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A Guide for US Employers Terminating Overseas Employees

US companies that assign staff overseas already know they will need to adapt to the employment and labour laws of the host country.  But one of the areas that can be problematic for HR departments is that of employee termination, which is largely taken for granted in the US. 

The business culture of ‘at will’ employment at home means that US employees can be terminated at any time and for any reason, and without severance unless it was negotiated in the contract.  There is no right to employment in the US, and termination is left entirely to the discretion of the employer.  However, it is a much different story when terminating employees abroad.

‘At Will’ Employment is Not Recognized in Many Countries

US employers often don’t realise that at-will employment is unique to US labour law, and most countries around the world don’t operate that way.  Instead, many foreign countries have strict labour protections in place, that favour employee rights over the interests or convenience of the employer.  These employment rights will usually supersede any terms included in the employment contract or letter of assignment, so any termination clauses should be drafted to match local standards.

Host country employment rights include just cause for termination, notice periods and severance pay, and the rules apply equally for local citizens and expats on assignment.  Although expats might not know they have these statutory protections, local employees may know the termination rules better than the US employer and will be prepared to pursue legal remedies if their rights were not respected.

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Risks of Terminating Overseas Employees

Many of our clients don’t realize that simply ending an assignment or position abruptly can bring unexpected consequences.  Employee termination carries a lot of risk and legal implications and is one of the major benefits of using an employer of record to outsource international employment.

Brand Reputation: If your company has repeated violations of termination rules, then it may be more difficult to attract local talent if they believe you won’t offer them the job security or employment rights that they expect.  The internet and social media make this information easily shared among professional groups, so your brand could suffer in the foreign market.

Legal implications and Costs: Many countries will impose penalties when a company runs afoul of termination laws, even something as simple as ignoring notice periods.  The terminated employee may also have the right to bring a claim that could exceed the statutory severance amount.  This means hiring local legal counsel and either contesting or settling claims, adding to the cost of entering a foreign market.

Case Studies

As you begin to see, there are a few best practices to be applied for terminations abroad in three distinct areas: 1) cause for termination, 2) notice periods and 3) severance payments. 

Cause for termination: always know the allowed causes for termination and put them in writing when you issue the written notice.

Notice periods: these vary from country to country, and unless the employee commits a criminal or grossly negligent act, you must follow the notice period rules.

Severance: some type of severance is often statutory, even if you were not aware of it.  In some cases, severance must be paid even if the termination is voluntary or planned ahead of time such as repatriating an assigned employee home.

Here are some case examples that we’ve helped our clients with that illustrate what you will need to watch out for:

Terminating an Employee in Netherlands

Issue: Reasons and just cause for termination

 The Netherlands, like most European countries does not allow termination of employees without a good reason.  Here are the standards:

  • Termination for Gross Misconduct: you have to be able to prove the conduct occurred.
  • Dismissal on Poor Performance: if the employee has underperformed, in order to dismiss him you have to go through a process of giving a warning, documentation, and then attempt to improve performance. Once you decide to terminate you must go to court for verification or agree to a settlement.

Shield GEO Solution:  This is a situation we helped one of our clients with after one of their employees was found to be underperforming. The relationship between the client and employee was strained and the employee was unhappy. We were able to get in-country legal expertise to advise our client about the situation and local regulations, avoiding any serious repercussions.

  • Labour Office: if your company is in financial difficulty or is restructuring you can take your case to the Labour Office in order to dismiss based on verifiable economic or business reasons.

Terminating an Employee in Canada

Issue:  Transferring between employment entities

Another type of problem came up for one of our clients in Canada, where they had employees being transferred from our GEO employer of record to the client’s new corporate entity. 

This might seem straightforward, but under Canadian law there was a formal termination from the GEO prior to re-employment by the new entity.  This was the case even though there would not be any interruption of work or compensation for the employee.  Nonetheless, the Canadian rules had to be followed, which also provided for severance pay.

Shield GEO Solution:  What this meant was that we needed to prepare a T4 summary of earnings and deductions and send them to the employee.  We took care of all the calculations and answered the employee’s questions about the transfer and how to file the right forms, as well as accounting for taxes and retirement contributions.

Terminating an Employee in Saudi Arabia

Issue: Termination by non-renewal of contract

Termination, notice and severance laws are strict in Saudi Arabia, and have the following guidelines:

  • Notice: 60-days notice is required on open ended contracts, and 30-days notice for fixed term.
  • Cause: the notice needs to be in writing specifying the cause.
  • Severance: if there is not a valid reason for termination the employee is entitled to two months salary.  If it is a fixed term contract, the employee receives the balance of the owed wages for the entire term (minimum two months).

Shield GEO Solution:  because of the 30 days notice required for fixed contracts, we advised our client that they could not simply terminate the employment by letting the contract expire.  They would need to give valid, written notice at least 30 days prior to the contract’s end date to be in compliance. 

The Shield GEO Solution

These examples clearly show the value of having Shield GEO as your partner for international assignments.  Through our in-country experts we handle every aspect of employment, payroll and immigration for your employees to ensure ongoing compliance with local rules and regulations.  For our clients, we make international employment simple.

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