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Indefinite Employment: What You Need to Know

By February 7, 2018August 11th, 2018No Comments
Indefinite Employment - What you need to know

Employment flexibility varies from country to country. While the U.S. uses at-will employment, the rest of the world focuses on indefinite employment and boasts strict termination requirements to protect employees.

Review these different employment relationships to get a better outlook at how employee arrangements are treated around the world—and how they may affect your growing business.

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At-Will Employment, Fixed-Term Employment, and Indefinite Employment

At-will employment means that an employee may be dismissed at any time, without notice—and the burden of establishing just cause. This kind of arrangement means that an employee and employer are not committed to each other long-term, and hiring workers is much cheaper than with indefinite employment.

Fixed-term employment is an employment contract with an expiration date. The employee receives the same benefits and salaries as an employee, but the contract expires at the end of the term. Early termination of a fixed-term contract can be tricky, and courts may require the employer to pay the full cost of the contract even if they fire the worker.

The majority of countries outside of the U.S. use indefinite employment contracts. These contracts are more permanent than the relatively free arrangement of at-will employment. With indefinite employment contracts, businesses are required to give lengthy notice before terminating the relationship, government mandated severance payments, and other duties. Often this involves a lengthy, costly process. Even if an employee is fired for cause, the employer may have to prove it in court.

What to Include in an Indefinite Employment Contract

Because countries that use indefinite employment status require extensive processes from employers, it is wise to include all the mandated benefits and notice periods in your indefinite employment contract. When you write your employment contract, it should include the following:

  • Job description, work hours, and location
  • Salary and benefits
  • Social security or social insurance payments
  • Vacation, public holidays, sick leave, and other leave policies
  • Probation period
  • Discipline process
  • Dismissal process including a notice period and severance policies
  • What constitutes “just cause”
  • Collective bargaining if applicable
  • Any other legally required language

Check with the local labor laws to ensure that you include any other required conditions, policies, or information. It is also a best practice to make explicit any implied terms mandated by regulators so you and the employee understand the full terms of the contract.

The Rise of Fixed-Term Contracts

In most countries, fixed-term contracts are the exception rather than the norm. One exception is China. Under Chinese labor laws, an open-ended contract means that you have hired an employee for life.

Many countries have a bias against fixed-term contracts, and the courts are likely to rule that a fixed-term contract is really an indefinite term contract. Because indefinite-term employment contracts can be so expensive for employers, many are turning from indefinite-term contracts to fixed-term contracts.

This is true for the majority of countries in the European Union, excluding Germany, Portugal, and Spain. Many European countries experience persistently high unemployment rates, especially among the young or minorities, and employers are reticent to commit to long-term arrangements.

The challenge with fixed-term contracts is that they carry some legal risk. If you regularly renew fixed-term contracts, courts may rule that the employee is actually an indefinite-term employee in actuality. Many countries also have limits on the number of times a fixed-term contract can be renewed. On top of that, some countries give the same notice and severance protections even for fixed-term contracts.

Outside of the U.S., indefinite employment contracts are the normal way to establish an employment relationship. Most countries with an indefinite employment system include strong labor protections and make hiring a worker extremely costly.

Partner with a Global Employment Expert

Businesses expanding into new markets can benefit from consulting a local labor expert. This helps to ensure that contracts, policies, and payroll systems are compliant with employment regulations.

Working directly with an expansion partner can help you navigate the different legal requirements and compliance for your business. For assistance with contract development during global expansion, partner with an in-country expert who understands the ins and outs of your new country’s labor laws.