International employment policies - issues arising from drafting and implementation

Practical Law UK Articles 5-382-2408 (Approx. 8 pages)

International employment policies - issues arising from drafting and implementation

by Peter Talibart and Emma Sinclair, Norton Rose

Why adopt international employment policies?

Labour practices have been in the spotlight worldwide because of globalisation and the increase in reputation risk issues associated with multinationals operating in or subcontracting and outsourcing to developing countries. Differences in employment standards and practices between jurisdictions are becoming less sustainable for multinationals with internationally mobile workforces. These employers may face external pressure from their employees or public interest groups (including international trade unions) to eliminate inequalities and provide universal employment standards and practices for all their employees. In some situations, failure to implement fair employment practices may damage the employer's reputation. This is a particular risk for high-profile organisations. For example, human rights and labour organisations have in the past widely criticised Wal-Mart on issues such as its diversity policy and its failure to stamp out substandard working conditions in its global supply chain.

In addition to ethical motives, there are a variety of legal, practical and presentational reasons which may lead a multinational to consider adopting international employment policies, including to:

Comply with global regulatory standards. For example, the US Sarbanes-Oxley Act 2002 (Sarbanes-Oxley) provides employee protection in the sphere of whistleblowing. It extends to non-US companies listed on a US exchange as well as their subsidiaries and requires them to have an independent audit committee. The audit committee must further establish procedures for employees to submit anonymous complaints regarding auditing or accounting irregularities. Further, to the extent that publicly traded companies or their subsidiaries employ US citizens or make or co-ordinate employment decisions in the US, an employee who makes complaints regarding potential accounting or securities fraud may be able to pursue a civil claim against the company if they are victims of retaliation. For example, a federal judge recently extended Sarbanes-Oxley's whistleblower protections to an employee of a US company's foreign subsidiary because the decision to retaliate was made by US-based managers, even where the employee was not a citizen (O'Mahoney v Accenture, No. 07-7906 (S.D.N.Y. 15 February 2008)). Courts have otherwise extended Sarbanes-Oxley whistleblower protections to employees who were US citizens, especially where their complaints were addressed to the US parent corporation (see, for example, Penneso v LCC International Inc, 2005-SOX-16).
Comply with published corporate social responsibility (CSR) standards, to account for its social, economic and environmental impact locally, regionally and internationally.
Increase efficiency, as requiring employees to follow the same policies enables the policies to be managed centrally.
Ensure transparency and fair treatment for employees.
Limit legal liability for global employment risks (for example, a well drafted and effectively implemented policy may provide a defence against discrimination claims).
Deal with issues such as corruption or facilitation payments in a consistent fashion and provide for centralised reporting of such issues.

Finally, a multinational may wish to be recognised as a responsible global corporate citizen, by adhering to universal minimum employment standards. The trend for multinationals complying with international legal standards is increasing. Of primary importance among these standards are the core labour standards of the International Labour Organisation (see box, Core labour standards). These have become a hot topic and market forces are increasingly encouraging multinationals to ensure that respect for CLS is an integral part of doing business.

Implementing international employment policies

There are a number of practical issues which employers should consider at the outset before adopting international employment policies, as well as the issue of the areas that the policy will cover (see below, What areas may a policy cover?).

How should the policy be implemented?

Successful implementation of any international employment policy often depends on the policy's subject and content and the legal requirements of the jurisdictions in which it is to apply. The employer should seek local advice on the optimal method of implementation, including on whether:

It is possible to unilaterally impose the policy.
The agreement of the employees is required.
The policy should or can only be introduced following consultation with:
- trade unions;
- work councils; or
- employee representatives.

A policy is more likely to be effective if employee representatives have contributed to it, even where this is not legally required. Organisations may wish to consider how to co-ordinate this process globally.

Where should the employment policy be located?

This decision on where among the relevant employment documentation to insert an international policy may be influenced by:

How important it is to the employer that the employees comply with the policy.
Whether the employer needs to retain the ability to make changes to the policy.
The sanctions that may result from an employee's breach of the policy (see below, Sanctions for breaching the policy).

