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1 This Webcast Will Begin Shortly If you have any technical problems with the Webcast or the streaming audio, please contact us via at: Thank You! Basic International Employment Law: Twenty-Five Basic Employment Law Questions And Answers For Managing Foreign-Based Employees Tuesday, March 21, 2006 at 1:00 PM ET Presented by ACC s Employment & Labor Law Committee and Jackson Lewis LLP Association of Corporate Counsel

2 Presenters: James R. Beyer, Senior Counsel Labor & Employment, Accenture Legal & Commercial E. Johan Lubbe, Partner, Jackson Lewis LLP Moderator: Archangela M. DeSilva, Associate General Counsel Labor & Employment, Duke Energy Corporation Page 4 Moderator Angela DeSilva Associate General Counsel Labor & Employment, Duke Energy Corporation

3 Page 5 Presenters Jim Beyer Senior Counsel Labor & Employment, Accenture Legal & Commercial Page 6 Presenters Johan Lubbe Partner, Jackson Lewis LLP

4 Page 7 Which law applies? The law of the country where employee is working Some U.S. federal laws apply even while employee is working outside the U.S. (extraterritorial application) Three federal anti-discrimination laws apply extraterritorially: Title VII, ADEA and ADA According to a recent First Circuit Court of Appeals decision, SOX s whistle blowing protections have no extraterritorial application Page 8 But, the employee signed the offer of employment while she was in New York; does that mean New York law applies?! Yes, but only regarding interpretation of the offer letter! Not regarding the substantive law that regulates the employment relationship! Employment relationship governed by law where work is performed

5 Page 9 The employment contract includes a choice of law provision stating New York law will govern the employment relationship. This means the employee is employed at will, right?! No. Again distinguish between which law governs interpretation of certain aspects of employment contract versus which law governs employment relationship! Due to strong policy considerations, law of place where employee works always governs the employment relationship! In EU, under Treaty of Rome, will apply choice-of-law provision to employment relationship only if choice jurisdiction gives employee better legal protections Page 10 It is our company s policy to issue employment contracts only to executives; I was told we must have a contract for all our employees in [foreign country], is that correct?! Generally, in foreign jurisdictions the employment relationship is based on contract, as opposed to at will as in all U.S. states, except Montana! Regardless, few countries actually require a written employment contract! But, many countries require the employer issue the employee a written statement of particulars within 30 to 60 days of starting employment! Statute prescribes what issues must be covered at minimum in written statement of particulars

6 Page 11 I am told that the employment contract must be in the local language. But, the employee is fluent in English. In any event, no one at corporate office in the U.S. understands the local language. Can we just give the employee documents in English?! A few countries indeed prescribe the language of employment documents (e.g., Costa Rica, Romania)! Fluency of employee in English is not a factor! English contract will merely be a convenience copy, but not the controlling document! If document, such as written statement of particulars, is only in English, means failure to comply with law. Risk: employee may claim other terms were agreed upon Page 12 We require all employees to sign a comprehensive confidentiality and non-compete agreement. Are such agreements generally enforceable overseas?! Yes, generally enforceable if reasonable! But, some countries local laws prescribe one or more of following: " Limits duration of post-employment restriction to typically 12 to 24 months " Require payment of substantial portion of employee s salary during restrictive period. Varies from 50% or more! Choice of law provisions won t help! Therefore, double check first and don t merely use your American template

7 Page 13 This is our first employee overseas; can we manage the employee from the U.S.; for example, can the company keep the employee on the U.S. payroll and pay her in U.S. dollars?! Generally, can pay from U.S. A few countries require salary payment must be in local currency (e.g., China, Singapore)! But, must still pay social security taxes in foreign country. As employee is not working in the U.S., no FICA taxes! Rather consider engaging local payroll services company to manage payroll for your company Page 14 If we manage the employee from the U.S., are there any other issues we should be concerned about? Local law may require registration of business in that country before can employ any person May have to hire employee via a local labor bureau (China) If employee is on fixed-term contract, local law may limit duration or roll-overs

8 Page 15 We are sending a U.S. citizen on an expatriate assignment of 2 years. Must the company pay social security contributions in both countries while the employee is working abroad?! The U.S. has bilateral social security agreements (so called totalization agreements ) with a number of countries! Totalization agreement exempts U.S. employee from making social security contributions in foreign country while working overseas! To receive exemption, employer must apply for certificate of coverage from SSA Page 16 The foreign-based employee refuses to send corporate office some basic human resource information via and refers to some personal data issue; what is this all about? All EU member countries (25) and an increasing number of other countries (including Canada, Argentina, Japan) have comprehensive data privacy laws Laws regulate collection, processing and use of identifiable personal data, which includes HR data Laws also prohibit transfer of personal data out of that country unless employee consents or adequate protections are in place in recipient country

9 Page 17 What should our company do to get the employee to send us the requested human resource information? U.S. has no law that adequately protects personal data for purposes of foreign data privacy laws, but State Dept. of Commerce has special deal with EU Company has a few choices to legally obtain the employee s personal data:! Certify with State Dept. of Commerce the company is complying with the data privacy safe harbor principles! Enter into an intra company agreement with foreign subsidiary that will provide adequate protections to personal data received from subsidiary! Get employee s written consent after proper notice to employee of purpose of collecting personal data Page 18 Can the company require foreign employees to adhere to the company s SOX hotline and report financial misconduct? Yes, but if the employees are in EU member countries, there are significant data privacy challenges. See forthcoming article in ACC Docket Further, SOX s whistle blowing protections do not apply extraterritorially. To ensure foreign employees are willing to cooperate, may have to give them contractual protection against retaliation

