21 May 2018

The World Bank has revealed the easiest places to do business – with New Zealand topping the list, closely followed by Singapore. In Europe, Denmark comes out on top, ranking the third easiest place in the world for businesses to operate. The US and UK fell just outside of the top 5 in sixth and seventh respectively.

The rankings are listed in the World Bank’s 2018 Doing Business report, which analyses 10 key areas which impact an entrepreneur’s ability to do business in 190 jurisdictions. The factors affecting the rankings range from the ease of paying taxes to the process for incorporating a new company – but surprisingly don’t directly take into account employment regulatory regimes.

The rules that a business has to follow with respect to its employees can have a real impact the success of that business – particularly if entering an unfamiliar market for the first time. Employment laws which are heavily weighted in favour of employees can significantly restrict a business’ flexibility and its ability to be innovative – whereas more business friendly jurisdictions tend to be more conducive to quick decision making and innovation.

Getting to grips with local employment laws and managing the differences between jurisdictions can be time consuming and complex – and getting it wrong can be expensive. It doesn’t necessarily follow that the World Bank’s best places to do business have the most relaxed employment laws – and factoring this into the ranking more explicitly may well have shaken up the results.

Employees in top ranked New Zealand enjoy many similar rights to their counterparts in the UK – including protection against unfair dismissal, 4 weeks’ paid annual leave, 52 weeks’ parental leave and fairly comprehensive discrimination protections. The system is fairly evenly balanced as between employee rights and employer flexibility – a factor which is acknowledged by the World Bank as being conducive to productivity.

Employment regulation in Singapore has historically been among the most employer-friendly in the APAC region, with statutory rights only afforded to junior and low-earning employees. Businesses currently have significant flexibility to manage their workforces and dismissal of more senior employees is straightforward. This will, though, soon be changing. From April 2019, statutory protections (including rights to leave and unfair dismissal protection) will be extended to almost all employees, regardless of their wage or status. This will surely affect the ease of doing business.

The employment law regime in Denmark is perhaps more liberal than its Nordic neighbours, but employees are still well protected – and certainly more so than Singapore. Crucially, a significant proportion of them are covered by collective bargaining agreements and the vast majority of employers must consult with employee representatives on all matters of significant importance (‘significant importance’ being, in effect, a surprisingly low threshold). This can hamper a business’ agility and ability to take quick decisions – something which employers based outside of Europe often find difficult to tackle.

In contrast to Denmark and many European jurisdictions, employment rights for those in the US are relatively limited. In most cases employers in the US can dismiss employees “at-will” (i.e. without notice or justification) and employee leave rights are much more limited than in Europe. This can make doing business easier from the employer’s perspective – but adjusting to other regimes when expanding overseas can come with some surprises for US companies.

The UK employment regime sits somewhere between the business-friendly US and the more restrictive employment laws in continental Europe. Interestingly, it appears not to be a coincidence that those jurisdictions have lower ease of business ranking – with Germany (20th), France (31st) and Italy (46th) being notable examples.

Taylor Vinters are specialists in managing all HR issues for businesses across the world. Through our international counsel model, we offer a seamless international HR legal function from a single point of contact. For further information, read our in-depth Europe and Asia Pacific employment law guides, or get in touch.