No longer is the global market reserved for large-scale multinational corporations with thousands of employees. Even companies with fewer than 1,000 or 500 employees are expanding globally. According to the U.S. Department of Commerce, exports by small and medium-size businesses totaled $440.1 billion in 2011, which represents 33 percent of total U.S. exports. These companies are creating sales teams in countries such as Brazil, Australia, China and Mexico. With these obligations, corporate counsel have an enormous responsibility to navigate complicated and often voluminous international legislation.
Common Compliance Issues
U.S. employers are most familiar with the employment-at-will system. Essentially, this allows employers to discharge employees without notice and with or without any reason, as long as the reason does not violate the law, a contract or public policy. Employees outside of the U.S. generally have greater rights by contract, statute and/or common law. International employment relationships are usually contractual—whether written, oral, express or implied—and the terms are based for the most part on minimum standards imposed by applicable legislation of the jurisdiction. These contractual obligations reach all aspects of employment, including hiring, compensation and benefits, ongoing employment relationships and separation (both voluntary and involuntary). You must consider them all when hiring abroad.
New employees are subject to contractual, statutory and/or common law entitlements that employers should review before initiating an employment relationship. Typically, the terms are spelled out in the employment contract or in an offer letter, which in some jurisdictions could become the written employment contract. In many countries the employment contract must be in writing. You can run into problems down the road if you fail to include key components at the onset of the relationship. And it’s a mistake to think you can “work it out later.” The contract will affect all HR and legal decisions from the first day of employment to the exit interview. Fail to comply, and the court or labor tribunal will impose their terms or give the benefit of the doubt to the employee. The failure to conclude a written employment contract within a specified period of time can have serious financial consequences.
Compensation is a key component in any employment relationship, but in situations in which the relationship is contractual, it needs to be spelled out carefully within the contract. It cannot easily be modified without creating a breach, which triggers notice and possibly severance benefits. Analyze compensation issues carefully before making agreements with employees. If this is not done, changes to compensation could essentially be a change to the contract and/or employment status, and must be done according to the proper legal procedure.
In most countries outside the United States, under most circumstances employees are owed notice before involuntary termination, or payment in lieu of notice (except termination for just cause, such as violating an employer’s policy against divulging trade secrets). Keep in mind that compensation components are also the basis upon which separation and notice pay are calculated in many jurisdictions. What a U.S. employer would consider a bonus, some countries may count as base compensation. The court can consider stock options, equity compensation, stock purchase opportunities and other alternative forms of compensation when calculating separation pay or a retirement benefit later down the road. Therefore, you should carefully review contractual language with respect to salary, benefits, alternative forms of compensation and bonus and spell out the details.
Jurisdictions outside the United States generally accord even greater importance to employee policies, privacy and other components of ongoing employment relationships—especially labor tribunals, courts and other authorities that review employee complaints. Often contractual relationships will reference these policies and considerations, which may be incorporated into a contract, even if this was not intended by the parties.
Make sure to put policies and procedures in place that are consistent with local laws that govern employee complaints. You must have a firm understanding of both the regulatory and legal environment of the jurisdiction, as well the differences between the company’s U.S. and international policies. You must not apply U.S. laws to international circumstances and relationships unless there is a careful review of the appropriateness and legality of that approach. Also, learn about the prominent role of unions and other organizations that represent employees outside the United States, such as entities in Europe known as “works councils.” These can affect the terms and conditions of employment as well as employee-related communications and policies.
Termination of Employment
Separation from employment can be a complicated issue in any country. In the United States, we tend to deal with these largely from the perspective of the myriad federal and state laws protecting employees, such as federal and state family and medical leave laws, or Title VII of the Civil Rights Act of 1964 (and local antidiscrimination statutes). However, outside the United States, advance notice pay, or pay in lieu of notice, is usually a critical component.
In addition, many jurisdictions have laws that require terminations to be conducted in a fair manner. Many countries have laws related to “unfair dismissal.” These allow an employee to bring claims against the employer in connection with any separation that was conducted through an unfair process. The redundancy processes in various countries often include a process by which candidates are identified, scored, evaluated and consulted with before any final decisions are made. Failure to adhere to such processes can result in unfair dismissal claims and raise liability issues beyond that of the typical severance set forth in the contract. Many countries have statutes with specific separation protections and entitlements for employees, which may be based on their length of service. Make sure these compliance rules are carefully followed.
U.S. Law Application
Be mindful of U.S. laws when operating abroad as well. Even if management is applying local laws in international locations, there is still potential for claims to be brought in the United States due to the jurisdiction of the company within our borders, as well as the “long-arm” application of numerous U.S. employment laws, such as Title VII and others.
In many international jurisdictions, attorney-client privilege is weaker than it is in the United States, especially when communications involve in-house attorneys as opposed to outside counsel. For this reason, become familiar with the variations in the law internationally.
Relationships With Counsel
If you have employees working abroad, the management and compliance obligations are significant. Many companies engage local counsel to advise and assist them in the implementation of their policies and procedures so that they can be consistent with the laws of the local jurisdiction. If you aren’t familiar with the area, it may be challenging to assess local counsel. You can end up receiving incorrect information or advice that’s lost in translation. The result can be a confusing tangle of HR concepts and practices that you don’t understand. Many companies are centralizing management of their global operations to ensure consistency and compliance. This also helps translate legal concepts across borders.
The Bottom Line
If you’re already global or you’re going global, compliance with international employment laws can affect your financial success. Don’t wait until the last minute to develop a legal strategy. Think about how to align the big picture of international employment law with your business goals. You can reap the full value of going global if you have compliant employment processes in place.
Bill Wright and Celia Joseph are attorneys with Fisher & Phillips, a labor and employment law firm that represents employers. They can be reached at firstname.lastname@example.org and email@example.com.