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To maintain successful business operations overseas, it helps to understand your international liabilities.
As trade becomes increasingly international, more U.S.-based businesses are taking advantage of new opportunities abroad. Yet, in their haste to “go global,” some U.S. employers mistakenly give short shrift to labor and employment concerns.
Such a mistake can be devastating. Employment-related costs and exposure to liability often play a pivotal role in the success or failure of businesses that decide to operate across borders and time zones. Employers can find themselves in serious legal and financial trouble if they fail to consider the actual costs of having employees who work abroad. These costs can include compliance with foreign employment statutes, regulations, treaties and the extraterritorial reach of U.S. employment laws.
International HR Strategies
Employers often are surprised to discover fundamental tensions between their own corporate code of conduct and the local labor laws of a foreign country. For example, even though your corporate personnel policies or codes of conduct may expressly prohibit a certain type of behavior, the legal system in another country may not consider that behavior sufficient to support a “for cause” termination of employment.
Prime examples are Germany and Italy, where employers do not necessarily have cause to fire employees who engage in sexual harassment, even if those employees violate company policy. Em ployers who terminate haras sers may be forced to pay them termination indemnities.
In an effort to reconcile this situation, some employers may be tempted to blindly impose their own rules on foreign offices. But this method of harmonizing international HR policies will fail if the directive “to do it the American way” is based on the parochial view that “what works in Texas works everywhere else.” Local foreign offices may view such imposition of HR policies as “headquarters imperialism.”
In these circumstances, the challenge of administering international HR practices is to construct a framework of practical personnel policies based on an understanding of local foreign laws and culture. To that end, U.S. employers face some tough questions, such as the following:
These are very difficult business issues with serious legal consequences. Some argue that extending U.S. anti-discrimination laws to foreign nationals in overseas branches places an unnecessary burden on U.S. employers—and affects their ability to remain competitive abroad. According to an extreme application of this view, a company would violate the duty to its own shareholders if it extended such rights under U.S. law to foreign nationals on a voluntary basis.
Yet, most would argue that voluntary compliance with U.S. employment discrimination laws makes good business sense. Everyone ought to have the right to work in an environment free of discrimination or harassment—regardless of an employee’s citizenship or work location. Conduct to the contrary is inconsistent with the notion of a basic and fundamental concern for human dignity. Additionally, a company might risk adverse publicity at best or groundbreaking legal action at worst. A strong anti-harassment policy and a sound implementation strategy add up to proactive risk management and reputation assurance.
Finally, and perhaps most persuasively, U.S.-based corporations must be aware that their American employees have the statutory right to sue for employment discrimination occurring throughout the world. Applicants, workers and terminated employees who are U.S. citizens and are subjected to discriminatory practices anywhere in the world may file a discrimination charge against their U.S. employers. These charges may be filed under federal laws such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act or the Americans with Disabilities Act.
Global Harassment Laws
U.S.-based employers are often shocked to discover that, when it comes to workers’ rights, “going global” can be likened to operating in such employee-friendly forums as California. But the truth is that even California is decidedly more employer-friendly than most overseas jurisdictions, which tend to regulate employer-employee relationships far more intrusively than in the United States.
Many of these jurisdictions have comprehensive and paternalistic legal rules that automatically govern many employment relationships. In effect, workers enjoy substantial job security due to prohibitions on dismissals without cause. Some jurisdictions also have significant procedural requirements (such as mandating advance notice and consultations for terminations) and financial penalties (such as mandatory severance pay and social benefits). These deter employers from terminating employees.
And, while few countries afford their citizens the protections against discrimination found in U.S. law, a survey of recent foreign legislative and regulatory developments shows that liability for workplace harassment is no longer unique to the American legal system. A growing number of foreign countries now prohibit employment discrimination and workplace harassment.
As a result, U.S.-based employers with operations overseas must comply not only with U.S. federal employment law, but also with the local anti-discrimination and workplace harassment laws in their host countries. Companies that choose to “go global” need to consider both the content and administration of their personnel policies in the international marketplace.
The legal, social, political and economic forces defining local foreign employment relationships are unique to each country. Most major commercial jurisdictions in the world have adopted workplace harassment laws over the last decade, and many of these laws are similar to the U.S. system consisting of state and federal employment discrimination statutes. However, the laws of some nations go even further than U.S. law.
A country-by-country survey, shown in the table on page 156, illustrates the significant liability risks facing international employers.
Regulatory and Enforcement Issues
Employment discrimination and workplace harassment laws (or prohibitions through judicial decisions) exist in most areas of the world. This trend began in Western Europe and has spread to Asia as well as South and Central America. As a result, insurance carriers now market employment practices liability insurance that deals specifically with exposure to labor laws in foreign countries.
Although workplace harassment laws reflect the employment environments of each particular country, generally there are three regulatory models:
Australia, Canada, The Netherlands, Sweden and the United Kingdom follow the first model. The laws specify prohibited conduct and allow employees to seek individual remedies. For example, in Sweden, a number of laws—including the Act and Measures Against Ethnic Discrimination in Working Life and the Equal Opportunity Act—prohibit sexual harassment and employment discrimination. These laws also allow an individual victim to bring a claim for damages equal to the economic loss caused by the discrimination and/or harassment, as well as general damages.
