Pitfalls of Hiring International Employees
There are a lot of complexities when hiring and managing international employees. To avoid the pitfalls you need to map out an appropriate legal position and identify variances between the U.S. and other countries before hiring foreign employees.
At-Will Employment and Employee Termination
U.S. law defines an at-will employment relationship as one in which either party (employer or employee) can immediately terminate the employment relationship at any time, with or without any advance warning.
Sending a foreign employee a letter offering at-will employment occurs often and is a common mistake when presented to a non-U.S. resident. That's because there is no concept of an at-will employee outside of the U.S.
For example, in Brazil, an employee termination depends on whether the employee has cause to be terminated. However, cause to terminate is generally limited to cases of gross misconduct and therefore excludes terminations because of poor performance or economic reasons.
Here is a checklist of employee termination considerations:
- Does the country require just cause to terminate? If so, what reasons constitute just cause and what processes need to be followed?
- Are there qualifying criteria for termination, such as duration of service or salary thresholds?
- Is there a local system of termination penalty payments in lieu of just cause (like there is in Spain)?
- What are the local termination notice requirements?
Another important detail to consider: A letter offering employment must quote the salary in local currency rather than U.S. dollars because exchange rates fluctuate, and the salary expressed in local currency cannot be reduced from one month to the next without the employee’s agreement.
Paid Time Off and Other Benefits
In the U.S., paid time off (PTO) plans do not distinguish between personal days, vacation days, or sick days, and very often do not allow for carryover of untaken time into the following year. Unlike the U.S., most foreign countries subscribe to a different approach, which separates distinct legal entitlements for annual leave, sick leave, and other various leaves.
For annual leave (i.e., days exclusively used for vacation), an employee may be entitled to a minimum number of days per annum as dictated by local statute. Very often annual leave is accrued in the year before it is taken.
The rules that apply to the carryover of unused leave in each country vary. Most countries support the employee, providing them an express right to carry forward unused leave.
Some countries, like Belgium and the Netherlands, require employers to pay employees an increased rate of salary during their vacation (a so-called vacation bonus)—usually 25 to 33 percent on top of the normal wage.
Vacation allowance can be a moving target. In many countries, the statutory minimum entitlement increases with service, while in other countries it depends on the employee’s age.
Distinct and separate from annual leave is the availability of paid time off for illness or sick leave. Employees who are incapable of coming to work because they are ill will generally receive pay during their absence, subject to annual limits and salary caps.
Consider This Checklist
Questions to ask yourself include the following:
- What is the statutory minimum annual leave entitlement, and how does this accrue?
- Does the statutory minimum allowance increase, such as with increases in service, age, etc.?
- Are there vacation bonuses (or a higher rate of salary) payable during annual leave?
- What are the leave allowance carryover rules?
- Is the statutory minimum considered too low when compared to local market rates?
- For sick leave, how many days are permitted, at what rate of pay, and does it need to be evidenced by a doctor’s certificate?
- What are the other types of leave are employees entitled to? Are these paid or unpaid, and at what rate?
Exempt Employees Versus Working Time Regulations
For many employers in the U.S., the classification of exempt versus non-exempt employees excludes large samples of the workforce from payment for overtime worked. While many countries will have exclusions, it is generally the case that far fewer overseas employees can be considered exempt.
In Europe, for instance, usually only very senior executives are considered exempt. There are, of course, some exceptions to the norm—such as in the U.K., where employees can agree to exclude the working time regulations from their employment.
Generally, employers should prepare themselves for the fact that overtime is something that will need to be administered and paid. For a remote workforce, this obviously raises concerns regarding monitoring employees’ working hours.
Consider This Checklist
For tracking and paying employees, the checklist of questions to consider includes:
- What is the standard working day/week?
- Are employees entitled to payment of overtime for work completed beyond their contracted hours? If so, at what rate?
- Are there any employees who can be considered exempt from local overtime requirements?
- Is it possible for employees to agree to waive their rights to overtime?
- Are there maximum limits to the amount of working time, including overtime, per day, per week, etc.?
- Is there a local practice where basic salary can be split to accommodate an amount earmarked for overtime?
Employee Inventions and Non-Competes
It is generally accepted in the U.S. that employees can legally transfer their rights to any future invention, either in connection with their employment or connected to the business of the employer.
The international position on this follows the principle that the transfer of rights cannot occur until the invention has been created, and usually the employee and employer have followed a notification and claim process enforced by statute. Therefore, in most countries, a U.S.-style pre-invention assignment agreement is not enforceable.
With regard to post-termination non-competes that prevent an employee from working for a competitor, most countries uphold the same requirements as the U.S. for reasonableness in territory and duration.
One further aspect of non-compete agreements to consider is that they should be included as part of the employment contract at the outset of employment in order to be enforceable. Even employees who do not pose a direct threat to the company and have been terminated for poor performance may be eligible to receive non-compete compensation after they have left the company.
Consider This Checklist
A checklist for protecting the company with regard to employee inventions and non-compete agreements includes:
- Do pre-invention assignment agreements apply?
- If not, what are the local rules regarding an employer raising a claim over an employee invention, including classifications, time frames, payment, etc.?
- If employers want to apply non-compete agreements, do they need to be detailed in the employment contract? Do they require payment during their term? Is it possible to unilaterally withdraw a non-compete without lengthy notification periods?
Embrace Rather Than Avoid
Becoming familiar with common employment-related practices outside of the U.S. is critical. Having the foresight to ask the right questions, and to decipher local requirements, will enable employers to hire the best talent and ensure effective human resource functions.