The modern social contract in almost every country is an implicit bargain where employees offer their good citizenship and earnest labor in exchange for a viable package of benefits (or at least a viable social safety net) that, in large part, is employer-provided. This employee-friendly social contract paradigm exists almost everywhere in the world—rich and developing economies alike. But it does not apply in the United States, which operates under a unique, market-driven version of common law employment-at-will. Under US-style employment-at-will, as distinct from employment laws elsewhere (and subject to certain isolated exceptions), broadly applicable rules generally do not force employers to give their workers a cap on hours worked, holidays (paid or unpaid), vacations (paid or unpaid), paid sick leave or paid maternity leave, medical insurance, employer profit sharing, year-end bonuses, or severance pay or pre-termination notice.

A disproportionately large percentage of the world's multinational employers are based in the United States. These enterprises cannot legally operate outside the United States under an American-style market-driven social contract.1 This article examines how US-based multinationals export their unique understanding of the social contract that is colored by employment-at-will when they employ workers outside the United States. The article argues that when American multinationals branch out abroad, although they cannot and do not export a US employment model, they tend to rely on four operating assumptions about their core obligations to their non-US employees: privity, compliance, code of conduct, and benchmarking. These assumptions are consistent with the American-style social contract that is based in employment-at-will.

This article answers these issues in two parts. Part I contrasts employers' robust role in fulfilling social contract obligations around the world with their uniquely modest role within the United States. Part II explores how American multinationals adhere to the social contract in their operations outside the United States, positing that US multi-nationals tend to carry their heavy overseas employment burdens by exporting four core operating principles: privity, compliance, code of conduct, and benchmarking.

  1. The Employer Role in the Social Contract Around the World and in the United States

Many countries' constitutions guarantee an express right to employment,2 thereby pulling employers into the heart of modern social contract analysis. Indeed, almost every government forces employers operating in the country—government entities, private businesses, or nonprofits—to give their workers generous social protections and benefits. These include paid holidays, paid vacation, paid sick leave, paid maternity leave, caps on hours worked, and severance pay (or pre-termination notice for unfair terminations). Many countries—rich and developing ones alike—require employers to offer paid profit sharing, paid year-end bonuses, and even employer-provided housing funds. In addition, almost every country that offers its citizens government-provided health care also requires employer-funded medical care and pensions. And almost all countries impose rules conducive to forming trade unions and other employee-representative bodies.3 Certain jurisdictions, particularly in parts of Asia and Latin America and across Continental Europe, foster a labor law and collective bargaining culture that embraces a concept of a social partnership by which employer trade associations within an industry and trade unions actively partner to decide wage rates and employment terms and conditions across an entire industry sector.4

Governments outside the United States offer an employment-centered social contract to their citizens: You consent to live and work peaceably in our nation and contribute to our society and our economy. In return, we will see that your employer provides paid holidays, paid vacations, paid sick leave, paid maternity leave, caps on hours worked, and severance pay (or notice) in case you are unfairly terminated. Also, we will ensure that you receive free medical care and a pension. And we will actively foster employee organization and collective bargaining to give you a voice in your workplace destiny. Many countries, both rich and developing ones alike, take a step beyond this and provide further benefits to their citizens: we will make sure your employer offers you profit-sharing pay, a year-end bonus, and a housing or a social-benefits fund.5 Some countries go beyond even that and impose a social partnership model on employers, requiring employers to bargain with employees on wages and terms and conditions of employment.6 As such, in most countries the modern social contract is a tacit accord between a government and its people in which employers play a vital role, not as contracting parties, but as delegatees of key duties that governments assign to employers.7

