Report for SIRVA Relocation. Report on Enforceability of Repayment Agreements

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1 Report for SIRVA Relocation Report on Enforceability of Repayment Agreements

2 Report on Enforceability of Repayment Agreements Prepared for SIRVA Relocation by Morton Fraser LLP Morton Fraser circulated an example of a repayment clause (below) to their associate law firms in the Interlaw network:-. "I [employee name and address] hereby undertake that in the event of the termination of my employment with [employer name] within [two years] of the date of completion of my forthcoming relocation to [new work location], due either to my resignation or my dismissal for misconduct, I shall repay to [employer name] all relocation-related payments received by me together with all other related costs incurred by [employer name] in connection with my said relocation." Two questions were asked:- 1 Is this wording enforceable in your jurisdiction? 2 If the answer to 1. is "yes", can payments be final salary or other payments due to the employee? Country Brazil Mainly no (see comments) Taking into consideration Brazilian Labour Legislation, there aren t any specific regulations that authorize that the company requires the employee to repay all (roundtrip) relocationrelated expenses in international transfers (due to a request or in the interest of the company). In this regard, we could use as an analogy, for purposes of interpretation, article 470 of the Brazilian Labour Code (CLT), which establishes a rule for national transfers (within Brazil). The said provision clearly states that all relocation-related expenses must be entirely borne by the company. The only rule that clearly regulates the matter at hand states that in international relocation of employees, the company may require reimbursement of the costs directly associated with the employees return to Brazil, in cases where the employee resigns or is fired for just cause (misconduct). Notwithstanding, there is still a risk that this clause could be declared null and void, especially in regard to the reimbursement of the costs of the initial relocation to the foreign country, by a Brazilian Labor Judge (in the context of a lawsuit filed by the former employee). Canada Yes Yes Such a deduction can be made where an employee agrees in writing. The wording below is suggested to be added to the clause I specifically agree that any amounts required to be repaid by me pursuant to this agreement may be any amounts due to me from the company.

3 France No The clause is considered unenforceable as it would affect the employee's freedom to terminate his or her contract. In the case of a dismissal, recovery of such a sum may be interpreted to be a "twofold sanction" Germany Yes Yes, subject to regulated limits (see comments) In order for the clause to be enforceable, it must to clearly state what costs the employee has to repay. The clause would have to be amended to provide transparency of the costs involved as "all other related costs" is too vague. If the relocation is necessary for operational reasons, the employer cannot recover those costs under the German civil code. However, where the relocation is due to non-operational reasons, any deduction is subject to limits. If the regulations on general terms and conditions are met, the employer can deduct his claim from the employee s income. However, the rules on wage garnishment have to be obeyed. The German Civil Procedure Code guarantees each employee a certain amount of his or her labor income that may not be garnished or deducted. Hong Kong Yes Mainly no (see comment) Any deductions which can be made are limited by section 32 of the Hong Kong Employment Ordinance. The clause may be redrafted to provide that the relocation payment is made to the employee by way of a loan deductible under section 32(2)(g) of the Ordinance. India Yes Yes While under Indian employment law there is no requirement to provide a relocation benefit to an employee, this has become standard market practice. As there is no legal requirement, there is no restriction on the recoverability of such a payment. Suggested wording: "I [employee name and address] hereby undertake that in the event of the termination of my employment with [employer name] within [two years] of the date of completion of my forthcoming relocation to [new work location], due either to my resignation or my dismissal for misconduct, I shall repay to [employer name] all relocationrelated payments received by me together with all other related costs incurred by [employer name] in connection with my said relocation. I further agree that [employer name] shall be entitled to recover this relocation benefit from my final salary or from any payments due to me from [the employer]."

