Summary and implications

International assignments, secondments and employment have become a common feature for many global businesses. And, whilst you are probably very familiar with the necessary contractual and practical arrangements, it is also worth thinking about what might happen when the relationship comes to an end. By giving this issue some thought early on, you could save your business time and money when the inevitable end comes.

The type of issues to think about include whether, as a UK-based business, you might face an unfair dismissal claim if you engage an overseas employee from one of your foreign group companies. Another question is whether, if you transfer UK-based employees to an overseas group company and they are being harassed on the job, you will be held liable. A third issue might concern your working time obligations (if any) to an expatriate employee whom you hired in London but who has been working and living in Singapore for the past five years.

Understanding early on your potential exposure to employment claims gives you the chance to consider the most favourable structure of the international assignment (e.g. secondment v expatriate). Even if you cannot or choose not to change the nature of the assignment, you will know in advance which legal system govern the employment and its termination and what sets of rules you must adhere to in order to avoid costly litigation.

In essence:

  • Think carefully which law should govern the contractual arrangements. As we point out below, even if you are based in the UK, English law is not always the most appropriate law to govern the employment contract;
  • Determine the extent of your exposure to the UK and other jurisdictions’ statutory employment laws and consider structuring the arrangements differently if you are unhappy with the outcome;
  • If assignments are within the EU, be aware of the risk of extensive enforcement of national statutory rights which are derived from EU legislation.

The law governing the employment contract only determines some of your obligations. More often than not, you have additional statutory obligations

Most employment contracts stipulate the law that governs the contract. Often, it is the law of the country where the employer is based or where the employee spends most of his/her time working. But, the law chosen to govern the contract does just that – it only regulates the contractual obligations of the parties, such as agreed rates of pay, place of work and bonus or pension arrangements. In the context of employment law, however, this is not the end of the story. Virtually every legal jurisdiction imposes on employers additional, usually statutory, rights.

In the context of “normal” UK employment (UK employer with an employee working in the UK for that employer), it is clear that UK legislation will be the source of these additional employment obligations. In the context of international engagements, rules on “territorial jurisdiction” will determine which country’s or countries’ statutory obligations apply to the employment. Most commonly the answer will be either the legislation of the country where the employee is based or the country where the employer is located. The differences can be significant (e.g. in relation to unfair dismissal rights) and it is not normally possible to agree with employees an “opt out”.

Because the nature of international employment is virtually infinite, we are unable to offer a one-size-fits all answer to the question of employment territorial jurisdiction. But, some arrangements are more common than others and we aim to outline below the position in relation to many common international engagements.

An individual who transfers from an overseas group company and is employed and working in GB for a UK company is owed extensive statutory employment protections

This is a fairly straightforward scenario. The individual’s nationality is irrelevant. It is also immaterial that they may have originally been hired or employed by a group company and have only recently transferred to employment by the UK entity. This category normally excludes secondees, who usually continue to be employed by the parent or seconding company.

In respect of unfair dismissal obligations, the crunch of the matter is the individual’s status as an employee and performance of work in GB. You will also owe the individual obligations under the Equality Act 2010 (in relation to discrimination), even if the alleged discrimination took place outside the UK. And, the individual will be protected by other rights contained in the Employment Rights Act (e.g. unlawful deduction of wages), the Working Time Regulations and the numerous other UK employment provisions. Their claims will be against the UK company.

Following a recent decision, individuals working in GB but who are employed by an overseas company may also bring claims under English employment laws

Such individuals will be able to bring claims, e.g. for unfair dismissal and discrimination, if their employer has some form of UK representation. Recently, the Employment Appeals Tribunal (EAT) agreed to hear an unfair dismissal claim against an overseas employing company which did not have a UK representative or group company (see box). We expect tribunals to adopt a similar approach in relation to discrimination and many other statutory claims.

Pervez v Macquarie Bank Ltd

In this case, the EAT held that the procedural ET rules, which require a respondent employer to carry on business in GB, must not prevent a qualifying employee from bringing an unfair dismissal claim. To this end, the EAT held that the employer carried on business in the UK by “seconding an employee to work at an establishment here, even if the supply of workers to third parties is not part of [the employer’s] business”.

Your employment obligations also extend to employees who spend long periods of time outside GB but who are ‘based’ in GB

Individuals employed by a UK company who, in the performance of their job, regularly travel in and out of the UK, but whose “base” is in GB will be able to complain against the UK company.

An employee’s “base” will usually be identified by reference to how the employment is carried out in practice (rather than what the contract says). Important factors include the amount of time spent, and work done, in the UK and overseas; the nature of the work performed in the different jurisdictions; the location from which the employment is administered; the currency of pay and where the employee pays taxes; the employee’s place of residence; and the law governing the employment contract.