This model for the modern social contract holds up in almost every country, from rich nations such as the European Union, Australia, Canada, Japan, Korea, New Zealand, Switzerland, and the United Arab Emirates, to developing economies such as China, Cuba, Egypt, India, Jamaica, Kenya, Mali, Mexico, Morocco, Mozambique, Peru, and Thailand.8 This paradigm does not exist in the United States. Unlike the constitutions of many other countries,9 America's Constitution does not guarantee the right to employment.10 The United States follows a peculiarly market-driven and uniquely American iteration of the common law employment-at-will rule. According to an American law school casebook on US employment law, the US employment-at-will doctrine

developed more than 100 years ago .... [Under it], either employer or employee could sever the working relationship for any reason, or without reason [and without notice], as long as there was no explicit undertaking to the contrary. Courts were only interested in contractual commitments, and not in whether the conditions set out in the contract were fair in the eyes of a judge or the product of equal bargaining power.11

Although this articulation of employment-at-will is phrased in the past tense, the employment-at-will doctrine remains alive and well in the United States today: "Despite dire predictions of the demise of at-will employment in the early years of the twenty-first century, it appears ... that 'funeral arrangements' may still be a bit premature."12

The employment-at-will rule generally, subject to some isolated exceptions, leaves nongovernment employers legally free to deny their workers the following rights:

Paid or unpaid holidays. US federal, state, and local laws tend not to impose holiday leave, paid or unpaid, on nongovernment employers, leaving most US employers free to assign work on national holidays without extra pay. In 2008, thirty-three percent of US employers required some employees to work on Thanksgiving Day, and twenty-seven percent of US employers refused to designate both Thanksgiving and the Friday after Thanksgiving as company holidays.13

Paid or unpaid vacations. US federal, state, and local laws generally do not require vacation leave, paid or unpaid, for nongovernment employers, leaving most US employers with the ability to assign work year-around without offering employees any paid or unpaid vacation leave.14 In May 2009, US Representative Alan Grayson (D-Fla.) told Law 360 that "29 percent of American workers got no paid vacation at all last year, and half received less than a week off."15 Grayson proposed a mandatory-vacation law in the United States, in part because "[a]t least 147 nations have a paid vacation law, including all developed countries. Every European worker gets at least four weeks of paid vacation by law, yet the euro is rising while the dollar is falling, he added."16

Paid sick leave or paid maternity leave. The United States and its states generally tend not to mandate that employers give employees paid or unpaid sick leave or maternity leave. The Family and Medical Leave Act (FMLA)17 does require certain unpaid leaves. But the FMLA is not a sick leave law because it does not reach routine sickness. Rather, it imposes unpaid leave on only illnesses so grave that "the employee is unable to perform the functions of her position on account of a serious health condition."18 "Calling in sick without providing additional information" is not enough to trigger the FMLA because "'[s]ick' does not imply 'a serious health condition.'"19 An American employee who merely "call[s] in sick" does not trigger the FMLA because a sick employee must also "indicate [] that she suffer[s] from a condition that would require an extended period of leave."20

There are, however, some isolated exceptions of local sick-leave municipal ordinances, such as those in San Francisco and the District of Columbia.21 Other jurisdictions have also introduced bills that would provide paid sick leave for employees. In the fall of 2008, voters in Milwaukee, Wisconsin, approved an ordinance requiring employers to provide employees with paid sick days. But that ordinance was found to be invalidly enacted and unconstitutional.22 The Healthy Families Act,23 which has been introduced in the US Congress, also has a provision providing for sick leave for employees, but as of October 2010, it had not yet been brought to a vote.

Caps on hours worked. US federal, state, and local laws tend not to impose flat caps on hours worked—such as caps on hours worked in a day, a week, or a month—analogous to the caps imposed in much of the rest of the world. Where American laws do impose maximum hours, they usually apply only to certain classes of workers, often workers under age sixteen. However, New Mexico sets a cap of sixteen hours of employment per day, with limited exceptions based on occupation. Violators can be guilty of a misdemeanor.24 In addition, there are break time laws in local US jurisdictions, and rest-between-shift rules in certain sectors, such as for airline crews.