It may be contained in:

The employment contract.
The employee handbook.
An intranet site.
A collective agreement (if appropriate).

The size of the organisation and the number of countries in which it operates often influences this decision. If the policy is to apply to employees in a number of jurisdictions, the simplest option may be to publish it on the employer's intranet site so that it is accessible and visible to all employees. This also makes the process for communicating any amendments to the policy in the future more straightforward.

The employer should also consider how to integrate the policy with other contractual documents and communicate it to all its employees.

It is important to note that if the policy has contractual status (whether expressly or by implication) and the employer subsequently breaches it, the employee may have a legal right of redress for the breach. Alternatively, if the policy needs to remain flexible and have the ability to evolve, employers may prefer that the policy provide principles of conduct or guidelines to the employees which do not have contractual effect.

How should the policy be monitored and reviewed?

The employer should allocate responsibility for implementing and ensuring compliance with the policy to individuals within each jurisdiction and, if appropriate, provide suitable training to employees. The employer can use presentations, workshops and e-learning programmes to ensure that the policy receives the necessary attention and that employees are aware of their obligations and rights under the terms of the policy.

What areas may a policy cover?

The areas that international employment policies can cover are extensive (see diagram, Potential areas an international employment policy may cover).

Some of these areas are explored in greater detail below.

Bribery/corruption

Allegations of bribery may result in public embarrassment and substantial liability for a multinational organisation. With the increased transparency of business activities through the media and the internet, many multinational organisations now wish to adopt a policy dealing with the issue of bribery and corruption in their global business.

Prosecutions for foreign bribery were relatively scarce in the past, despite the fact that the 37 signatory countries to the anti-bribery convention of the Organisation for Economic Co-operation and Development (OECD) account for the majority of the world export of goods and services. However, according to the global anti-corruption organisation, Transparency Convention, the situation is gradually changing and there is now significant enforcement against bribery in 14 countries, compared with only eight in 2005. For example, the threshold for reporting bribery/corruption in the UK is low, following the introduction of the Proceeds of Crime Act 2002. This encourages professionals such as auditors to succumb to whistleblowing pressure. In addition to legal reporting obligations, the increased emphasis on ethics and CSR has resulted in a hardening of public attitudes in the UK to overseas corruption, according to the OECD's UK report.

Employers must decide how best to implement and communicate an anti-corruption policy to employees. Enforcement is also a key issue: there is little point in having the policy if there is no sanction for breaching it. Multinationals must be pro-active in ensuring that anti-corruption/bribery policies are translated into all applicable languages and all employees made aware that these practices are prohibited and the consequences of breaching the policy.

Not all employers may welcome a global anti-corruption policy. Bribery laws are fragmented between jurisdictions. This means that behaviour that is prohibited in one country may be permitted in another. Multinationals may face difficulties doing business in certain countries where bribery may be seen as a way of life, if not a feature of doing business in that country. In these countries, it may be an integral business practice and could determine an organisation's ability to win lucrative contracts. Therefore, if an anti-corruption/bribery policy is strictly enforced, there is a risk that multinationals will lose their competitive advantage compared to other organisations that do not abide by these standards. This is a particular concern within certain industries such as energy and construction where there may be a culture of, or vulnerability to, corruption stemming from the relationships between third parties and officials.

However, as business activities are becoming increasingly transparent, the public (including institutional investors) is less likely to turn a blind eye to corrupt practices (see above). An organisation which is seen to be participating in such practices may lose clients or discourage further investment. Therefore, multinationals may still wish to adopt an international anti-corruption policy to send a message to its employees and to any interested third parties that corrupt practices will not be tolerated.

Diversity and equal opportunities

Multinationals are increasingly expected to make a positive commitment to diversity and provide genuine equality of opportunity for all employees. Providing differing levels of protection against discrimination across the global workforce could be divisive and create a multi-tier workforce in which some employees benefit from greater employment protection and equality of opportunity based on their country of work. An effective equal opportunities policy could result in commercial advantages such as:

Enhanced morale within the workforce.
Higher employee retention rates.
Enhanced company reputation.

