British-based bosses may soon share these frustrations. Some fear that the UK could be heading the same way as France and Germany, with Labour promising to radically improve workers’ rights.
“We seem to be moving more towards France,” warns advertising tycoon Sir Martin Sorrell. “[We] don’t want more labour market rigidity.”
That point is echoed by a senior banking executive who recently spent a stint in Germany and got a “sense of how bad it can be” as he witnessed underperforming staff game the system. He discovered people successfully “playing a game where you can’t get rid of them – they’re coming up with any reason not to come in and there’s nothing you can do about it”.
“People moving from London who apply a competitive London lens to things are saying ‘right we need to organise them out’, but you can’t just make people redundant,” he says. “The most important thing is that the UK doesn’t become like France and Germany. It’s craziness.”
Germany tried to win over frustrated international bankers six years ago by vowing to make it easier to sack executives. However, Devey says the result ended up being “pretty negligible” as the changes only applied to staff who earn around £240,000 and are “material risk takers”.
He says: “Employees can say ‘unless you pay a big severance, I’m going to fight the claim and come back to work’ which is clearly disruptive and unpalatable for the business. Senior staff will often be tempted to do that, especially if they know they may struggle to find a comparable, new job.
“Business leaders in the US and UK struggle to understand why you end up paying someone such a large amount of money [to dismiss them].”
Executives say they feel “stuck” because of post-Brexit rules that forced international banks to have a certain number of senior staff in the EU.
The European Central Bank (ECB) has cracked down on attempts to set up so-called “empty shell” offices led by bankers still based in London and has been on the lookout for any lofty job titles given to staff in these offices. Earlier this year a banker who was dismissed by Morgan Stanley alleged that he was given a made up job title to meet EU rules. The bank disputed the claim.
Paris has been one of the biggest beneficiaries of the EU rules, gaining 7,000 extra finance jobs since Britain voted to leave the bloc.
Goldman Sachs and Citigroup now have around 400 people in Paris, with Goldman recently moving Dirk Lievens there, one of its star London bankers. JP Morgan has almost 1,000 staff in Paris, Bank of America around 650 and Morgan Stanley roughly 300. Hedge funds Citadel and Millennium Management are among those to have also opened Paris hubs since Brexit.
Wall Street bosses who have beefed up their headcount in Paris have been calling on the French government to make it easier to get rid of staff.
Emmanuel Goldstein, Morgan Stanley’s head of France, said at an event earlier this year that bosses are reluctant to hire more staff there because of strict labour laws. Marc d’Andlau, the co-head of Goldman Sachs’s Paris office, also called for more flexibility in France’s “complicated” labour market.
Earlier this year Mr Macron held his seventh “Choose France” event at Versailles for some of the most powerful names in global finance, as he looked to cement France’s status as a post-Brexit winner. In an attempt to tackle the HR grumbles, France passed a law last month aimed at making it cheaper for banks to sack traders by capping the amount used to calculate damages in redundancies.
“This new law means that a trader with five years of service cannot be awarded by a court more than €278,208 (£234,483),” explains Lionel Vuidard, Linklaters’ head of employment in France. “A trader with 10 years cannot be awarded more than €463,680 (£390,845).”
Still, frustrations with Europe remain. “Every year we get rid of the worst performers, and it is difficult in those jurisdictions,” one banking executive says.
Some fear that the UK could be heading in the same direction. Last week’s King’s Speech contained a commitment to bring forward a raft of new workers’ rights championed by Angela Rayner, the Deputy Prime Minister, including protection from unfair dismissal from day one in a job, a ban on some zero-hours contracts, an overhaul of the minimum wage and a requirement to accommodate flexible working from day one, where reasonable.
Rishi Sunak, the Opposition leader, highlighted fears that Britain was moving closer to French-style labour laws in his response to MPs, arguing that the UK has benefited from a “flexible labour market” compared to other countries in Europe.
The race to stop the UK from becoming the next France or Germany has now begun. While lawyers are advising clients on how they could get around some of the potential changes, employers are lobbying against what they perceive to be a threat of a French-style system. There are widespread concerns among employers that the overhaul could increase costs and impact hiring.
The hope in banking circles is that Labour will heed their repeated warnings and look at the HR issues they’ve faced elsewhere.
“Whatever Labour does [on workers rights], it can’t be anywhere near as bad as in some of those countries,” the bank executive who recently returned from Germany says. “Why would we move anyone else [to the continent] willingly?”