Severance pay or pre-termination notice. A US law, Worker Adjustment and Retraining Notification (WARN) Act,25 and some similar state laws26 require actual notice in some layoffs but do not impose any severance pay mandate. Even these mass termination notification laws, however, do not reach most US firings.27 These laws leave US employers free to do restructurings and to make sweeping reductions in work terms, a freedom they exercise regularly.28

As such, in the United States, most employees who are laid off have no legal claim. According to Charles Siedlecki, a Chicago employee-rights attorney, in late 2008 his office was "bombarded with calls from people who have been laid off and want to know whether they have a legal claim .... 'More often than not, there isn't a claim.' "29 As a result, says Siedlecki, American "[p]eople are hurting all over the place."30 Another US employees' lawyer, Andrew Friedman of Los Angeles, was also "swamped with calls from laid-off [American] employees" in late 2008.31 In some cases, Friedman asserted, but did not necessarily win, a discrimination claim; in other cases, he could not discover any illegalities. According to Friedman, "The worst part for me is hearing the calls from people who have been at companies for 30, 35 years who are being laid off, and there's nothing I can do to help them."32

Medical care. Until recently, no law applicable across the United States required medical care for American workers,33 although new legislation mandates it beginning in 2014.34 Those employers in the United States that voluntarily offer health insurance are subject to the Consolidated Omnibus Budget Reconciliation Act (COBRA), which requires employers in some circumstances to permit former employees to maintain health insurance if the employee assumes the cost.35 COBRA requirements, however, tend not to reach current workers, and COBRA tends not to impose substantive restrictions on those employers that do not voluntarily offer health insurance.

Employer profit sharing, year-end bonuses, or employer-funded housing. US federal, state, and local laws tend not to require employers to pay annual bonuses analogous to the mandatory profit sharing and thirteenth-month pay imposed in many countries.36 There are, however, doctrines under American law that require employers to make good on certain bonus commitments that they may have adopted voluntarily.37 While the United States offers a pension scheme that the government provides and the employers co-funded (social security), the replacement rate of final average pay under this scheme is low. Finally, US laws do not require employers to pay for employee housing, as contrasted with housing rules and funds in Mexico and China.

Evacuation protections. It is generally legal to fire a US employee for evacuating during a hurricane, although in Texas an employer cannot fire an employee for "leav[ing] the employee's place of employment to participate in a general public evacuation ordered under an emergency evacuation order."38 The very existence of this Texas statute shows that, absent such a statute, firing an employee for evacuating is generally legal under US employment-at-will Few, if any other states have statutes like this, and even in Texas an employer remains free to fire—without penalty—an employee who evacuates absent an official "emergency evacuation order." Furthermore, nothing in US federal law prohibits an employer from firing an employee for absenteeism because of a disease pandemic. Such a fired employee might theoretically be able to make out a claim for a health or safety law violation, but only if he or she could meet a burden to prove the pandemic had somehow rendered the specific workplace so hazardous that the job site itself instills "an objectively reasonable apprehension of death or serious injury."39 The same standard would apply to a workplace threatened by a hurricane under federal law.

Unions. While American law protects trade unions, America's unionization rate is very low. In 2008, 7.6% of the US nongovernment employees were union members, and 8.4% were covered by a collective bargaining relationship—among the world's lowest levels of union penetration.40

The terminable-at-will nature of US common-law employment differs fundamentally from the default employment relationship as understood in other common-law countries, such as in the United Kingdom (birthplace of the common law), Australia, Canada, Ireland, Kenya, and South Africa. Under those jurisdictions' concept of common law, employment is terminable not at-will, but only upon reasonable notice or after pay in lieu of notice. According to a prominent London employment solicitor:

[T]he traditional English law approach has been that the parties to an employment contract are more or less able to agree what they like subject, in quite a few instances, to adhering to certain statutory minimums in the case of employments within the United Kingdom. One of the exceptions is that, under common law, where a contract is silent as to notice, the contract is deemed to be terminable on reasonable notice. It is quite surprising that the default position under English common law and the [terminable-at-will] default position under the common law of numerous US states, [are] so very different[.]41

