More businesses than ever are sending people overseas. The rewards of developing new markets can be great, but the multitude of different legal systems mean there are also bear traps to be avoided—especially on the human resources (HR) and employment law side. Fortunately, most of these traps can be avoided by forward planning and ensuring the employment engagement is on sound footing.
Issues to Consider With Any Assignment
First, it is worth mentioning some practical issues that apply to any assignment to a new workplace, whether overseas or not, and whether you are sending or receiving the employee.
1. Which company is the employer?
Assignments may be to another entity, such as a new subsidiary company or to a company with which you do business. Where another entity is involved, you will need to consider which entity will be considered the employer. The existing employer will generally continue as the employer unless there is a reason for it to be the host. It is important to be clear about which company is the employer in documentation and to ensure that the arrangement is followed in practice, with the employer dealing with matters like discipline, appraisals, and payroll. Confusion over which company is the employer can expose the parties to dual employment liabilities and dilute the main employer’s control over the relationship.
Since local employment law protections vary substantially by jurisdiction, many companies will want to try to take steps to ensure that the laws of the country where the existing employer is located govern the arrangement. Although this is often discussed in documentation provided to the employee, note that the vast majority of employees are able to avail themselves of the labor courts, and local-law protections, in the country where the work is performed. Therefore caution should be taken to address these conflicts of laws issues, both at the outset and at the termination of the assignment.
2. Protection of confidential information and customer relationships.
The employee on assignment will be in a position in which he or she could potentially cause harm to both the main employer and host. The employer will hopefully have protection via appropriate clauses in an employment contract or some form of business protection agreement. However, it may have been drafted some years ago, and the assignment letter/agreement provides a good opportunity to rectify any defects. Note that none of this will provide any protection to the host, and it may be sensible for the host to require the employee to sign a confidentiality and business protection agreement.
3. Obligations between the main employer and the host.
Consider whether an agreement between the main employer and the host is appropriate. For example to deal with issues like whether a replacement would be offered if the employee became incapable of work, anti-poaching provisions, and which company will undertake appraisals, discipline, and day-to-day management. Frequently, accounting firms will advise that the two organizations enter into an intra-company secondment agreement, setting out the business rationale of the assignment and allocating responsibility for costs and liabilities. These agreements often contain recitals specifically intended to protect one entity or the other from exposure under tax and other legal requirements.
When an assignment is overseas, there are further considerations for businesses:
International employment tax rules are complicated and ignored at your peril. To be prepared, you may want to talk to an internationally competent firm of accountants for advice about any obligations in relation to the employee’s personal income taxation and payroll obligations and to rule out any other taxation issues. Most employers will offer tax equalization to ensure their employees are no worse off in higher tax countries. This effectively means increasing the employee’s salary so his or her take-home pay is the same as it was before the international assignment or has the same buying power in the host country.
It goes without saying that the individual sent overseas for an assignment must have a legal right to work in the country in question. Proper immigration status is always an absolute requirement. Note that many countries require the employee to have a local employment contract as a precondition to receiving proper work authorization.
6. Local employment laws.
Local employment laws vary considerably. It is vital to appreciate that for overseas assignments that go beyond temporary business trips, local employment laws will likely apply—even if you try to apply the home country’s law in the relevant contract. Companies take a risk with their management time and money if they fail to ensure that assignment documentation and termination processes comply with local laws.
For example, failing to provide a Flemish or French language version of an employment contract or assignment letter/agreement in Belgium can result in a void contract, with the result that the business protection clauses fail. Similarly, dismissing someone in many countries without the approval of a court can result in an invalid dismissal ruling and substantial back pay awards. Another potential risk for the unwary is using non-compete clauses in countries that require compensation to be paid on termination in return for such clauses, which can be expensive for an employer that did not expect that or even want to enforce the covenant.
7. Local customs.
Employers will want to find out the local customs that may impact the working relationship. For example, some countries have 13-month payrolls to deliver extra salary at Christmas or for the summer holidays. Public holidays may also differ in the host country. The usual practice is to require the employee to take the public holidays recognized in his or her host country rather than his or her home country.
8. Directorships and other positions of responsibility.
Carefully consider what you are planning to bestow on an individual in the form of directorships, bank mandates, etc. In particular, give thought to what is involved in removing these responsibilities and appointing a replacement if the need arises. This issue can prove very problematic at the time of what may be an acrimonious departure.
9. Practical matters.
You may want to consider your employee’s family needs such as schooling, housing, and flights. Usually the main employer will make arrangements to ensure these matters are dealt with, perhaps using one of the many companies that specialize in such matters. These family considerations are usually the most important aspect of assignment negotiations for the employee, and being aware of them will help you deal with negotiations, both at the beginning and end of an overseas assignment. For example, using garden leave on termination of employment to allow employment to continue during the notice period even though the employee is no longer working may enable someone’s child to finish a school year in a host country. This is likely to be a more attractive negotiating point than a payment in lieu of notice, which might result in an immediate cessation of immigration approval.
Think about any other issues that might become relevant at the end of the assignment and whether to agree at the outset on how to deal with them. At the top of the list for the employee will likely be what job he or she will have at the end of the assignment, and the employee may want this guaranteed in the assignment agreement.
Ensuring your assignment agreements allow either party to give notice to end an assignment early is likely to be sensible.
It may seem an obvious point, but ensure you keep copies of any employment contract and assignment letter/agreement as well as relevant information such as the dates of lease renewals and the dates when equity vests.
This may come as a surprise, but sometimes employment relationships go wrong! These problems can be magnified when the employee is abroad and overseas employment law applies. However, with the right planning and preparation, hiring and firing across the world need not cost the earth.