In a shrinking world and expanding marketplace, a growing number of U.S. employers are encountering international employment law issues. Whether employing Americans in workplaces abroad, partnering with foreign entities abroad or employing foreigners at home, employers must determine which U.S., foreign or combination of laws apply to their specific situations. This chapter outlines developing issues facing U.S. employers in a globalized economy. Employers who fail to conduct proper due diligence into international employment law issues may face severe sanctions resulting in fines and the possibility of incarceration and even potential business failure. This chapter briefly addresses various issues to demonstrate the variety of laws that may arise. Employers are strongly advised to seek legal counsel for specific advice.
Considerations for U.S. companies when employing U.S. citizens abroad
American companies employing U.S. citizens abroad are subject to some of the same federal anti-discrimination laws as domestic employers. While the foreign workplace was once seen as a haven from federal employment laws, the Supreme Court has ruled that federal statutes may be applied extraterritorially if specifically mandated within the statute. In 1991 Congress amended Title VII of the Civil Rights Act (Title VII) and the Americans with Disabilities Act (ADA), to state specifically that American citizens employed abroad by U.S. companies or by U.S. controlled companies, are protected by the statutes. The Age Discrimination in Employment Act (ADEA) already contained similar extraterritorial language.
Title VII of the Civil Rights Act
The scope of Title VII of the Civil Rights Act is discussed in Chapter 12: Discrimination. Congress amended the definition of “employee” to read: “With respect to employment in a foreign country, such term includes an individual who is a citizen of the United States.” The amended act also encompasses foreign businesses controlled by an American entity. The act states that “if a [U.S.] employer controls a corporation whose place of incorporation is a foreign country, any practice prohibited by … [Title VII] engaged in by such [foreign] corporation shall be presumed to be engaged in by such [U.S.] employer.” The act specifically excludes foreign employers not controlled by an American company.
Americans with Disabilities Act
The scope of the Americans with Disabilities Act (ADA) is discussed in Chapter 13: Disabilities and reasonable accommodation. The extraterritorial application of the ADA is the same as that of Title VII.
Age Discrimination in Employment Act
The scope of the Age Discrimination in Employment Act (ADEA) is discussed in Chapter 12: Discrimination. The ADEA was amended in 1984 to protect employees of U.S. companies or their subsidiaries, working abroad.
The doctrine of foreign law defense
Liability arising from violations of the anti-discrimination laws discussed above by a U.S. corporation or its foreign affiliate employing U.S. citizens abroad does not apply when enforcement of the law would violate the law of the country in which the employee works. Employers should review the following factors when determining if the foreign law defense will apply to an alleged discrimination:
- The employee must be employed in a foreign country.
- The defense must result from a law of a foreign country.
- Compliance with U.S. law must “cause” a violation of foreign law. In other words, it must be impossible to comply with both the U.S. law and the foreign law.
- The conduct must be governed by a law of the foreign country, not merely a custom or preference. Examples of customs and preferences that would not qualify as foreign law defenses include:
- employers’ corporate charter registered with a governmental agency
- employers’ rules, regulations or policies
- preferences of the host country.
- The foreign law violated must be the law of the country where the employee works.
U.S. employers abroad and foreign laws
U.S. employers with workplaces abroad may be subject to significantly different employment laws of the host country than they are familiar with domestically. One example is the liberal family and maternity laws of many European countries.
Similarly, employees in Mexico can enjoy liberal lifestyle requirements, such as eight-hour maximum workdays, at least one paid day off each week, mandatory bonuses and vacation times. Moreover, an employee terminated without just cause is entitled to receive three-months’ wages, 20-days salary for each year employed and any salary accrued from the date the employee was fired to the date the employee receives payment for the amounts owed. The laws vary significantly from country to country and these examples demonstrate the importance of becoming familiar with the laws of the host country.
U.S. anti-discrimination laws and overseas businesses
To ascertain whether anti-discrimination laws in the United States apply in a foreign country, the following information is required:
- Determine whether the individual is a U.S. citizen.
- Confirm whether the employer is a U.S. entity or is controlled by a U.S. entity. If the company is not incorporated in America, the nationality of the owners may be a factor. Some factors to consider in determining if the employer is controlled by an American employer are the extent of common owners, directors, managers and employees.
- Determine the applicability of the foreign law defense and whether compliance with a U.S. anti-discrimination law would violate the foreign laws of a host country.
Discrimination by foreign employers within the United States
Absent constraints imposed by a treaty or binding international agreement, Title VII of the Civil Rights Act (Title VII) applies to foreign employers if they discriminate within the United States. By employing individuals within the United States, a foreign employee invokes the benefits and protections of U.S. law.
As a result, the employer may be subject to Title VII enforcement proceedings should a charge of discrimination arise from the foreign employer’s business in the United States. The EEOC also seeks to enforce ADA protection against foreign employers who discriminate on the basis of disability in the United States.
When a U.S. employer partners with foreign states and businesses
Determining the nature of the relationship with the foreign entity
The Equal Employment Opportunity Commission (EEOC) determines the status of the relationship between a U.S. business and the foreign affiliate on a case-by-case basis. This determination is the first step in deciding whether U.S. anti-discrimination laws apply to a business employing U.S. citizens abroad.