The position under Irish common law is very similar to the British position. Although today employment dismissals in Ireland are regulated by the Unfair Dismissals Act 1967 and the Redundancy Payments Act, in 2008 the Irish Supreme Court reaffirmed that in Ireland, statutory enhancements aside, the position at common law is that an employer is entitled to dismiss an employee for any reason or no reason on giving reasonable notice. I would slightly qualify that by saying that it does depend on the contract but in the absence of clear terms to the contrary which are unambiguous and unequivocal, that clearly is the position.42

Even when compared to those countries with which the United States shares a common-law tradition, the US system of employment law is sui generis.

To those outside the United States, America's market-oriented employment-at-will regime inevitably sounds harsh.43 Many Americans, however, embrace the doctrine as a superior social policy. Delivering a keynote address in October 2008 when she served as labor secretary under President George W. Bush, former US Labor Secretary Elaine Chao said:

[There are people who prefer that the US] government play a larger role in the workplace permanently. Those people advocate that the United States should be more like Europe, and adopt European-style entitlement programs and more rigid labor laws. On the other side are those who value opportunity over predetermined outcomes.... [Some US legislators want to] dictate [to employers] what leave policies they must offer, who they can promote, which benefits their health insurance plan must offer, what kinds of investments can be included in their pension plans, and how they can even handle the most basic business operational decisions.... This kind of Europeanization of the American workforce would have dire consequences for our country's ability to compete [abroad] and would disrupt the traditional labor relationships here at home.44

According to a report on Chao's speech:  

Chao added that Europe's labor policies include state-mandated limits on the workweek, limits on working hours, and leave policies that are mandated and subsidized by the government but paid for with high tax rates.... [I]n Europe the government decides what benefits should be provided, Chao said. She added that in Europe the results have been disappointing—there is slower growth, lower per capita income, higher unemployment, and longer durations of employment.45

Because the United States affirmatively rejects what Secretary Chao has called the "European-style" approach (an approach that prevails not only in Europe, but across the rest of the world, in developed and developing countries alike),46 employers in the United States need not provide most of the employee protections and government-mandated prerequisites widely required elsewhere.

The harsh reality of American employment law is all too familiar to the majority of American laborers toiling on the lower rungs of the American economic ladder, outside highly compensated positions at Fortune 500 companies and far away from Wall Street. Huge numbers of smaller US employers—retailers, restaurants, janitorial services, hospitals, printers, hotels, temp agencies, construction contractors, taxi services, farmers, auto mechanics, nail salons, or any of thousands of other businesses—regularly take harsh positions. Indeed, even some Fortune 500 employers impose no caps on hours worked, offer no severance pay, recognize no trade unions, and offer no medical insurance, at least as to their part-time and temporary workers. Many major, well-regarded employers in the United States use their freedoms under employment-at-will selectively. For example, they tolerate long hours from nonexempt staff, offer only a minimal paid maternity leave benefit, or impose broad layoffs. As Secretary Chao confirmed, the overt policy of the United States has been a hands-off approach, leaving American employers free to deny their workers most social benefits and protections.47 The inevitable result is that

[n]ot surprisingly (indeed, inevitably), America's lack of minimum worker protection laws leads to "sweatshops" on US soil. This is why American sweatshops get "discovered" all the time—particularly in urban immigrant communities in New York and Los Angeles. The Washington Post says "there are thought to be 2,000 or more illegal sweatshops in New York City." Our point here, though, is that America's wholesale lack of tough laws on rest periods, caps on overtime, and the like mean the number of legal "sweatshops" in America is much higher.  

