Brexit – keeping key employees after relocation

Please note that all the circumstances of the individuals must be considered and certain circumstances can affect the individual’s employment rights. For this reason, you should not rely on this article without professional advice on the facts of your case.

The scenario

A major UK company relocates a key employee to Paris for Brexit reasons. The relocation costs for the employee and his family are extremely high (over £100,000) and the employee refuses any changes to his UK contract. The concern is that shortly after the move to Paris the employee will leave and join a competitor. All the UK Company will have done is paid a competitor’s relocation costs. Everyone knows there will be a shortage of people with the individual’s skill set and contacts and that on arrival in Paris he will receive immediate approaches from competitors.

Contract of employment

His employment contract does not require him to work abroad. It contains a provision that he cannot work for a competitor for a period of 12 months after his employment terminates for whatever reason. This clause may well be ineffective as the employee could say it did not cover competitors outside the UK as this was not envisaged when he signed the contract. His employer has to pay him for 12 months if the termination was not the employees fault. This 12 month period was acceptable to the employer whilst he worked in London but when it was drafted it was never envisaged the employee would move to Paris. There is no mention of any law other than English law applying.

The contract is silent about relocation expenses. The employer would like a provision requiring the relocation expenses to be repaid if the employee jumps ship shortly after arriving in Paris. The employee refuses any changes to his contract of employment. The employer will have to bear these costs if the employee leaves after the move.

Below looks at some of the main issues employers could face and potential solutions to these issues.

What next?

It is not possible to force him to relocate or accept changes to his contract of employment. The only thing that the employer can do in this situation would be to entice him into entering a new contract of employment with an attractive package. In addition to his contract of employment the French labour rules will apply giving the employee enhanced protection.

If he still refuses to accept the new contract of employment then the employer may need to consider dismissing the employee.

Care must be taken when dismissing the employee as the usual unfair dismissal law will apply. The employer will have to show that it has acted reasonably in relying on the reason to make the dismissal. This will mean following a fair dismissal procedure and following a fair redundancy procedure in the case of dismissals for redundancy. This scenario may also involve the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (commonly known as TUPE), and for larger organisation, the application of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992).

New contract - which law applies?

If he accepts the new contract then the employer needs to consider which law to apply to the contract.

It is possible to choose English law and courts as the choice of law and jurisdiction in a contract of employment. However, having the choice of law cannot deprive an employee of any protection afforded to him by the mandatory rules of law of the country where the work is carried out. Therefore if there are any conflicts of law between the terms of the contract and the relevant statutory position then the statutory position will prevail.

Because the employee will work in Paris, French law applies generally to the employment contract. Furthermore, from experience, “English” contracts in France do not work well. It is best practice to have a French contract with French law applying to the “new employment”. It will be possible to include certain standard terms which exists in the UK in the French contract, as discussed below.

The employer should also bear in mind that the employee will probably have more rights than his opposite number in the UK which may result in resentment within the business.

Continuity of employment

Whilst it will be a “new contract”, continuity of employment will be preserved as the employee is transferring to a group company. TUPE equally applies in France given that it is a European law.

Work permit

Currently, a UK citizen is able to work in France without a work permit. However, following Brexit the position is unclear. As it is a criminal offence to employ a foreign citizen who does not have a valid and regular work permit, it will be important for employers to comply with administrative procedures to obtain relevant permits for their UK employees to work in France.

What happens if the employee wants to leave 6 months after arriving in Paris?

Similarly to the UK, it is equally possible to restrict employees from working for a competitor (non-compete) in France. In order for a non-compete clause to be valid, it must meet specific conditions. The conditions differ between the 2 jurisdictions. For example, in France employers must compensate the employee for duration that the employee is prohibited from working for a competitor. This does not exist in the UK. French courts have suggested that an amount equal to one third of the employee’s last average monthly salary should be the minimum compensation.

As the employee is being transferred, his or her terms of employment will remain unchanged. If there is an existing restrictive covenant then it is unlikely that it will need the conditions imposed in France to be valid. As such it will need to be redrafted and both the employer and employee will need to agree to the new terms of the restrictive covenant. It will not be possible to impose one unilaterally. The fact that the employee would be entitled to compensation for the restricted period in the new restriction clause, it is unlikely that the employee would refuse to sign to the new terms.

If, however, the employee refuses to sign to the new term then perhaps the employer should consider a loyalty bonus.

Loyalty/discretionary Bonuses

The loyalty bonus could either be, the employee will be paid a bonus of say £50K after 2 years of employment or £50K on signing the new contract of employment which would be repayable in the event the employee leaves (for whatever reasons) within 2 years of employment.

In the UK, this is permitted and quite usual for senior executives. In France however, it is unusual and not recommended but it is not prohibited.

Whilst it is possible to include a discretionary bonus in a French contract of employment, the terms must be set out very clear. In France, discretionary bonuses are becoming less common because French courts have often ruled against them and in favour of the employee. It is crucial for any employees to be informed of all the terms (i.e. conditions/targets) of the discretionary bonuses and an agreement must be had. It is possible for employers to unilaterally change the terms of the bonus if the conditions were set unilaterally in the first place. However, any changes must be communicated to the employees at the beginning of the period during which the conditions must be met. If not, the employee would be able to claim the maximum bonus whether or not they achieved the targets.

Relocation costs

Usually relocation costs within France such as expenses for temporary accommodation and moving costs are exempted from social security contributions. Additional expenses (including a compensation for “inconvenience” because of the relocation) may also be exempted from social security contribution when the relocation is from outside France.

Similarly to the UK, it is possible for employers to include a claw back provision for the relocation costs. This means, if an employee decides to leave employment after 6 months following the relocation then they would need to reimburse the employer of the relocation expenses. This could be a good incentive for employees to remain in employment for some time.

Conclusion

French employment law is generally more favourable to employees in France. However, the tide is changing and those in senior positions have less protection than those in junior positions. As such, both employers and senior executives do need to take care and to consider ways to mitigate their potential exposures.

Andinee Perry
Senior Associate