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Juliet Carp, of Dorsey’s London labor and employment team, offers thoughts on benefit arrangements for international assignees.
“At will” employment is a U.S. thing: The first step is to recognise that “at will” employment is not generally recognised outside the United States. Employees working overseas will almost always have an employment contract (whether or not the employer chooses to document it) and are likely to be protected against “unfair” dismissal and changes to employment terms The key “take aways” for U.S. employers are that benefits are likely to be contractual and employment documents offer an opportunity to reduce employer risk.
Local rules rule: In most cases mandatory employment laws will apply to employees who work in a particular jurisdiction, and there is little that an employer can do to avoid that. For example, confirming that an employment contract will be “governed by” U.S. law will not usually oust “host” country mandatory employment laws. Mandatory host requirements might include, for example, mandatory sick, maternity or holiday pay; pension provision; contribution to an unemployment fund; or medical cover. Host requirements may be imposed in a variety of ways, e.g., by legislation or “collective agreement.” Watch out for jurisdictions where an employee may be automatically covered by a collective agreement even where no trade union is recognised!
The best of both worlds: Bear in mind that just because an employee is covered by one country’s rules that does not mean that the employee will not be covered by another country’s rules. The legal rules on applicable laws are complicated and vary between jurisdictions. Employees sometimes enjoy no protection at all or the best of both worlds! Check before terms are settled. An example of this might be a host requirement to offer a 13th month salary payment – easy to adjust pay to achieve the same net result if you know about the requirement before annual salary is confirmed to the employee.
It’s not fair! Employment contracts are not commercial contracts. In most jurisdictions the unequal bargaining power of employer and employee is recognised and there are many areas where public policy will override employer preferences. What you offer will not necessarily be what you are required to deliver. Take particular care with discretion. Making it clear that a benefit (e.g., bonus or particular medical cover) is discretionary may not work for some jurisdictions. And don’t try to work round employee friendly courts or tribunals by inserting US-style arbitration clauses without thought -- this can increase risk in some jurisdictions.
Tax: Unlike domestic employees, internationally mobile employees will typically be subject to tax and social security requirements in more than one jurisdiction. Employers should think through potential consequences carefully. Should support with tax returns etc. be offered? Should the employee be offered tax protection or equalisation, and if so on what terms? Can benefits be structured to reduce cost?
Get the employer right: The identity of an expatriate’s employer can make a huge difference to assignment costs. Make sure that the practical benefit arrangements and the way they are documented support the identity of the preferred employer.
What are the benefits for? Benefits for expatriates are expensive. Be clear about why they are being offered so that costs can be assessed appropriately. For example:
Sometimes businesses decide that cash is a better alternative because it encourages the right attitude.
Don’t forget the family: Expatriate benefits are exceptional in that they often have a very direct effect on family members. For example, schooling, housing and flights home may be critical. Never underestimate the importance of “buy in” from the employee’s family or the real value of relatively low cost or informal benefits, like assistance with obtaining a work permit for a partner or social support from colleagues. International assignments frequently fail – sometimes expensively – because families’ needs cannot be met.
Equality: Expatriate benefits are typically linked to “home” country and family. Make sure equality, and potential mitigation strategies, are properly considered before the package is finalised.
Forwards, backwards, sideways: Sometimes the most valuable thing a lawyer can do is to focus minds on the future, including “worst case scenarios.” What happens if host laws change; if benefit costs increase, when the assignment ends? Anticipation can make difference to the financial outcome. Who will bear the costs of breaking a long term lease? Does the reason for termination of the assignment make a difference? It is important to look backwards, as well as forwards, and to consider the impact on the expatriate personally. For example, does a broad tax equalisation policy cover the employee for the impact of surprise future inheritance, relocation post termination or the detrimental impact of the assignment on the employee’s rights under a previous employer’s share plan? If not, is it worth making the scope of the promise clear from the outset? This is not just about managing potential exit costs or reducing the risk of dispute. It is about supporting a positive and trustful employment relationship.
Get the documents right: Expatriates generally need detailed employment documents, not just to protect employer and employee, but because public authorities in a variety of jurisdictions may refer to them, e.g., labor inspectorates, immigration officials, tax, social security or pension authorities. Clear documents will naturally help with those interactions. More importantly, clear documents help manage employee – and family – expectations, and increase the likelihood of a happy and successful new assignment.
Juliet Carp is an attorney in Dorsey’s London office. Republished with permission. © 2016 Dorsey. All rights reserved.
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