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U.S.-based businesses increasingly are expanding into new and exciting markets overseas. In the rush to expand across borders and time zones, one issue is commonly overlooked: the extraterritorial reach of U.S. employment discrimination laws. U.S.-based businesses should be aware that their American employees have the right to sue them in the United States for employment discrimination occurring anywhere in the world. In light of statutory changes and recent case law, companies moving into the international marketplace must carefully consider the administration and the content of their personnel policies before they are examined by a knowledgeable plaintiff’s lawyer. A U.S. citizen working abroad for a U.S. company or a foreign corporation controlled by a U.S. company has the statutory right to sue the U.S. company for employment discrimination occurring anywhere in the world. Applicants, workers and terminated employees with U.S. citizenship who believe they have been subjected to discriminatory practices while overseas may file a charge of discrimination against their U.S. employer or the U.S. company that controls their foreign employer corporation under Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act of 1967 (ADEA) or the Americans with Disabilities Act of 1990 (ADA). There is a strong presumption against the extraterritorial application of U.S. law. This presumption was nullified in part in 1984, when Congress amended the ADEA to cover U.S. citizens working abroad. Seven years later, President George Bush signed into law the Civil Rights Act of 1991 (CRA), which amended Title VII and the ADA to extend protection to the employment of U.S. citizens in foreign countries. UNDER CONTROL Extraterritorial application of these laws is limited to cases in which the U.S. citizen works abroad for a U.S. company or a non-U.S. corporation controlled by a U.S. company. The CRA provides that “[i]f an employer controls a corporation whose place of incorporation is a foreign country, any practice prohibited [by Title VII or the ADA] engaged in by such corporation shall be presumed to be engaged in by such employer.” The CRA provides that the prohibitions of Title VII do not apply to “the foreign operations of an employer that is a foreign person not controlled by an American employer.” The CRA applies the following criteria to determine whether a U.S. employer controls a foreign corporation: interrelation of operations; common management; centralized control of labor relations; and common ownership or financial controls. Thus, not all foreign subsidiaries of U.S. companies will be deemed controlled, and some foreign affiliates that are not subsidiaries may be deemed controlled. Under the “foreign laws” defense, a U.S. employer that is subject to the extraterritorial application of these laws is shielded from liability if compliance with the laws would cause it “to violate the law of the foreign country in which such workplace is located.” Similarly, pursuant to the “bonafide occupational qualification” (BFOQ) defense, it is not unlawful for a U.S. company to engage in discrimination on the basis of religion, sex, national origin or age, in such instances where one of these characteristics is “reasonably necessary to the normal operation of the particular business or enterprise.” Both of these defenses are based on the idea that Congress must sometimes allow U.S. companies to yield to the laws of their host countries. According to the Equal Employment Opportunity Commission (EEOC) Enforcement Guidance Memorandum on the CRA, U.S. companies must demonstrate the following three elements to establish the “foreign laws” defense under the CRA: that action taken by the company is with respect to an employee actually in a workplace in a foreign country; that compliance with Title VII, the ADA or the ADEA would cause the company to violate the law of the foreign country; and that the employee subject to the discrimination is located in a workplace in a foreign country. However, courts have taken more expansive views than the EEOC with respect to the “foreign laws” defense. In the recent U.S. Court of Appeals for the D.C. Circuit case Mahoney v. Radio Free Europe, the court allowed a U.S. company to invoke the “foreign laws” defense where compliance with the ADEA would have required it to breach a collective bargaining agreement with a German union. The court held that this situation fell within the “foreign laws” defense of the ADEA. The court reasoned that a provision in the agreement with the German union, to which the U.S. company was a party, had “legal force” in the sense that it was legally binding and enforceable under German law. While the scope of the “foreign laws” and BFOQ defenses will continue to be a source of litigation, U.S companies cannot rely upon stereotypical impressions of male and female roles nor stereotypical customer preferences to justify employment discrimination against U.S. citizens. Courts have rejected these defenses when the employers had not confirmed the information on which they based their decision. According to the EEOC, “the employer must have a current, authoritative, and factual basis for its belief.” For example, in the 9th U.S. Circuit Court of Appeals case Fernandez v. Wynn Oil Co., the court rejected the BFOQ defense when a U.S. company declined to promote a woman because she would have to deal with men in Latin America, where the company believed the local stereotype was that women belong in the home. Similarly, in the 5th U.S. Circuit Court of Appeals case Abrams v. Baylor College of Medicine, the court rejected the use of the BFOQ defense by a U.S. hospital that refused to send two Jewish doctors to Saudi Arabia; the court reasoned that the U.S. hospital had not taken the adequate steps to confirm the local policy regarding the entry of U.S. Jewish doctors into Saudi Arabia nor had the Saudi government informed the U.S. hospital that U.S. Jewish citizens could not participate in the program. PREVENTATIVE ACTIONS Under current law and EEOC regulations, it is difficult for the EEOC to investigate claims against U.S. companies of employment discrimination that takes place outside of the U.S. The EEOC has no overseas offices or formal procedures in place for processing claims arising in foreign countries. Furthermore, Congress has not expanded the EEOC’s extraterritorial investigation or subpoena powers, which does not extend outside the U.S. or its territories. Claims involving U.S. employment discrimination laws first must be brought before the EEOC. The EEOC’s enforcement guidance memorandum on the CRA outlines the commission’s procedures for handling discrimination allegations arising from employment abroad. Also, the EEOC’s Enforcement Guidance on Extraterritorial Application of the ADA and Title VII contains a set of charge processing instructions for EEOC personnel assigned to investigate charges of discrimination. Although U.S.-based businesses operating in foreign countries may face liability in the U.S. for their employment actions abroad, certain preventative actions may go a long way toward insulating an employer from such claims. The U.S. Supreme Court’s 1998 rulings in Burlington Industries Inc. v. Ellerthand Faragher v. City of Boca Ratonhave paved the way for a new affirmative defense for employers in employment discrimination cases. The rulings suggest that employers may assert a defense to liability if the employer takes proactive steps to exercise reasonable care in preventing and promptly correcting any conduct constituting employment discrimination. Accordingly, U.S. companies doing business abroad should consider applying and enforcing sound and proactive personnel policies that contemplate the extraterritorial application of U.S. employment discrimination laws, to take advantage of these recent Supreme Court rulings.

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