More businesses than ever are sending people overseas. The rewards of developing new markets can be great, but the multitude of different legal systems mean there are also bear traps to be avoided – especially on the HR / employment law side. Fortunately, most of the traps can be avoided by forward planning and ensuring the engagement is on a sound footing.
Issues to consider with a secondment
Firstly, it is worth mentioning the practical issues which apply on any secondment to a new workplace, whether overseas or not, and whether you are sending or receiving the employee.
Who is the employer? – Secondments may be to another entity, such as a new subsidiary company or to a company with whom you do business. Where another entity is involved, you will need to consider who will be the employer. This will normally continue to be the main employer unless there is a reason for it to be the host. It is important to be clear about this in documentation and ensure that this is followed up in practice, with the employer dealing with matters like discipline, appraisals and payroll. Confusion over this can expose the host to potential employer obligations and dilute the main employer’s control over the relationship.
Protection of confidential information and customer relationships – The employee on secondment will be in a position to cause harm to both the main employer and host. The employee’s employment contract will hopefully contain clauses which provide the main employer with protection. That may have been drafted some years ago and the secondment letter/agreement offers a good opportunity to rectify any defects. None of this will provide any protection to the host and it is good practice for the host to require the employee to sign a confidentiality and business protection agreement.
Obligations between main employer and host – consider whether you should agree and document terms with the other company. Would a replacement be offered if the employee became incapable of work? Do you want anti-poach provisions? Do you need to clarify how appraisals, discipline and day to day management will work?
When the secondment is overseas there are further considerations:
International employment tax rules are complicated and ignored at your peril. You will need to talk to an internationally competent firm of accountants for advice about any obligations in relation to the employee’s personal income taxation and to rule out any other taxation issues. Most employers will offer tax equalisation to ensure their employees are no worse off in higher tax countries. This effectively means increasing the salary so the take home money is the same or has the same buying power.
Generally employees have a right to move and work within the EU without immigration restrictions. However, when workers are moving beyond the EU’s borders the situation is more complex and you will need to ensure any permission to work is obtained.
Local employment law: Local employment laws vary considerably, even within the EU. It is vital to appreciate that for overseas assignments that go beyond temporary business trips, the local employment laws will apply, even if you try to apply home country law in the relevant contract. You are taking a big risk with your management time and money if you fail to ensure any secondment documentation and termination processes comply with local laws. For example, failing to provide a Flemish or French language version of an employment contract or secondment letter/agreement in Belgium can result in a void contract with the result that the business protection clauses you thought you had fail.
Similarly, dismissing someone in the Netherlands without the approval of a court can result in an invalid dismissal and the risk of a massive back pay claim. Not to mention the pitfalls of Portuguese laws on social status discrimination and German compensation payments due when an employer uses a contract with a restrictive covenant – regardless of whether the employer wishes to enforce the covenant. Before our clients send someone to a new country, we provide them with a country report on the key local employment laws, advice on what approach is best and compliant documentation.
Ensure you find out the local customs which will impact on the working relationship. For example, some countries have 13 month payrolls to deliver extra salary at Christmas or for the summer holidays. The public holidays will also differ in the host country. Usual practice is to require the employee to take the public holidays in the host rather than home country.
Directorships and other offices:
Take advice on what you are planning to bestow on an individual in the form of directorships, bank mandates etc. In particular, give thought to what is involved in removing these responsibilities and appointing a replacement if the need arises.
You will need to consider your employee’s family needs such as schooling, housing and flights. Usually the main employer will make arrangements to ensure these matters are dealt with, perhaps using one of the many companies like Santa Fe who specialise in such matters. These family considerations are usually the most important aspect for the employee and being aware of them will help you deal with negotiations, both at the beginning and end of an overseas assignment. For example, using garden leave to enable someone to see out a school year in a country is likely to be a more attractive negotiating point than a payment in lieu of notice which might result in an immediate cessation of immigration approval. Furthermore, ensuring your secondment agreements allow either party to give notice to end a secondment early is likely to be sensible.
It may seem an obvious point, but ensure you keep copies of the employment contract and secondment letter/agreement and relevant information such as dates of lease renewals and equity vests. Think about the end of the secondment and the issues that will need addressing and agree them with the employee at the outset if possible. Top of the list for the employee will be what job they will have at the end of the secondment.
This may come as a surprise, but sometimes employment relationships go wrong! Problems can be magnified when the employee is abroad and overseas employment law applies. If you find yourself in a dispute take advice from a firm like Taylor Vinters which can advise on finding a solution which fits the local laws and customs.
Title image courtesy of Wikimedia Commons