Terminating Overseas Employees

HR professionals need to know the risks under international laws before terminating employees who work overseas.

By Dawn S. Onley Jan 1, 2014
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November CoverEmployees in Spain who are terminated commonly receive nine weeks of severance for each full year of service. Japan’s lifetime employment system restricts employers from firing employees except on the grounds of serious misconduct. In Germany, the Termination Protection Act requires that dismissal be used only after all other options have been exhausted, including transferring an employee to another open position or demoting the individual into another role.

When U.S. companies set up shop in other countries, it is tantamount to hanging a sign that reads "Open for business. We play by your rules." And by now, many HR managers know they must comply with international laws—even if they had to learn the hard way. With U.S. firms steadily expanding into overseas locations, HR managers must maneuver a labyrinth of employment laws. This involves advance preparation, legal consultation, and combing through procedural documents and other labor law resources. Violating an employment law involving a termination could expose a company to costly legal liabilities, depending on the country. It could also hurt the company’s brand and affect its bottom line.

"The ramifications for failure to properly handle termination of an employee overseas are endless," says Jaime Vega, SPHR, GPHR, regional human resources manager at Northwest Pipe Co. in Fort Worth, Texas. The company has manufacturing plants throughout the U.S. and Mexico. "The results are usually expensive and time-consuming, which drain your profit margins. ... In the age of hyperspeed in cyberspace, an improperly handled termination will be on the Internet faster than the speed of light, and your brand will suffer."

Also, overseas workers are often knowledgeable about their employment rights, Vega says. "The average person overseas will probably know the law inside and out. In Mexico and in other countries, including Brazil, the employment law is written in the constitution. What does that mean? It means the people know their constitution; hence they know the labor laws and they know what they are entitled to by law."

At Will vs. Job Security

Anyone who works with overseas employees should first learn the customs, courtesies and employment laws of that nation—three areas that Vega deems of equal importance. He says the best approach is to ask questions and to make frequent visits to that country. "If I have a question on a specific action, I will give an explanation of the U.S. employment law and then I will ask my partners overseas to explain their process so they can understand what I am asking," Vega says.

In the United States, terminations are commonplace and mostly protected by the American doctrine of employment at will—a rule that states that an employee or an employer may terminate a work relationship at any time and for any reason (as long as the reason is not discriminatory), with or without notice. At-will employment is a foreign concept overseas. The presumption globally is that employees "have a basic right to keep their jobs indefinitely," says Mark E. Zelek, leader of the International Labor & Employment Practice at law firm Morgan, Lewis & Bockius LLP. "Unlike in the U.S., it is generally very difficult to discharge employees in other countries without incurring substantial liability or providing employees a lengthy notice period. Employment can usually only be terminated if the employer has just cause."

Paul Falcone, former head of international human resources at Paramount Pictures, agrees. He says all the major economies in Europe, Asia and Latin America provide some form of workplace due process before terminating workers. "In essence, a European’s right to work is considered a fundamental property right of sorts and should not be arbitrarily taken away without some form of due process where workers have an opportunity to defend themselves," he says. The labor landscape is widely divergent from country to country, so it is important for HR managers to stay abreast of employment laws when hiring and firing employees overseas.

"My advice is to think about the employment law life cycle at the front end, starting with investing in a well-drafted employment contract and then learning the fundamentals of how to manage employee performance and absence in each country where you will employ people," says Tahl Tyson, a shareholder at the law firm Littler in Seattle.

These contracts provide a solid foundation later if termination becomes necessary, Tyson says. Additionally, she advises HR professionals to seek legal advice right away when problems arise, because there may be specific procedural details that come into play, like a limited amount of time to use an incident as the basis of disciplinary proceedings.

Works Councils and Unions

Another distinct difference that favors overseas employees when it comes to terminations is the participation of works councils and unions. In the United States, most of the workforce is nonunion, but many other countries have powerful unions and works councils that play an important role in protecting employees from being discharged. Works councils are local or company-based, while unions are national organizations.