As contributions from employees ultimately fuel the success of an organisation, it may be in the long-term interests of multinationals to promote non-discriminatory practices in employment, regardless of the level of protection that the particular statutory framework provides. In jurisdictions such as the US where diversity is a legal requirement this is unlikely to pose a problem for the employer. However, differences in local legislation may hinder the implementation of globally consistent employment policies. The employer must decide whether to accept the divergence in protection or "level-up" standards for all employees to ensure that the same protections apply globally. An important factor to consider is the effect that a diversity and equal opportunities policy will have on the customs and culture of the relevant country. For example, promoting diversity may create social tensions in countries where the local laws prohibit homosexuality or there are long-standing divisions between different cultures.

"Green" travel

Tackling climate change is high on the public agenda and more organisations are seeking ways to reduce their carbon footprints. Business travel represents a significant proportion of the carbon emissions for many multinationals and an international policy on green travel could be an important step towards reducing an organisation's impact on the environment while also boosting the organisation's green credentials.

In January 2008, a survey by WWF-UK found that 62% of the FTSE companies surveyed claimed that business travel was an area in which they were seeking to reduce their carbon footprint and a further 24% were developing plans to do so. Proposals which employers could contain in an international green travel policy include plans to improve existing travel choices for employees by providing:

Incentives to use sustainable travel, such as:
- cycling;
- public transport;
- car-sharing.
Disincentives to use other more carbon-intensive forms of transport.

In particular, WWF-UK believes that the use of videoconferencing technology should be promoted as an alternative to travelling to and from face-to-face meetings, especially where there are already established working relationships between the parties. The popularity of green travel schemes has been seen recently with both Google and Microsoft introducing a free bus service for their employees to commute to work. However, if a green travel policy is to have international scope, the employer must consider carefully which initiatives will work in each of the jurisdictions it operates in. For example, a policy of preferring rail travel over single occupancy car use may not be appropriate in countries such as the US where the rail infrastructure is less developed than in countries such as the UK.

Disciplinary and grievance procedures

There are significant differences in the approach to disciplinary and grievance procedures between jurisdictions. In countries such as the UK the law heavily regulates this area and employers must follow basic minimum procedures in dealing with disciplinary action and employee grievances. In other countries, such as the US, where employment is generally "at will", the employer can terminate the relationship without notice for a lawful reason. Global disciplinary and grievance procedures may not be practical where there is considerable divergence between the local laws in each relevant country, as applying the highest standards in each jurisdiction may result in administrative and procedural difficulties for the employer.

Secondment

Multinationals are increasingly requiring their employees to be globally mobile. Therefore, the secondment of employees between jurisdictions has become the norm for many multinationals. Employers with a mobile workforce may wish to adopt an international secondment policy which provides guidance to employees wishing to work in another country and sets out details of eligibility and the terms which will apply while on secondment. The employer must decide whether the secondee will be entitled to participate in any benefits specific to the host country and (subject to the degree of connection with the host or assignment country) which law is intended to govern the employment relationship while the employee remains outside the home jurisdiction.

Some organisations may agree to reimburse the additional costs to the employee of the foreign secondment, including any higher taxes that may apply, to help reduce the financial uncertainty for potential international secondees. Although this would ensure all secondees are treated equally regardless of country of origin, a tax reimbursement policy can be costly to the employer and result in increased administrative costs. It is more difficult for employers to obtain a clawback of salary when employees are sent to low tax jurisdictions, even though the tax regime may place the seconded employee at great advantage to his former situation.

Redundancy

Redundancy is an area that is heavily regulated by local law. There are significant differences between jurisdictions in the protection and compensation awarded to employees. This raises doubts as to whether it is possible to agree a sensible global policy. Employers considering a global redundancy policy must consider:

How to deal with divergent legal protections.
Whether the highest standard across the jurisdictions should apply.
Whether it is appropriate to apply a cost of living differential to compensation packages to ensure that employees receive the same amount in relative terms.
Whether compensation is inclusive of local law remedies.

