International employment contracts act as the legal statement of record between a business and its global employees. In the context of compliance, this document is critical to protect both the employer and employees, which means it must contain all the key terms and conditions for employment.
- Are terminations different internationally?
- Should we use fixed-term contracts?
- What are collective bargaining agreements?
- What are some common payroll concerns?
- Do expats need international employment contracts?
- What’s the difference between garden leave and non-compete?
- What’s the difference between an offer letter and employment contracts?
7 Common Questions about International Employment Contracts
As businesses expand and develop across the world, international employment contracts become an inevitable part of growth. For companies in the U.S., employment contracts are seen as more of a formality or courtesy, rather than a legal requirement. However, many other countries enforce regulations that require employment contracts.
Whether you’re considering your first international hire, or you have a large-scale global workforce, here are seven common questions you may want to consider.
1. Are Terminations Different Internationally?
The answer: Absolutely. The U.S. has some of the weakest protections for employees in the world. Therefore, the U.S. standard should not be considered the norm when creating international employment contracts. Terminations can be significantly more complicated and difficult for foreign workers.
No matter which country you’re operating in, termination requirements must be outlined in an employee’s contract and follow all the local laws and regulations. Keep in mind that in some places, termination can include an extensive notice period and a large severance payout. Without the proper termination requirements in place, companies can face fines, lawsuits and even a court-ordered reinstatement of the employee.
2. Should We Use Fixed-Term Contracts?
For companies that have a strong understanding of specific project timetables, fixed-term contracts can be a useful tool. In these cases, fixed-term contracts don’t pose much of a risk to employers. However, if businesses are careless with these contracts, they could accidentally end up with a permanent employee.
In both the UK and Japan, for example, the law automatically switches fixed-term employees to full-time after a period of four to five years, respectively. This means the contracted employee would be entitled to the same rights, benefits, and protections as other full-time employees. It’s also important to remember that some countries, like France, are very strict with how fixed-term contracts are used.
3. What are Collective Bargaining Agreements?
A collective bargaining agreement (CBA) is a written contract between a trade union representing employees and the management of an employer. This contract regulates the terms and conditions of employees at work.
Collective bargaining agreements can add another layer of complexity to the employment contract process. Businesses that plan to expand to markets with CBAs in place will need to collaborate with local unions, instead of independently drafting employee contracts.
In France, each employee is entitled to 25 days of annual paid vacation. However, the country’s CBAs can provide additional vacation days depending on an employee’s years of service at the company.
4. What Are Some Common Payroll Concerns?
Effective payroll strategies often rely on strong international employment contracts to avoid inaccuracies or omissions. For instance, CBAs are a critical component of payroll. The contract will outline working conditions such as working hours, overtime payments and vacations. The employment contract should inform payroll which CBA applies to which employee to avoid any confusion.
Many countries have statutory or trade-related requirements for employee salary increases. These obligations should be included in the employment contract so payroll can ensure compliant annual salary raises for international employees.
Accrued leave is another area payroll will need to consider. Each country has unique employment laws for annual employee leave requirements, including how long these requirements can be carried forward, and how much time can be accrued. Depending on how many countries a business operates in, these obligations can quickly become very complex.
5. Do Expats Need International Employment Contracts?
It depends on the individual employee’s situation. A good rule to follow is if the expat is employed outside the U.S. and on a non-U.S. payroll, they should have an international employment contract in place. Even when the expat stays on U.S. payroll and is employed by a U.S. entity, the complexities can require additional situational analysis. Even work permits may have employment contract obligations.
6. What’s the Difference Between Garden Leave and Noncompete?
In the U.S., it’s common for employers to have employees sign a Noncompete Agreement. This means the employee can’t work for a competing business or start their own competing company for a certain period of time. This contract also prohibits the exchange of proprietary information.
However, Noncompete Agreements are not common in other countries. Instead, many countries implement a so-called garden leave policy. Garden leave, or gardening leave, is a protectionist measure used by an employer after an employee is terminated or resigns. This prevents the employee from competing with their employer, but salaries and benefits continue throughout the leave period. Garden leave can last up to six months, during which an employee can be paid while not doing any work for the company. It’s important to remember that terminations can quickly become expensive in jurisdictions where these policies are in place.
7. What’s the Difference Between an Offer Letter and an Employment Contract?
In the U.S. it’s common to send an offer letter to each new employee including the general terms and conditions of employment. This document is not typically legally binding, as many states have “at-will” employment conditions. Therefore, the offer letter does not protect the potential hire if the company decides to halt the hiring process.
Outside of the U.S., companies need to be cautious when it comes to offer letters. In many countries, these are considered to be the final contract of employment by the potential hire. In this case, if the employer sends an employment contract after the offer letter, the new hire could refuse to sign it and insist the offer letter was the final agreement. This means if there weren’t clear, compliant terms and conditions included in the offer letter, the company could face steep fines and potential lawsuits.
Are Your Contracts for International Employees Compliant?
Employment contracts for international workers protect both the employer and the employee from unfair or unlawful treatment – when it’s done right. If these contracts are done incorrectly or ignored altogether, companies can expect to receive burdensome and expensive fines and lawsuits. Even if a business has an international employment contract in place, it needs to be reviewed by an expert. International courts often rule in favor of the employee if there is a dispute, especially if the contract isn’t clearly defined. For this reason, general contract templates can be risky for international hiring, as they don’t always follow in-country legal requirements.
It’s important to remember that legal employee protection is significantly stronger internationally than it is in the U.S. The resulting employment contracts are often a compulsory requirement in a company’s countries of operation. Not only do employers need to have the right employment terms listed, they must also avoid any omissions.
In an ideal world, disputes between businesses and their international employees would be rare. Unfortunately, this is not the case. Most often, the terms listed in the contract act as a definitive guide to settling disputes when they do arise. Without an employment contract in place, employers are at greater risk. Any disputes are resolved by local courts or by arbitration and the ruling body will reference the country’s employment laws and customs. This often disregards a company’s internal policies and rules in favor of the employee’s complaint.
Simplifying International Business with Global HR 360
In many cases, a company’s internal HR team doesn’t have the bandwidth or expertise to properly draft an international employment contract. As employment laws continue to evolve and change across the world, it’s critical to work with in-country HR specialists to ensure compliance in all jurisdictions of operation. Especially when hiring globally, using a comprehensive plan like Global HR 360 can solve many challenges related to hiring internationally.
Global HR 360 provides on-demand access to all our comprehensive global HR services. With Global HR 360, you can easily address your HR needs from the point of hire to retirement (H2R) with solutions for employee onboarding, employment documentation, compensation and benefits, employment law compliance, global mobility, HR software, and more.
Our services are backed by round-the-clock support from experienced HR experts located across the globe. We track and manage all local requirements and keep you up to date on the constantly evolving laws and regulations across the world to ensure your business remains compliant wherever you operate.