Avoiding a long, costly journey

Know all the rules before terminating an expat

Expatriation contracts have become a complex legal issue, with a wide array of contract types that vary based on an employer’s internal policies and on contract jurisdiction. From “local-to-local,” “local-to-expat,” “expat-to-local” and traditional long- and short-term expat contracts, the tripartite relationship between a foreign employer, local employer and expatriating employee can become difficult to understand and to manage.

In the event of an expat termination, employers could be exposed to civil liability in more than one jurisdiction, sometimes involving substantial monetary compensation to the terminated expat — which is often completely unforeseen and unbudgeted by employers.

It’s important to understand the potential dangers and identify ways to minimize risks when terminating an expat.

To illustrate the complexity of such a termination, reference is often made to the L’Oréal decision (Cass. soc. 13 nov. 2008, no 07-41700, Bull. civ. V, no 214) where a French national was initially hired in France as a salaried employee of L’Oréal S.A. for the successive roles of assistant (since December 1998) and assistant/logistics for the Asia market (since September 2000).

As of March 2002, the employee agreed, in a written document, to end her employment contract with L’Oréal S.A. in order to accept employment with L’Oréal China, a subsidiary of L’Oréal S.A. under a local contract for the role of project manager/operations; a position she was to occupy as of Oct. 1, 2002. In September 2002, she disclosed her pregnancy to L’Oréal SA and L’Oréal China.

Three weeks after she failed to report to her new office in Shanghai on Oct. 1, L’Oréal China said her employment contract was null and void following her complete disregard of the engagement. The expat turned back to L’Oréal S.A., which refused to rehire her, citing a written agreement that clearly stipulated the end of employment with the parent company when taking up employment with a foreign subsidiary.

The case was brought to court in France and L’Oréal S.A. was found liable of a violation of the French labour code when terminating the employee and ordered to rehire the woman in a role similar to the one she held before termination.

The ruling was pronounced by the local chamber of the French Cour de Cassation, France’s supreme court. What is most interesting case is that despite the written agreement between the parties, the court applied a larger legal protection overruling the termination of an employment contract even in the presence of appearing mutual consent. The court held that L’Oréal was in breach of the labour code, which states:

“Whereas a salaried employee hired by the parent company was furnished to a foreign affiliate and where a labour contract was concluded with the latter, the parent company ensures his repatriation in a case of termination by the affiliate, and procures him a new employment comparable in importance to his previous role within the parent company.

“Notwithstanding the parent company’s intent to terminate this salaried employee, the provisions of the present paragraph are in force.

“The time spent by the salaried employee working at the affiliate is therefore taken into consideration when calculating the time for notice and indemnity payments connected to termination.”

In sum, under French labour code, if the home employer refuses to repatriate the expat and terminates her employment with the home unit, the employee will be subject to substantial monetary compensation.

There have been a number of situations where a French salaried employee was sent temporarily to a Canadian subsidiary of his French employer, but signed a local Canadian labour contract. In this case, strictly speaking, no expatriation occurred as the only contract executed was a local Canadian (or Quebec) contract.

However, in an event of termination of this local contract in Canada, where less stringent rules respecting the termination of salaried employees with less than two years of seniority are applied, French expatriates have filed complaints in France and were able to obtain compensation from the French company to indemnify their premature terminations.

Local laws often prevail

There is more than the wording of an expatriation contract or local contract that may lead to employer liability. While the nature and type of contract still are of prime importance, the law applicable to the contract as well as local laws superior to all employment contracts are just as important. When preparing an expatriation contract, an employer must, therefore, be mindful of the larger legal context both in the home country and the receiving country.

For instance, in standard long-term expat situations, employers often include provisions stipulating the home country laws will apply in a case of a dispute, waiving the applicability of all local laws. However, such waiver provisions are often inapplicable, especially in the European Union where local labour laws are crafted to offer extended protection to workers.

Moreover, in most countries, even where the applicability of foreign law would be recognized, local regulations that are of a mandatory or “public order” nature will apply nonetheless.

In Canada, for instance, no employer can be exempt from minimum wage, working hours or vacation time regulations — even in the presence of a mutually agreed expat contract stipulating incompatible terms. Temporary workers under a local contract would also benefit from the same protection as local workers with respect to termination, up to the expiration of the work permit.

In a case of termination, as s. 124 of the Act Respecting Labour Standards in Quebec is deemed to protect public order, it would likely represent an available recourse to a terminated expat even if the expat contract stipulates a waiver of local laws.

For home-base employers, clearly identifying and understanding the applicable law is especially important where expats tend to become savvy about local regulations. Indeed, either through the execution of their functions abroad — which often include hiring, compensation and termination of local employees — or through their interaction with labour and immigration authorities and other expats, modern global workers are often better informed than their home employer when it comes to their rights in the hosting country.

A failure to correctly identify the applicable laws in this context can also lead to the danger of double indemnity. As an illustration, labour laws in Mexico apply the doctrine of “immediacy,” which roughly means an employer must terminate an employee for misconduct within one month of being informed of said cause for termination.

A failure to do so could result in wrongful termination, giving ground to monetary compensation payable in Mexico. Such compensation could be added to any contractual compensation or liability due in virtue of the home country regulations. While awkward situations arising from similar provisions can easily be prevented by experienced, local HR managers in the destination country, if the contract is managed by the home country, the risk is higher.

Employers not immune from home country labour laws

At the same time, as seen in the L’Oréal case, if a local employment contract in a foreign country stipulates severance of all ties from the home base and strictly limits the contract to a local jurisdiction, that does not render the home base employer immune from the applicability of home country regulations that are mandatory under the home labour law or in relevant laws ensuring the stability of public order.

Not only should employers clearly identify the applicable sets of laws but they should keep informed of any local rules that could potentially nullify provisions of a work contract or give a terminated employee an opportunity to sue in civil courts.

Terminating an employee always involves costs, but the emotional and monetary expenses associated with terminating an expat can be far greater. To minimize the risk, get sound advice so the end of an expatriation does not turn into the beginning of a long and costly journey.

Julie Lessard is a partner at BCF Business Law in Montreal. She can be reached at (514) 397-2260 or julie.lessard@bcf.ca.

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