Which laws apply to expatriates?
That’s a very good question, but just about everything regarding expatriates generates a lot of questions. I’m going to get into “choice-of-law,” which is something that global mobility specialists in your company are or should be aware of.
What does choice-of-law mean?
A choice-of-law clause is written into the expatriate agreement. It basically defines an expatriate’s legal rights while working overseas.
U.S. companies include choice-of-law clauses that call not only for U.S. employee benefits to apply, but also for U.S. labor/employment laws in general to apply. These clauses have been commonly used in the U.S.
A company’s main concern is to make sure that expatriates are covered by American-style, at-will employment overseas. “Employment-at-will” means that a company may fire an employee for any reason at any time (provided the person is not, by law, in a protected class). The U.S. is the only country that has an employment-at-will law.
Do choice-of-law clauses work?
The answer is “no.” The employment/labor laws of the host country apply even if the expatriate agreement has a clause that states the choice-of-law is the United States. The expatriate almost always enjoys a right at least to the minimum of local protections/benefits of the host country, regardless of what rights he/she might have signed in the expatriate agreement.
Host country employment/labor laws get to the heart of employment: firing, pay, hours, rest breaks, vacation, overtime, safety, wages, labor unions, mandatory benefits, discrimination, non-compete/ trade secrets — and more.
Because mandatory termination notice and severance pay laws can be very onerous outside the U.S., this is especially significant with American expatriates. Once an American expatriate’s place of employment becomes a foreign country, that expatriate (regardless of the text in his/her contract) is no longer ruled by U.S. employment-at-will, but enters the safety of a new kind of protection — the “indefinite employment” law of the host country.
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If they don’t work, why have they been used?
Companies historically have been putting American choice-of-law clause into expatriate agreements even if they are unenforceable. Many times organizations were not aware they were unenforceable. In other circumstances, companies would include the clause hoping that, if necessary, the terms would be negotiable in the courts of the host country.
Should choice-of-law clauses be in expatriate agreements?
The best practice in drafting expatriate agreements is not to include choice-of-law clauses at all. Without any choice-of-law clause in an agreement, only one country’s laws will apply — the laws of the host country.
If your company believes some statement should be provided in the agreement, include the host country choice-of-law. Host country labor/employment laws will be the only ones that will be legally upheld in court.
Important Note: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that Jacque Vilet is not engaged in rendering legal or accounting services. If legal or accounting advice is required, the services of a competent attorney or accountant should be sought.