International Executives: Cross-Border Employment Considerations and Traps for the Unwary
In today’s global economy, executives are increasingly called upon to navigate the opportunities and challenges of conducting business around the world. Far too often, however, international executives neglect the impact that cross border employment may have on their compensation, benefits, and personal liability. Below are some common employment issues for executives to consider in navigating international employment relationships.
Tax Equalization and Protection Strategies
“[I]n this world nothing can be said to be certain, except death and taxes.” This sentiment, as written by Benjamin Franklin in 1789, remains as apt today as it did over two hundred years ago (1). However, in today’s global economy, with its routine cross-border employment arrangements, the situation has gotten vastly more complicated for U.S. executives working internationally.
Understanding and planning for potential tax liabilities, including the dreaded “double taxation,” is crucial for international executives, and often requires coordination between the executive’s employment counsel and tax advisors. This may include, among other protective strategies, the negotiation and implementation of tax equalization benefits, whereby executives are effectively kept whole from a tax standpoint, paying no more than they would have paid had their compensation been subjected to U.S. taxation only.
Rights and Obligations under U.S. and Foreign Laws
Whether it be a traditional expatriate (“expat”) employment arrangement (i.e., an executive living and working outside the U.S.), or an executive located in the U.S. who is employed by and/or otherwise affiliated with a foreign company, it is not uncommon for certain aspects of the employment relationship to be governed by more than one country’s laws. By way of example, a U.S. citizen living and working overseas for a U.S. controlled company remains protected by and subjected to certain federal anti-discrimination laws, including Title VII, ADEA, and the ADA. At the same time, the executive may also be protected by and have obligations under the anti-discrimination laws of the foreign jurisdiction.
Similarly, for an executive employed in the U.S. by the U.S. subsidiary of a foreign parent company, it would not be uncommon for the terms of the employment agreement to be governed under the laws of the applicable work location in the U.S. (e.g., Massachusetts, New York), whereas the agreements governing the terms of the executive’s equity grants and/or duties and responsibilities as a director and officer of the parent company are governed under the laws of the country where the parent is legally located.
Beyond the Basics – Employment Terms for the International Executive
In addition to the terms and conditions that should be addressed in all executive employment agreements (e.g., title, duties, compensation, severance protections, change in control triggers, post-employment restrictions), there are numerous other terms that should be considered in the context of a cross-border and/or expat arrangement, including, without limitation, the following:
- Employing Entity (U.S. Entity, Foreign Entity or Both)
- Reporting and Authority Within U.S. Entity and Foreign Entity
- Applicable Law and Venue for Dispute Resolution
- Location-Specific Defense and Indemnification
- Immigration and Visas
- Relocation (Individual/Family)
- Travel Requirements / Restrictions on Travel
- Housing and Transportation
- Security (Individual / Family)
- Family Education Costs
- Scope of Post-Employment Restrictions
- Post-Employment Tax Assistance
With employment regulations that can vary significantly from country to country and the ever-changing tax landscape, even the most seasoned executives can find themselves “over their heads” when trying to navigate through the waters of international employment matters. At a minimum, whether or not an executive is in a position to contractually negotiate a favorable arrangement, the executive should know the rules before playing the game.
(1) My friends and colleagues “across the pond” in England may object to my attribution of this famous statement to one of the U.S.’s Founding Fathers, Benjamin Franklin, noting the earlier work of their countryman Daniel Defoe, The Political History of the Devil, 1726. In response, and in some good-natured “revolutionary” banter, I would simply quote the profound words attributed to another esteemed Statesman, England’s own Winston Churchill –“History is written by the victors.”