World@Work The impact of recent elections on workplaces and preparing for an economic downturn

Stephen: Hello and welcome to Legal Outlook and to the latest World at Work podcast edition within Legal Outlook. My name is Stephen Woodbury and I'm the Global Practice Head for employment at Ashurst. Now in this episode we're looking at the impact on workplaces of recent political changes across our global network and how employers should be preparing for an economic downturn unfortunately. And I'm joined on this podcast again by Ruth Buchanan from our London office, Juditha von der Heydt from our Frankfurt office, Karen Mitra who leads our Asian practice out of our Singapore office, and Cristina Grande who heads up our Madrid office, and Jordan Cohen from Paris. Welcome to all of you.

Now, we'll start with Australia where I'm based, and we are going to be looking at issues relating to changes in federal government, which have been a feature across all of our areas throughout the last 12 to 24 months and in Australia, that's no exception. There was a change in federal government in late May, and they've recently hit their 100 day mark, so it's timely to have a look at the way in which things have been unfolding. Now, the change in federal government has marked a shift in priorities when it comes to the way in which the Australian government will regulate workplaces. Historically, the Liberal Party, which is actually the Conservative Party in Australia, has been known to be somewhat pro-employer and promote the idea that the private sector should pursue business ventures with limited government intervention to ensure economic prosperity.

Now, with the change in government, it's likely that workplace policies and laws will be amended to advocate for improved working and living conditions for the wage earning population. The Labour Government has stated that they are focused on growing wages and increasing the accessibility of healthcare, childcare and housing whilst growing the economy. The conversations at the recent Job and Skill Summit is evidence of the shifting ideological changes that the Labour Party supports. The summit focusing on, for example, ways to keep unemployment low and boost productivity and income, ensuring women have equal opportunities and equal pay, delivering secure, well paid jobs and strong, sustainable wages growth, expanding employment opportunities for all Australians, including the most disadvantaged, addressing skill shortages and getting our skills mix right over the long term, improving migration settings to support higher productivity and wages, and finally maximising jobs and opportunities from the renewable energy, tackling climate change, the digital economy, the care economy, and A Future Made in Australia programme.

Now, notably, the opposition Liberal Party has criticised this summit for stubbing the big banks, property council, Restaurant and Catering Association, and telecommunications companies at the event. They also criticised the makeup of the summit after it was revealed that the union movement represented some 25% of the participants whilst union membership as a whole of society is well below that. So it's going to be interesting to see what, if any, of the matters that were discussed at the summit actually make their way through into legislation and get passed as part of the law of Australia but at this stage, it does seem as though we have a lot of change ahead, or at least that's going to keep us occupied and our clients occupied over the course of the next six to 12 months.

So that's the position in Australia and now turning over to Karen Mitra who heads up our Asian practice in Singapore, we know that there's been a number of recent elections throughout the region, for example in the Philippines, in Korea, Malaysia, et cetera. Karen, can you please just tell us about the impact of those recent elections on employment law and workplaces?

Karen: I think, Stephen, it's a really interesting question actually, and we've seen quite a number of changes at the government level in the past 12 to 18 months in Asia and the flow on effects of that in the employment sphere and it's quite interesting that these almost go in opposite directions in terms of what that means.

In South Korea, for example, we saw the change from President Moon of the Democratic Party of Korea to President Yoon of the People's Power Party and that change has generally been perceived as a sign that there will not be significant changes to enhance workers' rights and noting that the party is actually quite a conservative party. There was a pledge to abolish the Ministry of Gender Equality and criticism of the maximum 52 hour work week that was introduced by the Moon government. But the immediate focus of the government appears to be on the cost of living concerns such as housing, so it kind of really remains to be seen what will happen.

That's really quite in contrast to what we've seen for example in Malaysia, where we're seeing changes that are being made in advance of the next election, which has to be held by September 2023, but is looking more and more likely to occur this year instead. There's been sweeping changes to the Employment Act of 1955 announced there which have the effect of extending coverage to all private sector workers and providing a range of additional new benefits such as reduced working hours, greater leave entitlement, and Australian style request for flexible working arrangements. The implementation of those changes has actually being delayed at the last minute. It was supposed to be on the 1st of September, but now won't be until the 1st of January 2023 to allow businesses a longer period to recover economically, given global uncertainty and the effects of COVID.

