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Navigating The Minefield of International Assignment Terminations

Terminating employees is rarely straightforward. However, when it comes to employees on assignment, Global Mobility teams often struggle to know exactly how that extra layer of complication – the assignment – will impact a termination. This area has the potential to become a minefield  – from extra costs to litigation and damaged reputations. GM professionals are usually aware of the tax and immigration implications of assignments, but are less comfortable discussing potential legal issues. Terminations can bring this to the fore, and with good reason – this is one area where a little bit of knowledge can potentially be a dangerous thing.

The best advice is simple – take advice. This cannot be overstated. No one expects a GM professional to be an employment or immigration lawyer, or a tax professional. Exiting someone from the organisation, though often overlooked, has just as much if not more potential for compliance issues and unforeseen cost than the initial assignment, given that there may be hard feelings on the part of the employee, and host country legislation may be unfamiliar. Here GM teams have a chance to step up – just being aware of what could potentially be a problem can go a long way to smoothing over a difficult termination.  The most important thing to accept is that you’re going to need professional advice across the board – from employment lawyers, tax advisors and immigration lawyers.

It’s vital that this advice is provided as early as possible, and an overview of every aspect of advice (tax, immigration, employment law) is gained simultaneously, so that proactive decisions regarding when to terminate and where to terminate the assignee can be made taking into account all potential pitfalls. The earlier you have a full picture, the more likely you are to be able to navigate the minefield.

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Employment law and Contractual issues

It’s a common misconception to believe that the applicable law concerning an assignment is always as per the contract. This is not always the case. In some countries, employees gain rights under local legislation simply by virtue of working there – and sometimes this legislation can override the contractual position. Your employee may have a right to bring a claim against you in the host country even if the contract states that their assignment is governed by the laws of the home country. Repatriating the assignee prior to termination will not necessarily negate this risk. For this reason alone, early discussions with an employment lawyer are vital.

It’s probably also worth getting an employment lawyer to check your existing contract and assignment letter templates to ensure that the termination clauses are worded appropriately for assignment scenarios. For example, older contracts often state that notice must be given in writing and delivered by post – hardly an appropriate position for someone on assignment, and a potential point of contention.

When notifying the assignee of a termination, it may sound obvious, but do remember that terminating the assignment is not the same as terminating the employment. Usually, an assignment letter will contain its own notice period but this is notice of the end of assignment only – their home country employment contract will still be active, and notice must be given under the terms stated in that contract in order to terminate the actual employment. Notice periods should be able to run concurrently – but it’s important to take advice on this.

Similarly, consider what is in place with regard to internal policies on termination, grievance and disciplinary issues. Should home or host country policies apply? Many assignment letters vaguely advise assignees that in the event of a grievance they should contact “HR”, or follow “the Company’s” procedure. But which HR – home or host? Is there one procedure globally for the Company or various by location? Be proactive and take advice on these issues before they escalate.

Tax issues

Termination payments can be costly. Unfortunately, there is no one rule regarding how these are treated for tax purposes in an assignment situation. Certain elements of the termination payment (payment in lieu of notice (PILON), leave accrued, contractual payments) may be treated differently by different jurisdictions – there is no one size fits all approach and advice is essential. Remember that some countries require that any outstanding tax due is paid in full prior to the final departure of the assignee.

Also consider the timing of any termination payments and repatriation implications – whether a new tax year is breached, or residency inadvertently re-established due to early return.  

Similarly, social security liabilities will need to be checked – if the assignee has a Certificate of Coverage and is still paying in the home country, any termination amounts should be subject to tax there – but if not, this will require review. Again, take advice. 

Immigration Issues

Many countries have exit requirements – notification to the authorities and formal surrendering of the work permit are frequently required, sometimes within a particular timeframe. The individual may also be required to notify the authorities that they are leaving the country. Aside from the potential for penalties, compliance with exit regulations will retain your company’s good reputation and shows good intent.

Assignment Benefits

Consider what will happen to any ongoing commitments should you terminate an assignment midway through. Does the assignee have a lease that still has some months to run, or school fees paid up for a particular period? What will happen when they arrive in the home country if their property is also mid tenancy? How you approach these issues will likely depend upon the circumstances surrounding the assignee’s departure, but if they are not at fault, is there a moral imperative for the company to take these extra costs?

Global Employment Company Implications

If you are using an Employer of Record service, like Shield GEO, the EOR handles the termination process in the host country and their in-country experts have invaluable experience of local employment regulations.

Shield GEO can advise clients on what is required, what the standard practices are and also any changes in legislation to watch out for. However, the client continues to direct the employee and so it is important that the client communicates closely with the EOR.

The EOR and client need to act together to make sure that the proper process is followed and there are no surprises. e.g. a client might think, based on their home country experience, that they are building a case for terminating an employee with cause. But if they don’t follow the procedures of the host country this might have no validity.

Just as we recommend you check with your employment lawyer before you terminate an assignee, you should also check with your Employer of Record service before taking any action.

According to Natalie Nguyen of Shield GEO, having an employee leave prior to informing the local team is one of the most tricky aspects for an Employer of Record to handle. “By the time we are notified, the employee has already gone and we have to work backwards” she says. This has many implications including potential overpayments of salary to difficult re-entry for the assignee if they try to revisit their host country when exit formalities were not correctly completed.

Also, be aware that when you’re terminating locals in a country that you aren’t well acquainted with, it can be challenging because the employees are likely to know more than you about host country legislation. Early engagement with your employer of record can help level the playing field and mitigate these pitfalls.

For the GM specialist, terminating assignments offers the rare chance to step up and take the lead where HR generalists may struggle – but it is important that you acknowledge that you cannot do this without external professional advice. Sometimes, the key to great service is simply knowing when to call in the experts.

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