So You’re Going Global! Five Employment Basics for U.S. Companies Expanding Overseas
Your company is doing well in the United States, and you are looking to expand internationally. That can be a very exciting time! But besides the practical logistics (e.g., Do I need to set up a subsidiary to hire someone overseas?), what fundamentals do you need to know before you take on an employee in another country? Once you grasp the basic differences between dealing with U.S.- and non-U.S. employees, you will foster smoother employee-employer relationships and prevent unexpected hits to your bottom line. Following are five points to consider as you hire and manage employees in other countries.
First—Understand that every country has its own distinct employment laws and that when it comes to employee protections, other countries tend to be more like each other than they are like the United States. The most important distinction is that there is no employment at will in the rest of the world—meaning that employment is contractual and that generally speaking, you cannot just terminate or even materially change the employment contract unilaterally without consequences.
Second—Many employee relations issues flow from the absence of at-will employment, especially when U.S. management is unfamiliar with the reasonable expectations that employees outside the States have about their employment relationship with companies. Since employees have the contractual right to continued employment, they are trained to behave differently from U.S. employees. They are entitled to ask questions, push back on instructions they disagree with, and communicate with employers in ways that U.S. managers may be unused to—all without fear of being perceived as “questioning” the company’s strategy. In addition, because they receive paid vacations by law, employees usually do not hesitate to take all of the (often very generous) vacation time allotted to them. Especially in Europe and common law jurisdictions in the Americas and Asia Pacific region, employees do not hesitate to demand their legal and contractual rights under statute, collective bargaining agreement, or contract. In many countries, poor performance also is not legally sufficient reason to terminate employment, so employers must carefully hire motivated employees or find ways to provide extra motivation for extra effort. Unlike in many U.S. states, “continued employment” is never sufficient consideration for restrictive covenants imposed after initial employment has begun, precisely because the employee is already protected from dismissal.
Third—Beware of hidden expenses. American employers often front-load employee costs in their employment offers, because they expect certain costs and termination expenses to be minimal. But outside the United States, you may want to reconsider base salary offers that are substantially over market, because the cost of terminating someone’s employment can be substantial. So, not only should budgets take into account potential termination costs down the road, but when termination pay is based on “total remuneration,” as is the case in most countries, any out-of pocket cash benefits over base salary—including annual discretionary bonuses—will increase the severance cost when an employee does not work out. In addition, in many countries almost all employees are entitled to overtime pay—even at the manager level—so you may want to take that into consideration when pricing an offer, or take the appropriate steps to avoid unexpected overtime costs. Another potential surprise cost lies in jurisdictions that require an extra holiday “allowance” or 13th, and sometimes even 14th, month of pay on top of base salary. If you do not know about these in advance, you may get a nasty surprise when you cannot take back a too-generous offer.
Fourth—Did we mention that employment is contractual outside the United States? This is true even in Canada, and even if many U.S. employers do not realize it. So let an employment contract be your friend! It is a good thing (and many times legally required), to have a written contract laying out the respective rights and obligations of the parties. Without it, you may not be able to enforce certain expected behaviors, the employee will always get the benefit of the doubt, and the employee will sometimes get substantially more generous entitlements that you might have otherwise been able to control by agreement.
Fifth—Rightly or wrongly, local employees, unions, labor authorities, and courts sometimes perceive U.S. employers as arrogant and willfully ignorant of local expectations, customs, practices and laws. Given that all of those players usually play a greater role in the employer-employee relationship than in the United States, showing them that your company is looking to forge relationships and work within the system to everyone’s benefit can go a long way toward easing your path and helping you achieve your goals.