So it's quite interesting how we've seen two very, very different approaches and it's, I think, something quite interesting in the context of what, Stephen, you'd already talked about with respect to Australia.

Stephen: I now want to head back over to the UK and Europe and call upon Ruth Buchanan from our London office. And Ruth, you've recently had a change in Prime Minister, Liz Truss has been appointed, and do you envisage that there will be any impact on UK employment law as a result of this change in leadership?

Ruth: Hi there, Stephen. Yeah, so we have a new Prime Minister, Liz Truss, and of course she's come on board at a time when the UK is going through a period of significant change and unrest with the sad passing of the Queen and the various issues that the country's facing economically at the moment, particularly with the energy crisis.

In terms of employment law, Liz Truss made some pretty sweeping pledges during the leadership contest by way of example, she wants to scrap all remaining EU regulations by the end of 2023 and that could potentially impact many existing employment protections.

Reforming UK trade union law is also in her sights, including guaranteeing minimum services during strikes. A focus on this area isn't entirely surprising following a summer of rail strikes and strikes in various other areas that we've had in the UK and the threat of more to come, as we've been told to face a winter of discontent in that area.

And Liz has also promised a review of what's called the IR35 regime here, that's the UK's anti-avoidance tax legislation aimed at ensuring that the correct tax is paid where individuals are providing their services as contractors through a service company, but in fact they are actually in reality employees. We'll have to watch this space to see if any of these headline grabbing pledges actually materialise now that the leadership contest is over though.

Stephen: Yeah, thanks, Ruth and can you just remind our listeners and myself actually as to when the next election is due to be held in the UK?

Ruth: It's a good question, Stephen. I think it's probably not going to be for a couple of years now.

Stephen: Okay, so she's got some time to work her way into the job.

Ruth: Yeah.

Stephen: Okay. Well, thanks, Ruth. Now, let's turn our sites onto the continent. And Judith in Frankfurt, you have also had a change of government a little while ago now, so it might be interesting and instructive for the other countries that have had more recent changes to hear how things are going in Germany since the formation of the new government.

Juditha: Yeah, well, Stephen, the last federal election in Germany we already had a year ago. However, it took a couple of months for the parties to build a new coalition now consisting of Social Democrats, the Green Party, and the Liberals, and then for the new government to take up its activities. With regard to employment law, the new coalition, as stated in their coalition agreement, want to shape the modern world of work, enable professional opportunities, and reconcile security and flexibility and they have the following projects on their agenda for the current legislative period. First of all, they want to successively increase the minimum wage by 25%, which has partly been implemented already and the last increase with the minimum wage of €12 per hour will become effective in October this year. At the same time, the salary limit for so-called mini and midi jobs, which is a form of marginal employment subject to no or reduced taxes and social security contributions, will be increased.

Furthermore, they plan to limit fixed term contracts in order to avoid so-called chain fixed term contracts. Fixed term contracts with the same employer should generally be limited to a total of six years for which no statutory upper limit has been set so far. In relation to working time, the principle of eight hours per day is to be maintained, however, based on appropriate collective bargaining agreements, should be made possible to arrange working time more flexibly under certain conditions and within certain time limits. Another hot topic which is controversially discussed is mobile work. The new government will not introduce an enforceable right to mobile work, however, employees in appropriate jobs shall be given the right to consult with the employer and employers shall only have a limited right to object to an employee's request for mobile work or home office.

Furthermore, there are also plans to increase the right of parents by introducing a two week paid leave for the partner after the birth of a child and also by extending the special protection against dismissal after parental leave. So overall, the coalition agreement appears to be a mixture of the programme of the Labour Party trying to improve the working conditions of employees and also the Liberals who are rather pro-employer, and it remains to be seen what will actually be implemented here in Germany.