4 Republic of Ireland Yes, if included in contract of employment Yes (see comments) Section 5(1) of the Payment of Wages Act 1991 deals with deductions from wages of employees. An employer may only make deductions from wages in limited circumstances. The 1991 Act has strict provisions which allow an employer to make deductions from wages or to receive payment from an employee only where authorised by statutory law or by a term of the employee s contract of employment included in the contract before, and in force at the time of, the deduction or payment. In the case of a deduction from wages, the employee must give his prior consent in writing to the deduction. The deduction in this case would arise due to an act or omission of the employee (i.e. resignation or dismissal due to misconduct) and so the following must be in place for such a deduction to be enforceable: The deduction must be required or authorised to be made by virtue of a term of the employment contract The deduction must be of an amount that is fair and reasonable having regard to all the circumstances (including the wages of the employee) The employee must have been furnished with a copy of the term of the contract allowing for the deduction The employee must be furnished, at least one week before the making of the deduction, with particulars in writing of the act or omission which has triggered the deduction, and the amount of the deduction The deduction must be of an amount not exceeding the amount of the loss or the cost of the damage it is being invoked to compensate for. Italy Mainly no (see comments) No If the relocation is in the sole interest of the employer, Italian law and the Collective Bargaining Agreement expressly state that in case of relocation of the Employee, the employer should pay to the employee a large part of the cost incurred by the Employee in the relocation and it is very unlikely that the Employee could be obliged to return those benefits. The only way to deduct such payments is if the relocation is in the specific interest of the employee. However, parties may agree in advance of any deduction. The following wording is suggested: "The parties acknowledge that the relocation of Mr/Ms from to

5 is made in the interest of both parties and that certain costs are borne by the employer also in the interest of the employee. I [employee name and address] hereby undertake that not move from [new work location] for [two years] from my relocation. In the event of the early termination of my employment relationship with [employer name] within [two years] of the date of completion of my forthcoming relocation to [new work location], due either to my resignation or my dismissal for just cause, I shall repay to [employer name] all relocation-related payments received by me together with all other related costs incurred by [employer name] in connection with my said relocation an amount equal to [amount due as relocation benefit]." Japan No The suggesting wording is unlikely to be enforceable under Articles 13 and 16 of the Labor Standards Act. While there is scope for its enforceability provided that certain conditions categorising the sum as a "loan", there is no case law to support that a court will not still reject this interpretation as being contrary to Article 16. Netherlands Yes Yes, subject to regulated limits Any deductions are limited to leave the employee with a minimum monthly salary to meet cost of living. Russia Yes Yes, subject to limits Article 169 of the Russian Labour Code in case of Employee s relocation (as a result of prior agreement between the Employer and Employee) the Employer commits to reimburse: - expenses for relocation of the Employee as well as his family members and transportation of property (unless the Employee is granted with means of transportation by the Employer); - expenses associated with living arrangements at the new place of residence. Exact amount of the expenses reimbursement is to be determined by the agreement between the Employer and Employee (which of course may be a separate agreement or the integral part of the employment agreement). Such agreement may inter alia include the provision that under certain circumstances the Employee shall fully repay the relocation benefit to the Employer. One of such circumstance may be the Employee s dismissal (termination at the Employee s initiative) without a valid reason or termination for misconduct before expiry of the period of work under the employment agreement (in case of absence of a definite period, then before expiry of 1 year). In accordance with the Russian law deduction from payments to the Employee may be performed only in certain cases envisaged by the law (i. e., reimbursement of advance

6 payment, due to calculation error, etc.) and under the certain conditions (not more than 20% from each salary payment). Since repayment is duly stipulated by the Russian law, the repayment of the relocation benefit may be done based on such legal provision additionally envisaged by the agreement of the Employer and Employee. In case the Employee doesn t repay the relocation benefit voluntarily, the Employer may file a claim and get the repayment via court proceeding in Russia Singapore (not a formal legal opinion) Yes - several of our clients use clawback clauses Not known Companies also use Clawback clauses for other costs such as rental dilapidations caused by the employee. Spain No If the relocation is not in the practice of the employer and is on the request of the employee, the employer can agree to the relocation subject to conditions, and a possible condition could be the repayment of costs connected with the relocation. A clear and specific "relocation contract" should be entered into. Sweden No Turkey Yes Some In terms of deducting payments, it depends on the type of payments which are being recovered. UAE (Abu Dhabi) Yes Yes While there is no case law currently available to definitively support whether the sums would be recoverable, it has been commented that where the employer provides a breakdown of the relocation sum and related costs and there is provision in the employee's contract of employment specifically referring to recoverability of relocation costs, the sum should be recoverable. UK - Mainland Yes Yes, subject to comments It is unlawful for an employer to make such a deduction from an employee's wages unless the deduction is authorised by a provision in the worker's contract or the worker has given their prior written consent to the deduction.

7 UK - Northern Ireland Yes Yes Provided the sum specified in the clause is not "extravagant and unconscionable" the proposed wording is enforceable. Article 45(1) of the Employment Rights (Northern Ireland) Order 1996 provides that a relocation sum can be recoverable where there is a provision in the employee's contract of employment or is otherwise agreed in writing between the parties.

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