10 Page 19 The employee is a manager but claims he is entitled to overtime pay. As a manager, isn t the employee exempt from [foreign country s] overtime laws? Important not to apply U.S. FLSA s exempt employee regime to foreign-based employees Typically, foreign employment laws apply to all employees with very few exceptions Only very senior managers those with authority to bind company are excluded from protection Page 20 Broadly speaking, how do foreign jurisdictions leave laws compare with the U.S.? Most state a minimum annual paid vacation entitlement; can be 4 weeks or more Also, certain public holidays are mandatory paid time off No equivalent FMLA regime, but i) may have minimum paid sick days for employee only; and ii) extensive unpaid maternity/parental leave

11 Page 21 The employee says that under the industry agreement she is entitled to certain benefits; what is this industry agreement? In many countries employer and union federations bargain at industry level Resulting collective bargaining agreement applies to all employers and employees in that industry and sets minimum standards Industry agreements may even include sexual harassment policy and investigation procedure Page 22 The employee is resisting reassignment to another office which is merely 50 miles from her current office; can we tell the employee you take transfer or you re fired? Unlike in the U.S., a mobility clause is an important employment contract provision Unless mobility clause expressly provides for such relocation, cannot compel employee to take transfer If force employee, could amount to constructive discharge (based on breach of employment contract)

12 Page 23 The employee is not performing to her manager s satisfaction; can the company terminate her employment? As a general statement, it is extremely different to terminate for performance reasons Unlike U.S. courts, foreign tribunals will not readily defer to management s discretion and will require objective proof of unsatisfactory performance Page 24 What does it mean that the employee is protected against unfair dismissal? In most countries, the statutory law protects employees against unfair termination (dismissal) Employee can be terminated only for a good reason and after following due process Some countries limit the reasons for termination or state that if terminate for certain reasons (e.g. pregnancy) will be automatically unfair Usually, statutory protections against unfair dismissal apply only after threshold period of employment, frequently after 12 months Usual remedy is reinstatement and damage awards are limited

13 Page 25 If we terminate an employee, generally speaking what is the procedure the company should follow? Fair procedure depends on reasons for termination. Will include the following: if for misconduct advanced notice with grounds for termination an internal disciplinary hearing, representation by coworker, and possibly an internal appeal. if for performance counseling on unsatisfactory performance offer of additional training, and reasonable period to improve. If for economic reasons advance notice and information, consultation with employees, serious attempts to avoid losing jobs/outplacement, and mandatory severance pay. Page 26 We are going to close our office in [foreign country]; what are the critical issues we should consider? A duty to give advance notice? A duty to consult with employees or employee representative? Possible preparing of a social plan for submission to employee representatives or government? Mandatory minimum severance pay?

14 Page 27 I understand terminated employees must be paid an indemnity upon termination; what is this indemnity? Indemnity is typically the equivalent of severance pay Usually payable, except in very limited circumstances of (gross) misconduct Typically calculated on a sliding scale based on employee s years of service Sometimes calculated not on employee s actual salary, but regional minimum/prevailing wage Page 28 I understand that most foreign countries do not have comprehensive anti-discrimination laws such as the U.S.; is that correct? Yes, but the legal landscape is changing fast In EU, countries must pass national laws to prohibit discrimination on basis of religion, belief, disability, age and sexual orientation by December 2006 Other countries include protected categories not common in the U.S. (e.g., place of schooling, social status) Some countries have comprehensive or peculiar provisions on sexual harassment (e.g. The Philippines and Belgium) No threshold period of employment for protection against discrimination and no cap on damages

15 Page 29 Are general releases enforceable overseas? Except for UK, generally not In most jurisdictions, employee cannot waive rights under basic employment laws (Like under FLSA and FLMA in U.S.) Provision that employee confirms having received all payments due and not aware of any outstanding payments, generally have same effect as general release Page 30 The manager of the foreign office wants us to notify his union of any disciplinary action against him; I thought managers cannot belong to a union? Unlike in U.S., managers and supervisors can belong to unions Typically, manager only barred from serving on union bargaining committee if also part of management s bargaining team Trade union members have even stronger legal protections that other employees

16 Page 31 What are works councils? [1] Employee representative mechanism Elected by employees Not union Vehicle to inform and consult on matters that affect employees! In EU, under Council Directive 2002/14/EC of the European Parliament and the Council of 11!March 2002 Establishing a General Framework for Informing and Consulting Employees (hereinafter Works Councils Directive)! But also other countries, such as South Africa Page 32 What are works councils? [2] Management will have to provide data to inform the works councils about any pending proposals that could ultimately effect terms and conditions of employment within the local workplaces, such as proposals to restructure, roll out new policies, lay off workers, merge, outsource, or offshore. And management will have to hear out works councils opinions and suggestions, considering them in good faith consult. While Europeans are quick to point that the new law does not force employers to negotiate with works councils, to an American this duty to inform and consult looks a lot like the U.S. union-context requirement to bargain in good faith.