Stephen: Yeah, thanks Juditha. That's very interesting and some common themes there in terms of what the Labour Party in Australia is looking at doing, and obviously sharp contrast with what's happening in the UK. So it will be interesting to see how that unfolds in Germany over the course of the next 12 months or so. Let's turn to your neighbour over in France and Jordan has joined us to talk about the re-election of Emmanuel Macron in 2022. Jordan, what do you see on the horizon with the new government?

Jordan: Yeah, yeah. Hi, Stephen, you are totally right. Without any surprise, the last presidential election in France back in April resulted in the re-election of Emmanuel Macron and then the appointment of Olivier Dussopt as the Labour Minister so Emmanuel Macron will remain on duty for five more years. From an employment standpoint, we do not expect any major shift in his labour policy already established for the last five years now. He had started his presidential term with an important reform of the labour code, but for his second term he's also expected to implement some new social reform, but although less significant.

For now, the main lines are protecting purchase power against inflation, notably with an exceptional bonus called the exceptional purchase power bonus or the so-called Macron bonus, which can benefit from a social security exemption under certain conditions. He also wants to improve profit sharing within companies. He wants to implement a mandatory employees' right to dividends, which could be included in the already existing schemes of voluntary or mandatory profit sharing or even through the so-called Macron bonus I just talked about.

He also wants to gradually raise the retirement age to 65 or to 64, it's not clear at this stage. I say he wants to do it because it's a project he's been trying to implement for the past five years and it's very complicated. Many people are strongly opposed to increasing the retirement age and if it would be the case, we could expect a lot of protest in the streets. He also wants to increase the minimum wage by 2% and finally, he also plans on addressing recruitment issues or the talent war, as we have called it in this podcast a few months ago, but we don't know how yet but he's reaching for an unemployment rate around 5%, which is currently around 7.5%.

Stephen: Yeah, thanks, Jordan. That sounds, again, like a fairly ambitious target on the part of the French government-

Jordan: Yeah.

Stephen: ... and quite a bit happening so that's very interesting, so we'll see how that goes. And now let's turn down to Spain and Cristina Grande from our Madrid office who's here to talk about the impact of recent legal modifications on the workplaces by the Spanish government. Cristina, can you take us through those for us please?

Cristina: Yeah, hello, Stephen. Yeah, the last Spanish election took place in 2018 so in principle, until November 2023, no elections will be held. Of course, Spain is affected by inflation and gas prices and the government is taking measures to mitigate the crisis such as direct grants to families with low incomes, reductions of around 50 or 30% of the public transport on train tickets, a 50% increase in retirement and disability pensions, lowering of VAT on electricity, travel subsidies, and also direct aid to their freight transport sector and to the gas intensive sector.

However, it is to be pointed out that those companies who benefit from said aid could not carry out objective of collective dismissals based on our lag in the increase in the energy cost so these companies could not carry out these dismissals until 31st December, 2022. So in practice, this would limit the alternatives of the companies for adjusting their workforce. As you said, the government is still very focused in fulfilling its political commitments in Spain and during 2022, this year, many regulations have been an active concern in employment rated issues such as a regulation to limit fixed term employment contracts, to regulate the terms of working remotely, and also to control overtime.

There's a new regulation for household employees and new sick leave due to painful menstruation and there has been two new regulations announced recently on the Comprehensive Guarantee of Sexual Freedom and this law reinforces employer obligation to prevent the commission of crimes and other conduct against sexual freedom at work and it seems that from a health and safety perspective, employers are required to include in their risk assessments of the different jobs that are acquired by female workers, like an assessment concerning sexual violence or any risk concerning sexual freedom.

And the results of another recent law on equality and non-discrimination that sets out the prohibition of discrimination against workers on the grounds of health. And specifically this law establishes that the employer cannot treat differently workers on the grounds of illness or health condition, serological status and/or genetic position to pathologies and disorders. So in practice this law implies that the employer would need to have solid grounds to take any position which may not be favourable to an employee with a certain disease or for example, a temporary disability, as otherwise the decision would be declared null and void and the employer, in addition, could be obliged to pay damages compensation to the affected employee. So this recent law will definitely affect the day-to-day managing for many employers and human resources specialists.

