Editor’s Note: We are pleased to welcome Jacque Vilet as a guest author for the International HR Forum. Jacque is a Global HR/Benefits Consultant for TriNet, providing global Human Resources services to SME’s with international operations. She has over 20 years experience in International Human Resources with both local nationals and expatriates, and has been an expat twice during her career. Jacque holds the Certified Compensation Professional (CCP) designation from World at Work, and the GPHR (Global Professional in Human Resources) designation from the Society of Human Resources Management.
Everyone has heard the question “What keeps you up at night?” The answer usually depends on the context. If we ask C-level executives, the answer might cover such topics as market share, profit margins, stock price, ROI, etc.
Executives might also worry about their international operations – whether they picked the right people to run them, whether these managers are making inroads into the company’s potential customer base, hiring the right employees and remaining on target to meet business goals that are so important for expanding the company’s global market.
From a labor standpoint, there are two critical issues that could keep executives awake at night if not managed correctly – Local Employment Contracts and Terminations. We will take a look at local employment contracts in this post. In a follow-up post, we’ll examine terminations.
I will start by saying that labor laws are unique in every country. Whether a company is entering a new country or has been operating outside the headquarters country for many years, it’s important to recognize that local labor laws govern the local employment relationship. Even if you’re an “old hand” remember that laws change from time to time as well.
Some regions tend to have laws which favor employees. A good example of this is in Latin America and the concept of “acquired rights.” Under the law, you cannot reduce compensation or take away any benefits, unless each employee agrees to the changes. This is in contrast to the U.S., where most labor regulations favor employers and reductions in benefits and compensation can be made without employee consent.
In Europe, Works Councils, which are an employee representative body that negotiates with companies on behalf of employees, must be consulted in advance, and sometimes even approve, any major changes, including restructuring, changes in benefit programs, working hours, etc.
Given the differences in each country’s labor laws, the use of specific wording in employment contracts is critical in order for a company to be in compliance and not risk penalties. Let’s take a look at some of the global variations in employment contracts:
United States: In the U.S. the offer letter is very brief – usually one page – that states the job title, salary, reporting relationship and any bonus or stock options that the new hire may receive. There is also an “employment at will” statement that states the company may terminate an employee at any time without giving any reason. Actually the concept of “employment at will” does not exist in any other country in the world; the labor courts in other countries do not recognize it nor is it accepted in a legal document.
Brazil: The practice of most Brazilian companies is to have standard employment contracts according to different categories of employees, such as: executives, salespersons and “back office” employees. This occurs because the employment conditions vary among these categories.
For example, employees performing only back office activities must have their working hours fixed in their employment contract. On the other hand, employees in executive and sales positions must not have provisions regarding working hours in their employment contracts; otherwise, they will be eligible for overtime payment.
China: Foreign companies sometimes believe they can directly employ Chinese employees, even though these companies have not formed a legal entity in China. These companies are called “Representative Offices” (Rep Offices). Rep Offices are not allowed to employ staff directly; instead they must hire employees through designated labor agencies under a third party agreement. The largest and most well known is Shanghai Foreign Service Co., Ltd. (FESCO).
New employees sign FESCO’s labor contract. Therefore, employees technically work for FESCO and FESCO contracts these employees out to the Rep Office. The Rep Office will typically create, with the tacit approval from FESCO, a supplemental employment contract that may provide for more detailed rights and obligations. It is commonly understood that the supplemental contract may not come into conflict with the primary employment contract with FESCO.
France: The EU, of which France is a member, requires a written employment contract. French law, however, considers that a French pay slip contains all information required under EU rules for a full-time, indefinite-term employment contract. From a best practice perspective, French employees have written employment contracts on their pay slips.
How local employment contracts are written is just one example of how individual country laws influence the operations of companies with overseas locations. In Part 2, we will address local employee terminations.
Do you have any examples or “war stories” to share about labor contracts in your country? You are welcome to share them as a comment.
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