A New Entity Abroad, Part II—Unique Employment Regulations

Quick Hits

• Employment policies vary considerably from country to country, setting challenges for employers interested in establishing operations in new markets.
• Policies unfamiliar to U.S. employers include “the right to disconnect” in France and Spain, where employees may not be emailed or called after work hours.
• Peru’s sexual harassment policies are so specific that almost no other country’s policy can meet the terms.

Below the surface are unusual quirks in employment laws among countries. For example, in France and Spain, employers must allow their employees “the right to disconnect,” meaning no emails or phone calls after work hours. This untethering of employees is an alien concept to most U.S. employers. And when conducting business in Canada, employers might be surprised to learn that regulations require them to pay employees a 4 percent vacation premium.

In Part II, we present a sampling of unique policies that exist only in certain markets and their effect on employers and employees.

Sexual Harassment Policies

U.S. sexual harassment policies may need to be modified to comply with singular laws in another country. A good example exists in Peru, where required procedures are so specific that almost no other country’s policy can meet the terms. Regulations require employers to register every sexual harassment claim on a government portal. This includes reporting on investigations, including what measures were taken to protect employee claimants. Once investigations are complete, employers must report the disciplinary action taken and the decision-making process that led to the action.

What’s more, Peruvian law requires that employers with fewer than twenty employees designate an individual to conduct the investigation and produce a detailed report with their findings. Employers with twenty or more employees must form committees— composed of employer representatives and employee representatives—to conduct the investigations and produce the report. The disciplinary action generally falls on the human resources department, which acts as an independent body to analyze the report and make a final determination.

Collective Bargaining Agreements

When researching policies required by local law, employers may want to check whether the jurisdiction has applicable collective bargaining agreements. These agreements typically cover rules for overtime, meal and rest breaks, vacations, leave entitlements, etc. Whether employees are unionized or not, a number of jurisdictions require collective bargaining agreements based on specific criteria, such as the particular sectors or cities where employees work. This is the case in Spain, for example, where retail employees in Madrid fall under a different collective bargaining agreement than do retail employees in Barcelona.

This situation is similar in Latin America. In Brazil, for example, all employees are covered under collective bargaining agreements determined by both the geographical sector where employees are located and the industry of the company. If the industry has mixed businesses, employers must determine which one collective bargaining agreement directly relates to their core business. For instance, a company with engineers who specialize in digital marketing may have difficulty deciding whether to apply the engineering or the marketing collective bargaining agreement.

Other jurisdictions have more complex rules for collective bargaining agreements. Australia, for example, has added modern awards—legal documents that outline the minimum terms and conditions of employment—to its National Employment Standards. Different modern awards apply to different types of employees, e.g., clerical, administrative, or professional. This poses a challenge to employers that must manage different terms and conditions across multiple employee groups.

Further, some jurisdictions, such as France and South Korea, mandate that employers with more than a certain number of employees (fifty or more and thirty or more, respectively) establish employee work councils (France) or labor-management councils (South Korea). These councils have the right to be consulted on a whole host of topics that may impact employer decision-making.

All told, companies face a huge operational and administrative burden trying to determine which rules around collective bargaining agreements apply to their workforces.

Mandatory Reporting Requirements

Once employers understand the governing work rules and policies in the countries where they want to open shop, a next step would be to explore mandatory reporting obligations. In the United States, most employers are familiar with EEO-1 reporting requirements and mandatory posting obligations. When operating in other countries, employers may have to dig a bit deeper to unearth reporting requirements. We highlight some examples below, with a focus on the latest trend—reporting on gender pay and equality:

• The United Kingdom has its Modern Slavery Act, which requires certain commercial organizations to publish annual statements that outline the steps they have taken to prevent modern slavery in their businesses and supply chains.
• In Australia, companies with one hundred or more employees follow the Workplace Gender Equality Act, which requires that, each year, employers report on progress toward gender equality.
• European Union countries have new legislation that, as of 2027, will require employers with 250 or more employees to report annually on the average pay level between male and female employees. If an “unjustified” difference or a discrepancy of 5 percent or more is revealed, employers incur additional obligations, such as conducting a pay assessment.
• In Brazil, every six months, employers with one hundred or more employees are required to submit salary transparency reports—anonymized to protect employees’ data—that include remuneration for males and females. Benefits, whether cash or in kind, must be added to the reports to determine actual employee compensation.