Of course, most US workplaces are not sweatshops. Lots of big US companies offer cushy, well-paid jobs boasting plenty of rest periods, vacations, time off, and the like. Any American reading this article likely enjoys one of these comfortable jobs, or is studying to qualify for one. But US labor unions and anti-sweatshop activists do not waste their time on rich workers with comfortable positions. Their concern is the plight of the poorest workers with the worst jobs. And you can be sure that—right here in America—there are thousands of small, under-the-radar employers exploiting America's working poor by legally assigning mandatory overtime and by legally denying American workers rest periods, adequate time off and the like.48  

From time to time, Americans themselves question employers' modest role under our social contract. For example, in August 2008, the California legislature attempted to pass a bill that would have provided mandatory paid sick leave to employees. Despite the fact that three out of four California voters supported the proposal, the bill failed to proceed beyond an appropriations committee due to cost concerns and lobbying from small businesses. This bill, if passed, would have made California the only state to require employers to provide mandated paid sick leave for employees.49

The market-focused employment-at-will doctrine leaves American employers free to deny their workers what elsewhere are considered basic—even, in some cases, constitutionally protected—social protections. Hailing from an employer-friendly regulatory regime, US businesses emerge onto the world stage unprepared to employ people abroad. Any American employer hiring a workforce outside the United States faces a tough challenge and needs tools to surmount it.

  1. US-Based Multinationals' Adherence to the Social Contract Outside the United States

Up to now this article has contrasted employers' significant legal mandates under the rigid, employee-friendly social contract in countries worldwide with the looser, market-oriented approach confined to the United States. But now the analysis switches to how US-based multinationals fulfill their legally mandated duties in their operations outside the United States, under local social contracts that are markedly inconsistent with American-style employment-at-wiIl.

The world's many multinational employers based in the United States will, when setting up new overseas employment operations, inevitably view their foreign human resources relationships through an American lens.50 We have already considered the basic problem here: American employment-at-will is inherently inconsistent with other countries' laws, customs, and employee expectations.

National governments outside the United States welcome inbound investment from American companies. Yet there is a persistent Trojan-horse fear that US investors might bring with them their harsh employment-at-will approach, fomenting social disruption. Back in 2000, for example, the New York Times reported a "frenzy of concern in France that American pension fund investments in French companies might be promoting layoffs of French workers to benefit American retirees."51

Perhaps this fear is unfounded. American employers figure out, quickly enough, that an enormous gulf separates their domestic, market-oriented employment rules from the more benevolent workplace laws in the rest of the world. In the author's observation, US multinationals tend to bridge this gap by exporting four core operating assumptions to their international employment relationships—assumptions that act as tools for adapting to the very different overseas employment law environment:

  1. Privity. US multinationals assume that their employment and human resources obligations run to their employees and independent contractors but do not extend to other stakeholders, such as the employees of unaffiliated business from which they purchase products.
  2. Compliance. US companies comply with all the local employee-protection laws that the host state imposes on them but need only meet the mandated minimums.
  3. Code of conduct. US multinationals need a global code that exports their core corporate social responsibility initiatives on employer and employee conduct and their belief in complying with US legal mandates of antifraud, anti-bribery, antiharassment, and antidiscrimination.
  4. Benchmarking. Finally, to attract and retain good talent, US companies pay competitive rates in the local market and offer market benefits packages aligned with their global compensation philosophy.  

The following analyzes these principles under the hypothesis that US-based multinationals bring to their international workplaces these four tools to help them adapt to tougher employment-law regimes abroad.

Privity. A key distinction in an employer's duties under any social contract is the difference between an employer's responsibilities to its own employees and independent contractors opposed to an organization's duties (if any) to other employed stakeholders, such as those who work for its business partners and suppliers. This distinction is grounded in the privity of employment contract. Under social contract analysis, society imposes significant duties specifically on employers. Multinationals owe real obligations to their employees worldwide, including to the employees of their overseas subsidiaries and affiliates. In turn, multinationals' suppliers owe these same duties to their respective employees.

