Written on 6 July 2017

Emma Ladley – Senior Associate

Expanding your business into new countries and markets brings with it great opportunities – it also presents some challenges! Getting your hiring right is key to maximising the opportunity. We’re not only talking about getting the right person for the role but also ensuring that they are hired in line with local laws and practices – here are our top tips for getting this right…

(Mis)classification

If you’re looking to test a new market or grow more gradually without committing to a permanent headcount in a country, there are options to consider. A query we often receive is whether someone can be hired as an independent contractor rather than an employee. This may well be an option but there are tax and employment status risks that need to be reviewed. Each jurisdiction has different tests to determine whether someone is genuinely an independent contractor or whether the reality of the situation is that they are an employee – and, importantly, this will override the label that the parties give to the arrangement.

In the UK this is an area that is increasingly under scrutiny from both the tax authority (with the interest and penalties that can entail) and also Employment Tribunals (determining whether employee rights such as paid holiday and termination protections apply). Other jurisdictions are also very alive to this issue with the increase in gig economy work models.

Where someone is taken on as an independent contractor (or perhaps instead through a PEO type arrangement) you should also make sure that enforceable IP protections/assignments are in place, as IP developed by a contractor will not generally belong to the company without steps being taken to assign it.

Get advice and localize

Employment laws elsewhere in the world differ from the US in a number of respects. It’s important that you properly understand the local law position so that you can manage the relationship and protect the business accordingly – take a look at our recent updates on whistle blowing protections in France, employee social media use in Spain and UK employment law changes for some examples.

• Employment agreements – these tend to be much longer than the offer letters typically used in the US – it’s not uncommon for employment contracts in Europe to be well in excess of 10 pages long. Much of the content is there to protect the company and to manage the relationship for both parties and so, whilst it may seem unnecessarily long, it’s not! Each clause serves a specific purpose.
• Non-competes and other post-termination restrictions – the question of whether these restrictions are enforceable is dealt with differently in different jurisdictions. In France, Belgium and Germany, for example, there is a requirement for a certain level of compensation to be paid for the period of the non-compete in order for it to be enforceable. That’s not the case in the UK, Hong Kong or Singapore, but there are particular considerations in relation to how restrictions are drafted and other limitations on enforceability (and reasonableness).
• Notice periods – outside the US ‘at will’ employment doesn’t generally apply and employees will be entitled to notice of termination as well as, in many cases, for a particular process to be followed before they can be terminated.

Termination is certainly an area where local law advice needs to be taken as the consequences of wrongful/unfair terminations can vary from financial compensation to the termination being ineffective.

Benefits

For employees in the US, stock options and high commissions are often seen as a highly desirable part of an overall employment package – elsewhere, this isn’t necessarily seen in the same way and in some parts of Europe, such as Germany, a higher base salary might be more attractive for a local hire, along with other benefits such as a company car – although it obviously depends on the individual. Where stock options are being granted then in some countries there may be scope for tax efficient plans to be implemented – proper planning needs to be done to get this in place.

In the UK, there is an obligation for employers to provide pension contributions (although the employee can opt out of this subject to certain conditions). Pension contributions apply in some other jurisdictions as well, for example Hong Kong.

Other benefits may be common such as bonuses, private health cover, permanent health insurance, meal vouchers, childcare vouchers or life assurance, but it depends on the local market.

Holiday and sick pay aren’t generally seen as ‘benefits’ per se, unless you are providing an enhancement over and above the local legal requirement – paid holiday of at least 28 days’ per year is common in Europe and it’s also worth remembering that sick pay and sick leave is usually an entirely separate entitlement to holiday.

If you have an understanding of the value of benefits in different jurisdictions then you can decide how to tailor your standard US employment packages for local hires to help you attract and retain the right talent for your business.

If you would like to discuss your expansion plans or how to manage your international workforce please do get in touch with the Osborne Clarke team.