Data Privacy/Data Monitoring

In line with reporting obligations are requirements to monitor data. The European Union has led the way with its General Data Protection Regulation (GDPR), and many jurisdictions have followed suit, creating their own GDPR-like data privacy laws.

Considerations include whether the jurisdiction has subject access rights for employees such as those that exist under the GDPR. In some Asia-Pacific countries, including New Zealand, employees have the right to request every email containing their names.

When entering a new market, employers may want to confirm that their systems (e.g., HRIS) and policies (e.g., privacy notices) are compliant with local data privacy laws. Not only are data collection and processing well-regulated, but so are cross-border data transfers. Employers must ensure that transfers (e.g., for HR decision-making purposes) meet the minimum requirements to protect individuals’ data in both countries.

Terminating Employees

Once employers have hired employees, matched policies to work regulations, established obligatory reporting procedures, and ensured compliance with local data privacy laws, they may want to determine how local laws pertain to terminating employees. Inevitably, an employee does something that is grounds for dismissal, or is not performing well, or is not the right fit for the organization. To avoid surprises, employers may want to consider this possibility ahead of time, as requirements for employee terminations vary in complexity across jurisdictions.

In the Netherlands, for example, terminations require that employers go to court and obtain approval; employers do not have the right to terminate their own employees. In Germany and Japan, employees can take employers to court if they believe they were wrongfully dismissed. If a court rules that the employer hasn’t shown sufficient grounds for termination, the remedy is reinstatement with backpay, not only damages. And the process to reach a legally binding decision can take years, resulting in large compensation payments. What’s more, the employer will still face an uphill battle to terminate the employee.

In most countries, terminations without cause are the norm because of the challenges involved when it comes to demonstrating “just cause” under applicable laws; therefore, employers are paying statutory severance, which can be shocking for new market entrants. The next jolt may be the specific rules surrounding court approval and reinstatement. Yet another possible foreign concept that employers may face regards separation agreements. Although these contracts—by which employees release their employers from any and all claims in exchange for some consideration—are routinely executed in the United States, this is not the case universally.

In certain countries in Latin America, such as Colombia, separation agreements are only valid with respect to waivable claims that are not true and certain. A separation agreement could state, for instance, that the employee is waiving all employment-related claims in exchange for some consideration; however, the employee can still sue to get compensation for true and certain rights, which are, generally, statutory rights that cannot be waived. Because the employee is not relinquishing those rights via the separation or release agreement, the employee can claim damages for unpaid entitlements.

Similar rules apply in some Middle East countries. In Saudi Arabia, an executed mutual agreement with an employee will not keep the employee from filing a claim for unpaid statutory entitlements. The agreement won’t be enforceable if the court finds that the employer failed to meet its obligations. And in some European jurisdictions, an executed mutual separation agreement is not valid without court approval.

There are even some jurisdictions, including the United Kingdom, that won’t validate an agreement unless an attorney has reviewed it. In practice, this forces employees to seek legal advice before signing an agreement. Similar regulations in Argentina mandate that both employer and employee be represented by an attorney; validation of an agreement also requires a brief online proceeding before a labor authority.

Key Takeaways

All in all, employers may want to ensure that supporting documents are legally binding before offering discretionary payments, or they may end up giving employees free money.

Unique employment law variations and complexities exist across jurisdictions. Before entering new markets abroad, employers may want to ensure they understand the complexities and differences and how to comply with the requirements in each country.

Ogletree Deakins’ Cross-Border Practice Group will continue to monitor developments and will provide updates on the Cross-Border and Global Reorganizations blogs as additional information becomes available.

Shirin Aboujawde is of counsel in the New York office of Ogletree Deakins.

Lina Fernandez is an associate in the Boston office of Ogletree Deakins.

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