COVID-19 has had significant implications on how employers engage a workforce—particularly with respect to U.S. immigration. The employment changes caused by the pandemic, combined with President Donald Trump’s recent proclamation prohibiting certain H1-B, H-2B, L-1, and J-1 visa beneficiaries from entering the United States, may forever change how U.S. employers engage non-U.S. nationals. In particular, without the opportunity to resume or start the employment of foreign nationals in the United States, employers are forced to consider remote cross-border engagements, including hiring foreign nationals in their home countries or, in cases where individuals are stranded away from home due to COVID-19-related restrictions, in other countries. The European Union’s recent announcement easing entry restrictions on some countries—but not the United States—signals that this phenomenon is relevant elsewhere as well.
U.S. employers engaging foreign nationals abroad, however, face risks from a local immigration, employment, tax, benefits, and intellectual property/restrictive covenants perspective. As such, employers with workforces stranded outside of the U.S. may want to carefully consider all of the angles before determining whether to engage new hires or to continue to employ individuals abroad and to properly document the arrangement to set expectations with these employees up-front. Below are some key issues to keep in mind, as well as some best practices employers can consider when accommodating employees who are restricted from entering the United States while limiting the potential exposure to the employer.
As a companion to our Global Solutions podcast series, we detail the major considerations below. In addition to our podcast, employers facing various remote cross-border engagement scenarios may find it useful to use a reference questionnaire and document checklist.
Generally, there are five critical areas of consideration: (1) immigration; (2) employment; (3) tax; (4) employee benefits; and (5) intellectual property, along with the local enforcement of restrictive covenants, which is particularly important for employers in the technology sector.
1. Immigration Considerations
If the employee is a citizen of the country in which she or he is working, this is not an issue. However, COVID-19 has left many individuals stranded in countries of which they are not nationals. Immigration laws and visa requirements vary from country to country and the process of obtaining the appropriate visa or other permit in order to legally work in the host country can be challenging and time-consuming. Often, if the employer does not have a legal presence, it cannot sponsor a work permit. As such, employers may want to consider alternatives, such as finding a local affiliate, partner, or professional employer organization (PEO) in the host country to sponsor the employee.
2. Employment Considerations
Most countries apply the “territoriality principle,” meaning that the law of the jurisdiction in which the services are being rendered applies. For the most part, there is no at-will employment outside the United States, and most countries mandate statutory benefits, such as termination protections (notice/severance), bonuses, social contributions and vacation and vacation pay. While it is certainly onerous to enforce a local judgment against anon-present employer, it is not impossible, and it can create unintended costs and consequences for a U.S. employer. Therefore, employers may want to document the relationship with an eye towards continuing the U.S. employment relationship—and not creating a local one—to the degree legally possible. Moreover, when it is time to terminate the relationship, employers may want to be prepared to make an ex gratia payment in exchange for a release if the employee remains in the host country.
3. Tax Considerations
Engaging a remote worker may involve several tax considerations, including payroll and corporate taxes. For example, in the absence of an applicable tax treaty or totalization agreement relief, an employer may have an obligation to pay payroll taxes in the jurisdiction in which the employee is working, and not in the United States. However, without a local presence, it may be difficult to effectuate this. In fact, most countries require, at a minimum, the employer to register in-country, which many companies want to avoid.
For these reasons, it is worth considering—particularly if it appears that the assignment will be long-term—whether a local affiliate, partner, or PEO can assist with payroll tax compliance. Similarly, in many countries, the mere act of engaging an employee can trigger a determination from the local revenue authorities that the U.S. employer has a “permanent establishment,” which can create local corporate taxation obligations for the U.S. entity. However, many countries are relaxing these tax rules in light of the COVID-19 crisis.
4. Continuation of U.S. Benefits and Workers’ Compensation Considerations
Employees stranded outside the United States will generally continue to be on the employer’s U.S. payroll and participate in company benefits plans, such as 401(k) and health and welfare plans. However, such plans are generally not drafted to include employees working outside the United States. The qualified status of Employee Retirement Income Security Act-governed plans can be put in jeopardy if a remote work arrangement contravenes the terms and conditions of the plan. Likewise, U.S. medical benefit plans may not apply to employees who become ill overseas.
Similarly, although there are some exceptions depending on the state, workers’ compensation statutes generally do not apply outside the United States. As a result, the employee may be free to sue under tort theories, such as negligence and intentional infliction of emotional distress, and will not be limited to far less extensive remedies available under a highly-regulated workers’ compensation regime. This scenario can result in costly results for the employer, depending on the nature of the injury. For these reasons, employers may want to review their U.S. benefit plans and state workers’ compensation laws to ensure they are not taking on unnecessary risk in allowing the remote work arrangement.
5. Intellectual Property and Restrictive Covenant Considerations
An often-overlooked consideration particularly for employees who develop or create intellectual property is whether the employer can actually enforce its rights to such intellectual property outside the United States, especially if an employee is unable to return to the United States. As with the employment and tax laws discussed above, local employee-related intellectual property laws will likely apply to materials created while in those countries. However, because most employers want to avoid becoming subject to the jurisdiction of the country in which the workers are located, these individuals may not have locally-compliant employment contracts effectuating the transfer of such intellectual property rights.
Moreover, it would be difficult for a U.S. employer to enforce its rights locally without potentially exposing itself to a viable employment-related claim (i.e., in some countries it may be hard to argue that the U.S. employer is not submitting itself to local jurisdiction for employment claim-related reasons, but it is for intellectual property-enforcement purposes). The same goes for restrictive covenants, such as noncompete agreements, which are unenforceable entirely—or at least without significant compensation—in many countries. For this reason, employers may want to consider setting the expectation that the U.S. employment relationship continues along with the employee’s obligation under that relationship, but being prepared for the employee to argue otherwise, particularly if the relationship sours.
Due to COVID-19 and government-imposed restrictions on international travel, cross-border remote work arrangements may become the norm rather than the exception. However, they are not without multifaceted risks. Therefore, employers may want to carefully assess and determine how to manage risks before remote work arrangements are granted. Employers may also want to properly document remote work arrangements, and to set appropriate expectations for employees. As with most employee relations issues, good documentation and proper messaging can go a long way.
The Ogletree Deakins Global Solutions podcast series provides employers with insights into a new challenge each week, providing tips for multinational employers to help them achieve their goals efficiently through an unprecedented volume of new COVID-19–related laws and guidelines worldwide. Stay tuned for our next episode, in which Ethan G. Isaac and Daniel D. Dauplaise discuss what to watch out for when implementing teleworking, including workplace safety requirements, cost reimbursements, and more.