Vistra Insights

The basics of terminating employees abroad

Many companies that operate in multiple countries fail to grasp the full extent of the risks associated with terminating employees. US-based multinationals in particular are prone to overlook these risks, since the US has relatively few worker protections related to terminating employees.

No matter where an organization is based or has employees, it’s important to understand local obligations when considering terminating an employee in another country. Those obligations, and related penalties, can vary significantly by jurisdiction.

Despite these legal differences between countries, there are widespread concepts in place that multinational employers should be aware of. Understanding these concepts will help you avoid common pitfalls associated with terminating employees in another country and help you ask the right questions when beginning the termination process.

Unfair dismissal

Employment legislation in most countries protects against so-called “unfair dismissal” and looks to ensure that an employee is terminated fairly as defined by local requirements. If an employer fails to follow local requirements — or fails to understand how those requirements are typically interpreted and enforced by local authorities — a terminated employee may raise a claim in court. If successful, the employee may be entitled to significant compensation or even reinstatement.

What, then, typically constitutes an “unfair dismissal”? In most countries a termination will be deemed unfair either because the reason for the termination was not justifiable under local law or because the process taken to terminate the employee was unfair (even if the reason to terminate was fair under local law).

Before moving forward with a termination, then, it is important to ensure that you have a fair, justifiable reason for the action under local legislation, and that the process used to terminate the employee is deemed fair under local law for that particular reason.

In most countries, the reasons for fairly dismissing an employee can be categorized under one of the following three areas, or types: conduct; capability; and economic reasons. Typically, each dismissal type has its own fair-termination process that must be followed. I’ll now discuss these three types in more detail.

Conduct

There are typically two types of conduct-related terminations. The first is a single act deemed so serious that the employer is justified in terminating the employee immediately. This is commonly known as a summary dismissal. In such cases, the employee may be terminated without regard for statutory or contractual notice periods.

Typically, the law will allow a summary dismissal only in the most serious cases of misconduct, such as assault, fraud or theft. Many local courts will also support a summary dismissal where there has been an act of gross negligence.

Employers should beware of executing a summary dismissal if there is any ambiguity. An employee will have a claim for unfair dismissal if he or she has been terminated for a reason not deemed serious enough to amount to gross misconduct.

This is in short a high-stakes termination, and for that reason most employers will suspend an employee and then conduct a formal investigation before taking other action. Only when the investigation is complete and the employer is satisfied that an act of gross misconduct or negligence has occurred will the employer terminate the employee. In such cases, the employer can typically terminate the employee without consideration for any locally mandated notice period.

In many countries an employer has to react quickly to an act of gross misconduct, often as soon as the employer becomes aware of the act. If an employer waits too long to terminate after an act of gross misconduct, then the termination is typically considered unfair.

The second type of conduct-related termination involves an employee committing a series of acts that, taken individually, may not be considered gross misconduct under local law. Taken together, however, they may justify termination.

In such cases, the fair process to be adopted typically requires the employer to issue the employee formal warnings and the opportunity to correct his or her behavior prior to termination. The number of required warnings will vary depending on the severity of the employee’s behaviour and local law.

Capability

Capability-related terminations generally fall under two types:

  1. The inability to perform duties to the required standards of a role due to a lack of competence or skills.
  2. The inability to perform duties to the required standards of a role due to illness.

To successfully terminate an employee on the grounds that he or she is incapable of performing duties to the required standards, an employer must typically at least implement a performance improvement plan (PIP) before beginning the termination process. To meet the required standard of fairness, a PIP must allow the employee a fair chance of improvement.

The employee’s shortcomings must be clearly communicated in the PIP, and the employer must provide tools and training to address the shortcomings. The employee must have enough time to improve, and the timeframe must be sufficient to enable the employer to monitor and record changes in performance. The employee must also receive adequate support and communication throughout the improvement period. Generally speaking, the PIP process must last at least three months to be deemed fair, with regular touch points and communication on progress recorded.

When addressing an employee’s illness, the employer typically must adopt a highly sensitive approach over a prolonged period. The process will usually require reports from medical practitioners, in some cases provided by the employer’s chosen doctor (at the employer’s expense). The employer may also be expected to make workplace adjustments to accommodate the employee’s condition before considering a termination.

Economic reasons

An employee termination is generally justified in cases where an employer must reduce its workforce. Common examples include terminating workers due to a site closure, a reduced need for work due to market forces, employer financial difficulties and the introduction of new technology that displaces workers.

Typically, these types of terminations must be considered as a last resort. Courts in many countries will have an expectation that the employer has considered other actions first, such as reducing salaries and providing voluntary-redundancy and alternative-employment options.

In such cases, a fair termination process may require the employer to adopt a fair selection process that accounts for reasonable and objective criteria such as length of tenure, number of dependents, etc. While these criteria will vary by country, the “last in, first out” (or “first hired, last fired”) principle is a common criterion.

In such cases an employer is generally required to consult with the affected employees and/or their designated representatives or unions. The consultation period is typically a two-way process in which the employee is provided the opportunity to suggest ways the redundancies can be avoided.

Summary

Organizations that employ workers in multiple countries must understand that each country has its own unique laws related to terminating employees. These laws can be restrictive, and in some cases the process for terminating an employee in compliance with local law can take months or longer. In France, for example, it may take as long as two to three months to terminate an employee in compliance with local law.

So, the process for terminating an employee can be costly and burdensome, but the risk of noncompliance is typically far steeper, even for seemingly trivial missteps. To take a recent example, a client with operations in an EU country failed to note the correct employing entity on a formal termination letter. As a result, the employee challenged the termination. The case, which went to court for nine months, was awarded in the employee’s favor and the employer was forced to give the terminated employee back-pay for the period of the court case, and reinstate the employee or agree on a settlement payment. On top of this, the client had to pay court and legal fees.

The best way to mitigate the risks of employee termination is to understand local employment law. Typically, this means hiring a third party familiar with local requirements and how they are commonly interpreted and enforced. This will give you a realistic idea of the options and risks involved before you begin the termination process.

Those companies new to international expansion should include termination requirements in their budgets and timelines, a step that is often overlooked during the expansion planning process.

Mike Freyer, Senior HR Consultant, contributed to this article. 

 

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