Ten Tips for Managing Employment Contracts

Guest Author:
Joan Keston –  Keston & Associates, Ltd.

[Editor’s Note:  We are happy to welcome Joan Keston as a Guest Author.  Joan is an experienced attorney and Managing Principal at Keston & Associates, a consulting firm that helps companies achieve a stable international presence by providing a broad range of legal services for international corporate and employment law, and global governance.  She assists public and private companies, NGOs and non-profits, US and foreign entities.]

Employment contracts are a requirement in many countries.  Drafting employment contracts is a blending of the company employment policies and practices, usually based on employment law of the country where the company’s headquarters is located, and the employment/labor law of the country where the employee is working.

Jurisprudence varies greatly among countries, and this will affect basic contract law and corporate law, as well as legal principles.  Layered on top of these differences is employment/labor legislation, an area that is extremely nationalistic and specialized.  The differences are accentuated more so in developing countries.

Managing these contracts is a challenge.  Here are ten best practices to consider:

1. Use a template.  Start with a basic template employment agreement that you will use worldwide and that can more easily be assimilated with central HR operations and administration.  This is especially important if you are in several countries.  If every law firm were to draft a separate document, your administrative control at headquarters would be onerous.  The template should include all of the basic terms in order to comply with industry requirements, legislation in the country where headquarters is located (domestic and international reach) and internal corporate policies.  You may need more than one template version.

2. Make sure proper controls are in place.  Companies have varying degrees of local control and integration into structured control at headquarters.  Whatever degree exists at your company, reporting will eventually reach headquarters.  Make sure you have controls and processes in place, as well as integration into the divisions or departments at headquarters as necessary.

3. Use local counsel.  Define and discuss the scope of the local law legal review with local counsel.  Again, this becomes increasingly important with greater geographical reach.  You want the review to cover legality, enforceability and risk, as well as terms that are discretionary, mandatory and unenforceable, or carry a risk of liability.  Avoid changes due to drafting style or form and other unnecessary preferences.

4. Research the risks.  Many countries in the developing world are very pro-labor.  Often legislation which to some extent sets forth provisions that are favorable to the employer will not be enforced or applied in practice.  Know the risks involved.

5. Be aware of customary practice.  Know which provisions are usually very sensitive as applied to your industry or company policy. For example, whether you can have a fixed term contract as opposed to an indefinite employment agreement may be critical for project based employment.  The legislation controlling the employment relationship varies greatly from country to country in terms of the ability and terms and conditions of fixed term employment.  Following are several examples:  contract term, termination provisions, severance payments, work conditions, probationary periods.

6. Ensure corporate oversight is in place.  Make sure that local staff coordinates their decision and discretionary control with HR administration at headquarters.  This should take into consideration the legal terms in each country focusing on legality, enforceability and risk.

7. Use guidelines to enforce standards. Prepare guidelines so that your local staff knows what to do in various scenarios, and when they should consult with local counsel and your international attorney and HR administrator at headquarters.  It is a good practice to control the ability of your local staff to engage local counsel.  Your international attorney should be aware of all communications with local counsel, be involved in the process of engaging local counsel and review and approve local counsel bills.

8. Be aware of tax traps.  When registering a new entity where you previously employed staff without being registered, tax withholding and payment may impact your employees who previously were individually responsible to report and pay their taxes.  Consult with local tax experts to assist the employees and to determine if certain provisions in the document affect the outcome.

9. Benchmark local practice. Once you understand the local law requirements, do a market analysis of competitive terms that are discretionary.

10. Build a local network of experts.  Maintain a relationship with local employment counsel and tax experts, and instruct them to inform you of any changes in the legislation or application of legislation.

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