International News, Volume 3, No. 3, Fall/Winter 2001
Fall/Winter 2001
Terrorism’s Effects on International Business
U.S. and international governments have been grappling with the effects of terrorism for decades. In the 21st century, the effect of these acts have touched the lives of many as seen in the PanAm 101, USS Cole, U.S embassies, World Trade Center and Pentagon incidents, in Israel and elsewhere in the Middle Eastern world. On October 12, 2001, U.S. Secretary of Defense for the Clinton administration, William S. Cohen, addressed the impacts of terrorism and its effects on international business. The briefing was held in McDermott Will & Emery’s Washington, D.C. office and was video conferenced to participants in the Firm’s U.S. and London offices and teleconferenced to select client locations. Firm Executive Committee member, Harvey Freishtat, moderated the briefing.
Speaking on economic and business issues, Cohen stated that in the short term the effects of the attacks go beyond the obvious industries that have been directly impacted: airlines, tourism and insurance. Because there is a general uncertainty that has spread throughout the United States due to the attacks, investor and consumer confidence seem to be down. The investors are holding a wait-and-see approach, and consumers seem to be pulling back as thousands of them are being laid off from their jobs, Secretary Cohen said.
Worldwide Impact of Terrorism
Some economists are now predicting that the U.S. gross domestic product is likely to decline another six-tenth of a percent in the third quarter of 2001. There is fairly broad agreement that the United States is being pushed into a recession and other regions that are linked to globalization are also going to be severely impacted. In Asia and Japan, the financial system has been already under assault and will be further damaged by the effects of September 11 including an economic decline and a heavily felt impact on the insurance sector. Europe has faired somewhat better. Secretary Cohen believes, though, that Europe and Germany have been hurt as a result of a drop in global demand for capital goods. Early in October 2001, Secretary Cohen met with senior German officials who indicated that they now believe the German economic growth will be zero in the coming year, down from the pre-September 11th prediction of 1 percent growth.
The debate right now in the United States is how to provide fiscal stimulus between new spending and taxes, and what strategies are needed if the U.S. Federal Reserve runs out of ammunition in order to be able to cut rates any further. The main questions include how to get America and the world working again while maintaining fiscal discipline and how to continue the thrust of globalization in a period of economic downturn, Cohen said.
Adding Political-Risk Analysis to Business Strategies
Companies must now add political-risk analysis to their business strategies. Wall Street has been hostile to looking to Washington for any guidance, according to Secretary Cohen. How geo-politics will now affect the marketplace is in question, as well as unknown variables such as weapons of mass destruction and their potential effects on pharmaceuticals, the food industry, transportation and other sectors. Additionally, more businesses will have to concentrate extensively on due diligence. It is imperative for businesses to research with whom they are doing or planning on doing business. If businesspeople don’t feel they know colleagues or future associates well enough, then they are required from a fiduciary and stockholder point of view to question whether they should be business partners. Ask questions such as who are the companies you are planning to associate with, what is their background and who are their partners? All of this is going to be required in terms of exercising due diligence. "There is no need to panic," Secretary Cohen said. "But we are going to have to be much more scrutinizing in terms of with whom we are prepared to link up with then we have in the past."
Since the September 11th tragedy, Secretary Cohen said he has had a number of companies contact him inquiring whom they should do business with in the Middle East. These are European and U.S. companies who have extended vendor financing to customers in emerging markets as a means to break into those markets. These businesses now find their customers are unable to pay or repay. As a result, political risk analysis is going to be at the top of the agenda of virtually every company.
Government Bailouts Probability for Injured Industries
McDermott, Will & Emery and The Cohen Group have also been asked about government bailouts for injured industries. Secretary Cohen believes this is unlikely. The U.S. Congress has rushed to provide approximately $15 billion in a package for the airline industry. There is presently some hesitancy from the U.S. Congress to provide bailout funds for individual sectors. President Bush is a smart politician, according to Cohen. He has decided to spread the money around to workers and extended unemployment and health benefits despite a strong Republican opposition that favored corporate tax cuts over the money spent for comprehensive relief for unemployed or laid off workers.
