The post-Covid workplace: How normal is the new normal in Europe?

Friday 7 October 2022

Dr Jan Tibor Lelley
BUSE, Essen
lelley@buse.de

Dr Yuanyuan Yin
BUSE, Essen
yin@buse.de

Vera-Marie Rose
BUSE, Essen
rose@buse.de

New models of employment and compensation

The growing gig economy has brought new opportunities but many challenges, too. Digital labour platforms existed before Covid-19 – but the pandemic has accelerated their use, with no signs of slowing down. Digital platforms simplify the lives of millions of customers who use apps for various services, such as food deliveries or shuttle services, from anywhere and at any time. To meet the new high demands, more workers are needed. It is often a balancing act to determine whether platform workers are employees or self-employed, something that must be dealt with on a case-by-case basis. In Europe, courts have become more reluctant to confirm self-employed status in the gig economy.[1] Under European legislation, the distinction between employees and self-employed individuals has a huge impact on the basic rights of workers, including working conditions that are often denounced as very poor in the gig economy. Considering this, on 9 December 2021 the European Commission published its proposal for a directive on improving working conditions in platform work.[2] A key element of the proposal is implementing a rebuttable presumption for the determination of the employee status. The Directive shall include a list of criteria that constitute employee status, and the presumption rule shall apply if at least two of these criteria are met. The legislative process is expected to continue for a while yet. In any case, a long period of time is to be expected before the new regulations come into force due to the subsequent need for national transposition of the rules (the deadline for transposition is two years after the date of entry into force).

Another trend within the post-Covid workplace is new compensation models, which are key to recruiting talent, especially young professionals. For example, employee participation programmes are becoming more and more attractive for European employers. Finding and retaining qualified employees is one of the decisive factors for a company’s success in a competitive environment. An employee participation programme offers companies numerous advantages. Generally, there are five types that we have been seeing a lot recently:

  • Employee loans represent a straightforward model for small and medium-sized enterprises (SMEs) in any legal form. A participatory loan with a profit- or sales-related interest rate, for example, can be agreed as a means of creating incentives.
  • Silent partnerships are the standard model in the SME sector with very few formalities involved.
  • Profit participation rights are participations under debt law that are also often a suitable solution for SMEs: employees cannot exert any influence on the management. They have neither rights nor obligations.
  • Employee shares transform employees into co-owners. They participate in the annual general meeting and are granted information rights. The participation rights are limited because the shares are generally preferred shares with dividend entitlement.
  • Virtual stock options can be used to replicate a share in equity. Using this method, employees do not receive any actual shares or share options but rather only asset rights. Furthermore, they are entitled to very little information or control rights and have no say in decisions.

Besides individual contracts, employee participation programmes are often agreed with the employee representative bodies (works councils, etc) as a voluntary works agreement. In Germany, for example, under certain circumstances, the right of co-determination pursuant to section 87 (1) No 10 of the German Works Constitution Act comes into play. Additionally, it is important to note that if the participation programme is not open to third parties outside the company, companies are required to comply with anti-discrimination and equal treatment laws. Therefore, it must be offered to all employees in general.

Environmental, social and governance (ESG) concepts can also be included into the remuneration system. Considering, for example, the newest update of the German Corporate Governance Code[3] published in June 2022 as well as the EU Sustainability Directive, including the plans to amend and extend this Directive,[4] ESG is a growing trend when designing new salary systems. They must respect and ensure compliance with certain minimum environmental and social standards – such as essential human rights – and remuneration could reflect these issues. ESG can be a useful incentive to raise employees’ awareness for the standards and to nudge them accordingly.

Unlimited paid time off (PTO) can also be considered as a new compensation model: in addition to the minimum statutory paid leave, the employee can decide to take additional paid leave at any time, provided that the job they are working on has finished and agreed targets are achieved. This requires a lot of trust and offers great freedom and flexibility for the employee. Employment contracts should include clear rules on how to exercise and limit PTO.

Work from anywhere: Different models and social security, tax and immigration implications

Allowing employees to work not just from the office but from literally anywhere can be crucial for employers in the battle for skilled associates. However, there is no standard model or concept for work from anywhere. When implementing such opportunities, companies should bear in mind in particular social security, tax and immigration implications.

Obviously, the Covid-19 pandemic boosted hybrid working models. Working with distant partners and customers located abroad became more virtual: the model of hybrid secondment makes it possible to work on projects with a team abroad, including part-time (office) visits, while mainly staying in the home country. This can especially be attractive for employees with families and also reduces carbon footprints (ESG!). Recruiting employees from abroad who exclusively work remotely, so called ‘international virtual hire’ or ‘digital nomads’, has similar advantages. ‘Workation’ is a short-term model that allows employees to work remotely by prolonging their stay at a vacation spot; some resorts even advertise this. The idea behind ‘workations’ is often thought to be that a change of location can help to refresh one’s mindset, especially when having worked from home for a while. It also offers flexibility to families, for example during school holidays.

