Immigration reform remains up in the air. Technology is redefining the workplace. And as emerging companies chase talent, the prospect of employing skilled workers all over the globe can be more appealing than battling to bring them into the United States.
But Bay Area attorneys who counsel startups warn that tapping into a global workforce without careful plotting can lead to an array of legal headaches, from complicated tax implications to possible lawsuits in foreign jurisdictions. Increasingly, those lawyers find themselves trying to make sense of a complex web of domestic and international labor rules for clients eager to grow quickly and bring products to market.
Domestic labor laws can be enough to confound a startup. Layer on international rules — which rarely align with those in practice at home — and the number of hoops can be dizzying for the uninitiated.
John Kloosterman, a shareholder at Littler Mendelson in San Francisco, suspects startups underestimate the complexities of employing individuals overseas.
"There's a tendency to think if we can do it here, we can do it everywhere, and that's just not the case," he said.
Attorneys note there isn't a reliable blueprint for international telecommuting arrangements because each scenario is a little bit different. But for the longtime employee who needs to relocate to Brazil for a year, or the friend-of-a-friend in Paris who's a coding wizard, there are ways to map out a solution.
When clients come to Wendy Brenner, a partner in Cooley's Palo Alto employment and labor group, to discuss remote-work situations, she asks a lot of questions. Chief among them: What kind of work is involved?
If a developer will be sitting at home, for example, and never interacting with the public, his or her employment isn't likely to trigger a taxable presence for the company. That mitigates major concerns about tax compliance and avoids the complication of setting up a subsidiary to accommodate a handful of workers. If there's a team of salespeople, by contrast, a formal corporate presence might be necessary. Even there, workarounds exist, like using employment agencies.
However, while companies might like to classify all foreign workers as independent contractors, that's not a cure-all, Brenner says.
"A lot of companies assume that just classifying them as a contract worker will absolve them of employment laws, and that's not really true," she said.
The standards for determining who qualifies as a contractor is one of few relative constants in global employment, Kloosterman points out, and "most of the time the answer is no."
"An employee is an employee is an employee," he said. And some countries are simply more restrictive. "I know a guy who practices law in Frankfurt, and he'll come right out and say there's no such thing as an independent contractor. Just forget about it."
To wade through the issues with foreign hires, a number of Bay Area attorneys said they frequently advise clients to engage local counsel — not the news many lean management teams are hoping to hear.
"For an emerging company, the cost overseas can be absolutely staggering," said James Metz, a Silicon Valley tax partner at Latham & Watkins. "Clients are sometimes even reluctant to call us – they're careful with their legal budgets," added Linda Inscoe, a Latham employment partner in Silicon Valley and San Francisco.
Larger companies tend to be more proactive because they can afford to be. Their situations are also frequently more complex and multinational. Other companies will take a hard look at their employment practices overseas in anticipation of a liquidity event.
"Companies don't often fret about it until they're about to go public or be sold," said Daniel McCoy, co-chair of the employment practice at Fenwick & West in Mountain View, adding that those inflection points bring outside scrutiny during which issues might come to light.
"I try to get to startups as early as I can and say, 'You're small — you need to manage your workforce as smartly as you can,'" McCoy said. "Right now you've got a manageable problem."
Many attorneys say they see about a 50-50 mix of clients being proactive and reactive. Some clients will proceed with international hires regardless of risks. "It's unlikely they're going to get caught," Kloosterman conceded. "But the penalties can be prohibitive."
Teams are well-advised to think about a contingency plan in case the arrangement crumbles, lawyers said. For companies that haven't put such a plan in place, that's the point at which they make a panicked call to counsel, who might have to untangle things through costly settlements or litigation. Even then, there is uncertainty as to whether disputes will play out in foreign or local courts.
Latham's Inscoe says that from time to time she sees companies simply roll out their California employment forms in other jurisdictions — intellectual property agreements and all.
"We become very used to idea that if you're working for an employer, you assign IP rights to them," Inscoe said. But in many countries under a civil law system, like France, those rights generally defer to the individual employee.
And most countries don't allow at-will employment, meaning workers can't be terminated without cause. Likewise, noncompete agreements are rarely recognized internationally, nor is the so-called "duty of loyalty," the oft-unwritten rule that you can't compete with a current employer.
These disparate rules aren't a total deterrent — after all, it's all about the talent. But they do suggest the world isn't quite as flat as tech pioneers might want to believe.
"The longer I've been doing international employment law," Littler's Kloosterman said, "the more I've realized that the U.S. really does have weaker employment standards" than the rest of the world.