Suppliers, of course, are external, independent businesses with their own stockholders, stakeholders, human resources practices, and compliance obligations. Probably every multinational is a party to contracts with outside suppliers, but the multinational generally has no privity of contract with suppliers' employees. Hypothetically, if a multinational did owe to suppliers' external employees the same duties it owes to its own internal employees, then the chain of responsibility would get so long that it could become meaningless. The web of interrelationships in the world's supply chains links each major business to hundreds or thousands of other businesses. As a result (and subject to one key exception we will address later),52 US-based multinationals generally see their employer obligations as extending only to their own workforces.

This observation about privity may seem obvious, or perhaps a mundane and technical point. The relevance, however, is both broad and practical. Most of the academic discourse about multinationals' employment obligations under the social contract examines multinationals' stakeholders and focuses on a multinational's obligations to its workers. These academics include as a multinational's workers those who are employed by a different company but provide services to the multinational, such as an external supplier factory company.53 According to a New York Times report on labor law compliance in China, "[l]abor rights groups that specialize in sneaking into Chinese factories and documenting their flaws say exporters' multinational clients are also responsible for their suppliers' practices."54 Our question here, which the New York Times fails to ask, is: responsible how?

Privity explains how US-based multinational employers generally view their responsibilities to the employees of third parties. These employers may see their employment-compliance responsibilities, much more narrowly than these labor rights groups. To illustrate this, imagine a hypothetical US sneaker marketing company with sales offices in a dozen Western countries that is party to product sourcing contracts with independent factories in two dozen developing countries. If this sneaker company's business hits a downturn and it has to lay off workers globally, it will stop ordering as many sneakers as it used to order. Faced with the drop-off in business, the sneaker company would carefully orchestrate an internal global reduction in force, complying with the complex collective redundancy laws and paying severance pay owed in all of the dozen Western countries where it directly employs sales staff. At the same time, the sneaker company would be expected simply to reduce orders from its independent external supplier factories in the two dozen developing countries, without any regard to those nations' layoff or severance pay laws. If this reduction in product orders causes the independent external factories in those countries to have to retrench, we would not expect the US sneaker company to get involved in downsizing these developing-world workforces because it has no privity of employment contract with those laid-off workers. It is merely a customer of their employer. As a customer, the sneaker company does not even know who the laid-off manufacturing employees are, nor is it even necessarily sure how its own fluctuations in orders might affect staffing levels at each supplier factory.55

US-Based Multinational Employers and the Social Contract Outside the United States For example, there is a company in Dongguan, China, that employs 70,000 factory workers who make shoes for "Nike, Reebok, and other brands."56 This Dongguan manufacturing company is so enormous and well-organized that it has "its own movie theater, hospital and fire department."57 If Nike or Reebok were to reduce its orders to this Chinese giant, neither multinational would be expected (or even able) to get involved in downsizing the Dongguan workforce because neither has privity of employment contract with these employees.58 Indeed, Nike or Reebok would not even know if its drop in orders directly caused Dongguan layoffs, as the huge local Chinese company services other brands, as well.59

Compliance. Speaking broadly, US businesses entering new countries commit to complying with the local host-country rules of the road. US businesses branching out abroad typically register as employer entities under local corporate laws and then try to comply with applicable employee-protection mandates, including local labor laws that require recognizing trade union agreements.60 As American multinationals see it, legislatures in the host country set minimum local employment standards. Multinationals then comply with the local laws as written on the books—if only to avoid penalties and bad publicity.61

Similar to the observation about privity, this observation about compliance might seem either obvious or insignificant. But merely to assert that US multinationals commit to compliance with employment law mandates abroad contradicts an oft-leveled accusation that US employers exploit workers abroad, particularly in the developing world. Human rights activists, and others concerned with social equity, routinely accuse multinationals of taking advantage of allegedly weak legal enforcement and paltry union protections in developing countries. As one academic asserted, "International competition has made it increasingly difficult for employers in developed countries to provide social benefits such as health and pensions as they have done in the past. This has led to companies moving low-skilled jobs to low wage, low union density countries...."62

