In the final chapter of our four-part video series, Bonnie Puckett, of counsel in our International Practice Group, and Jean Kim, an associate in our International Practice Group, discuss the absence of at-will employment outside the U.S. Tune in to our five-minute video below, in which they cover considerations for U.S.-based in-house counsel who need to know how to structure—and dissolve—employment relationships outside the U.S. You can check out the other installments here: Part 1 on Top 5 Concerns, Part 2 on Investigations and Part 3 on Anti-Harassment.

Bonnie:  Hi, I’m Bonnie Puckett, of counsel in Ogletree Deakins’ International Practice Group.

Jean:  And I’m Jean Kim, an associate in our international practice. We are here today to break down for you the biggest, most mind-blowing difference between U.S.-based employment and employment anywhere outside the U.S.—“At will” employment.

Bonnie:  “At will” employment is unique to the U.S. Here, you can generally fire anyone without notice or payment, for any reason except a discriminatory or retaliatory one.

Everywhere else, though, employees and employers have a contractual relationship—so any employer-initiated termination will have to comply with the employment contract, as well as that country’s employment law.

Jean: In some jurisdictions, that just means providing a certain amount of notice of termination and sometimes a severance payment on top of that. Labor codes usually specify the minimum notice employers can give, as well as any required severance payments. 

Bonnie: But in other jurisdictions, the payments aren’t enough. You also have to have a valid reason to terminate, and a valid process for doing it! More on that in a bit!

Jean: Back to the concept of employment contracts. U.S.-based businesses are so well trained in the principle of U.S. “at-will employment” that they often try to avoid entering into written employment contracts abroad!

Bonnie: But because all non-U.S. employees legally have employment contacts—whether in writing or not—this is a mistake!  I like to explain it like this: in the U.S., giving an employee a written contract can only increase their rights—but outside the U.S., that is the only way to limit employee rights!

Jean: For example, in places like Canada, Australia, and Singapore, written contracts for employees usually state that the employer will provide a limited notice period, typically ranging anywhere from a week to two months. But employees without a written contract can usually claim at least one month of notice per year of service.

Bonnie: That can add up quickly—up to two years for long-service employees!

Jean: Hopefully we’ve convinced you that your non-U.S. employees have contracts whether you write them down or not, so it’s much better for employers to put it in writing.  But Bonnie, I think you said earlier that even giving the notice and paying the severance isn’t enough in some countries?

Bonnie: That’s right. Many countries’ labor codes require employers to have a legitimate reason to terminate an employee, and those reasons are spelled out in the labor code.

Jean: Ok, but as long as you can point to employee underperformance or a need for restructuring, surely that will hold up, right?

Bonnie: Not really. Most labor codes address economic and performance-related reasons, but depending on the jurisdiction, the standards are too high to meet in virtually all cases.

Jean: So wait, employers can’t reduce their headcount to streamline their operations?

Bonnie: Some labor codes require employers to do “everything possible” to avoid terminating someone for economic reasons. Even then, if the employer can’t prove that the termination was necessary to prevent serious economic problems—think bankruptcy—many countries’ courts won’t buy it.

Jean: What about employees who just aren’t getting the job done?

Bonnie: Often a no-go. Employees usually argue they were not given adequate notice or coaching to improve poor performance. Even outright policy violations can be challenging—sometimes I tell my clients that if their employee didn’t purposefully set the building on fire, they might be facing an uphill battle in court.

Jean: In certain countries, even legally valid reasons won’t work if a specific process isn’t followed. The moment you receive information about misconduct, a time limit to terminate may kick in and start counting down. The employee may also have the right to a disciplinary hearing or economic consultation before the termination can take place.

Bonnie: How much money are we looking at if we screw this up?

Jean: If a court finds a dismissal “unfair” it can award “unfair dismissal” damages. But what really drives up the cost of terminations abroad is the threat that the court will order the employer to reinstate the employee with backpay!

Bonnie: That sounds pretty awful. You can’t possibly be suggesting that employers can never restructure their operations and are stuck with mediocre-performing employees or policy-violating employees forever!

Jean: Of course not—but the most practical way to terminate someone’s employment outside the U.S. often involves negotiating a separation agreement. Be warned—approaching it the wrong way can drive up the price tag!

Bonnie: The other takeaway here is that hiring and probation practices are even more important outside the U.S.—the risks of taking on a new employee are much higher! 

Jean: So that’s it about how employment laws are different abroad, right?

Bonnie: Yes!  Well… except for industry-wide collective bargaining agreements, and data-privacy legislation, and—

Jean: Bonnie, we might want to cover those in another video!