Northern Exposure

Managing Employees Abroad

by Brian Smeenk

Does your company send employees into other countries? Do you employ foreign nationals in international aassignments? These situations have their own, unique complexities and legal issues. To be successful in managing its employees abroad, employers need to have an employment relationship that protects both its company and its employees. Let’s look at some of the key issues you’ll face in these situations.

1. Which company will be the employer? Do you want your American company to be the employer or should a related company in the foreign country be the employer? The answer to that question could affect which laws will apply as well as the length of service that will be recognized, applicable benefit plans, and other terms and conditions of employment.

2. Which country’s laws will apply? It’s important to understand which country’s laws will apply to an employee and which American laws apply. Sometimes the laws of both countries might apply. That will have a major impact on the employee’s rights and benefits.

To a significant extent, you can control which country’s laws apply by the manner in which you organize your affairs. Some of the factors that will determine applicable law include:

  • how your employment contracts are written;
  • the amount of time spent in another country;
  • the laws of the country in which the work is performed; and
  • the nature of the rights or obligations in question.

3. What are the minimum standards of the country of employment? Don’t assume that American minimum standards will meet or exceed those of another country. Some countries use significantly higher benchmarks, while the requirements of others are more lax. Some countries’ requirements may be a lot more generous. Be sure you know what the country’s minimum standards are before establishing practice there.

You may be able to avoid some of the more draconian foreign obligations if you arrange your affairs properly. For example, certain European countries impose greater obligations with respect to permanent employees than temporary employees. In that case, you may want to consider classifying your employees as temporary when conducting business in that country. And some countries may allow you to contract out a significant portion of your labor rather than hire a staff. When in doubt, check it out.

4. Should you have an employment contract? Although you may not be accustomed to requiring your employees to sign employment contracts, it’s a practice you may want to consider for your foreign workers. In Canada, for example, employers rely on employment contracts to protect themselves from huge damages claims when an employee is terminated.

Also, you may be permitted to specify in a contract which country’s laws will apply to the employment relationship. While this is common in commercial contracts, it isn’t always possible with employment contracts. Even if American law doesn’t apply in all cases, you may be able to invoke it for specific purposes, such as termination of employment.

5. How will you resolve disputes? Consider whether you want employment disputes to be resolved by arbitration or through an appropriate court or by a tribunal. Note that the choice of applicable law isn’t the same as the choice of forum for dispute resolution. Consider whether your company should:

  • (a) agree to recognize the jurisdiction of a foreign court;
  • (b) stipulate which court has exclusive jurisdiction; or
  • (c) opt for the exclusive jurisdiction of arbitrators.

6. Taxes, taxes, taxes. Be sure you understand at least the basics of how the tax laws of both the United States and the foreign country work. Many companies have tax equalization programs to ensure that the employee isn’t worse off by virtue of the foreign placement. But be sure you don’t end up paying more than necessary for this benefit.

7. What happens at the end of a job assignment? It’s best to be explicit when answering this question. Will the employee return to his previous assignment? Will he be returned to his “home” country, if different? If an alternate job isn’t guaranteed at the end of the placement (for example, if the placement is considered a “permanent” job), what rights will the employee have regarding notice of termination or severance pay?

8. Immigration laws. You will of course need to ensure compliance with the immigration laws of the country in which the work will be performed. Have a clear understanding with the prospective employee about what will happen with the job offer — and their status with your company — if the country in question doesn’t grant permission to the employee to work or live there.

Learn about Canadian employment law for U.S. employers with operation in Canada with Northern Exposure.

Bottom line
These are just a few of the key points to consider when placing an employee in a country other than his country of origin. It’s important to think through these and related issues before such an assignment begins

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