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International Employment Contracts – How to Know What You Don’t Know

By May 23, 2016October 24th, 2022No Comments
International Employment Contracts - How to Know What You Don’t Know

The philosopher Confucius once said, “true wisdom is understanding what you don’t know,”. Seldom has that phrase been more appropriate than when examining the topic of international employment contracts.

At the outset, let us start off by clarifying that this article is directed primarily at United States based readers. The primary reason for this is that the concept of  “at-will” employment is really a U.S.-centric principle. As we have mentioned before in this post, most other countries around the world require some type of employment contract to officially create an employment relationship.

From our perspective, there are two key points to remember when diving into the proverbial quagmire of international employment contracts:

  1. Listen to Confucius (understand what you don’t know)

  2. Seek competent and cost-effective advice.

So, where to begin? Well at the beginning of course. This means understanding what you don’t know about employment contracts in a particular country. The idea here is that you don’t need to understand every nuance of employment contracts in any specific country. You do need to build a framework of what you don’t know so that you can ask the right questions.

We’re certainly not a law firm, instead merely humble servants of the international community. However, based on our experience there are some commonalities around the globe that can help you create this framework:

What form should the contract take?

This specific question should elicit a few other questions:

  • Are verbal agreements enforceable in your target country or must the employment relationship be in writing?

  • Can the contract be in English, a side-by-side translation, or is it only enforceable in the local language?

  • Does there need to be an employment contract at all, or is employment simply governed by collective bargaining agreements?

The point here is very simple. Don’t assume how an employment relationship is created in another country, make sure to ask the question.

What are the statutory obligations for an employer in a particular jurisdiction?

Unlike the USA, the vast majority of countries around the globe have a litany of regulations regarding mandatory obligations to which both employers and employees must adhere. For instance, in the United Arab Emirates (think Dubai or Abu Dhabi) employers are required by law to provide housing, transportation, and health insurance for all employees and allocations for these must be outlined in the employment agreement.

Other common regulations for employers around the globe include statutory minimums for paid-time-off, holiday, sick leave, and probationary periods.  Once again, the terms being offered to the employee in these categories need to be spelled out in the employment contract.

What is required to terminate an employee?

Depending on the country, terms for termination may or may not need to be included in the employment contract itself. However, before you enter into an employment agreement in any foreign jurisdiction, it is essential to understand termination options.

For instance, employees who are terminated in Brazil are entitled to:

  • Salary balance due from the last pay date up to the termination date;
  • Indemnification for accrued and unused vacation equal to the employee’s remuneration, PLUS a vacation bonus equal to 1/3 of such amount;
  • Accrued proportional vacation equal to 1/12 of the employee’s monthly remuneration multiplied by the number of months worked since the last accrual period, PLUS a vacation bonus equal to 1/3 of such amount;
  • Proportional 13th salary equal to 1/12 of the employee’s monthly remuneration multiplied by the number of months worked between the beginning of the current calendar year and the termination date;
  • Indemnification for lack of prior notice (if the employer decides that termination should be effective immediately) equal to 30 days of salary, plus 3 days per year of services rendered to the company up to 60 additional days;
  • Severance Guarantee Fund termination fine equal to 50% of the balance of the employee’s Severance Guarantee Fund (80% of such amount shall be paid to the employee and 20% to the government). The balance of the employee’s Severance Guarantee Fund is comprised by monthly deposits of 8% of the employee’s monthly remuneration carried out by the employer during the employment relationship.

Brazil is in fact, an extreme case globally for termination. But nevertheless, the above list is a prime example of what any employer should be aware of before entering into an employment relationship in a jurisdiction outside of the U.S.

Finally, let’s talk about seeking competent and cost-effective advice for international employment contracts:

Law Firms

Let us start off by saying, it is very important to solicit the advice of knowledgeable counsel on employment regulations. Based on our experience, local counsel in a particular jurisdiction tends to have this information readily available and typically can be a bit more cost-effective than using a large multinational law firm. Whatever type of counsel you select, come prepared with a list of very specific questions (derived from the categories above) and have counsel stick to those questions in order to minimize unnecessary legal fees.  We put together a post a while back about understanding the legal aspects of doing business overseas.

International Partner

Beyond having competent counsel, we highly recommend engaging a proven international partner. Some potential pitfalls can include cultural issues, common practices, and unfamiliar human resource practices. Having a partner that already understands these intricacies can truly make the difference between foreign employment success and failure.

It is in this arena that Velocity Global really thrives and is strategically positioned to be your international partner. With capabilities in 185+ countries, give us a call about foreign employment contract best practices.