of financial penalties as well as imprisonment of key managerial persons such as directors.

How do Indian employment laws compare to those in other major jurisdictions?

Some key points of difference are as follows:

  • At will employment – Indian employment laws are fundamentally structured around the concept of a ‘workman’ (a definition that roughly covers the blue-collar and grey-collar workers). Most of the protections under the Industrial Disputes Act (the keystone statute to Indian employment law) are intended for the workmen which essentially includes all employees below the managerial level. The interpretation of this term is largely driven by judicial interpretation and stare decisis. While at will and purely contractual termination of employment is fairly common at the management level, there are strict guidelines governing reduction in force or layoffs of employees below the management ranks. Further, many of the terminal benefits of employment like gratuity and provident fund are not consolidated yet and operate under various statutes and departments.
    United States: in our understanding the employment is generally at will meaning either party can terminate the relationship at any time, without cause, subject to anti-discrimination laws and contractual obligations.
  • There is significant variance in the positions related to non-compete clauses in the United States with some States like California taking an extreme pro-employee stance. In India, any agreement in restraint of trade will be considered void. However, restrictions related to confidentiality of trade secrets, restrictions related to a reasonable geographic area or a limited business field where the person concerned on whom the restriction applies has a skill that allows him to find employment in another field, or paid gardening leave would be some examples of reasonable restrictions that have been upheld by courts (India) from time to time. For key managerial employees reasonable non-compete obligation with buy-back of shares at a lower price, as a consequence of breach are established practices. By non-compete obligation here, we are strictly speaking about post-employment non-compete obligations. Typically, we advise exclusivity of employment to be expressly mentioned in the employment agreements.
  • A centralised social security law, Code on Social Security (2020), has been passed by the Houses of Parliament in India, and is an attempt to consolidate labour welfare legislations in the country. However, the statute awaits implementation as the same is subject to framing of rules by the respective provinces.
    In conclusion, the most distinctive difference between India and US employment laws would be with regards to the wide variance in employment regulations amongst the states as witnessed in the US vis a vis a far more central legislation driven approach to employment laws in India. While in India, currently welfare mechanisms for employees are provided through various statutes, the proposed new legislations intend to address the same through a consolidation mechanism. Termination of employment in US is almost always driven by contracts whereas in India there are significant statutory safeguards for the same.
  • With regards to the European Union, our view has been that the EU laws are far more protective of employment and relatively the Indian laws provide a bit more flexibility.

What are the implications of Indian employment law for multinational companies operating in India?

Other than the key statutes mentioned above the following points should be kept in mind by any multinational entity operating in India:

  • Indian labour law statutes often carry penalties including imprisonment and therefore a strict compliance with the same is mandatory.
  • Issues related to state holidays and minimum number of paid leaves in a year are often regulated by state level shops and establishments statutes and could vary significantly from state to state.
  • Laws related to protection of women’s rights at workforce including Maternity Benefits Act and POSH Act should be complied with strictly.
  • Layoffs or reduction in force must always follow the ‘last in first out’ guidelines and in the event, there are any deviations from the same, justification for such deviation must be recorded in writing.
  • Any plan to provide for participation of India resident employees in the foreign company ESOP policy must be framed in compliance with the extant overseas investment guidelines of the Reserve Bank of India as well as tax-related aspects of such transactions.
  • With regards to expat employees that issues related to withholding tax between the country of origin and India and all issues related to transfer of terminal benefits are to be considered carefully.

What are the best practices for ensuring compliance with employment laws in India?

  • It is important for multinationals to be cognisant of the nature of compliance involved with regards to employment laws. We suggest a one-time audit of the employment law compliance by a reputed firm followed by a half-yearly maintenance audit to ensure that no non-compliance occurs, or any existing non-compliance is immediately addressed with corrective measures.
  • A clear delineation of roles and responsibilities at a level below the directors, with regards to labour law compliance, in order to protect the highest management from avoidable departmental inquiries and lawsuits.
  • Regular workshops for sensitisation of employees with relation to issues like POSH Act are highly recommended.
  • Any exit of an employee from the organisation must be accompanied by a fully enforceable, validly executed contract of full and final settlement to avoid claims related litigation.
  • We highly recommend the HR policies of the companies to broadly follow the standard set by the standing orders applicable to them.

Are there any anticipated changes or trends in Indian employment law that might affect future business operations?

As a part of labour regulation reforms, the existing regulations in the regime, have been codified into four Codes namely,

  • Code on Wages.
  • Industrial Relations Code.
  • Code on Social Security.
  • Occupational Safety, Health and Working Conditions Code.

The Codes have been passed by both the Houses Parliament and have been notified, awaiting implementation. Most states, but not all, have pre-published draft rules for consultation under the same.

Once implemented, these will have significant impact in the labour regulations of the country.

‘If it frees up my time to be more strategic and more creative, then that’s great’

Generative AI is set to transform the way in-house lawyers work. Legal 500 London editor Cameron Purse moderated a recent panel discussion in Edinburgh sponsored by Addleshaw Goddard in which Candice Donnelly, director of corporate (legal) at Skyscanner and Colin Telford, senior legal counsel, NatWest, joined Addleshaw partner Ross McKenzie and head of innovation Kerry Westland to share their experiences. Continue reading “‘If it frees up my time to be more strategic and more creative, then that’s great’”

The growing challenges with supplier ESG management

With the recent introduction of the Corporate Sustainability Due Diligence Directive (CSDDD), supply chain due diligence is now directly in the spotlight. However, with supply chains becoming increasingly complex, the management of these is far from straightforward. As a result, many companies are using in-house expertise to help with supply chain assessment in order to keep up with ever-changing and increasingly more demanding requirements.

