A New Entity Abroad, Part I—Hiring Employees

Quick Hits

• Employment-related laws regarding employment applications, job postings, the treatment of expats vs. local nationals, background checks, and hiring policies vary widely from country to country.
• The Netherlands offers significant incentives for expats, but countries such as Singapore and Peru are very protective of local workers.
• The EU recently passed a pay equity directive that requires gender-neutral titles in job postings.

Most companies entering new countries understand the basic requirements involved, such as establishing a business entity, opening a bank account, enlisting a payroll provider, and identifying a benefits broker. Once these items are settled upon, the next major step is hiring employees. This is Part 1 of a two-part series on setting up shop in a new country, focusing on the hiring process and highlighting the potential pitfalls that might arise from variations in employment law among jurisdictions. The second article in this series will focus on employment protections around the world.

Employment Applications

Standard questions asked of job candidates in one country may be forbidden in another country. In the United States, for example, it’s common practice to ask applicants to provide a copy of their driver’s license. Yet in some countries, like Argentina and Nicaragua, employers can only ask for such documentation if they’re hiring someone who will operate a motor vehicle. In the United Kingdom, criminal history inquiries are limited to “non-spent” (vs. “spent”) convictions, but in Mexico and most Latin American countries, the rules are stricter: Employers cannot ask about criminal history at all. Employers in these jurisdictions that ask for pre-employment information outside what is permitted under applicable law could face a discrimination claim.

Conversely, some of the same jurisdictions that tightly limit what employers can ask regarding topics as delicate as criminal history, allow individuals to include their photographs on resumes—striking a strange balance, for U.S. employers, between what is and is not acceptable personal information.

Job Postings

What an employer can and cannot include in job postings also varies greatly across jurisdictions. Case in point, many U.S. states require that job postings include salary ranges, which is not a common provision in Latin American countries. Even where Latin American countries have a requirement to disclose salaries, it is usually tied to a reporting requirement rather than information to be included in job postings for candidates.

Job posting regulations are a moving target, particularly because of gender equity laws, so employers are facing challenges to keep up with those regulations. For example, the European Union’s Pay Transparency Directive (Directive (EU) 2023/970)—to be implemented in the EU’s twenty-seven member states by June 2026—requires, among other things, that job postings include information about pay ranges and use gender-neutral job titles.

Treatment of Expats vs. Locals

Once employers have posted job descriptions and identified candidates, hiring practices must square with the country’s rules for the treatment of nationals vs. expatriates. The following examples illustrate variations among jurisdictions—whether more favorable toward expats or protective of locals.

• Netherlands: Expats working in the Netherlands can earn tax-free 30 percent of their income for the first twenty months of employment if they qualify under national law. This benefit to expats is provided in the form of allowances in certain areas, e.g., housing and education.

• Middle East: In jurisdictions like the United Arab Emirates and Saudi Arabia, where a large majority of the workforce consists of expats, employers must establish a process for submitting expat visas and must register employment agreements with the local labor authority. In addition, employers are entered in a wage protection scheme that ensures that employees are paid each month according to their contracts. Countries in the Middle East are also starting to pass new legislation that requires employers to increase the ratio of local nationals to expats.

• Singapore: Singapore is highly protective of its local nationals. In most cases, employers are required to post jobs on the MyCareersFuture website before applying for an Employment pass or S pass visa for an expat.

• Peru: Peru is also very protective of its nationals and has limitations on how to and when to hire an expat. What’s more, expats can comprise only 20 percent of a company’s headcount, and those expats cannot earn more than 30 percent of the total payroll.

• Colombia: Colombia used to have a rule similar to Peru’s regarding the headcount percentage for nationals, but the constitutional court declared it unlawful because it discriminated against foreign individuals.

Background Checks and References

After the hiring decision comes the background check. In many European countries, the most employers can request of candidates is a police certificate of good standing from their local precincts. These certificates provide little relevant information since they only account for the time candidates have lived in particular areas.

This is the case in Latin America as well. What’s more, even if public information is available about someone’s criminal past, the employer cannot use it to make an employment decision. Only in certain countries (e.g., Argentina, Brazil, and Chile) and in very limited circumstances (such as with respect to employees with direct responsibility in sensitive areas, such as handling company finances or working with children) are criminal background checks and the information they generate permitted in employment decisions.

Obtaining prior employment references is also restricted, due to individuals’ rights to work, which could be jeopardized by the amount of information disclosed by prior employers regarding job performance. In jurisdictions such as Germany and Switzerland, employers have statutory obligations to provide references to departing employees, yet the language must be so favorable to employees that it won’t hinder their further professional advancements. The end result is that references do not provide employers with enough information to assess candidates.

The situation extends to Latin America. In Colombia, for instance, employers are required to provide a work certificate when requested by an employee. The certificate must contain objective criteria, e.g., start and end dates, salary, and the employee’s role. Employers are not allowed to provide subjective comments or information that could harm the former employee’s future employment opportunities.

Hiring Policies

In the United States, over the due course of time, employers might start to create their own policies when they hit a certain employee threshold. This is not the case in most international jurisdictions. Many countries actually mandate that employers set up policies before they hire their first employee. For instance, in Belgium and Saudi Arabia, employers must create work regulations when employing even one person. In some countries, work rules require government approval.

In other countries, such as Chile, Japan, Morocco, Norway, and South Korea, work rules are required for employers that have ten or more employees—an easy threshold to meet. Furthermore, some countries, e.g., Brazil, Canada, Ireland, and Peru, require health and safety standards as of the first day of operations.

Policy Writing Rules

Before putting pen to paper, employers may want to ground themselves in an understanding of country-specific rules for implementing policies. In some countries, employers can simply draft their policies, publish them on their websites, and communicate them to their employees. In other countries, however, employers must first share a draft of their policies with employees and union representatives (if any) and allow time for comments and concerns on the draft policy. Feedback from employees and any union representatives must be considered and, in certain countries, agreement between the parties must be reached. Employers must then register the policies with local authorities. Any future policy modifications must also follow this same, or a very similar, procedure.

Even where internal rules are not mandatory, their absence would disallow employers from imposing disciplinary measures. For example, in Mexico, employers cannot discipline employees for policy infractions unless the policy has first been validated by and registered with local authorities. Furthermore, some countries require employment policies to be written in the local language.

Variations in employment laws among jurisdictions go on and on. Employers that neglect to thoroughly familiarize themselves with the laws in the countries in which they intend to open entities may wind up facing claims and/or audits that could expose them to civil and even criminal liability, as well as fines, penalties, and legal claims for compensation.

Ogletree Deakins’ Cross-Border Practice Group will continue to monitor developments and will provide updates on the Cross-Border blog as additional information becomes available. Additional insights for employers are available in our podcast episode, “Cross-Border Catch-Up: Setting Up Shop in a New Country, Part 1—Getting Started and Hiring.”

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