International employment contracts act as the legal statement of record between an organization and its global employees. This document protects both employers and workers, as long as it contains all key terms and conditions for employment.
Hiring employees around the world is complicated, depending on the labor laws of the country. Human resources departments are often tempted to use a generic template online that covers the basics of an employment relationship. But if you want a compliant contract, it needs to be tailored to the labor laws in the country where the employee lives and works. In most countries, international employment contracts are legally binding and must be compliant with local laws and regulations.
As you expand around the world, compliant international employment contracts need to be a major HR consideration. In the U.S., employment contracts are often more of a courtesy than a requirement. But for other countries, these contracts are common and often mandatory to comply with employment laws.
Here are seven common questions about international employment contracts to consider:
- Are terminations different internationally?
- Should you use fixed-term contracts?
- Do expats need international employment contracts?
- What are Collective Bargaining Agreements (CBAs)?
- What are some common payroll concerns?
- What is the difference between garden leave and noncompete?
- What is the difference between an offer letter and an employment contract?
1. Are terminations different internationally?
The U.S. has some of the weakest employee protections in the world. Therefore, if you’re a U.S.-based company, the local standard should not be considered the norm when creating employment contracts. Terminations can be significantly more complicated and difficult for foreign workers.
Termination requirements must be outlined in the contract and follow all the local regulations. In some cases, termination can include an extensive notice and large severance payout. Without these termination requirements in place, companies can face fines, lawsuits and even a court-ordered reinstatement of the employee.
2. Should you 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 or limited-term employment doesn't pose much of a risk to employers. However, if businesses are careless with these contracts, they could end up with a permanent employee by accident.
For example, both the U.K. and Japan law automatically switches fixed-term employees to full-time after four and five years, respectively. This means the employee would be entitled to the same rights, benefits and protections as other international employees. It’s also important to remember that some countries like France are very strict with how fixed-term contracts are used.
3. Do expats need international employment contracts?
Every company faces unique challenges with expat employment situations. A good rule to follow is if the expat is employed outside their home country and on payroll in the country where they’re working, the employee should have an international employment contract in place.
In the example of U.S.-based companies, even when the expat stays on U.S. payroll and employed by a U.S. entity, the complexities can require additional situational analysis. Even work permits may have employment contract obligations. Consult with experts in global expansion to determine the best course of action for your expat employees.
4. What are Collective Bargaining Agreements (CBAs)?
A collective bargaining agreement is a written contract negotiated between employee unions and company management. These contracts outline and regulate the terms and conditions that members of a union agree to work under.
Collective bargaining agreements add another layer of complexity to the employment contract process. Businesses expanding to markets with CBAs in place will need to collaborate with local unions, instead of independently drafting employee contracts.
In France, for example, employees are 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.
5. 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 employees 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, how long these can be carried forward, and even how much of these can be accrued. These obligations can quickly become very complex, depending on how many countries a business operates in.
6. What is 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 also prohibits the exchange of proprietary information.
However, these noncompete agreements are not common in other countries. Instead, many countries implement a 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.
With a garden leave lasting as long as six months, an employee can be paid and not do any work for the company for that entire timeframe. Terminations can quickly become expensive where these policies are in place.
7. What is the difference between an offer letter and an employment contract?
It’s common in the U.S. to send an offer letter with the general terms and conditions of employment. However, it is not typically seen as legally binding, as many states have “at-will” employment conditions.
Therefore, the offer letter won’t protect the potential hire if the company decides to halt the hiring process. Outside of the U.S., companies need to be very careful with offer letters. These are often considered to be the final contract of employment by the potential hire.
If the employer then sends an employment contract with the full set of terms and conditions, they could refuse to sign it and insist the offer letter was the agreement. This means if there weren’t compliant, clear terms in the offer letter, the company could face fines and lawsuits.
Trusted guidance for hiring globally
Remember that employment contracts are documents to protect both employers and employees from unfair treatment. Failure to comply with local country regulations can result in expensive fines and time-consuming lawsuits. International courts often rule in favor of employees if employment contracts aren't set up correctly.
Not only do employers need to have the right employment terms listed, they also must avoid any omissions. Although you may not expect disputes with international employees, it's best to be prepared. The contract acts as a definitive guide to settle any disputes based on the contractual terms listed.
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.
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