Territorial jurisdiction: grey areas

You have recently transferred an employee from the UK to your New York offices. Shortly after the transfer, she was dismissed. Can the employee complain of unfair dismissal in the UK?

Whether the employee can complain of unfair dismissal depends on whether the transfer was permanent, the nationality of the company for which the employee was working at the time of her dismissal and the nature of the employee’s remaining connections with the UK.

Can you be held accountable for the dismissal of an employee who, at the time of the dismissal, was not working anywhere?

If the employee is still overseas, his/her status will be determined by his/her status, e.g. is the employee based in GB or is s/he an expatriate. But, if the employee returned to the UK (e.g. for medical treatment), additional factors become relevant. In brief, it seems that if the employee does no work in the UK, and would not have been entitled to complain of unfair dismissal when his/her absence began, then no claim may be made. This is the type of case where we would suggest that you obtain specialist legal advice.

You owe considerably fewer obligations to expatriate employees who are based and work overseas – but the tide is turning in their favour

Individuals who both work and are based overseas will only be able to complain of unfair dismissal in the UK in limited circumstances. However, in recent months courts have tended to expand the range of circumstances where employers owe duties to expatriates.

As a starting point, you do not owe English employment law duties to expatriate employees whom you recruited for the post outside GB. So, an English individual who is recruited in Hong Kong to work for a group company in China will not be able to bring an unfair dismissal claim in the UK.  

However, if the same individual was interviewed and offered the job in London, s/he will be able to complain of unfair dismissal if they are working in China and fall within either of the categories below:

  • Their overseas work is done for the purpose of the UK business; or
  • Their work is done for the purpose of the overseas business (China in our example), but the individual otherwise has equally strong connections with GB and English employment law.

One example when an employee may be doing work for the UK business is if the Chinese company supplies financial information that is only of use for the UK business. If the information is used to further the business of the Chinese group company, the employee will not be protected.  

There is less certainty in relation to the concept of “equally strong connections”, following a number of inconsistent court decisions. However, the following principles can be distilled:

  • Nationality, without more, does not establish a sufficient connection with GB.
  • Employment under a contract which is governed by English law may lead to a finding of ‘strong connection’. We therefore suggest you always think carefully whether English law is the most appropriate law to govern the arrangements.
  • Other relevant indicators include payment of UK taxes, listing on UK payroll and the absence of connection with the local community in which the individual is working.

The position in relation to discrimination protection for expatriate employees is also somewhat uncertain following the introduction of the Equality Act in October 2010. However, having analysed case law on the issue we take the view that international employees who, despite not doing any work in GB, were employed by a UK company; carried out their work for a UK company; and were resident in GB either at the time they applied for the employment or at the time they were hired, will be protected under UK legislation and, if discriminated against at work, will be able to complain in UK tribunals.

Other expatriates will not be able to pursue discrimination claims in the UK. But, those who are based in an EU member state will be able to complain of discrimination in their host state under its own laws (by virtue of the Posted Workers Directive).

Expatriates visiting the UK

The Supreme Court is expected to clarify in due course whether expatriate employees who allege that they have been discriminated on a work visit to the UK can bring a claim in UK tribunals.

Expatriate employees get a second bite of the cherry: the special case of EU employment rights

In 2007, a German lorry driver who never lived or worked in the UK did not pay UK taxes nor have any other strong connections with the UK, managed to proceed with a holiday pay claim under UK legislation, against his UK employer. Mr Bleuse, whose contract of employment was governed by English law, has single-handedly changed the law on territorial jurisdiction for good. And, it is only fair to admit that those of us who thought that the EAT’s decision in Bleuse would never survive were well and truly wrong.

In brief, Mr Bleuse was allowed to proceed with a claim under the Working Time Regulations despite falling outside any of the categories of protected employees. The EAT decided that because Mr Bleuse’s holiday rights under the Working Time Regulations were derived from a ‘directly effective’ European Directive, “the effect of EU law was that it had to be extended so as to apply”.

The Bleuse principle has since been adopted by the higher courts. Alarmingly, in one case, both the Court of Appeal and the Supreme Court allowed employees to bring unfair dismissal claims even though they fell outside the usual categories of protected employees. Why? Because this was the only effective remedy in relation to their altogether separate EU rights (which the employees had under EU laws on fixed-term employment). Although the employer in the case was a public body, the Supreme Court thought that a similar conclusion would be justified in relation to a private employer.

The crux of the matter seems to be employment under a contract governed by English law. It is therefore advisable to consider in every case whether English law is indeed the most suitable law of the contract. The answer to this question must depend on a multitude of factors, of which employment rights under EU law is only one.