Organisations wishing to adopt a global redundancy policy must seek local law advice on the terms and how the local courts would interpret such a policy. It should be borne in mind that most legal jurisdictions provide for some form of mandatory severance payment or indemnity on termination of employment. Any global severance policy runs the risk of being treated as a contractual benefit in excess of the locally required payment, if not drafted properly.

Retirement ages

Retirement ages for employees can vary significantly between jurisdictions. Employees who work for multinationals may expect their employers to harmonise retirement ages globally.

In certain legal systems, such as China (although this may be changing), retirement ages for women are lower than for men. Maintaining such differences on the basis of sex may not be compatible with a multinational's commitment to the promotion of equal opportunities. The employer may therefore wish to allow employees the option of working until the same time as other employees in the organisation, notwithstanding the laws of the country in which they are based.

Before implementing any policy on retirement ages, the employer should consult lawyers in each jurisdiction to ensure that the policy does not contradict local laws.

Interaction with local law

Although an employee's rights and protections differ between legal systems, certain common legal principles apply in the majority of jurisdictions. These include:

The requirement to have an employment contract in place between the employer and employee.
Protections for employees against dismissal.

Where there are similarities in employment law, they will help the process of implementing international employment policies. However, notwithstanding the terms of any employment policy, an employee is entitled to the benefit of any mandatory core terms of employment which give greater protection to the employee in the relevant jurisdiction. Therefore, an important part of the process of adopting an international employment policy is to consult with local counsel to ensure legal compliance in each jurisdiction in which the policy operates. Where the differences between legal systems are diverse, an organisation could consider either:

Drafting separate policies for each jurisdiction.
Introducing broad guidelines or principles for employees which comply with the highest global standard.
Providing a global minimum standard that is the fallback position if local law provides a higher degree of protection.

Sanctions for breaching the policy

Organisations should consider the consequences of breaching an international employment policy. Depending on the policy's type, organisations may wish to either take a zero tolerance approach or make it clear in the policy that any breaches may result in dismissal or disciplinary action.

If the intention of the employer is that breach of a proposed international employment policy will result in disciplinary action, the employer must ensure that effective procedures for monitoring compliance are in place. Employers could also consider introducing financial incentives or penalties if employees do not comply with a particular policy. Care should be taken: in certain circumstances, such as in the case of the anti-corruption policy, strict adherence to the policy may mean that commercial opportunities are lost (see above, What areas may a policy cover?: Bribery/corruption).

Core labour standards

The International Labour Organisation (ILO), the main standards setting and promotional body in the labour field, has developed core labour standards (CLS) which are aimed at governing how people are treated in the working environment. CLS are important as they represent the international consensus on minimum best practices, whether on human rights generally or labour issues specifically. Once member states of the ILO ratify them, they constitute binding legal obligations in national and international law. They may even be incorporated into national law. The four main principles which the ILO concentrates on are:

Freedom of association and the right to collective bargaining.
The elimination of all forms of forced labour.
The effective abolition of child labour.
The elimination of discrimination in employment.

CLS do not dictate a uniform labour standard across developed and developing states, but a minimum level below which no one should descend.

Over the last 15 years, CLS have become a hot topic and market forces are increasingly encouraging multinationals to ensure that respect for CLS is an integral part of doing business around the world. Ethical consumer and fair trade initiatives provide incentives and place pressure on multinationals to ensure compliance with CLS. Organisations are today being evaluated not only on their financial but also on their environmental and social performance, including respect for CLS. Therefore, multinationals may wish to publicise their commitment to comply with CLS by incorporating them into international employment policies or codes of conduct which apply to all their employees. It is important to remember that such promises should not be made lightly and may evolve into binding representations or implied contractual terms. Any multinational is well advised to not make any promises to its staff or to the world that it cannot or will not keep.

Although complying with CLS appears to be a wholly positive move, some have raised concerns that CLS should not:

Be used for protectionist trade purposes.
Impede the comparative advantage of developing countries.

The difficulty facing multinationals may be to not set too high a standard, while striking a fair balance between the needs of developing and developed countries.

Potential areas an international employment policy may cover

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