If the EEOC determines that the business is either a U.S. or U.S.-controlled company, federal anti-discrimination laws may apply.
The EEOC provides the following general guidelines to aid in determining an employer’s nationality:
- entity’s place of incorporation – an entity incorporated in the U.S. will generally be considered a U.S. employer because it has taken advantage of U.S. laws, even if the entity conducts a majority of its business abroad
- entity’s principal place of business
- entity’s contacts within the United States
- nationality of dominant shareholders and/or those holding voting control
- nationality and location of management.
An otherwise foreign employer may still be subject to U.S. anti-discrimination laws if it is controlled by a U.S. corporation. Title VII lists four factors used to determine whether a foreign entity is controlled by a U.S. entity:
- interrelation of the operations
- common management
- centralized control of labor relations; for instance, the American company institutes corporation-wide personnel policies and the foreign entity is not authorized to change compensation, benefits or operating conditions without prior approval from American company
- common ownership or financial control of the employer and the corporation.
U.S. entities operating abroad
Note that the above rule does not apply to a U.S. company operating abroad, but controlled by a foreign entity, even though the enterprises may be integrated. Additionally, U.S. anti-discrimination laws protect U.S. citizens employed abroad by U.S. companies, except where the doctrine of foreign law defense applies.
Foreign entities controlled by U.S. entities
Foreign entities controlled by U.S. companies are treated as U.S. employers for purposes of anti-discrimination issues. Otherwise, U.S. companies could circumvent federal anti-discrimination laws by employing U.S. citizens through foreign subsidiaries. The U.S. anti-discrimination laws create a presumption that the actions of the subsidiary are the actions of the U.S. corporation.
Some factors that can determine whether a foreign entity is controlled by a U.S. entity include:
- establishment of corporate-wide personnel policies
- involvement of U.S. corporation in personnel decisions
- whether U.S. corporation selects board members
- the foreign subsidiary is not authorized to change benefit plans or operating conditions with prior approval
- extent of involvement of U.S. corporation in benefits and policies of foreign entity
- U.S. laws and non-U.S. citizens employed abroad.
Anti-discrimination laws apply abroad only when the employee is an American citizen. Foreign employees generally may not file suit in the U.S. courts. The foreign employee may sue, however, in the appropriate foreign court, subject to applicable laws.
Alien Tort Claims Act
Application of Alien Tort Claims Act in U.S. courts
The Alien Tort Claims Act (ATCA) grants federal district courts original jurisdiction over any civil action by an immigrant for a tort committed in violation of the Law of Nations or a treaty of the United States. Since 1993, lawyers in the United States have filed 36 corporate human rights suits in attempts to hold transnational corporations accountable for human rights violations abroad.
Under ATCA, some judges have allowed immigrants to sue a U.S. corporation for abuses they suffered while employed overseas. Plaintiffs may allege that a U.S. company knew or should have known about illegal tactics to procure a labor force for the company, even if the tactics were committed by other parties, including the government of the host country. Under this theory, businesses operating abroad will need to be careful when partnering with foreign entities and may need to monitor how the foreign entity operates to prevent violations of the law.
Effects of increased media and labor department attention concerning working conditions abroad
Scrutiny of the behavior of U.S. corporations abroad is no longer restricted to the EEOC and other government agencies. The apparel industry, for instance, has come under harsh attack in the media for its perceived labor abuses abroad. The use of child labor in foreign countries has caused national and international concern. For instance, many U.S. companies have suffered damaging publicity from reports of child labor practices. Additionally, companies have been the center of complaints by the AFL-CIO regarding NAFTA-related violations of wages, time off and freedom of their employees to associate.
The increase in negative media attention has led to proposed initiatives aimed at reducing the violations. Efforts include promoting the Apparel Industry Partnership with Workplace Code of Conduct and the Department of Commerce’s “Model Business Principles” and “Best Global Practices.” These efforts call on international employers to voluntarily provide employment conditions similar to those required in the U.S. Common goals of these initiatives are to develop minimum wages and maximum overtime, seek compliance with child labor standards and eliminate forced labor. Participation is not mandatory, but the Apparel Industry Partnership illustrates how industry pressure might force unwilling participants to join. A partner who can boast of fair wages and the absence of sweatshop conditions may gain a valuable edge in the global marketplace.
Foreign countries may no longer serve as bastions of cheap labor and minimal oversight. U.S. companies must assess what U.S. and foreign laws apply to a given situation. The successful international employer will work to avoid potential liabilities associated with international employment law.
As the world becomes an increasingly globalized marketplace, U.S. employers with international operations must take employment issues into consideration. Some countries require U.S. companies to incorporate in the foreign country, hire foreign nationals and comply with numerous restrictions. U.S. companies must conduct a thorough due diligence review before commencing operations overseas. U.S. anti-discrimination laws, foreign employment laws and U.S. immigration laws have a direct influence on the success or failure of international endeavors. Any successful employer will take heed of these trends and seek domestic and international counsel to assist in navigating this developing area of employment law.