According to a US-authored academic article:

[G]lobal corporations and their local suppliers are depicted as agents of exploitation, taking advantage of developing countries' low wages and weak social and environmental regulation to produce low-cost goods at the expense of local workers' welfare. Numerous reports have described exploitative working conditions in global supply chain plants. Workers are paid only a few dollars and [are] required to work excessive hours, often in poorly lit and unsafe conditions. 63

Another US author speaks of "well publicised attacks" accusing multinational employers of being "greedy, secretive, exploitative and concerned only with making money for their owners and managers."64

Accusations like these may be widespread. But insofar as they apply to multinationals' treatment of their own employees in the developing world, they are either hugely exaggerated or dead wrong. Most US-based employers operating internationally seem genuinely committed to minimal compliance with local black-letter labor protection and unionization laws for their own employees—if only because multinationals have a keen interest in avoiding the penalties and censure imposed on law breakers.65

To test this assertion, let us examine Monterrey, Mexico. Monterrey is a bustling, union-dense industrial town teeming with American-owned factories of name-brand US businesses, such as automakers, parts suppliers, tool makers, farm equipment manufacturers, and the like. Drive through the environs of Monterrey and you will see the names of US businesses over the doors of hundreds of factories of all sizes. These factories tend to be owned by multinational corporations, not outsourcers. When the Mexican laborers stream out of these US-owned plants at quitting time, ask them about their American employers' compliance records:

  • Do US multinationals in Monterrey really pay agüinaldo (the mandatory Christmas bonus) and the mandated ten percent profit-sharing stake?
  • Do US multinationals really respect Mexico's forty-eight-hour capped week?
  • Do US multinationals really follow Mexico's rules mandating paid rest days, paid holidays, premium-paid vacation, paid sick leave, and paid maternity leave?
  • Do US multinationals in Monterrey really recognize labor unions?

In most cases, the answer you will get to these questions will be "yes"—or maybe a qualified "yes" augmented with some grumbling about specific individual pay disputes, employer structures that cap profit-sharing pay, or so-called white unions66 not fighting for their members. But on the whole, Monterrey workers will, whether grudgingly or proudly, concede that American multinational employers boast a generally solid compliance record adhering to the bulk of Mexican employment laws.

Given American-based multinational employers' compliance practices in Mexico, the widespread accusation that US multinationals transfer employment operations abroad to take advantage of lower labor standards and lower union density seems illogical.67 Outside the United States, even in the developing world, employee protection laws are much tougher than analogous US laws, and union penetration is much deeper.68 Any US-based employer wanting to exploit weak labor protections and low union density could do no better than to retain all its operations stateside.

Code of conduct. Supplementing their focus on compliance, most US multinationals try to export their core human resources principles to their overseas workforces via an internal, global employee code of conduct.69 Yet the principles underlying most of these internal codes tend to fill only a fairly shallow pool of employee rights, many of which US law imposes extraterritorially or already exist under host countries' domestic employment protection laws. Few US-imposed global employee codes of conduct grant to employees otherwise unavailable substantive rights. In fact, while global employee conduct codes often extend some minimal protections to a multinational's own workers overseas consistent with the organizational commitment to "corporate social responsibility,"70 American multinationals seem to issue these internal codes more to help meet their own externally imposed obligations, such as under laws that extend extraterritorially outside the United States.

The typical US multinational's internal employee code of conduct contains antibribery provisions consistent with the US Foreign Corrupt Practices Act;71 antifraud and whistleblower-hotline provisions consistent with US Sarbanes-Oxley;72 and antidiscrimination and antiharassment provisions consistent with the extraterritorial reach of US Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act.73

In addition to perhaps self-serving code of conduct provisions, these internal global employee codes usually pepper in a number of other provisions influenced by American human resources practices, such as clauses addressing the employers' right to monitor employee computer use; bans on workplace smoking, alcohol, and drug use; confidentiality provisions; and restrictions on nepotism and co-worker dating.

