Automotive pensions and benefits, no – one size fits all approach – that can be applied globally

The international law firm Clifford Chance, has advised many automotive companies on mergers and acquisitions, corporate strategy and so on. In April this year, for example, Clifford Chance advised Volkswagen AG and Siemens AG on the sale of the 440 million Euro Volkswagen Bordnetze GmbH to the Japanese Sumitomo Group. Volkswagen Bordnetze is a joint venture founded in 1986 in which Volkswagen AG and Siemens VDO Automotive AG both have 50% stakes.

Under the agreement, authored by the three companies and Clifford Chance, Sumitomo split the operation of Volkswagen Bordnetze between Sumitomo Electric Industries (60%) and Sumitomo Wiring Systems (40%).

The Sumitomo Group supplies numerous car manufacturers with wiring harness systems and became the world’s third largest player in this field with the acquisition of Volkswagen Bordnetze, according to a press release.

Clifford Chance also advised Volkswagen AG on the sale of its wholly-owned, Berlin-based subsidiary Gedas AG, to T-Systems. Under the agreement, the 5,500 employees of the Gedas Group formed the core of the automotive business of T-Systems. T-Systems, which is the business customer branch of Deutsche Telekom AG, and Gedas, were given a preferred partner status by Volkswagen for IT services for seven years.

Clifford Chance, which was formed in 1987 with the merger of two UK firms – Coward Chance and Clifford Turner, has 29 offices across 20 countries throughout the Americas, Asia, Europe and the Middle East. The firm has over 3300 legal advisors globally and says that its focus areas include banking and finance, capital markets, corporate mergers and acquisitions, litigation and dispute resolution, real estate and tax, pensions and employment.
Clifford Chance is looking to expand its global reach. Earlier this year, it was reported that Clifford Chance wants to tie up with up with a Chinese law firm as soon as the Chinese government gives permission. On September 27th, a Clifford Chance statement announced that it plans to beef up its litigation and dispute resolution (L&DR) team in Hong Kong and China by 25 per cent.

“This is part of a targeted recruitment drive Clifford Chance has launched to support plans to significantly grow our litigation and dispute resolution business across the Greater China region. We are currently incredibly busy as a result of an increase in instructions from new and existing international and domestic clients,” said Martin Rogers, head of Asia L&DR at Clifford Chance in a press release.

“A number of market trends have contributed towards an uplift in activity for our Asia practice, including the increasing trend towards arbitration as a preferred method of dispute resolution in China, a constantly-evolving regulatory environment, and a greater enforcement of intellectual property rights,” added Rogers.

Clifford Chance’s client portfolio features many leading international car and truck manufacturers as well as some of the major engineering companies and suppliers. According to the company website, automotive manufacturers and suppliers to the industry need advice from many different areas of law, but within these areas there are particular industry-related issues. Issues which arise in one field of law are, however, often influenced by considerations in another.

“We know the automotive business: its problems, the players, the issues and pitfalls, and opportunities that arise. Our team comprises more than 20 partners each of whom represent automotive clients,” says a statement on the company website.

Automotive Industries spoke to Stefan Simon, partner at the Clifford Chance employment law group and asked him about how automotive companies can benefit from varied employment practices across the globe.

AI: What are the major differences between employment laws in Europe as compared to those in North America? And how does this affect automotive companies?

In contrast to the “hire and fire” doctrine in the US, employees in Europe enjoy specific protection against termination of employment. For example, under European employment laws the employer is required to demonstrate that there is a genuine need to make an employee redundant before their employment contract may be terminated for business reasons. Furthermore, many European countries tend to regulate many aspects of the employment relationship rather than giving the employer and the employee the discretion to determine the content of the employment contract. On the other hand, with the exception of the UK, discrimination issues still do not play such an important role as they do in North America. This is also due to the fact that, until today, the concept of punitive damages and excessive compensation awards in discrimination cases have not (yet) been adopted in Europe.

In both North America and Europe trade unions play an important role and the proportion of union members in the automotive industry tends to be higher than in other industries. Even though unions have a considerable impact on the automotive industry via collective bargaining agreements, recent developments (in Germany in particular) prove that the unions will be flexible enough to amend employment conditions to the detriment of employees if economic needs require. For example, VW has agreed with the metal workers trade union (IG Metall) to extend the annual working week from 28.4 to 33 hours per week without additional pay in return for the promise of shifting more production to Germany.

AI: How do employment practices in Germany compare with the rest of the European Union?

Since many employment laws in Europe are based on European Directives, the laws in the European Union and Germany are to some extent comparable. This applies, for example, in relation to statutory rules in the event of asset transactions and mergers. Individual protection against termination of employment, however, still varies from country to country. In Germany, the level of protection for employees is considered to be high. The same is true for France, Italy and the Netherlands. In the UK, it is easier to make employees redundant, but the employer is obligated to grant statutory compensation awards to employees if they are made redundant. Overall, employment laws in Europe are becoming more and more comparable, but a “one size fits all” approach does not work.

AI: How are automobile manufacturers and systems suppliers dealing with ongoing employment-related issues such as pensions and benefits in Europe? And how do these compare with North American standards?

With regard to pensions and benefits, there is no “one size fits all” approach that can be applied in Europe or North America. Company pension systems vary from country to country and transnational transfers of pension liabilities in Europe are still the exception rather than the norm. The European Union is trying to provide more flexible guidelines, but the implementation of these will still take many years. The same is true in relation to benefits in Europe and North America. Different tax and social security regimes make it difficult to apply uniform benefit schemes around the world. For example, international stock option/share schemes require a country-specific implementation.

AI: What role do union relationships play and how can they help in mergers and acquisitions?

The role of unions differs from country to country in Europe. In Italy, unions are very strong and need to be involved in the context of mergers and acquisition. In acquisitions, employee representatives (works councils and unions) prefer companies with more “employee-friendly” structures and business concepts. Contrary to the situation in the US, the European Acquired Rights Directive provides that the terms and conditions of employment need to be continued by any acquiring party in an asset transaction or a merger. With exceptions, this also applies with regard to the terms of existing collective bargaining agreements.

AI: You are expanding in Asia – how do employment practices in countries like China and India compare with those in Europe? And are they beneficial to automotive manufacturers?

Employment practices in China and India are not comparable with the statutory framework in Europe and tend to be more favourable to automotive manufacturers. However, this aspect cannot be seen in isolation, as automotive manufacturers must overcome other obstacles (e.g. limited intellectual property protection).

AI: How do German automotive manufacturers cope with collective bargaining agreements or other arrangements providing that termination of employment for economic reasons is excluded for a number of years?

Since unilateral termination of employment is considerably limited for some German automotive manufacturers, voluntary redundancy programs are relatively popular in Germany. For example, Daimler-Chrysler managed to achieve more than 9,000 amicable redundancy settlements by compensating the employees concerned for loss of employment. A similar program has been successfully implemented by Opel/GM. Another tool is the extended use of early retirement programs such as old-age part-time schemes. A key aspect in such voluntary programs is that the financial terms are rather attractive and employees can find alternative employment.