Have questions? Ask us!

Comparison of Termination Policies

One of the inevitable realities for companies employing people either at home or overseas is the periodic need to terminate employment.  Most often, the reasons that may justify termination will be spelled out in the employment contract, but in many countries there are statutory guidelines as well.  It is useful to understand the laws that will apply to termination prior to employing people in any country, as well as what laws from the home country may also affect employee rights upon termination.

What Are The Primary Types of Termination Policies In Place?

‘At Will’ Termination – The US Approach to Termination

In the US, most employment is presumed by law to be “at-will” with no guarantees against termination by the employer, and no statutory laws on notice and severance.  What this means is that an employee can be terminated without cause, at any time.  In addition, many employers will include “at-will” termination clauses in a contract that ensure that the employee recognizes and agrees that they can be terminated without cause.  Many employees sign these contracts knowing they have no alternatives if they want the position.

Subscribe to get more insights like this.

The US differs from many countries where ‘at will’ employment is less common, and there are greater statutory protections for employees regardless of the terms of the contract.  However, some US employers may specify only a few reasons that justify termination, such as commission of a crime, and in that case the employment is not entirely ‘at will’, and can only be terminated for specific contractual reasons.

Country Example:  US Discrimination Laws

The statutory exception in the US for ‘at will’ employment termination are the state and federal laws that prohibit discrimination.  For example, even at ‘at will’ employees cannot be fired for reasons based on age, gender, race, nationality, and religion, or for alerting authorities to workplace safety issues.  In these cases, lawsuits can be filed against the employer for damages suffered by the employee.

Since these are the primary statutory protections awarded to US employees, the result is that even fully justifiable employee termination can motivate a disgruntled employee to bring a discrimination suit.  Both US employers and foreign companies with US subsidiaries are subject to the law, and are advised to document all circumstances of any employee firing.

Redundancy

In some countries, an employee may be terminated for reasons of ‘redundancy’, where the job function is no longer required as part of the employer’s business.  In case of redundancy, there may be notice periods and severance pay requirements set out by statute to protect employee rights.  This type of termination is without any cause on the part of the employee, thus granting statutory protections and compensation.

Termination With Cause

Whether specified in the employment contract, or according to employer discretion and policies, termination with cause effectively curtails all employment rights, including notice periods and severance pay.  Causes can range from criminal activity, theft, drug and alcohol abuse to providing false information on a job application.  Most countries do have some statutory justifications for termination with cause, even if the jurisdiction is heavily pro-employee.

Country Example:  Termination in China

While in most cases, terminating an employee in China (local or foreign national) requires both cause and a severance payment, there are circumstances spelled out in the labor laws where an employee can be fired without notice or severance.  These instances include criminal liability, deception or breach of employment regulations.

Effects of Employment Contracts and Statutory Protections on Termination in Specific Countries

Many countries require that employees be given written employment contracts, which must conform to local labor laws.  These laws will often spell out in detail under what conditions employment can be terminated, and whether notice periods are required.  These laws are designed to protect employee rights, and in some countries can make it difficult to terminate an employee even for cause.  Most jurisdictions will default to protecting the rights of local employees, especially where the employer is a foreign subsidiary.

Country Example:  UAE Employment Statutes

In most jurisdictions, even if an employment contract specifies shorter notice periods for termination, such as two weeks, if there is a statutory minimum of four weeks then that will supersede the contract.  In the UAE, the statutory notice period is 30 days, and the employee is entitled to full compensation during the notice period regardless of the terms of the employment contract.  In addition, termination without cause could result in penalties against the employer of up to three months wages.

Country Example:  Germany

While Germany’s civil law system gives weight to the employment contract just as in the US, there are also very specific labor laws in place that affect notice and termination.  For example, there are clear guidelines on the form and delivery of any notice letter, notice periods are determined by length of service, and the causes of termination are limited to “socially justified’ reasons.

For this reason, it is essential to research and understand the employment laws of a particular country before actually hiring and contracting employees, and in many cases having ether employment law specialists or legal counsel is advisable.

Overseas Assignments and Choice of Applicable Law

One complex issue that does arise in the case of an expat work assignment is what law will apply to any termination.  For locals in the host country, that jurisdiction will almost always control the termination policy and terms.  However, for foreign nationals, a company must also consider the laws of the home country.  For example, an employee working for a US company in the UAE would have broader employment rights under the laws of the UAE, rather than the US ‘at will’ employment policy.  If terminated, the employee could choose to invoke the UAE policy against unjustified firing, along with the statutory remedies.

In general, an employer should specify in the employment contract which country’s laws will apply to any termination, although that may be meager protection in a host country where statutory labor law will take precedence over terms of the contract.  One approach is to assume that the most liberal (pro-employee) employment law will be applied to any termination, and then act accordingly during any termination process.

Get in touch to find out more about how an Employer of Record solution can help your company

Related Articles

Join 5000+ employers managing overseas employees

Subscribe for tips on hiring and managing international workers!