ABA Connection

You’re Fired

  • Print

It’s a common occurrence at all types of companies: Supervisors decide to let an employee go. And while the prudent thing might be to confer with counsel on possible legal ramifications, the reality is that firings, like hirings, generally are accepted as part of the routine fabric of corporate operations.

But if the employment relationship crosses national boundaries, there may be little about it that is routine. Instead, the question of which jurisdiction’s law governs any number of employment issues hiring and firing, privacy, benefits, immigration, discrimination can quickly become complicated enough to intimidate even experienced practitioners. In the field of international employment law, say experts, it’s crucial to recognize what you don’t know.

“For any lawyer to say that they do international employment law and really think that they know overseas law, they would be fibbing,” says Gary R. Siniscalco. A partner in the San Francisco office of Orrick, Herrington & Sutcliffe, he co-chairs the International Labor Law Committee in the ABA Section of Labor and Employment Law.

“What’s really key,” Siniscalco says, “is to recognize that there are enormous differences in the law and the procedures and the whole approach to dealing with employment law in most non-U.S. jurisdictions.”

Philip M. Berkowitz says that, even after a decade in the international employment law field, he never advises clients on issues arising under foreign law.

“I’m a New York lawyer. I won’t advise on New Jersey law, so I’m not going to advise on the law of the European Union,” says Berkowitz, who chairs the international labor and employment specialty team at Nixon Peabody. “I have a general familiarity with those laws. I can give a good speech on data privacy in Europe, and I can talk about the conflicts between the Sarbanes-Oxley hotline requirements and how they may conflict with the laws of France and Germany and the European Union generally. But I’m ultimately going to point my client in the direction of a European lawyer.” Berkowitz is the co-editor, along with German lawyer Thomas Müller-Bonanni, of International Labor and Employment Law: A Practical Guide, published in 2006 by the ABA Section of International Law as part of its International Practitioner’s Deskbook Series. (The book may be ordered through the ABA’s Web Store at abanet.org.)

“The field of international labor and employment law is developing rapidly and changing to fit the needs of increasingly global businesses,” Berkowitz and Müller-Bonanni write in their introduction to the book. “Human resources play an increasingly important role in international business transactions. Counsel for multinational companies increasingly recognize the importance of having a global perspective in labor and employment law.”

No At-Will Over There

The complex landscape of international employment law is readily apparent in the context of terminations. For instance, the established U.S. legal principle of at-will employment–which says that either the employer or employee may terminate their relationship at any time, absent an express agreement to the contrary–is not widely recognized in Europe or other regions.

Instead, an expatriate worker–the citizen of one nation working in the home country of his or her employer, or another country where it has operations–often is protected from summary discharge in the United States by stringent foreign laws allowing termination only for good cause and imposing hefty severance payments for workers who are let go, according to Erika C. Collins. She chairs the international employment law practice group in the New York City office of Paul, Hastings, Janofsky & Walker.

Collins describes one situation involving a citizen of Argentina who spent more than a decade working first in Europe and then the United States. But the U.S.-based company terminated the employee without taking Argentine law, which requires extensive severance payments, into account. It was a costly oversight, says Collins. “I think his initial demand was in the realm of $20 million. It’s a big deal.”

Moreover, an American worker who could be terminated without difficulty under U.S. law also may be covered by those much more restrictive foreign laws when working abroad, say Collins and other experts.

It’s not unusual for lawmakers to give measures extraterritorial reach. The U.S. Congress, for instance, has enacted laws that expressly apply to American citizens and companies operating in foreign countries. These measures include anti-discrimination legislation such as Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967, as well as laws intended to prevent corporate wrongdoing and fraud, such as the Foreign Corrupt Practices Act of 1977 and the Sarbanes-Oxley Act of 2002.

As a result, “You’ve got people who are covered by the U.S. laws, and the laws attach to them no matter where they go in the world, if they’re working for a U.S. company,” says Collins, a co-chair of the International Employment Law Committee in the ABA Section of International Law.

In other instances, jurisdictions apply each other’s laws under treaty agreements. That’s the case, for example, with foreign laws concerning severance pay for expatriate workers. Such laws may be enforced in American courts because the United States is a party to the pertinent treaties.

The choice-of-law issues become even more complex in cases involving multiple jurisdictions. If the employee of a multinational corporation has worked in, say, Buenos Aires, Bogota and Boise, the laws of three countries–Argentina, Colombia and the United States–must be consulted to determine what severance, if any, the employee should be paid if terminated. U.S. anti-discrimination laws might apply, as well.

Laying out another scenario, Siniscalco says a foreign citizen from Germany, perhaps working for a company in New York that transfers him to another job in Australia would cause the employer to consult a team of at least three lawyers before termination. “If the [employer] here said, ‘Look, we want to fire this guy,’ I would talk to my partner in New York,” Siniscalco says. “If [the employee] came here from Germany, we’d get local German counsel. And we’d get Australian counsel.”