The rise in the importance of supplier due diligence and sustainable supply chains

In-house lawyers are increasingly playing a crucial role in ESG issues, with a particular focus more recently on supply chain assessment. Principally, key responsibilities revolve around risk management, compliance and governance, as well as helping to mitigate potential legal liabilities related to ESG factors in the supply chain. As ESG issues have become increasingly prominent on the business agenda, the shift from best practice and voluntary ESG standards towards regulatory compliance and legal requirements is a complex area for organisations to navigate.

Depending on the nature of your business operations, your geographical footprint and the size, structure and turnover of your organisation, you may now be required to undertake enhanced due diligence on suppliers relating to specific environmental and social issues. With increasing scrutiny now directed upon supply chains, where most of a business’ ethical risk and carbon footprint lies, it is no longer an option to disregard the importance of sourcing and your suppliers’ ESG credentials and performance.

CSDDD focuses on the performance of companies throughout their value chain and underlines the wider shift in focus beyond a business’ own activities, with enhanced human rights and environmental due diligence now essential for large companies operating in the EU.

However, ESG is a much broader topic than compliance or box ticking exercises, and entities that treat it as such have undoubtedly underestimated expectations of consumers, investors and other stakeholders on corporate responsibility. From a reputational standpoint, in-house legal teams are on the front line of defending the business and its reputation in the face of greenwashing, negative press, and poor ethical practices.

Deforestation

Deforestation links with supply chains have been well reported in recent years. Biodiversity loss has now reached unprecedent levels, and strongly correlates with deforestation rates from the world’s primary tropical forest regions of the Amazon and Congo River basins, as well as the forest systems of Malaysia and Indonesia. Biodiversity loss is increasingly being viewed as urgent as the climate crisis, and with clear links between climate change and biodiversity loss, the two are often discussed as ‘two sides of the same coin’.

Governments and policy-makers have begun to act to help reduce and, in some cases, reverse biodiversity loss in the world’s most at-risk ecosystems. The EU Deforestation Regulation (EUDR) aims to ensure that the products consumed by or created for EU citizens do not contribute to deforestation or forest degradation worldwide, and covers a range of commodities from cattle to wood to rubber, as well as some of their derived products. Any trader that places these commodities on the EU market, or exports from it, must prove that the products have not been sourced from recently deforested land or have contributed to forest degradation. It is anticipated this will create, and is already creating, enormous challenges for organisations to fulfil traceability requirements, mapping multiple forest sources and standardising data collection from suppliers.

Forced labour

Human rights issues have featured heavily in existing and developing global corporate due diligence laws in recent years, particularly modern slavery considerations surrounding forced and child labour. However, while some jurisdictions have had associated laws for some time, such as the UK’s Modern Slavery Act 2015, similar enhanced national requirements are now only just coming into force. Recent supply chain transparency acts, such as those of Germany and Norway, renew the focus on entities selling products and services in their respective markets, with many new obligations now extending to include entities such as sub-contractors throughout the value chain.

A key example is the Uyghur Forced Labour Prevention Act (UFLPA), which came into force in 2022 in the United States and was brought in to scrutinise supply chain links to Xinjiang Uyghur Autonomous Region (XUAR) and associated forced labour practices. With recent studies estimating that around 20% of the world’s cotton is produced in the region, it is essential that steps to ensure good labour practices are taken at this scale to address this significant supply chain risk for any entities that source materials from this area.

How can in-house counsel mitigate and support on supply chain risks?

As compliance with regulations becomes more challenging following the introduction of new legal requirements, this presents opportunities for in-house counsel to take on supply chain risk mitigation and advisory services. Companies with in-house counsel are far better positioned to address risks directly through advising on the creation of ESG strategies, and will be at an immediate advantage when assessing their operating footprint. Many companies have already started this process, with larger corporations often offering assistance to their suppliers through collaborations with in-house teams, or setting supplier sustainability targets.

However, compliance with regulations is built around more than just reactive regulatory compliance; it also provides business opportunities to add value to an organisation. This is not only from a risk management perspective, but also commercially with potential for added service offerings. For example, it is expected that companies without in-house legal or sustainability teams will soon be urgently seeking assistance in this area, and based on recent ESG trends, this need for help is only likely to increase over time.

How Landmark Information can help

Landmark Information has been assisting lawyers, investors and advisory firms with ESG due diligence services since 2021 through our proprietary Risk Horizon software platform. Managed-service ESG screen reports provide an ideal starting point for understanding ESG risks and opportunities by providing balanced analysis of a company’s ESG profile. Our expert consultants utilise a vast range of data, from regulatory databases and media to company disclosures and annual reports, which all measure against the IFRS’s SASB industry standards framework to identify risk and recommend appropriate next steps.

If you would like to arrange a demo to see how Landmark Information can help with your due diligence obligations, please get in touch.