Stephen: Thanks, Cristina. It does sound like there's quite a lot that has been and is happening in Spain, so it's very interesting and also obviously instructive for a number of the other jurisdictions that we've been dealing with throughout the course of this discussion. I wanted to just flip a bit now onto our second topic and I'll stay with you Cristina, obviously, because Spain has always had protections in place for employees and workers, particularly in the case of an economic downturn and I know different countries are experiencing the effects of the Ukraine war and impact on inflation that is flowing through to the economy in different ways and I just wondered from the perspective of employers in Spain, Cristina, what are some of the measures or things that they can be doing now to deal with the potential downturn in the economy that might take place?

Cristina: The main alternatives that they could implement is that they could carry out the assistance and modification of working conditions to, for example, move employees to other positions or decrease remuneration but they would need to prove solid financial, technical and organisational grounds and depending on the number of employees affected, it will be necessary to carry out a consultation procedure with worker representatives. For example, if the remuneration needs or wants to be reduced, it should be noted that it should not be lowered before the salary scales of the applicable collective bargaining agreements as otherwise other different procedures needs to be followed that not only requires a consultation procedure with workers representatives but the agreement. So it's much more complicated.

They will have another alternative that is the reduction of the working time or suspension of the employment relationship of employees, the temporary layoffs or the so-called ERTE in Spain and in this regard there's been a new mechanism for flexibility and establishment of employment that must be previously authorised by the council of minister. For example, nowadays this mechanism is already implemented for travel agencies, but the truth is that there's not a specific new procedure for other kind of sectors or activities that may be also affected by the war of Ukraine.

Under these mechanisms the employers will be able to suspend employment relationship of part of their workers for a maximum period of one year and during this period, the suspension or the employees suspended will have to attend to some training and the employers would receive training to provide said training and they will be also entitled to some exceptions from social security contributions.

And last, the last measures that they could implement is to carry out collective or objective dismissals based on organisational, productive, or technical and financial grounds. The financial grounds would concur when, for example, there are current or respective clauses or a persistent decrease in the level of income or sales and productive grounds when there is a decrease in the demand of products. However, as mentioned before, the government has established that those companies who has benefit for direct public aids, it could not carry out the majority of these dismissals alleging the increase in the energy cost until the 31st December, 2022. So we will see what happens but to be honest, there has not been any specific measure for the companies to provide additional alternatives to face the economic downturn in the Spain.

Stephen: Yeah, thanks Cristina, yeah, that is interesting in the sense that I think governments and employers have had to grapple with quite a lot of change, obviously coming out of the COVID pandemic and the manner in which they obviously provide support to employees in that case and/or in this case it's likely to be how to promote a lot more flexibility in relation to the employment context so it's interesting to see that at this point in time, Spain hasn't enacted any new laws probably because they have significant number of changes that have already been worked through following COVID but that's very interesting. Thank you. Cristina.

Let's turn back to Jordan in Paris and Jordan, has there been any impact, first of all, in France as a result of the economic circumstances in Europe? And then if so, what has the government been talking about in terms of assisting employers?

Jordan: Yeah, yeah, you are once again right, Stephen. So France is no exception to what we have just heard from Spain so the internal context, the COVID-19 and the unprecedented dryness and the international context, I mean the war in Ukraine are all pointing towards the major economic crisis in France. We can already observe an inflation of 5.8% and the raising of energy prices and the risk of shortages on oil, gas and electricity. This will obviously have an impact on labour with job creation already slowing down and almost 40% of the working population fearing to lose their jobs. So the government has just revealed its first emergency plan as he liked to call it, to address this upcoming crisis and to improve the performance of the labour market. So besides the reform we just talked about on the re-election of Emmanuel Macron, so these emergency plans include the reform of the unemployment insurance, which everyone is talking about right now and union are not happy with it like they are used to in France.

So the governments wants to modify the rights for unemployed people such they want to implement a minimum of six months working to be inflated to an employment benefit. I guess that's why the union are not happy with it and they also want a reform of the validation of acquired experience called the VAE to reduce a long term unemployment. For example, they would allow people to have been taking care of a sick or disabled family member to use their skill they have learned as a professional diploma. And to be honest, Stephen, that's pretty much it. This is all the government, the French government has officially planned to address this economic crisis from an employment standpoint so there is no doubt that it will evolve in the coming weeks or months, but at this stage I don't see how it will help the day-to-day struggle of businesses and workers in France.

