As U.S. companies employ more workers beyond the borders, keeping up with employment law and other compliance issues that arise on faraway shores can be quite a chore.
It's true that the European Union is growing more homogeneous, but member countries still retain a patchwork of employment laws and regulations. Some employment practices that are fine in Britain, for example, won't wash in Italy or France. In many jurisdictions employment law is far more paternal and protective; and several countries pursue criminal cases for non-compliance.
“Even small and mid-sized companies are forced to consider opportunities outside the United States,” says Trent Sutton, an associate with labor and employment law firm Littler Mendelson. “They're calling me asking ‘What do I do? I want to fire a guy in the Netherlands, but I'm being told I can't. Is that true?' They need help negotiating a morass of local employment, tax, and immigration requirements.”
The following seven areas make up a minefield of compliance issues that every global-minded company must carefully navigate.
1. No Global Standards for Corruption and Bribery
“The United States has led the way with the Foreign Corrupt Practices Act,” says Anna Birtwistle, a solicitor with London-based employment and partnership law firm CM Murray. “But I see global companies having difficulty putting in place a single global policy to deal with corruption.” While the FCPA and the U.K. Bribery Act share many similarities, they are not the same and adapting anti-bribery policies to comply with both can be tricky. “I see U.S. companies finding they have to raise the bar even higher than is required by [the FCPA] to comply with the U.K. Bribery Act,” says Birtwistle. Add several new anti-bribery laws in places like Brazil, Russia, and China, and strengthened laws in Canada, and staying on the right side of anti-corruption regulation becomes that much more difficult.
Companies may not be able to stop every instance of corruption, but putting in a strong policy with no exceptions is the first step. Then, have it translated into the languages of overseas units, conduct training in the local language, and document everything, say lawyers.
2. At-Will Employment Doesn't Exist in Many Countries
“It takes a while for U.S. companies to get their heads around the idea that you have to have a reason to terminate somebody,” says Roselyn Sands, a partner with EY Société d'Avocats, who practices employment law in both the United States and France. “And in Europe, form is as important as substance in labor and employment law, and each country has its own form,” which can be maddeningly strenuous, particularly in France where it is simpler to terminate 50 employees in a cost-cutting measure than to fire one employee for incompetence.
Employees targeted for termination in France are entitled to strict “due process” including a formal meeting to describe the company's grievances, and to which the employee is entitled to bring a witness. The employee is also entitled to three months of notice by registered mail. And that letter, says Sands, must spell everything out in detail. “In the case of disputes over reasons for termination, the court will only look at the letter in terms of just cause for dismissal. You can't come up with a great reason afterwards and use it in court.”
Termination laws vary widely from country to country, says Birtwistle, and many are changing. The recession has driven “a real sea change in the last couple of years to U.K. laws, which are veering away from the protective employment nature we've always had.” U.K. employers are finding termination law more management friendly and are more willing risk it or to begin discussions off the record to reach settlements.
3. Collective Bargaining Is Standard
U.S. employers find themselves surprised by the strength of collective bargaining through unions and works councils worldwide. “China has seen a surge in the activity of its unions, and every multinational company in China is finding it has to comply with local union requirements,” says Sutton. Many Latin American countries have industry-wide unions—apparel, for example—that negotiate employment terms in so-called “sectoral collective bargaining.”
“Even small and mid-sized companies are forced to consider opportunities outside the United States … They need help negotiating a morass of local employment, tax, and immigration requirements.”
—Trent Sutton,
Associate,
Littler Mendelson
Layered upon unions are the EU's mandated works councils. A French company that has 50 or more employees must organize elections of employee representatives, for example, meet with them regularly, and include them in discussions about acquisitions or redundancy. “The typical U.S. reaction is ‘We don't want to be unionized,'” says Marjorie Culver, a partner at Seyfarth Shaw's international employment group. “But digging in your heels and avoiding working with work councils backfires. Going straight in with a strategy to work with the council gets things done quicker. It's just a different layer of interaction with employees.”
4. Health and Safety
At the heart of collective bargaining are wage-and-hour negotiations. But U.S. companies that are used to classifying many employees as exempt from overtime pay find that in many Latin American and European companies their managers are subject to the same working time restrictions as rank-and-file workers. In France, where regulations are strictest in the EU, an employee may be required to work just 218 days a year, but not all day long; the CEO is as entitled to daily rest periods just as the factory workers. The idea, says Sands, is that “You have to allow people a normal life and instill a built-in work-life balance. In the United States that's considered good employer speak, but in Europe, it's compliance speak.”
“It's a different cultural lens,” says Culver. “In the United States, a class-action suit about unpaid overtime makes the press, but it's about the workers getting paid. Outside the United States it's viewed as a health and safety issue,” with China and Japan in recent years seeing a rise in claims over injuries, stress, and suicides related to overtime.
5. Employees, Not Employers, Own Their Data
The United States is surprisingly lax on data privacy and recordkeeping compared to the rest of the world, says Sutton. “So if I collect info about employees' race, where they live, personal phone numbers, I typically can't transfer that to my parent company in the United States unless I get the employee's consent in some jurisdictions. Local laws may also give them the right to review their personal information, or change it if they think it's inaccurate or prohibit you from disclosing it.” Penalties exist in Europe around retention of information, for example, heavy fines for retaining information beyond one year after a termination. Data retention laws are also changing rapidly. Singapore and South Korea, for example, significantly bolstered their regulations in recent years.
Data privacy in the EU moves beyond computer use to include tracking with badges and taking images with closed-circuit cameras. Employers must in essence ask the employees' permission to gather badge and image data, or at least, ensure that the employees are aware of it.
6. Illicit Employment Is Criminal
Companies that hire illegal workers could face criminal charges, instead of the civil charges that often would face in the United States. “It's a shock to some U.S. companies that we don't have punitive damages in Europe—it's not about the money,” says Sands. “It's a criminal sanction approach that is more scary and perhaps more effective.” A company may attempt to sneak a few employees into a country under the radar, but more likely, the employee is a remote employee that perhaps emigrated because of a spouse's job transfer. The U.S. company treats the employee like a remote worker who moved to Florida; but instead, Italy, Greece, or the UAE is entitled to tax and social security revenue, and companies that don't comply can face serious penalties.
7. Misclassification of Workers
After all this, wouldn't it be easier to just hire independent contractors? Not so fast, observes Sutton; U.S. companies find themselves liable for misclassification of independent contractors. “Companies run into trouble when they treat contractors like their own employees, telling them what they have to do and where to work, giving them business cards with the company logo, and allowing them to sign contracts on the company's behalf.”
“The contractor becomes a de facto employee,” says Donald Dowling, a partner with law firm White & Case. “I was dealing with one huge company, a name brand that terminated an independent contractor in El Salvador. The contractor can run to court saying ‘I was really an employee, this is my sole source of income, and I want back pay and severance.' Lots of companies have misclassified contractors that actually have a strong argument that they're de facto employees.” Dowling says the practice can put the company at risk for millions of dollars in liabilities. The solution, he says, is a carefully devised contract carrying the hallmarks of a vendor relationship, not an employment relationship.
With so many obstacles, some small or medium companies may wonder if it is even worth expanding overseas. But there are benefits, too. “Europe has tighter control over termination, but at the same time the amount of litigation in Europe is substantially less than in the United States,” Birtwistle says. And the size of the awards significantly smaller, she adds.
U.S. employers underestimate the effort and costs they incur here, Sands says. “Between whistle-blowing [rules], training, lawsuits with interminable discovery, depositions, and punitive damages. To try to compare those costs to what European laws require, I'm not sure that European human resources management is more expensive. It may even be less expensive.”
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