Does your company send Canadian employees into the United States or other countries? Do you employ foreign nationals in international assignments? Do you hire foreign nationals and bring them to work in your Canadian operations? Many of our readers will be able to answer “yes” to one or more of these questions. These situations have their own unique complexities and legal issues.
In this corner of the Labour and Employment Quarterly, we will deal with some of the common issues faced by cross-border employers. Our focus will be how to avoid problems with respect to issues such as:
- ensuring your employment contract meets your company’s needs;
- dispute resolution mechanisms;
- immigration issues; and
- tax issues.
In this first article, we will outline some of the key issues which you, as an employer of employees who work outside their home country, need to consider. By doing so, you should be able to arrive at an employment contract that protects both your company and your employees, and treats both parties fairly.
Issues to Consider
1. What company will be the employer?
Do you want your Canadian company to be the employer? Or, should a related company incorporated and doing business elsewhere be the employer? If a Canadian company, should it be your parent company or an operating subsidiary? The answer to these questions could impact what law applies, as well as the length of service that will be recognized, the benefit plans that will apply, and other terms and conditions of employment.
2. What country’s laws will apply?
The answer to this question may depend upon:
(a) how the employment contract is written;
(b) the amount of time spent in a country;
(c) the laws of the country where the work is done; and
(d) the nature of the rights or obligations in question.
You can control to a significant extent what country’s legal regime applies to a particular employment arrangement by how you organize your affairs. It is important to understand which foreign laws apply to an employee and which Canadian laws apply. Sometimes the laws of two or more countries might apply.
3. What are the minimum standards of the country of employment?
Do not assume that Canada’s minimum standards will meet or exceed those of the foreign jurisdiction where an employee will be working. Some countries’ requirements may be quite different. Moreover, you may be able to avoid certain legal obligations in another country if you arrange your affairs properly. For example, if you have employees working in an ‘at will employment’ state in the United States, you may want to avoid establishing employment contracts. Also, certain European countries impose greater obligations with respect to permanent employees as opposed to temporary employees. It is important to obtain advice from local lawyers about how to best arrange your employment relationships.
4. How will you resolve disputes?
Consider whether you want employment disputes to be resolved by arbitration, or through the applicable courts or tribunals. Note that the choice of applicable law is not the same as choice of forum for dispute resolution.
A Canadian court may enforce foreign law and a foreign court may enforce Canadian law. So, consider whether your company should:
(a) agree to recognize the jurisdiction of a foreign court;
(b) stipulate which court has exclusive jurisdiction; OR
(c) oust the jurisdiction of the courts in favour of the exclusive jurisdiction of arbitrators.
5. Taxes, taxes, taxes
Be sure you understand at least the basics of how the tax laws of both Canada and the other country work with respect to the particular placement. Many companies have tax equalization programs to ensure that the employee is not worse off by virtue of the foreign placement. However, you should also ensure that you do not end up paying more than necessary for this benefit.
6. What happens at the end of the placement?
It is best to be explicit about this question. Will the employee return to his/her last assignment? Will the employee be returned to his/her ‘home’ country, if different? If an alternate job is not guaranteed at the end of the placement (e.g., if the placement is considered a ‘permanent’ job), what rights will the employee have regarding notice of termination or severance pay? What about relocation costs to the country of origin?
7. Immigration laws
You will of course need to ensure compliance with the immigration laws of the country where the work will be undertaken. Be sure to understand them at the outset. Agree with the prospective employee as to what will happen with the job offer — and his or her status with your company — if the country in question does not grant permission to the employee to work there.
These are but a few of the key points to consider when placing an employee in a country other than their country of origin. It is important to think through these and related issues at the outset. We can advise you on how Canadian law will apply, help you find foreign legal advisors if necessary, and advise you in the drafting of appropriate employment contracts or appointment letters. These measures can save you many headaches and potential liabilities.