In discussing internal global employee codes of conduct, we have to distinguish the confined and separate phenomenon of codes of conduct of external global suppliers. US multinationals usually view their social obligations as extending only to their own employees and independent contractors with whom they have contractual privity.74 But there is a key exception: a subset of American multinationals—mostly those in retail, apparel, toys, and home-improvement industries that source self-labeled products from the developing world—tend to impose on their developing-world suppliers an external sweatshop code of conduct. This is meant to protect the suppliers' employees from inhumane practices and employment law violations. After a series of highly publicized scandals in the 1990s involving brands such as Nike, Wal-Mart, and Kathy Lee Gifford,75 large American retail, apparel, toys, and home-improvement brands started imposing external codes of conduct on their suppliers. Now a mini-industry has sprung up around drafting, monitoring, and enforcing external supplier codes.76

Every major American multinational internationally outsources some aspects of its operations. It has been said that outsourcing of back-office services fuels the economic engine of India. But few multinationals—outside the retail, apparel, toys, and home-improvement sectors—impose robust external codes of conduct on their outside suppliers.77 External supplier codes of conduct do raise fascinating issues relevant to American multinationals' adherence to the social contract.78 The limited adoption of those codes by employers, however, shows that they are an exception.79

Benchmarking. One area where US multinationals seem keenly attuned to the social welfare of their worldwide workforces is the benchmarking of compensation and benefits. US employers, both for-profit and nonprofit, tend to focus sharply on the relevant local markets for compensating employees. As US multinationals increasingly propagate global compensation philosophies, a mini-industry of compensation and benefits consultants supplies benchmarking data to employers that design pay- and equity-based compensation packages around the world.

Almost every country imposes minimum wage laws.80 But when US-based multinationals set up their own internal employment operations in new foreign markets, conformity with these local minimum wage standards rarely registers as even a compliance issue; US multinational employers generally aim well above the minimum when compensating their own employees abroad.

American multinationals simply cannot attract and retain good enough talent by paying minimum wage. According to former US President William J. Clinton, multinationals venturing into developing markets like China "generally" offer "higher pay, more respect and a better working environment" than their local indigenous competitors.81

As such, US multinationals directly employing people overseas actively study local markets and peer employer compensation models, often paying outside consultants for benchmarking data to design industry-competitive packages. Many US multinationals aim to pay in the top two quartiles in the relevant market. Some multinationals propagate global compensation philosophies and offer equity-based compensation to all, or at least to their executive-level, employees outside the United States. And multinational employers increasingly align executive compensation internationally—as opposed to yoking it to local markets. The reason for these benchmarking efforts is not social beneficence, but market forces: US multinationals benchmark pay and benefits abroad to attract and retain the level of talent they need to succeed.  


If the modern social contract is an implicit accord between a government and its people,82 then employers stand off to the side as nonparties. But employers play an indisputably vital role in this quasi-contractual analysis, if only as delegatees of societal duties. How do employers fulfill their vital role under the modern social contract? The answer depends on the type of employment law system a host-country government imposes. A stark dichotomy separates the employee-friendly, paternalistic, indefinite employment regimes in most of the world—rich and developing countries alike—from the market-driven, employment-at-will system confined to the United States.83

This contrast becomes sharpest when examining how a US multinational approaches employment relationships in its own internal company operations outside the United States where employee-friendly indefinite employment systems trump American employers' default employment-at-will assumptions. US employers operating overseas seem to export their employment-at-will orientation only in the broadest sense. In general, they tend actively to conform to host country conceptions of the social contract. They manage to do this by exporting four operating principles: privity, compliance, code of conduct, and benchmarking.84 For the most part, these four tools allow US multinationals to maintain their business-focused orientation forged under employment-at-will while meeting the tough obligations of each host country's social contract.