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.
Roger James (London)
While some companies may find overseas assignments or secondments unavoidable, careful thought must be given to these arrangements as they can have serious legal and taxation implications
With the increased globalisation of businesses, it is becoming commonplace for employees to have mobile working arrangements or to be seconded overseas for an extended period. Sending employees overseas not only helps a business strengthen ties between its own network but also provides invaluable learning opportunities for the employees involved and is an efficient way to improve a company’s ability to develop its business internationally. But as the opportunities increase, so too do the challenges.
Cross-border assignments can raise a number of legal issues affecting both the employer and the employee. While tax and immigration are the most obvious issues that need to be considered for overseas assignments, there are other employment matters that employers should turn their mind to. These can be summarised into three key issues.”
This might seem like a simple matter, but jurisdictional issues are one of the biggest traps for the unwary. Employment laws vary considerably from country to country and, in some cases, even between provinces or states. In many jurisdictions, mandatory employment laws, such as an employee’s rights on termination, will apply to the employment relationship whether or not the parties want them to. Such laws will also apply irrespective of any contractual clauses to the contrary.
An employee who has been seconded from mainland China to Hong Kong may have the protection of Hong Kong employment laws even if the employee’s contract is governed by mainland law.
Confusingly, the contractual terms of the agreement are still subject to mainland law. Employees seconded to overseas offices may, therefore, have rights, protections and obligations under two or more jurisdictions. In such a case, an employee may be able to cherry pick the best terms of the contract, which may be much more generous than local market terms, but disregard any they believe to be contrary to local law.
If secondment or assignment arrangements are not documented correctly, this can lead to unintended and often undesired consequences.
The way that a contract is structured can also have implications in relation to the employee’s benefits, tax and immigration status. Often, benefits that are provided to an employee in their home jurisdiction, such as insurance, participation in share schemes or pensions, cannot be maintained when they leave that jurisdiction for an extended period.
Often, companies agree the commercial terms of a secondment without considering whether they should look at entering into new or amended contractual arrangements.
Instead of simply assuming that a secondment arrangement will be most appropriate, employers should give careful thought as to whether a dual contract or a fresh contract with a locally registered group company could work better in the circumstances.
When dealing with staff working on a global basis, you need to plan for what will happen if something goes awry. While you can’t plan for every possibility, there are common issues that can be dealt with up front.
Repatriation is often a key term of secondment or assignment agreements. Employers should think about the circumstances in which they are willing to pick up the cost of bringing their employee home. Will it apply only at the end of the assignment? What about a redundancy situation? What if the employee falls ill? What will it cover? How long will the cover last? What if, in the intervening period, the employee finds another job? Should the new employer pick up the repatriation costs?
Any post-termination restrictions may also need to be amended. In particular, employers should check whether such restrictions are enforceable against an employee in the relevant jurisdiction and on what terms and whether there are any local law requirements that need to be reflected – for example, if the period of post-termination have to be remunerated.
Consideration must also be given to whether any existing definitions within covenants need to be amended to ensure that the company is covered in respect of the work that the employee does on assignment or secondment.
The return of company property on termination can also be a sticky issue if not dealt with in the agreement. The last thing an employer wants is a rogue employee in an overseas jurisdiction in possession of sensitive company documents but who is under no express obligation to return them.
But it’s not all bad news. Given good planning, overseas assignments can be beneficial to both employer and staff. A little forethought goes a long way.
Kathleen Healy is a partner in the expanding employment, pensions and benefits practice in Asia of Freshfields. Based in Hong Kong, she specialises in advising on Asia-Pacific employment and HR projects, and on the multijurisdictional employment aspects of internal investigations.
The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.