The termination also may create several options for an employee seeking legal recourse, practitioners note. It might be possible to sue the employer not only in the employee’s country of citizenship or the country in which the company is headquartered, but also in the employee’s country of residence or the country where he was working at the time he was let go.

Learning Too Late

Unfortunately, many companies–as well as their legal counsel–fail to recognize the complexities of international employment law until it’s too late.

“The way they find out about it is usually that the employee gets terminated,” says Jordan W. Cowman, a partner at Akin Gump Strauss Hauer & Feld in Dallas. “A lot of times, people think that they can send their employees overseas–they’re Americans, they think the laws of the local jurisdiction don’t apply.” But then, after a termination, he says, the employee demands a large severance payment, and “the U.S. employer unwary of those types of pitfalls sometimes is flat-footed. When that happens, they call me.” Practitioners say American employers aren’t alone in their confusion about the complex rules of international employment law. Managers of foreign companies often display similar misunderstandings.

Berkowitz says a foreign company recently asked him to review a standard form employment contract. Such contracts are used routinely outside the United States, and the company planned to use it when hiring American employees, as well. But Berkowitz cautioned the company that a number of the contract’s provisions, including a promise that all health benefits would be employer-paid, would not be appropriate in the context of U.S. employment law.

As Berkowitz points out in a chapter on U.S. law that’s part of his book on international labor and employment law, contracts often give more protection to an employee than is generally provided under the at-will employment principle. “Employment contracts should therefore only be issued in situations where special terms and conditions not covered by the company’s general employment policies apply,” he writes.

Outside the United States, however, expatriate workers often are covered by “secondment” agreements that provide for them to be officially employed by a local company. Such agreements make it easier for the employment relationship to conform to local laws and collective agreements that may be applicable.

But there is only so much that can be governed by employment contracts, says Cowman. An agreement, for example, to apply anti-discrimination laws of a worker’s home country, rather than those of the country of employment, is not likely to be recognized as valid by courts in the country of employment, he says.

U.S. companies operating overseas also must adjust to the widespread existence of works councils, which are panels of employees established to work closely with the management of a company on policies that directly affect workers. They are particularly prevalent in countries that are members of the European Union. There is no real U.S. equivalent to works councils.

In some cases, the employer may not change certain employee policies without the consent of the works council. Under German law, for instance, a works council may be elected in every establishment with at least five employees, writes Müller-Bonanni in a chapter of the book he co-edited with Berkowitz. A key requirement is that works councils be consulted before employees are dismissed or hired. If a company fails to comply, the works council may take steps to block its hiring or firing decisions.

“Dealing with a works council that uses its full range of powers can be time-consuming and costly,” writes Müller-Bonanni. “However, most companies that have works councils do not experience major difficulties in their day-to-day operations.”

Different Views on Privacy

The scope of employment law in various national jurisdictions reaches far beyond the matter of how workers are hired and fired.

Anti-nepotism policies that prohibit, among other conduct, supervisors from dating subordinates are common among U.S. companies. But in Germany, for example, it is illegal for a company to prohibit romantic relationships among employees, says Müller-Bonanni. Under German law, such rules amount to civil rights violations because they constitute inappropriate intrusions into private lives, he says.

Bonuses and perks like company cars also are often treated differently under U.S. law and employment rules in Europe and other regions, say practitioners. So a U.S. employer may be surprised to learn that such things were provided by a foreign office, only to have an employee terminated by that office include those benefits in a claim for severance, says Cowman.

“It’s an absolute Pandora’s box of issues,” says Cowman, “because you have managers giving employees bonuses that the home office didn’t know about that now they have substantial rights in.”

Especially in recent years, workplace privacy has developed into an issue on which U.S. laws increasingly diverge from the rules in other jurisdictions. The Sarbanes-Oxley Act, for instance, requires corporations to maintain a telephone hotline to allow workers to make anonymous reports of corporate wrongdoing. But encouraging such anonymous complaints is at least questionable, and sometimes outright illegal, under the laws of various member states of the European Union, says Müller-Bonanni.

“European data protection laws do not allow such hotlines,” he says. “Sarbanes-Oxley says you must have one, you must have the option to call on an anonymous basis, whereas European data protection laws are not fully clear. Some say it’s illegal; others say you must not encourage anonymous calls.”

Similarly, it is increasingly common for American corporations to require employees opening the company’s Web browser to click on an agreement that the employer has access to all of their files. But this can pose a problem in other countries, says Siniscalco. For one thing, insisting on employer access to a worker’s computer files may violate a foreign country’s privacy laws, he says. Plus, there’s the question of whether employer access to computers is a matter on which the company must negotiate rules with a works council.

Collins recalls being asked by an American client being investigated by a U.S. federal agency to help sort out how to respond to a federal court order that the company provide statistical information about all of its employees worldwide. The problem, she says, is that it would have been illegal for some of the company’s European offices to produce this information because it violated the privacy laws of countries in which they were located. As a result, human resources personnel in those offices were withholding the information from the company’s American lawyers.

