Cross-Border Catch-Up: USAID’s Stop-Work Order—Strategies for Global Employers

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Maya Barba: Welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. I’m Maya Barba, and I’m here with my colleague Patty Shapiro. We’re cross-border attorneys at Ogletree, and today we’re discussing something pretty critical, the impact of the recent USAID stop-work orders on global employers. Thanks for joining us today, Patty.

Patty Shapiro: Thanks for having me.

Maya Barba: All right, let’s get into it. For those who might not be familiar, can we start with a quick overview of what’s going on with the recent USAID stop-work orders? Could you break it down for us, and explain what exactly that means for global employers?

Patty Shapiro: Absolutely. So, USAID stands for the United States Agency for International Development, and they fund a lot of global projects, so humanitarian aid, economic development, things like that in other countries. On January 20th of this year, the new administration issued an executive order calling for a ninety-day pause on all foreign aid. So, USAID had to issue a blanket stop-work order, which is what it’s called to all of its implementing partners around the world to immediately pause all USAID-funded activities. And what this means is that organizations that receive that funding have suddenly had to stop all of their affected projects, and many organizations have found themselves without any money to pay their workers or to continue to meet their obligations as an employer in another country. So, they’ve had to make some very fast and urgent decisions on what to do. In the U.S., there’s a lot more flexibility, as you know, so employers can put employees on furloughs or end their employment because of at-will employment. But outside of the U.S., employment laws are much more protective of employees.
So, these employers now have to decide if they’re going to try and suspend agreements to the extent that’s viable under local law or potentially terminate these individuals because they can’t continue the project or meet their obligations. And, in some cases, depending on the country, this could mean that there are various monetary costs like statutory severance or notice or pay in lieu of notice. And there could also be procedural requirements like the consultation process with the employees or their representatives and potentially even to the local government. And what we’ve seen is some groups have actually had to decide whether to furlough U.S.-based staff because they have more flexibility here in order to free up funds to continue to meet their obligations for their employees in other countries.

Maya Barba: Thanks, Patty. Wow, that’s a lot to navigate. Given this, could you talk me through some of the options that are available to employers that are impacted by this? What can they do to manage their workforce during this time?

Patty Shapiro: Yeah, so there’s a handful of options whether or not they work in either country, any particular country depends on the employment laws of that country. But the first one that often comes to mind are these unpaid furloughs. So, especially in the U.S., an employer can place an employee on an unpaid furlough, but in other jurisdictions you might need employee consent to do that, or you might have to notify the government in order to do that. Another option is a temporary pay reduction or, in some cases, a permanent pay reduction. Again, this could require employee consent, and it often does. Another option is to require employees to use any accrued vacation or PTO. In some countries you can, in some countries you can’t. You may be seeing a theme here and then the final option, if there is nothing else to do, you may have to terminate the employees. So, by making them redundant, that comes with its own set of legal obligations and could require a very specific process. It just depends on the country.

Maya Barba: Let’s start with furloughs. I know you touched on it a little bit, but could you explain what a furlough is for anyone unfamiliar?

Patty Shapiro: Yeah, so a furlough is a temporary leave of absence usually without pay. And the key difference between that and a layoff is that employers usually expect furloughed employees to return to their jobs once the situation improves. So, it’s often used when employers need to cut costs temporarily, but they want to keep their workforce when that work picks up. Again, unfortunately, in most countries outside of the U.S., this is either not an option at all or it at least requires employee consent, which means an employee agreeing to not receive pay for a certain period of time, which practically speaking could be unlikely.

Maya Barba: Where furloughs are an option, how do employers manage that? Are there steps that they need to follow? I imagine this varies a lot based on the jurisdiction, but maybe at a high level you could talk us through that.

Patty Shapiro: At a high level, when it is allowed, it’s often going to require at least some sort of formal notice from the employer. And usually that has to include the furlough terms. So, for example, how long it’s going to last, when employees can expect to return, and in some countries, there may also be a requirement to notify the local labor authorities.

Maya Barba: All right, so sounds like the formalities vary. Could we next talk about pay reductions? Is that an option for employers who are impacted by this?