Stephen: Yeah, thanks Jordan. Well interesting times for employers in France ahead by the sound of it, but it may well be they can take a lead from Germany. Let's go over to Juditha and see as to whether or not things have evolved in Germany in relation to the existing economic conditions that apply there. Juditha?

Juditha: Yeah, thank you. Yeah, well unfortunately Germany is also affected by inflation and in particular the gas crisis leads to enormous economic challenges over here. Like many other European countries, we are facing rising energy costs and a limitation or even a shutdown of gas supply to companies outside the critical infrastructure is possible in Germany, which may then lead to restrictions or even the shutdown of operations. Obviously this shifts the focus to labour law risks and employers in Germany should already take precautions in case they are unable to continue employing their staff or are only able to do so to a limited extent.

There are a number of options available to employers in Germany. A lot of them we already know from the Corona pandemic. Short time work for example, which provides for a temporary reduction of normal working hours under a state subsidised scheme, has proven to be an extremely effective instrument in the wake of the COVID pandemic and the requirements to participate in this scheme were substantially facilitated during the pandemic and the scheme has just been extended until the end of the year. So this is definitely a good instrument.

Further options are stopping or reducing overtime, flexible working time arrangements, and of course the use up of holiday entitlements. Dismissals for operational reasons are usually the last option in order to prevent the employer from losing urgently needed staff and know-how for the time after the crisis, which is the problem which we can currently see in Germany and industries recovering from the pandemic such as Aviation and Catering. In any case, the introduction of any of these measures should be done carefully and in consultation with the works council and of course we would be happy to explain all options in more detail to any listeners.

In relation to the rising energy costs. Might be worth mentioning that this month employers are obliged to pay out so-called energy price lump sum payments in the amount of €300 gross to each employee and employers will then be reimbursed by the State.

Stephen; Yeah, thanks Juditha, that last piece is interesting, an energy price lump sum payment just really underlines the significant significant impact that obviously the effect of the Ukraine war and the increase in energy prices is having so that's interesting that the German government has sought to move that to the employer to start off, but then obviously subsidises it in the context of trying to provide that support and assistance, which leads us then back to the UK and Ruth obviously I understand inflation is causing a few headaches in the UK as well, and there would be concerns about the economic potential for an economic downturn. What advice can you give to employers who are faced with the dilemma of keeping a tight rein on costs whilst ensuring also that key employees stay motivated?

Ruth: Yes, unfortunately, you're right, similar to the other European jurisdictions, inflation is really hitting us hard. Last month inflation in the UK roads above 10% for the first time in 40 years and that again is driven by the soaring prices of food and fuel and so all indications here are unfortunately that we're heading headlong into recession. There are, however, some options which employers can think about now which might help to soften the blow. A lot of those are similar to the measures that Christina and Juditha and Jordan have mentioned, for example, employers may want to consider whether they should be implementing a recruitment freeze now and moving these employees that have transferable skills into different roles in order to keep the salary bill down.

Other possibilities are stopping or reducing overtime, perhaps being more active and encouraging flexible working and these measures could be communicated as temporary ways hopefully to avoid redundancies down the line. Of course, before taking action like that, companies do need to consider the contractual position with their staff and determine whether or not employee consent will be required. Some employers of course will be faced with taking more difficult decisions, especially at a time when the UK's facing a cost of living crisis and that may include cutting salaries. Usually any action like that in the UK will require an employee's agreement or you'll face claims of breach of contracts, an unlawful deduction of wages.

Where you can't get an employee's consent, employers may then decide to make the change unilaterally or terminate and re-engage the employee on amended terms. Clearly there are risks involved with those decisions, which I don't have time to cover now, but we'd obviously be happy to chat through that with any listeners who are going to be facing that dilemma in the coming months.

Stephen: Yeah, thanks Ruth and I'm sure many employers out there are probably going to be in the need for some advice by the sound of that, unfortunately. And turning back to Karen Mitra in our Singapore office, what's the position in Singapore, Karen, in relation to employers seeking to manage the economic downturn?