The insurance industry has, of course, been deeply affected by the terrorist attacks, and the industry may have a strong case for bailout for fundamental restructuring and risk. In respect to insuring for terrorism and related events, a debate will answer questions on how to interpret inclusion of war versus acts of terrorism, Cohen said. He believes the insurance industries may soon turn to the U.S. government only to find that a bailout may not be in the cards. Instead, public and private partnerships with the government will be established to address these and other issues that may be emerging in terms of how the industry is going to survive. "I think all major lines of insurance including commercial property, casualty, business interruptions, directors and officers, life insurance, disability insurance, workers compensation, liability, errors and omissions, credit, auto—all of these factors and sectors in the insurance business—are going to play a major role as the government looks for ways to be helpful in contributing money," Cohen said.
There are a host of tough issues that are going to need resolution, and current claims and availability of pricing are all going to be major areas of contention. Businesses should expect that insurance premiums are going to go up across the board in virtually every field, and the projections are anywhere from 20 to 30 percent.
Security Loopholes Open Doors to Terrorists
Other areas that business communities should focus on regarding security measures includes cyber-security and information insurance—a critical component to a business world that has become "wired."
There is a need for computer companies to provide redundant and survivable systems, according to Cohen. Federal, state and local agencies and companies will want to ensure uninterrupted operations, protect their assets through encryption and biometrics that controls access to networks and confirm every computer desktop is protected. This approach also needs to be taken in regard to U.S. energy needs. Having energy distribution locations that are secure is going to be critical. Increased security at nuclear power plants, oil refineries and more moderating systems along the oil distribution throughout the world is crucial.
Taking care of employees and assets should be high on businesspeople’s list, according to Cohen. Anti-Americanism in various countries may threaten investments and assets abroad. It is likely that the world will see additional acts of terror against U.S. targets overseas—mob attacks and economic boycotts—directed against American companies. A careful review of all personnel backgrounds before hiring should be considered. Industrial firms are at risk as far as their competitors: International and U.S. companies’ vulnerability have skyrocketed in terms of individuals stealing industrial secrets or intellectual property. Businesspeople have to be concerned about information being stolen by competitors as well as those who just want to cause great harm or terror.
Secretary Cohen said the business mantra has been to outsource needs that are not core competencies in order to increase efficiencies. He warned to be careful in the context of outsourcing. As businesses outsource, it is difficult to know who is accepting the outsourced worked. What are their levels of security? What types of investigations do they make? Who are the people they hire? "The people you outsource to also outsource their non-core competencies to others," Cohen said. "You are partnering with everyone they have partnered with, so ensure you know with whom you are doing business."
Catalog Intellectual Property Assets
Another key element for businesses is to run a quick inventory of intellectual property assets.
It is important, according to Secretary Cohen, for businesses to determine whether they have products that may be able to help in the new security requirement environment. Review not only your current products but also those that your company has created that may be sitting on the shelf because they do not apply to the core business. McDermott, Will & Emery, for example, has a systematic method for doing a rapid intellectual property inventory and can identify ways to protect and leverage business’ own information and intellectual property. Cohen said, "A good deal of systemization is going to happen with Governor Ridge’s (U.S. Homeland Security) office to try to come up with new and creative ways of finding the kind of cyber protection needed to shield business. There is still time to contribute." Cohen held that the next two to five months are going to be a critical window for companies to submit proposed technology to help fight terrorism. Public and government attention will be high at that time, and budgets are being built for 2002.
Secretary Cohen encouraged companies to use all available channels to sell their wares to government offices. He recommended avoiding overloading traditional contacts and does not recommend sending ideas directly to Governor Ridge’s office. It is less important, he said, to insist on talking to the congressperson directly. Channel the information to the right people. If it means you have direct contact with a high-level official that you have supported and maintained constant contact with, that’s fine. But the people who "make things happen" is where businesses’ focus should be.
Areas Where Commercial Businesses Can Help
Information management, deliberate and real-time, is key to protecting commercial business and the business of government. There is an overarching requirement for law enforcement, intelligence, transportation, public health, cyber-security, food and personal security to be protected.