In Italy, the Philippines, Taiwan and Venezuela, the second model prevails. Sexual harassment is defined as a criminal offense, and penalties and/or remedies are provided in statutory penal codes.
Germany, Spain and Thailand fall within the third model. Labor law concepts based on termination indemnity provisions allow employees to terminate their employment relationships due to sexual harassment. In turn, termination indemnity laws require employers to pay employees substantial severance pay if the cause of their termination is sexual harassment.
New Foreign Initiatives
The pace of legislative initiatives regarding sexual harassment and employment discrimination is quickening throughout the world. Recent developments in the European Union, Japan, the United Kingdom and Venezuela—each of which have relatively new laws regarding sexual harassment—illustrate evolving notions of appropriate workplace behavior. Because these areas present great economic opportunities for multinational employers, their legal developments serve as harbingers of change throughout the world.
Prohibitions against employment discrimination and workplace harassment will become an even greater concern throughout the 13-member European Union in 2000-2001. In 1991, the Council of the European Communities adopted a recommendation on a non-binding code of practice to prohibit sexual harassment. In July 1996, the European Union Commission (EUC) proposed consultative meetings of labor and management on this subject. The responsible parties, however, declined to meet.
In the fall of 1997, the EUC issued an additional communication on sexual harassment, which recommended that a new directive be issued on this subject because the 1991 prohibition had proved ineffectual. The proposal for a new directive stemmed from the view that legislative efforts are needed to focus on mandating preventative measures—as opposed to sanctions for breach of legal rules. The possibility of a new directive in 2000-2001 is still viable. It would require the 13 nations in the European Union to introduce national implementing legislation to prohibit sexual harassment.
In Japan, recent legislative initiatives are bolstered by U.S.-style regulations prohibiting sexual harassment. In part, these recent initiatives stem from a landmark ruling on gender discrimination rendered in the Tokyo District Court on Nov. 27, 1996. In a case involving the Shiba Shinyo Kinko Bank, a group of female employees sued over unequal wages and denials of promotions under a 1986 statute that restricted gender discrimination in employment. Thirteen plaintiffs recovered damages of 340 million yen (approximately $3 million in U.S. dollars).
In this new climate and era of sensitivity, the Japanese Ministry of Labor issued recommendations in the fall of 1997 on sexual harassment. The recommendations are modeled largely upon guidelines of the U.S. Equal Employment Opportunity Commission (EEOC) that prohibit sexual harassment.
At the same time, Japan’s Equal Employment Opportunity Act was amended, and the Ministry of Labor began en forcing the new sexual harassment guidelines on April 1, 1999. The guide lines, much like the U.S. EEOC’s enforce ment guidance memorandum of March 1990, establish the twin concepts of “quid pro quo” and hostile environment sexual harassment. They also require Japanese employers to establish company policies and internal complaint procedures on sexual harassment.
Without question, the United Kingdom has enacted some of the most advanced employment discrimination legislation in the world. Laws in the U.K. are based on a statutory prohibition and a model of individual remedies.
Although there is no statutory definition of sexual harassment under English law, the U.K. Sex Discrimination Act makes sexual harassment illegal. Similarly, the U.K. Race Discrimination Act of 1976 prohibits race discrimination, and the U.K. Disability Discrimination Act of 1995 prohibits disability discrimination.
The United Kingdom imposes no statutory limits on compensation awards for employment discrimination and sexual harassment.
Venezuela. Venezuela’s newest employment discrimination statute—which bars sexual harassment—is based on a criminal law model. Effective Jan. 1, 1999, Venezuelan law prohibits sexual harassment by virtue of enactment of the Law on Violence Against Wo men and Family. The new law establishes the crime of sexual harassment, as well as penalties for its violation.
The crime of sexual harassment is punishable by a prison term of from three to 12 months. In addition, the offender must pay the victim double the amount of economic damage caused by the sexual harassment with regard to access to positions, promotions or job performance.
Employers are liable for monetary penalties; individual supervisors are liable for jail time. Executives are potentially liable, and the company may have to cover a harasser’s costs.
Unlike the U.K. and U.S. statutory systems (where sexual harassment can lead to claims of damages against employers), the new law in Venezuela takes the form of both a quasi-criminal statute and a remedy of limited damages. In this respect, it is similar to Taiwan’s criminal prohibitions on sexual harassment and the Mexican statutory penalty system for workplace harassment.
The mandatory termination indemnity laws of many foreign countries—as well as the potential for steep fines and even jail terms for employees who cross the line—should give employers entering the international arena some pause. Businesses that establish offices overseas can face extensive liability exposure for ill-advised personnel decisions and unsound loss-control protocols.
Sound implementation of personnel policies and practices aimed at combating sexual harassment can help minimize these risks. Proactive HR administration can preserve corporate reputation and brand image, enhance recruiting and retention of a competitive workforce and avoid violation of international sexual harassment laws.
Gerald L. Maatman Jr. is an employment lawyer in the Chicago office of Baker & McKenzie. He also serves as senior partner and chair of the firm’s Global Labor, Employment & Employee Benefits Practice Group, a group of over 300 attorneys who practice labor law on a worldwide basis. He is an adjunct professor of law in trial advocacy at North western University. He is a Phi Beta Kappa graduate of Washington & Lee University and Northwestern University School of Law.
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