Probably the most common international employment law question that New York employment lawyers confront is: which country’s employment laws apply to expatriates? While this is a key question in arranging any expatriate posting (abroad often called a “secondment”), when a multinational client needs to fire an expat, this question becomes vital. Terminated expats who can “forum shop,” it has been said, have “powerful ammunition in negotiations over compensation.” (P. Frost and A. Harrison, “Company Uniform,” The Lawyer (London), Dec. 11 2006, at 21.)
Expat assignment and “secondment” posting documents often include choice-of-law provisions that call for home (headquarters) country law to apply. These home country choice-oflaw clauses are especially common among US companies that want to extend American-style employment-atwill overseas. But does a choice-of-law clause really let a multinational sidestep the local employee protection and severance pay laws of an expat’s “host” country? Short answer: Not usually. In fact, a broad home-country choice-of-law clause will often restrict an employer’s flexibility, and often is not advisable.
This article first examines which country’s law covers expats, and then addresses the strategy of using choice-of-law clauses in expat assignment documents. The starting point here is the mandatory application of local law in a host country.
Generally, each country’s employee protection laws are “mandatory rules” that protect even employees who try to opt out of them by contract, such as by a choice-of-law clause. Therefore, even a robust expat choice-of-law clause usually will not divest local (host-country) employment protection laws from applying. And these employee protection laws that apply mandatorily are laws that get to the heart of employment: firing, pay, hours, rest, vacation, overtime, safety, wages, labor unions, mandatory benefits, discrimination, non-compete/ trade secrets—and more.
General rule applies stateside. This general rule that employee protection laws trump expat choice-of-law clauses may seem heavy-handed, but Americans need to remember: We impose it ourselves. Imagine, hypothetically, if a Mexican bank were to decide to transfer a secretary (with a US work visa) from Mexico City to New York. She signs a contract calling for the law of her and her employer’s home country: Mexico. Now imagine that, once her place of employment becomes New York, our secretary earns less than minimum wage, gets sexually harassed, suffers a workplace-safety violation and is asked not to sign a union card. If she files claims with the US Department of Labor, the EEOC, OSHA, and the NLRB (or New York state agencies), the bank’s “choice-of-Mexican-law clause” defense will almost surely fail: The American and New York legal systems will not enforce most prior waivers of employee protection laws, on public policy grounds. Just because the prior waiver in this context happens to take the form of a choice-oflaw clause is no distinction. Just as a contract to work for less than minimum wage is void under the US Fair Labor Standards Act, a contractual selection of some foreign country’s wage law is equally void, if that country’s protections are less than those of the FLSA.
It works the same way overseas. The employment protection laws of the place of an expat’s employment apply even notwithstanding a contractual selection of home country law. The expat almost always enjoys a right at least to the local minimum protections, regardless of what rights he might have purported to sign away. Because mandatory notice and severance pay, not employment-at-will, govern abroad, this doctrine is especially significant as to American expats working overseas. Once an American expat’s place of employment becomes a foreign country, that expat (regardless of the text of his contract) usually steps out of employment-at-will and enters a cocoon of protection: the “indefinite employment” regime of the host country. Refinements to general rule. But there are six refinements to this general rule:
1. Long business trips: While the law of the place of employment generally controls, which country is the “place of employment” can sometimes be unclear, for example, as to an employee temporarily working abroad (on a long business trip), as to an expat recently arrived in a host country and as to mobile employees (flight crews, sailors, executives and salesmen with international territories or offices outside their residence country). For these people, a fact question can arise as to which country is the “place of employment” (or, in Europe, which country is “habitually” the place of “work”).
2. Non-mandatory rules: While employee protection laws are mandatory rules that cannot be contracted around, an expat’s choice of law can control topics that steer clear of employee protection statutes, such as certain expat benefits and pension, social security, compensation and tax arrangements, especially where there is a tax treaty. This principle underlies the emerging “global employment company” strategy, and is especially relevant as to highly compensated expats with complex benefits packages.
3. The “Communist and Arab” exception: A handful of countries, mostly Communist nations like China and Cuba, actually have separate sets of employment laws for locals and foreigners. These countries are less hostile to expat choices of law. Also, a few Arab country laws mandating end-ofservice payments may apply to locals only.