Cohen said there will be money made and effort spent by the U.S. government and its branches to implement relationship management tools. This includes enterprise resource planning and customer relationship management—all that became standard in the business world is critical for the government to adopt. The private sector should make recommendations and offer technologies and techniques, which can be fully embraced. It should address several issues, including public safety communication. This includes avoiding what happened at the Pentagon after the bombings: Emergency respondents arrived on the scene from several different U.S. jurisdictions. Workers quickly discovered that they could not talk to each other, except when they were face-to-face, because they did not have uninterrupted systems. As a result, the need for common and redundant systems to provide for uninterrupted communications will be critical.
Food and beverage security is another important issue. U.S. and international consumers may be familiar with the Tylenol poisoning scare in the 1980s. Cohen believes that the world will see more of this, particularly because questions have been raised as to whether the terrorists were trying to gain access to crop dusters to spread poisonous agents in cities or agricultural fields.
Potential Threats of Bioterrorism and the Food Industry
By Robert G. Hibbert
In the aftermath of the September 11th terrorist attacks and in light of more recent events, there is increasing public concern over bioterrorism and its impact on the U.S. and international food supply. All segments of the food industry, including the production, processing, handling and distribution sectors, as well as suppliers to the industry (such as companies supplying packaging materials, chemicals, etc.) are affected by this increased security. The public’s heightened concern is reflected by the discussions and activities at all levels of the U.S. federal government, as well as by those within the food industry and the public policy community. This may well translate into potential changes to or disruption in the food chain.
On the legislative front, these circumstances have, among other things, led to the introduction of U.S. bills that would consolidate federal food safety activities within a single federal agency. It would provide the U.S. Food and Drug Administration (FDA) with mandatory product recall and prohibit the importation of foods from countries designated as supporters of terrorist activities. Other measures along related lines will be introduced in the near future. While several of the issues addressed in these legislative proposals are not new, to the extent that they are now directly associated with U.S. homeland security issues, they will
be evaluated in a dramatically different legislative environment.
On the administration level, informal discussions of food security issues have already been initiated among representatives of the FDA, the U.S. Department of Agriculture (USDA) and other agencies with representatives of various trade associations and other food industry interests. These discussions are expected to continue and be amplified.
Many individual companies are reevaluating their operating procedures in the context of potential threats of bioterrorism. These activities include, but are not limited to, increased security of hazard analysis critical control point (HACCP) programs, enhancements in the physical security of food processing and handling establishments and increased employee security. Expect, as well, modifications of policies regarding access of visitors, enhancements in the security of onsite laboratory facilities, more stringent specifications, control and evaluation of incoming raw materials, evaluation of the safety and security of water systems and overall review and revision of corporate crisis management plans.
UK Employment Tribunals: Open to All?
By Rebecca Harding-Hill
In a dispute between a UK employee and their UK employer, the employee would naturally seek the protection of UK law. However, given the increasingly mobile workforce and global economy it is becoming more common for employees to work overseas and for overseas companies to have branches or subsidiaries in the United Kingdom. What, then, is the position where there is an employment dispute and either the employer or the employee or both are based overseas or where an employee has worked for part of their employment in the United Kingdom? Would an employee in any or all of these circumstances have the right to bring a claim in the UK courts or tribunals seeking employment protection under UK law?
The legislation protecting employees against unfair dismissal and discrimination on the grounds of race, sex and disability was, until fairly recently, reasonably clear and quite restrictive concerning who could avail themselves of this protection. Prior to its repeal, Section 196 of the Employment Rights Act 1996 (ERA) provided that only employees who ordinarily worked in Great Britain could bring a complaint of unfair dismissal or enforce maternity leave and other rights. The discrimination legislation limited protection to those employees working wholly or mainly in Great Britain.
About two years ago, changes were made to UK legislation that protected against unfair dismissal and unlawful discrimination, substantially widening the group of employees who could take advantage of such legislation.
One of the intentions of the Posted Workers’ Directive (which was required to
be implemented by European Union Member States by December 1999) was the leveling upwards of employment terms in European community countries. The directive requires Member States to ensure that, in certain prescribed circumstances, workers posted to another Member State are entitled to, at least, the same basic terms and conditions as workers employed in that Member State. Section 196 ERA (the limiting provision) was repealed in order to implement the directive, removing the territorial restriction that had prevented those who ordinarily worked outside of Great Britain from enforcing rights under the ERA. Nothing was inserted in its place.
