Labour and employment: Employee litigation: Brave new (and bigger) world

Fiona Loughrey
Simmons & Simmons
Hong Kong

In the last five to ten years, there has been an observable growth in individuals taking action against their current or former employers. This trend can be seen not only in jurisdictions such as the US, the UK, Hong Kong, and Australia, but also in emerging markets such as the PRC, which has seen an exponential increase in employment litigation in recent years.

A contributing factor in this trend was the 2008 global financial crisis, which prompted a marked rise in claims by axed or disgruntled employees. The recent (and successful) €400 million bonus pool claim by Dresdner Kleinwort Ltd & Commerzbank AG employees in the UK is a particularly notable example.

Another driver has been the availability of new legal remedies. For example, the UK introduced age discrimination laws in 2006, and Hong Kong legislated against race discrimination in 2009. The emergence of data protection regulations over the last ten years has also played a role, and is an increasingly significant factor as employee awareness of data rights grows. For example, employers are seeing data access requests being used as irritants to induce settlements, particularly where the aggrieved employees cannot viably point to any breach of obligation.

These new statutory avenues have also been accompanied by plaintiff lawyers creatively fashioning new common law claims (for example, anti-avoidance arguments in connection with unpaid bonuses, and various other manifestations of the implied mutual trust and confidence term).

In addition, certain remedies which were previously considered secondary or marginal have gained significantly more prominence. For instance, there has been a sharp rise in retaliation or victimisation claims in the US, which in 2011 comprised almost 40% of all discrimination filings in the federal Equal Employment Opportunity Commission. In Australia, retaliation claims have been used in recent times to leverage record payouts in circumstances where the underlying alleged discriminatory conduct might, objectively, have been viewed as at the lower end of the harassment or discrimination spectrum in terms of seriousness.

Another stimulus to claims has been a possible change in attitudes of both employers and employees. Companies which in prior decades had paid to avoid litigation at any cost may have been forced to be less ready to settle. Difficult economic times (which have increased both the size of claims and the potential pool of claimants) have magnified the commercial risk of setting precedents, with confidentiality undertakings in settlement agreements being extremely hard to monitor.

On the employee side, although impact on career prospects will always be a factor mitigating against public litigation, there may in some quarters be less concern about the stigma attached to being a plaintiff. This may be particularly the case during the economic crisis and its aftermath, which perhaps encouraged a Hobbesian, each for themselves mindset.

This disappearance of timidity has been especially observable in the emergence of plaintiffs proactively engaging PR consultants as a weapon in litigation (sometimes with disastrous results – in Australia a former marketing employee of a bank was in April this year ordered to pay the equivalent of US$6 billion in costs after being severely chastised by the court for effectively trying to bully the bank via the media into settling false sexual harassment claims). Along with a possible decrease in concern about publicity, there is also a parallel increased capacity to run complaints with a higher degree of anonymity than was previously the case. In the UK, for example, there is now an ability to claim as a multiple plaintiff. This goes some way towards less notoriety, if not invisibility. In some other jurisdictions, complaints may be brought privately, and mediation is also generally on the rise.

Certain forms of employment, such as international secondments, can give rise to a number of difficult legal issues. Globally, a disgruntled and formerly mobile employee may be inclined to seek to invoke rights under the home and the host jurisdiction, particularly if the latter is protective in relation to termination. Among legally developed jurisdictions, only the US recognises at will employment. In many others, it is relatively difficult to lay off employees, including expatriates, without negotiation of a pay-out. This is not only the case in Western countries with strong social welfare traditions, such as Germany and France. It also often applies with even greater force in developing economies like the PRC, which joins other Asian jurisdictions like Japan and Korea in having significantly regulated labour markets.

More permissive jurisdictions can also present difficulties. For example, in a recent high-profile restraint of trade dispute in Hong Kong (Cantor Fitzgerald v Boyer [2012] HKCFI 260), it was held that a secondee could exercise a local statutory right to terminate his employment by providing a payment in lieu, even though he had no such right under English law which governed his contract. This meant Cantor Fitzgerald lost a key protection (a four month notice period) and thereby became significantly more vulnerable to immediate competition from a former key executive.

The laws of a home jurisdiction, which may be wrongly assumed to be unconnected with the work being carried out, can have an extended reach. This was seen earlier this year in Ravat v Halliburton Manufacturing & Services Limited [2012] UKSC 1, in which the UK Supreme Court held that an English tribunal had jurisdiction to hear a claim arising from work undertaken wholly in Libya for the benefit of a German entity.

Employers are well-advised to carefully consider which law should govern an international placement or secondment relationship, and which entity is to be the employer. For example, why use a New York employer and choice of law clause if the employee is ostensibly working for a local entity in a jurisdiction where employment laws are employer-friendly? These decisions obviously need to be made on an informed basis. Assumptions, especially inherited assumptions, can be dangerous. HR managers might be correct in supposing that a particular jurisdiction is the right place to arbitrate, but this needs to be carefully analysed.

Despite the apparent greater willingness of employees to litigate, and the new and changing multijurisdictional legal landscape, companies can still avoid a large proportion of claims by maintaining (or re-energising) tried and tested risk-management strategies. This includes: focusing on compliance, such as regular training on appropriate workplace behaviour; watching out for negative behaviour (the early and proactive management of potential issues is critically important); and ensuring effective contract management is taking place, particularly (but not exclusively) in the context of globally mobile employees.