4. Extraterritorial reach: Very few countries presume to extend their employment laws to protect their citizens working abroad. But there are some exceptions—the US being the key one:
- US discrimination law: Ever since a 1991 US Supreme Court decision was overturned by an act of Congress (the Civil Rights Act of 1991), US discrimination laws have reached US citizens working abroad for US-“controlled” multinationals, even though host country laws simultaneously apply. For example, an American professor fired from the Tokyo campus of a Boston college could bring both a Japanese reinstatement claim and a US age discrimination charge—regardless of any choice-of-law provision, and even if the college considered him a “local hire,” not an expat. Damages might get offset, but the Japanese and US lawsuits are independent causes of action. Indeed, these double-barreled claims are increasingly common. However, overseas reach is largely confined to discrimination laws; most other US employment laws do not apply abroad. (e.g., Carnero v. Boston Scientic, 433 F.3d 1 (1st Cir. 2006), cert. den. 6/26/06 (Sarbanes-Oxley whistleblower protections do not reach abroad); Beck, DOL case no. 2006- SDX-00003 (ALJ opinion of 8/1/06) (same).)
- UK work for benefit of UK entity: Most UK citizens working outside the UK for a UK employer are subject to the general rule and cannot invoke UK employment laws (absent a UK choice-of-law clause). Recent cases, though, carve out narrow exceptions for those Britons stationed abroad but performing services directly for the benefit of a UK domestic entity (such as a foreign correspondent writing for a London newspaper), and for Britons stationed overseas in a UK foreign enclave (such as a UK embassy or military base). (Serco v. Lawson,  UKHL 3 (House of Lords 1/26/06); Saggar v. Ministry of Defence,  EWCA Civ. 4133 (Sup. Ct. of Judicature 4/27/05).)
- Venezuelan citizens: Venezuelan employment law reaches outside Venezuela to protect Venezuelan expats who were hired in Venezuela but now working abroad. (Venez. Labor Code art. 78.)
5. Europe’s Rome Convention: European Union countries are all parties to a choice-of-law treaty called the Rome Convention, which European lawyers tend to talk about as enforcing expat choice-of-law clauses. A March 2005 article by German lawyers, for example, says the Rome Convention leaves Europeans “free to agree upon the law of the country that shall be applicable to the employment contract.”
But the text of the Rome Convention actually reinforces the general rule that “in a contract of employment, a choice-of-law...shall not have the result of depriving the employee of the protection afforded to him by...mandatory rules of law” (art. 6(1) (emphasis added); see also arts. 3(3); 7). Sure enough, French appeals courts in Grenoble and Paris, for example, have invoked the Rome Convention to impose the French employment code over less-favorable provisions in Texas and German law—notwithstanding home-country choice-of-law clauses. So terminated expats in Europe, even those coming from the US (see Rome art. 2), generally follow the usual rule and can select the law more favorable to them: any choice-of-law country or the country “in which [they] habitually carr[y] out [their] work” (Rome art. 6(2)(a)).
6. The “trick the expat” strategy: An expatpractices consultant at one major HR consulting firm used to recommend putting into Americans’ expat contracts a US choice-of-law clause—even if unenforceable. His theory: American employees are skeptical of overseas labor courts, so a choiceof- US law clause might convince a US expat not to sue abroad, but rather to accept US employmentat- will. These days, though, expats are increasingly sophisticated, and ethical strategies are perhaps best if not overly tricky.
Is a home-country choice-of-law clause in an expat agreement really a bad idea? Because mandatory employee protection laws of a host country place of employment will apply notwithstanding a contractual expat choice-of-law provision, a home-country choice-of-law provision in expat “secondment” documents can backfire, because it can let an expat “cherry-pick” the stronger protections between two legal systems. Without any choice-of-law clause, only one country’s laws will usually apply—the law of the host country (place of employment). However, in addition to that, and notwithstanding what an expat agreement may say, certain home-country employment doctrines may reach abroad with extraterritorial effect, especially if the expat and the employer are American, British or Venezuelan.
In other words, usually a clause in an expat agreement that purports to apply home-country law will not divest host-country law from applying, but will actually add home-country legal rights to the employee’s arsenal of potential claims. Therefore, a best practice in drafting expat documents may often (if not always) be to select no law at all, or else to select only the law of the host country that becomes an expat’s place of employment.
However, especially in agreements with highly compensated expats, a multinational employer may have a legitimate interest in applying non-mandatory doctrines of home-country law to benefits/ social security/tax issues. Some companies are even experimenting with a strategy of a “global employment company” that employs expats worldwide. In those situations, the employer might opt for a tailored choice-of-law provision that covers contractual issues only (as opposed to mandatory aspects of employment law), and expressly excludes those topics on which host-country law applies by force of public policy.