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International Employment Contracts: Understanding the Basics

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Accessing the global talent pool opens up a world of opportunity. The benefits include sourcing talent with various skills and experience, hiring from a wider candidate base, and reducing hiring and onboarding costs.

However, navigating foreign employment laws can make global hiring feel like it’s more effort than it’s worth. Varying overtime regulations, collective bargaining agreements, and intellectual property rights pose major compliance risks for companies that go it alone.

Read this guide for a detailed breakdown of how to prepare compliant international employment contracts. Plus, find out how partnering with a third-party expert eliminates the risk and simplifies the entire process. 

What is an international employment contract?

An international employment contract is a legally binding employment agreement between a business and its employees located abroad. 

Like a domestic employment contract, an international contract includes all the terms and conditions of the work agreement, such as basic job duties, statutory benefits, notice period, termination, and more.

When is an international employment contract necessary?

Due to the compliance risks linked to operating across borders, businesses should always use an international employment contract when expanding globally and hiring talent located abroad

While some countries permit verbal work agreements, these are difficult to enforce in a court of law. Global companies should always be proactive and outline detailed work conditions in a written international employment agreement before the working relationship begins. 

This way, you can reduce the risk of fines, litigation, and other noncompliance penalties in your employee’s country of residence.

Starting your global expansion journey? Download our guide that reveals key insights into developing your global strategy and compliantly hiring global employees:

The essential global expansion checklist - Get the checklist

Key elements of an international employment contract

When hiring globally, employment laws in the employer’s home market usually don't apply, except in rare cases where there’s a bilateral agreement between two countries.

Most of the time, international employment agreements must comply with the legislation in the country where the employee conducts their work. 

International contracts include all of the common elements of an employment contract, like compensation, benefits, overtime, and termination while taking into account all of the foreign market’s local regulations.

Below is a noncomprehensive list of key elements a foreign employment contract should include.

Basic details

First, your international contract should clearly list the basic identity information of both parties and provide a detailed description of the employee’s role and responsibilities in the company, such as:

  • Company name
  • Employee name
  • Job title
  • Job duties
  • Who the employee reports to
  • Employment start date
  • Employment end date (if applicable)

Type of contract

The employment contract should clearly state what type of contract it is. Contract types vary between countries, with the most common being indefinite and fixed-term. 

Indefinite contract

Also known as permanent employment contracts, indefinite contracts are among the most popular worldwide. These contracts have no specific end date, meaning employment continues indefinitely until the employer or employee terminates the agreement.

Fixed-Term contract

Fixed-term contracts, also called limited-term contracts, are for a finite period and specify the employment start and end date. Employers often hire talent on fixed-term contracts to cover for absent employees, to fill in a skills or talent gap, or for large, temporary projects.

Learn more in our complete guide: Types of Employment Contracts

Compensation and benefits

An international employment contract should clearly state all relevant information related to employee benefits and compensation, including:

Working hours and overtime

Your international contract should also specify the employee’s total weekly working hours and your overtime policy. 

Remember that standard working hours and overtime regulations vary drastically between countries, so staying compliant is critical. For example, a standard workweek in Germany is 48 hours, while in Norway, it’s only 40.

Probation period

Clarify the length of the employee’s probation period, if applicable. Note that many countries limit probation periods, while some even forbid them.

For instance, probation periods in France range from two to four months, while countries like Belgium prohibit them. 

Termination and notice period

Specify your termination notice period and severance payment policies, and ensure they comply with local employment laws.

Many countries strictly regulate termination and severance pay, outlining specific conditions for what constitutes just termination and specifying when employees are entitled to severance pay. 

Consider Mexico: notices must be in writing, and all terminated employees are entitled to a seniority premium of 12 days’ worth of wages for each year of employment, regardless of the reason for termination.

Collective bargaining agreements

Collective bargaining agreements (CBAs) are an additional, complex layer of workers’ rights regulations that create significant challenges for foreign employers.

CBAs are agreements between trade unions and company representatives that present myriad employment rules in addition to federal and state regulations. They cover anything from work methods and working hours to mandatory pay raises and job health and safety policies—all of which are the employer’s responsibility to follow. 

CBAs are prominent in many countries, and you may be subject to a particular CBA depending on the industry you operate in. 

Double-check that your international employment contracts comply with relevant CBAs, or seek help from a legal expert to ensure compliance.

Intellectual property rights

Not all countries provide robust legislation protecting intellectual property (IP) rights. 

After registering your patents, trademarks, and designs in the local market, remember to establish additional protections in your overseas employment contract to protect assets that local copyright or patent laws don’t cover.

Include a non-disclosure agreement (NDA), clarify which employees can access company data, establish regular security audits to limit breaches, and educate employees on IP protection.

Confidentiality requirements

Confidentiality requirements refer to things like NDAs, non-compete agreements, and non-solicitation agreements—all of which protect your business during and after an employee’s tenure with your company.

Some of these agreements are not legally enforceable in some jurisdictions. For example, non-compete agreements are banned at the state level in California, North Dakota, and Oklahoma, while most other U.S. states permit them.

Considerations when drafting compliant foreign employment contracts

Below, we outline some key considerations that global companies should keep in mind to minimize compliance risks when drafting foreign employment contracts. 

Employee protections are stronger outside the U.S.

Generally speaking, employee protections are much more robust in most countries around the world than they are in the U.S.

For example, a 13th-month salary is federally mandated in Mexico, Italy, Greece, Portugal, and Spain, and many countries offer paid maternity leave

When hiring talent located abroad, U.S.-based employers may face more labor and employment regulations than they’re used to.  

Employment contract laws vary around the globe

The primary consideration regarding compliance when hiring abroad is that employment laws vary drastically between countries and states. As a result, the details of your employment contracts may differ widely from one jurisdiction to the next.

When preparing an international employment contract, review all the above elements and ensure each section complies with local legislation in your target market. Alternatively, consider partnering with a legal expert to eliminate the risk altogether.

Verbal employment agreements should be avoided

Written employment contracts aren’t mandatory worldwide. Still, you should avoid verbal agreements as they expose you to risks. For example, employees may back out of an agreement or provide incomplete work, and an oral contract is difficult to enforce in court.

Having a written agreement before starting a working relationship saves you from numerous headaches and makes the entire process of global hiring and expansion less stressful.

How to draft compliant international employment contracts

Before drafting an international employment contract, we recommend partnering with a third-party legal expert that has a firm grasp of the employment laws in your target country.

Partnering with an employer of record (EOR) is one of the best options for many reasons. First, an EOR has expertise in local labor and employment laws worldwide. An EOR facilitates global mobility, allowing businesses to quickly and compliantly hire or relocate talent abroad and build a global workforce without the need for entities or expertise in international employment laws.

Second, an EOR also provides expert support at every step of the process. An EOR partner handles all hiring, onboarding, global payroll, global benefits, compliance, and HR duties on your behalf while you maintain day-to-day control of your team—so you can hire beyond borders and expand internationally without the added burden.

Learn more: What Is an Employer of Record (EOR)?

Simplify global hiring with Velocity Global

Velocity Global is a vetted and experienced EOR that has helped more than 1,000 companies compliantly employ full-time talent in over 185 countries for nearly a decade. 

Discover how we make it easy to hire, pay, and manage a distributed workforce anywhere:

How to hire anywhere with an Employer of Record - Get the guide

Or contact us today to learn how we can help you hire global talent with ease. 

 

Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information – and your interpretation of it – is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information is hereby expressly disclaimed. All content is provided "as is," and Velocity Global makes no representations or warranties concerning this information.
 

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