With the massively spread of multinational companies in the last 10 or so years, we could see more and more clearly that national branches follow exactly the directives of the headquarters taking into account very little or not at all the national legislation of the state where the branch is located.
How does it really work? Large companies set a number of corporate rules that they implement starting at the headquarters, then disseminate the information to all states where the branches are located. From an operational point of view, it appears as a rule that makes sense, but from a legal point of view, this way of proceeding exposes the company to major problems.
The approach of the companies is focused on the clients, the final beneficiaries of the products or services they provide and a lot of resources are allocated in the direction of elaborating the best consolidated contracts that will ensure considerable incomes and reduces their risks towards the client. For this reason, the application of complementary legislation and rules appears to be a less important issue and they establish a set of imperative rules that they apply vertically and horizontally in all secondary offices, branches or agencies around the world.
However, there are areas in which such a way of proceeding can be extremely risky for the company, implicitly for local affiliated companies, as the legislation imposes very different measures from state to state and if the head office does not impose a double standard, the cumulative corporate one. with the national legal one, the branches are not mobilized either. The consequence is extremely damaging, most of the time from a financial point of view, but with implications on the brand’s reputation also.
For example, with the application of the General Data Protection Regulation – GDPR – most multinational companies operating in the structure of a group have implemented the rule of creating general procedures that they have transmitted in each country, or regionally, with unitary application recommendation. It is true that the GDPR is a regulation with direct application in all Member States, but in each country, there is national legislation that complements the regulation, and in non-EU countries it does not apply at all. Supervisors and authorities have different approaches on data protection; their experience is diverse and their vision is clear about how state authorities generally act on a case-by-case basis. It is wrong to take as it is the procedure in France for example and to apply it exactly in Romania, when for example the tax legislation is very different and the grounds for data processing are, consequently, very different. Also the duration of data retention is significantly different, considering that Romania is among the few countries that by national legislation impose legal retention periods of 75 years (employee file), given that in other states in maximum 10 years such documents can be archived or destroyed because the data that take into account the period of activity to be considered for retirement are transmitted to the authorities and only they can keep them as per the law.
Consequently, it is not wrong to have a general policy at the group level, but its adaptation from state to state is not only recommended but also necessary to avoid possible fines from the authorities and last but not least to respect the rights of individuals.
Another classic example is in the matter of labor law, the concrete case of illegal dismissals carried out by the headquarters in the region without consulting the national legislation. In practice, corporate staff reduction decisions are made, based exclusively on business decisions, after which the staff reduction policy is sent to the local offices in order to be applied accordingly. But the reality is different from country to country and there are major impediments in carrying out the initial plan. In Romania, for example, the difference of vision is not a sufficient factor to reduce the personnel in a company and the specific national legislation imposes strict conditions in the cases of collective dismissals. The steps that can be followed and even completed successfully if they are considered from the beginning of the process itself, but the mistake of most companies is that they do not analyze a problem like that at all. The consequence of not knowing the specific legislation in the case of labor law is not only a fine from the authority but the sanction of reinstating the dismissed persons with the compensation of all the salaries that the employer owed during the reference period. Sometimes even moral damages are awarded.
The examples can continue in the matter of advertising law, competition law, etc.
Good practice in any matter involves a due diligence on said subject. The basic idea is to map the countries where the branches or the companies in the group have their headquarters and to analyze the legislation completely in order to see what are the risks and legislative obstacles before the implementation.
Such an approach saves costs and a lot of time for the company’s management.
Raluca Comanescu – Attorney at law