With the help of counsel, the company eventually resolved the impasse, says Collins, by modifying its internal privacy rules so that they still complied with European laws while allowing the requested information to the U.S. court.

Lawyers who focus primarily on labor and employment issues should keep in mind how they may relate to other issues, say practitioners. Corporate downsizing, along with acquisitions of other companies in a home country or abroad, for instance, is likely to give rise to significant tax issues. And hiring or firing expatriate workers often raises complex questions of immigration law.

With outsourcing on the rise, a big issue for U.S. companies doing business in foreign countries is the nature of the legal relationship between an employer and its workers in other jurisdictions, Cowman says.

Key issues are whether workers are permanent or temporary hires, and whether they are employed by the company directly or indirectly, says Cowman. A company may believe its legal obligations are limited in relation to contract workers at an outsourcing site in a foreign country, for instance. But, he says, it may well be that under local law the situation is considered a “permanent establishment” of a business site for which the company is directly responsible.

“Companies of every size have to be concerned about permanent-establishment issues. That’s certainly one big question: ‘Are you doing business in that jurisdiction?’ ” says Cowman. “I’m not an expert on this, but I certainly recognize it as an issue, and I always get our tax specialist involved.”

(Permanent-establishment issues often raise questions of whether a company essentially has acquired a foreign business, an action that can have extensive tax ramifications.) Immigration laws increasingly must be factored in as companies move employees across international boundaries on either short-term or long-term work assignments. But practitioners caution that immigration law is handled in vastly different ways from jurisdiction to jurisdiction.

“Immigration is not the practice of law in many parts of the world. It is in the U.S. and Canada,” said Kenneth K.C. Ing, a lawyer at Clark Wilson in Vancouver, speaking at a program on the issue held during the International Bar Association’s annual conference in 2005. “So a U.S. or Canadian firm has to find ways to work in those systems.”

Knowing Who to Call

How can an American attorney–especially one who hasn’t done much work involving jurisdictions outside the United States–successfully make his or her way through the maze of international employment law?

Experienced practitioners agree that a key is finding local counsel in countries where a U.S. corporate client has operations. And not just any local counsel will do.

“In many cases there aren’t rules that cover a specific circumstance,” Siniscalco says. “And so it’s important to find lawyers who both know the law and understand the law, and understand how to explain and communicate to businesses what their options are and how they might proceed, given the particular circumstances that your client faces.”

Good ways to find reliable local counsel, Siniscalco says, are through recommendations of trusted colleagues and continuing legal education programs, which allow American lawyers to hear foreign attorneys make presentations and meet them face to face. But then it can be important to play a translator’s role on matters of both law and language, says Lynne R. Ostfelt, a Chicago lawyer with an extensive foreign clientele. In France, for instance, discovery isn’t treated as part of the actual litigation process, so French clients need to understand that hiring a U.S. trial lawyer may involve fees for that work, she says.

It remains to be seen whether multinational corporations will be able to develop workplace policies that can be applied uniformly to employees in various jurisdictions. And it can be a difficult balancing act to create an effective blend of best practices, legal requirements of multiple jurisdictions and a company’s own culture, say experts. A balance also must be struck between uniform standards throughout a company’s operations and how those standards will be applied in each country where the company does business.

Collins says standards should be uniform on what she refers to as “big ticket” items that might be viewed as setting forth the company’s aspirational goals. When it comes to applying those goals, though, rules developed on a country-by-country basis probably work best, she says.

Few American companies, for example, will wish to voluntarily adopt more generous European vacation policies, or conform to requirements in most other countries that workers can only be fired for cause. And there may be cultural or religious conflicts, or even express legal prohibitions in some foreign countries, that prevent a company from imposing standards of conduct that are viewed as entirely appropriate somewhere else.

As for the possibility of achieving greater uniformity in international labor and employment law, experts say discrimination is one of the few areas right now that shows any real potential for reaching some consensus–and that’s primarily because of the intentionally far reach of U.S. law in that area.

Collins and other practitioners recommend employers make sure their managers throughout the world understand U.S. workplace rules to prevent potential discrimination claims by Americans who work abroad or have dealings in the United States with foreign employees.

“In my opinion, a U.S.-based multinational needs to train people all over the world in its policies,” Collins says. “Just because you have an employee who may not be protected by Title VII or the Fair Housing Act or whatever doesn’t mean that they can’t create liability.”

Companies need to adopt core standards that reflect what they stand for, Berkowitz says. “They want to adopt best practices to make clear that they won’t tolerate discrimination, they won’t tolerate harassment, they’re going to pay employees fairly, they’re not going to engage in child labor or abusive labor conditions.”

But when it comes time to implement those policies, “in each country they’re going to need to consult with counsel and make sure that, culturally, they’re not going to do something that’s going to make them look silly,” Berkowitz says. “As a practical matter, you can’t come in as a U.S. company and start imposing U.S. standards on your employees all over the world. There would be resentment.”

Martha Neil, a lawyer, is a legal affairs writer for the ABA Journal.

Give us feedback, share a story tip or update, or report an error.