Asia's legal labyrinth
Companies not up to speed with local employment laws in Asia are likely to face hurdles in both their hiring and firing processes. HR departments with regional operations therefore need to grasp the basic employment laws for each jurisdiction in order to function effectively. That’s certainly good advice, but the wide range of laws across this important region can sometimes make life difficult for HR.
Labour laws in Indonesia, for example, are more in favour of employees, especially when it comes to termination of employment. An employer is not allowed to fire an employee without an order from the Labour Court. According to George Cooper, Practice Leader, Freehills Workplace Law & Advisory, Asia, the agreed separation payments can be very high, as the formulae in the local Manpower Law are very generous to outgoing staff. “Applying the formulae, a long-standing employee could walk away with two to three years’ pay as a minimum,” he says.
Unilateral termination of employment contracts is also a challenging process in countries like Japan and South Korea. Singapore, on the other hand, is more employer-friendly. When terminating the services of an employee, the employer only needs to comply with the exact terms of the individual employment contract. If the contract says that either party may terminate without a cause by providing the necessary period of notice, then this can be followed.
Employment laws in Asia are subject to frequent changes and a number of online resources are available to help organisations stay up-to-date. However, employers must know where to look and there is also no guarantee that the information will be current and accurate. “The HR function should review employment laws periodically, as changes can be made at any time,” Cooper says. “It would be a good idea to arrange updates from the in-house legal department or external advisers.”
In-house lawyers are likely to be able to handle basic employment queries, says Cooper. “However, most in-house counsel are generalists and not employment or labour law specialists. Therefore, for more complex or challenging matters, external advice is advisable.”
Singapore’s common law system, derived from its colonial history, is based primarily on the English legal system. Labour issues and employment contracts fall under the Employment Act which prescribes only basic minimum terms, conditions and protections – most of which do not apply to employees in managerial or executive positions. Singapore has a relatively business-friendly law regime. This means employers have the autonomy to create flexible work contracts, either orally or in writing. When it comes to industrial relations, Singapore adopts a unique tripartite approach of consultation – including unions, employers’ organisations and the government. “Government, employers and employees generally cooperate to deal with issues rather than act in an adversarial way,” Cooper says. “It seems to work.”
The greying population is a particular cause for concern in Singapore – with one in six residents expected to be aged 65 or older by 2020. Under new legislation coming into effect from 2012, employers will be required to re-employ their eligible retiring employees up until age 65. Those who are unable to do this will be required to provide a one-off Employee Assistance Payment to help workers tide over the period where they have to look for alternative employment.
While Hong Kong and China are now one country, the former still runs an independent judiciary system based on the British common law framework. The Employment Ordinance is the main legislation that governs conditions of employment in the territory. It covers a comprehensive range of requirements and benefits for employees including wage protection, rest days, severance payment and maternity protection. Employment contracts are not mandatory in Hong Kong. However, they must be provided should an employee request one.
Traditionally, there has been no minimum wage in Hong Kong. But that is set to change from 2011. The Minimum Wage Bill, announced in June last year, represents a significant change as Hong Kong has always promoted itself as a free economy with flexible labour markets. Business and union leaders are still battling over what the rate should be. The Hong Kong Confederation of Trade Unions for example, says that the rate should not be set below HK$33 (US $4.24) per hour.
Over the past decade, the Chinese government has been trying to nurture a business-friendly legal environment to support its rapidly growing economy. The new Employment Contract Law enacted in January, 2008, has brought about significant changes. “This legislation lays down a comprehensive and onerous employment contract system, with many obligations imposed on employers and many protections for employees,” Cooper says.
Under the new law, employers who fail to produce a written contract could face severe consequences. An employee who has served two fixed-termed contracts is entitled to permanent employment. Further, if a written employment contract is not concluded one year after the start of employment, the new law assumes that a permanent relationship has been formed. Employers who fail to convert contracts into permanent employment have to pay twice the salary owed. They are also expected to offer severance pay upon the expiry of a fixed term contract and there are burdensome consultation obligations if the employer wishes to change work rules or practices during the contract term.
India poses a challenging business environment for any employer, with more than 45 separate pieces of legislation making up the relevant law regime. A 2008 World Bank report found these labour laws are among the most restrictive and complex in the world. According to the report, the laws serve to protect only “insiders”, the small number of workers who are already working in the organised sector. It disrupts the creation of manufacturing jobs for the tens of millions of unemployed or those working in poor quality jobs, the report said.
The Industrial Disputes Act is the main legislation governing investigation and settlement of all workplace conflicts. Under the Act, a company with more than 100 workers is required to get approval from the state government before it can shut down or dismiss any staff. Companies view this as a constraint to their operations and growth. The Act also draws a distinction between “workmen”, being lower level employees, and “non-workmen” although often, it is difficult to draw the line between the two. This poses a problem as there is greater statutory protection for “workmen” – employers cannot fire them for anything less than serious misconduct or forced retrenchment.
How to guarantee problems with the law
George Cooper, Practice Leader, Freehills Workplace Law and Advisory, Asia, says dealing with Asia’s unique mix of employment laws is always a daunting task. But there are some must-dos that apply to every jurisdiction. His top ten mistakes regarding employment law are:
» Not having in place a (properly-worded) written employment contract
» Using a standard employment contract template for multiple countries without adapting to local legal requirements
» Not properly connecting the employment contract with company policies
» Not tailoring the restrictive covenant clauses in employment contracts
» Failing to put in place work rules or regulations, where required
» In an international transfer situation – not understanding which corporate entity is the “employer”
» In an international transfer situation - not making clear arrangements for return to the home country
» Not understanding local requirements as to termination of employment
» Failing to properly deal with employment issues in corporate merger and acquisition transactions
» Confusing employment arrangements with company directorship arrangements