Hiring and Firing Overseas? Know the Legal Risks

Because U.S. corporations are increasingly hiring foreign talent to fill positions in their newly opened offices overseas, legal experts suggest that HR managers stay abreast of employment laws when it comes to hiring and firing employees in foreign countries.

It’s a daunting task, considering that laws vary from country to country.

Recently, Tahl Tyson, a shareholder at Littler Mendelson, spoke on the topic at a conference in Washington, D.C., outlining what employers should know before cutting global staff. She said HR has a role to play in educating business partners on how hiring and firing overseas differs from standard procedure here. “HR is starting to be more aware of this. They are training their clients.”

Differences Equal Challenges

Tyson said the biggest learning curve she sees for American companies is adjusting to the fact that at-will employment—a rule that states that an employee or an employer may terminate a work relationship at any time and for any cause, with or without notice—is largely an American concept. For example, in a country like Sweden with powerful unions and labor laws, it can be extremely tough to fire an employee. U.S. firms may also be surprised to learn that in Italy, poor performance is not a legal basis for termination.

“There are often very specific procedural requirements for making workers ‘redundant.’ If these are not carefully observed, the termination may be unlawful, resulting in damages, penalties, litigation costs and possibly reinstatement of the wrongfully terminated employee,” Tyson said in an interview with SHRM Online.

In many countries, management makes decisions only after consulting with employees first. For example, U.S. employees are often surprised to learn that their company is being purchased or downsized, but this practice is nearly nonexistent in other countries where extensive information about the business is shared with the workforce.

Knowledge Is Power

“Outside of the U.S., employees have rights which are antithetical not only to employment at will, but also to management’s ability to make unilateral decisions about the business,” Tyson said. Particularly in European countries, “management’s legal obligation is not just to maximize shareholder value, but to maximize jobs and job security.”

Still, there are creative ways to address employee issues. Even under the tightest employee laws, employers can still lay off employees, but may need to pay them damages if the termination violates labor laws in that country or is deemed illegal.

The best remedy is preparation and research prior to establishing a company in a foreign country. This means hiring an attorney familiar with new market entry and employment law issues likely encountered by setting up a new business in that country. Labor laws can have huge ramifications on employee benefits, such as compensation and pension, and on corporate taxes.

“Without such critical advisors, organizations can find themselves in a situation where they don’t truly understand the commitments that they are potentially bound by in the area of termination or severance,” said Ed Hannibal, partner and North American leader for Mercer’s Global Mobility Practice.

Dawn S. Onley is a freelance writer based in Washington, D.C.

Related Resources:

Cultural Competency Doesn’t Happen Overnight, SHRM Diversity Page, September 2012

Detailed Country Guides, SHRM Global HR Page, 2012