Karen: Yeah, it's interesting. There's a range of options available to employers to manage an economic downturn in Singapore and the Singapore government's actually really been on the front foot on this. They've already announced and implemented a number of policies to support self-employed workers and those employing low wage workers such as increases to their co-funding share for employees paid on the progressive wage credit scheme, which is designed to increase wages for the lowest paid workers in Singapore and they've also extended the jobs growth incentive scheme that provides monetary salary support to businesses which increase the number of Singapore citizen workers they have, particularly mature workers and those with disabilities.

When it comes to the potential need to cut costs, employers need to bear in mind that the provisions of the tripartite advisory on managing excess manpower as modified in response to COVID-19 still apply. So retrenchments really should be a last resort and employers should be looking at all other measures before they retrench staff and the specific types of measures are actually contemplated by the advisory and they include things such as redeploying staff to other roles, implementing flexible work schedules, temporary layoffs, reduction in annual wage supplements, so those parts of salary that are kind of discretionary in their amounts and then kind of as a last resort before you get to retrenchment, periods of no pay leave might also be appropriate if there's really no other option available.

But in all cases, employers are encouraged to consult the employees and unions before implementing those cost saving measures. And the Ministry of Manpower really will be monitoring those particular measures and encouraging employers to kind of seek assistance from as many government bodies as they can in order to avoid job losses.

Stephen: Let me now turn back to Australia finally, in relation to the economic circumstances in this country. Our inflation rate has hit 6.1%, which, whilst well below some of the other countries that we've heard about and particularly over in the United States, it is actually quite high for Australia considering its recent history and that's been combated by our Reserve Bank increasing interest rates on four consecutive monthly occasions now in an effort to try and bring down the rising inflation and it's to be seen as to whether or not that's going to have the effect that is desired. One effect that it probably will have is a slowing down of the economy and so for Australian employers, as we've heard in Europe and Asia, that is going to be something which employers will have to face by way of a challenge.

I mentioned earlier the fact that the COVID pandemic, in some way, has prepared everyone for the type of responses an employer can take to managing those challenging economic circumstances and they're going to be the same ones I think that apply here that they include things like trying to reduce the overall cost of labour by way of, for example, agreed reductions in pay, the temporary stand down arrangements where available, subject to statutory and award or industrial agreement conditions, voluntary redundancy processes as a starting point, compulsory redundancy processes where voluntary redundancy processes haven't achieved the desire to outcome, the implementation of hiring freezes in order to reduce the labour force through natural attrition but if that's not effective, then looking at your casual cohort and maybe standing down casuals given that casual loading is already in place in Australia as a statutory entitlement, so effectively an increase in pay for casual employees to compensate them for periods of unpaid absences from work.

Employees can be requested to take leave without pay, for some employees that might be an attraction to them in circumstances where they might otherwise be facing redundancy. More flexible types of arrangements would include negotiating shortened working weeks, that was a feature of the pandemic, the COVID pandemic and it may mean that full-time employees accept part-time employment arrangements for a defined period of time during a downturn. Equally managing leave accruals such as sending employees on annual leave, or long service leave in Australia, which is a form of sabbatical leave so as to effectively reduce the level of accruals and have the employees off work still paid, but off work during that time.

In terms of redundancy pay, it arises where a job no longer exists because of an economic downturn or reduction in trade, and this will usually be a valid reason for termination of employment but also will give rise to an entitlement to redundancy pay so employers need to factor in the consequence of any redundancy which is that they will have to make payments which again may impact their cash flow position.

In terms of job share arrangements, that was a feature again of the COVID pandemic having a number of employees who perform the same role sometimes take reduced hours as an alternative to making one or two employees redundant so that everyone shares a load and job shares for a period of time and sometimes conversely to maybe reducing the number of casual staff if you are going through a redundancy programme, sometimes putting on extra casual staff who have the ability to work less hours is sometimes another measure. So there's effectively a menu or pallet of different options for employers in Australia to look at how to manage an economic downturn, potentially avoid redundancies and be in the best possible shape for when the economy, hopefully, turns around and starts improving.

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