Patty Shapiro: Yeah, so, in some countries, you can have a temporary pay reduction, and in others, you may few, but you may be able to do a permanent pay reduction. Oftentimes, it’s going to require employee consent, which again is a challenge because no employee wants to agree to receive less money, but there are occasions where employers can do it unilaterally. And, in those cases, though, some countries still require employers to retain a base amount, so obviously, it wouldn’t be below minimum wage. In some countries, it could be, for example, a unilateral pay reduction, as long as it does not go lower than two-thirds of the employee’s typical salary. So, it just depends on how much flexibility employers have there.

Maya Barba: Okay, I see. What about if the employer wants to reduce pay indefinitely? How does that impact or complicate the analysis?

Patty Shapiro: Yes, there are places where you can do an indefinite pay reduction, but it’s often going to be a lot riskier, especially if you’re not able to get employee consent because it is considered an essential term and condition of employment. Not only may employees just not agree, but there could be this issue of whether an employee perceives that they were forced to agree, so it wasn’t actually a voluntary agreement. So, definitely a lot trickier and one of the options of last resort.

Maya Barba: Okay, I see. So, another question that we’ve been working through is about paid time off. Can employers require employees to use their paid time off during this time?

Patty Shapiro: It depends, as with everything, but in some countries, yes, you can unilaterally ask that employees take their vacation for a certain period of time. It also may depend on the employer’s policy. So, even if it’s not a legal requirement, depending on what the policy is, there may be a contractual obligation to not mandate vacations at any particular time. So, this one’s unique in that you need to check both policies and the local laws.

Maya Barba: All right, that makes sense. So, moving on, let’s talk about terminations. Do employers have grounds to terminate employees because of the stop-work order?

Patty Shapiro: So, maybe, but it’s tricky because the stop-work order is intended to be a pause for no more than 90 days. And during that 90-day period, a decision is made of whether or not to cancel the contract. So, it’s not necessarily a force majeure event at this point. At least some countries wouldn’t consider that something that could be relied upon to end an employment relationship. But it is possible in some places, and it would be considered what’s called a collective redundancy.
So, basically a mass, dismissal mass layoff, and there can be a whole bunch of different procedures required in that there’s often some consultation needed with the employees or the representatives and notice and sometimes statutory severance requirements, it’s a little trickier than just an individual termination most of the time. But that could be an option if push comes to shove. And with that said, if some of the contracts we’ve seen have actually been terminated for convenience by the government, and in that case, the project is completely ended, and so the employer really has no choice but to offboard them and their employment in accordance with local law.

Maya Barba: All right, interesting. So, going off of that, if they do need to terminate their employees, I’m wondering about termination payments. Are employers still obligated to make those even under these circumstances?

Patty Shapiro: Yes, unfortunately, there is not a lot of flexibility, even though this is something that’s occurred in the U.S., under U.S. law that doesn’t necessarily give employers an out in other countries from other countries’ employment laws. So, there will still be obligations to follow the local termination procedures and including the termination payments that are due, which like I said, could be notice, or pay in lieu of notice statutory severance, any accrued but unused leave, and of course any outstanding wages that may be due.

Maya Barba: Those are really important points. Thanks so much for this overview. Patty, before we wrap up, do you have any final thoughts you want to share?

Patty Shapiro: Yes, I think we should emphasize that this is an active issue, and there’s been a lot of developments that are happening and will continue to happen. Recently a federal judge issued an order to basically rescind the stop-work orders to require the administration to continue the funding, but that’s still being actively litigated. So, at this point, for the most part, what we’re seeing is a lot of organizations are still not receiving that funding. So, they’re still in this position where they have to make a decision. And irrespective of that judicial order, a lot of contracts have already been terminated. So, the government has officially said that they’re no longer going to pursue this project, and in those cases, the stop-work order is irrelevant. They still have to address their workforce because they will not be continuing with the project.

Maya Barba: Thanks so much for that, Patty. It’s been really wonderful to have you share your insight with us today.

Patty Shapiro: My pleasure. Thanks for having me.

Maya Barba: And that’s a wrap on this episode of the Cross-Border Catch-Up. Follow us to stay in the know about cutting-edge employment issues worldwide.

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