Any social security, tax and immigration implications depend on the specific design of the working model, first and foremost on the location and time employees spend abroad. First, employers should check in which country the social security taxes are due and who is responsible for paying them. Under German Law, for example, the employer is responsible for paying social security taxes and non-compliance can be a criminal offence. If the working place is moved abroad, employers should make sure they know in which country the social security contributions need to be paid.

Second, employers must consider residence and work permits for the employee who shall work abroad. The exact requirements are country-specific. EU nationals, for example, are entitled to work in any EU country without needing a work permit, including the right to live in the country of work. It may, nonetheless, be necessary to report their presence (country-specific) and there is a general registration requirement that applies in all EU countries after the first three months. Although registration requirements usually must be met by the employee, the employer should be aware and provide the necessary certificates.

Finally, regarding taxes, there is no uniform system within the EU that covers this. Often, double taxation agreements are particularly relevant. Whether and in which country the employee becomes liable to pay taxes depends on various criteria, such as the (main) place of residence, the company’s headquarters, the operational unit and the duration of the stay abroad. For example, the posting of employees usually does not lead to a shifting of taxes from Germany to the country of work. This requires that the employee is paid by a German employer (or an operational unit located in Germany) and that the stay abroad does not exceed 183 days.

Work–life balance: Employer's role with regard to social isolation and mental health

As a downside of the pandemic, exclusively working remotely can lead to social isolation and mental health impacts. In almost all EU Member States, every employer is obliged to protect and promote the health of its employees. However, occupational safety includes not only physical but also mental health in the workplace. Professional workplace protection measures should be considered in order to prevent the development of health impairments, such as burnout.

To ensure occupational health and safety, remote working hours must be set in the same way as in the office and breaks and rest periods must be observed. It is helpful to create a health-focused work culture in a company. Regular communication as well as feedback from employees and conversations with managers are useful tools to foster employees’ health and higher productivity. Employers should ensure that employees who work remotely still have sufficient access to company communication and information. Psychologically stressed employees can be offered counselling and assistance by the company or by external experts.

Recruiting, retention and 'the great resignation' – new rules?

Fair payment, social benefits and an attractive corporate culture are more crucial than ever when it comes to attracting and retaining all talent. With the ever-developing digitalisation of employer branding or recruiting through online platforms such as Instagram, LinkedIn and Twitter, this is becoming even more important for businesses. When recruiting online, laws on data protection, anti-discrimination, trademark and so on must be considered.

However, the best HR recruiting campaigns will not help, if companies do not retain employees in the long term: the trend of employees voluntarily quitting their jobs and looking for better working conditions, also known as ‘the great resignation’, shows that employers have to come up with new ideas to stay attractive in the long term. Here, the abovementioned models of work and compensation offer various possibilities for improving employee retention.

New challenges with data privacy?

The increase of remote work brings new challenges with regard to data privacy. Employees within the EU are granted strong protection under the General Data Protection Regulation. Even though employers might have a substantial interest in monitoring whether employees really do their job when working remotely, they have no right to install or use 24/7 and 360° spy software, such as key-loggers, without concrete suspicion against the employees.[5]

Conclusion

Covid-19 brought us new challenges as well as new opportunities; it accelerated the existing trend in digitalisation and the flexibility at the workplace. This kind of new normal will stay normal for us in the future of work. The old sentence proved true: the only constant in (work) life is change.

 

[1] Cf German Federal Labour Court decision, 1 December 2020, 9 AZR 102/20; Paris Court of Appeal, 6 July 2022, N°20/01914; UK Supreme Court, 19 February 2021, Uber BV and others v Aslam and others [2021] UKSC 5.

[2] European Commission, Proposal for a Directive of the European Parliament and of the Council on improving working conditions in platform work COM/2021/762 final

[3] Regierungskommission Deutscher Corporate Governance Kodex, New German Corporate Governance Code in force available at https://www.dcgk.de/files/dcgk/usercontent/en/download/pressrelease/220627%20Press%20Release%20Code%20Federal%20Gazette.pdf accessed 5 September 2022.

[4] European Commission, Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and Amending Directive (EU) 2019/1937 COM/2022/71 final.

[5] cf German Federal Labour Court, 7 July 2017, 2 AZR 681/16.

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