The territorial limits in the discrimination acts were also amended substituting the limitation excluding those who worked "wholly or mainly" outside Great Britain from bringing claims to those working "wholly" outside Great Britain.
The Effect of Changes
What does the repeal of section 196 ERA mean? Is any employee entitled to bring a claim of unfair dismissal or enforce the other rights provided under the ERA in the Employment Tribunal? The tribunals have found this a difficult area to contend with. In one case, the Employment Tribunal found that "all employees who were working inside or outside the UK have a right to bring a claim to the Employment Tribunal." This case has not been appealed. What about a Japanese business man working for a Japanese company in Japan? Could he bring a claim for unfair dismissal in the UK Employment Tribunals? On the finding of this Employment Tribunal it would appear that he could.
The Department of Trade and Industry’s guidance on the repeal of section 196 ERA states: "In spite of its removal, international law and the principles of our own domestic law will ensure that UK legislation does not apply in inappropriate circumstances." This reflects what was said in parliament. Is this, in fact, the case? As the statute is now silent, what is there to stop an individual with no connection with the United Kingdom from bringing a claim in the Employment Tribunal?
A more recent Employment Tribunal case (heard before the decision in the case referred to above but in any event not bound by an earlier Employment Tribunal case) found that Article 6 of the Rome Convention applied. Article 6 deals specifically with employment contracts and provides that the law that applies is that of the country in which the employee habitually carries out their work or the place where the business through which they were engaged is situated unless it appears from the circumstances as a whole that the contract is more closely connected with another country. In which case, the contract shall be governed by the law of that country. In this case it was found that although the employees were employed under U.S. contracts, as their employment was more closely connected with the United Kingdom than the United States, they could bring a claim in the UK tribunals.
There are always two questions to consider if faced with a claim in the Employment Tribunal. They are, what is the law that applies and which courts are the appropriate forums? Although the appropriate place for UK law to be dealt with is in a UK court or tribunal, it does not necessarily follow that this will be the case. Therefore, even if the UK law does apply, employers should consider whether the UK courts have jurisdiction to hear the claim.
Amongst the majority of the European countries, the Brussels and the Lugano Conventions covered the issue of jurisdiction. The provisions of these conventions are more or less identical and, in general terms, provide that the UK tribunals will be the proper forum if the employer is domiciled in England and Wales; and it is a contractual matter and the employee habitually works in England and Wales or the employee is employed by a place of business in England and Wales; the dispute arises from a branch based in England and Wales. (New regulations coming into force on March 1, 2002 will provide that if an employer has a branch in a Member State, in respect of disputes arising out of the operation of the branch, it will be deemed to be domiciled in such state). There is also a clause in the contract providing that the English courts will have jurisdiction, and this was agreed on after the dispute arose or is invoked by the employee.
Where the employer is domiciled in a country that has not signed up to one of the conventions (e.g., the United States), the conventions will not apply and the country will apply its own rules on jurisdiction to determine whether it can hear the case. The amendments to the discrimination acts mean that any employee can bring a claim in the UK unless they work wholly outside the United Kingdom. It is arguable, therefore, that an employee who spends time on a business trip in the United Kingdom but otherwise works outside the United Kingdom could bring a discrimination complaint in the United Kingdom. The limitations in these acts are now narrow indeed.
The most extreme interpretation of the Employment Rights Act that provides for maternity rights and protection against unfair dismissal but which has been applied by at least one tribunal, is that the test for jurisdiction may be interpreted even more widely than in relation to discrimination. There is nothing in the legislation preventing any overseas employee from bringing a claim against an employer with a place of business in the United Kingdom. If the narrower interpretation (applying Article 6 of the Rome Convention) applies, then it will still have major implications. The test of whether an employee employed outside the United Kingdom can bring a claim in the United Kingdom will depend not on the law of the contract or where the place of business is situated or where the employee habitually carried out their work. If the contract is more "closely connected" with the United Kingdom than another country, the employee will be able to seek protection of UK rights.
Companies based overseas, with UK branches and subsidiaries, and UK companies with overseas employees should take account of the widened application of the protection afforded to employees under certain UK legislation. They should make efforts to apply fair and non-discriminatory employment practices throughout their workforce bearing in mind, however, that what may be considered fair and non-discriminatory in one country may be different from what is considered fair and non-discriminatory in another.
