Terminating employees while on overseas expatriate assignments can be a daunting task for most HR departments.
Dealing with employment and tax laws in two different countries can be both challenging and costly to an employer. Not to mention the sensitivity of the matter given the employee and their family are completely uprooted from their home country while dealing with the crisis of a termination; therefore, it is vital for companies to plan ahead when terminating an employee overseas to make the process as smooth as possible for the employee and the employer.
Terminations tend to be more commonplace in the United States since it is protected by the American Doctrine of At Will Employment meaning the employee or employer may terminate for “non-discriminatory” reason at any time.
This is not the case for most countries; however, many countries are beginning to follow suit by introducing new reform to their current, sometimes elaborate, employment practices regarding termination. Studies indicate it is much more difficult to terminate employees in Asia, Europe, and Latin America since employees have the right to “due process” to defend themselves, and in most cases the right to a lengthy notice period.
Work in other countries outside the U.S. is more about the “relationship”. Therefore, if an employer is severing ties frequently, it could be seen in a negative light which in turn could cause a negative impact to the employer’s image in that country.
Below are four preventative measures that will help protect you as an employer:
• Ensure contractual protections are presented in the expatriates employments and/or expatriate agreement – Clearly document and define termination guidelines in one, if not both, of the agreements to help prevent wrongful termination litigation since the employee could be entitled to protection of labor laws in the host county regardless of citizenship or immigration status.
• Keep a record of expatriate activity – Document the employee’s file with evidence showing the link between the home and host country, and the temporary nature of the assignment. In addition include the employment agreement, repayment agreement, description of salary and benefits, tax statements, payroll deposits showing activity into the employee’s home bank account, expatriate policy, expatriates acceptance of assignment, and any other documentation proving they are an employee of the home country.
• Plan ahead – Do the appropriate research in both countries to ensure terminations are in compliance with each country’s employment and tax laws. Check for applicable tax treaties in place to prevent double taxation on costly severance payments. Work with host country HR in planning for a termination to ensure compliance with host country employment and tax laws. In most scenarios it is in the employer’s best interest to repatriate the employee prior to termination taking place to help eliminate host country litigation.
• Prepare for unforeseen expenses – Prepare severance and tax costs ahead of time taking into account relocation related expenses such as host country property/auto lease breaks, educational fees (recouping fees paid in advance), home country housing/auto (is property tenanted), etc.
Employers can take specific steps to help prevent these situations by establishing termination language to include in their expatriate letters and policies. With proper planning and timing of severance payments an employer should not have issues when attempting to terminate an employee overseas.
To receive expert advice and more information about structuring your expatriate letters and/or policies to include termination language, please contact a Lexicon representative today.
For information or questions about this blog post please contact Pam Buchanan, Lexicon Consulting Services, +1-904-858-1255 ext. 1979 or via email at firstname.lastname@example.org.