"Understandably, the union is going to help the worker," Vega says. "The councils, in some instances, are extensions of the union."

The role of most works councils and unions is to be involved in issues that affect employees collectively, not individually, Tyson says, but "in practice, a strong works council can affect an individual situation by using leverage in negotiating other issues."

"Typically, the ability to terminate an individual is impacted more by employment legislation, although collective agreements and work rules subject to the approval of employee representatives may specify procedures and payments upon severance within a legislative framework," Tyson adds.

"Unions and works councils may have a strong influence on the termination process, especially in Europe," Falcone says. "In fact, when you consider employee-representation committees, unions and works councils, the multiple forms of employee representation can even overlap and often cause confusion."

Carol Olsby, GPHR, principal of Carol Olsby & Associates, a consulting company based in Seattle, says employers shouldn’t face any barriers when attempting to terminate an overseas employee if they do their homework before the situation reaches the point of dismissal. "I just think you have to be an educated businessperson," she says. "It shouldn’t be a barrier."

Long-Term Impact

If a U.S. company gets a bad reputation for terminating employees abroad, it will not only suffer legal ramifications, poor employee morale and lost productivity, but the brand could be irrevocably damaged and top talent may choose to go elsewhere.

"I think with the recession that happened a few years ago, there were many companies that pulled out of the emerging markets and ended up terminating employees in those markets," Olsby says. "Employees are concerned about working for Western companies. In China, there’s a shift where employees prefer local national companies. There’s a mindset [in China] that views employees in a long-term way."

As the former director of human resources for the Americas and Asia with the IT service company Tieto, Olsby spent a lot of time in China and other countries in Asia. She says it’s a very "relationship-oriented" part of the world. In China, and across much of the Asia-Pacific region, the relationship between employees and leadership is very close.

"The way employees’ rights are viewed overseas, as a company, you need to have an image of doing the right thing. As an employer, you need to look like you are not taking advantage of the little person," Olsby says. "The companies that do that better have lower turnover and fewer terminations.

"If you get a reputation for treating people improperly, the right talent will not come to work for you," she adds. "When it comes to terminating people, you need to be very respectful."

Loosening Protections

Severance payments upon termination are the rule in many countries. However, Zelek says some countries are starting to recognize that overly protective employment laws contribute to high unemployment because employers are reluctant to add workers to their payroll. So these countries are reining in their processes and adopting changes that are more in line with the U.S. model.

"In Spain, where more than one-fourth of the workforce is unemployed and youth unemployment is over 50 percent, in February 2012 the government gave employers incentives to hire that make it easier and less costly to fire employees," Zelek says. The Spanish government reduced the maximum severance payout employees can collect from 42 months’ pay to 12 months’ pay.

HR professionals should be mindful that labor reforms are also making their way through the approval process in Russia and China, "so companies doing business in those countries should keep an eye out for those changes, which should be enacted in the next several months," Zelek says.

Just this summer, France enacted comprehensive labor law reform that introduces more flexibility and security into the French employment market.

The U.K. is currently considering an exception in its law that would aid small businesses with fewer than 10 employees. "It has proposed compensated no-fault dismissal whereby an employer could dismiss an employee with no finding of fault on the part of the employee," Zelek says. "The employer would avoid having to go through any formal dismissal procedure, a set amount of compensation would be paid to the employee, and the employee would be prevented from pursuing an unfair-dismissal claim in an employment tribunal."

In the past, a U.K. employer making 100 or more people at one company "redundant" had to provide a 90-day consultation period with representatives of the affected employees, Zelek says. In April 2013, the U.K. reduced the time that firms have to spend consulting with representatives of redundant employees from 90 days to 45.

No matter which way the pendulum swings globally on employment laws, Tyson says HR managers need to rely on their sense of fairness and due process in the event that a termination becomes necessary.

"Those concepts are applicable everywhere, only the process is more detailed and codified in law outside of the U.S.," she says.

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

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