What many people do not know is that the U.S. is the only country where “employment at will” applies.
I have worked with several in-house attorneys that were not even aware of this. The fact is that labor laws in general in the U.S. are very pro-business while labor laws in most other countries in the world are pro-employee.
As a result, from the point of view of U.S. headquartered multinationals, firing employees gets stricter, more complex and more expensive once they step outside the U.S.
Big penalties if improperly handled
Outside the U.S., laws regulate how, when and why an employer can end an employment relationship. Many foreign employment termination laws impose lengthy notice periods, large severance pay and cumbersome pre-firing procedural steps.
There can be heavy monetary penalties if these transactions are handled improperly. Settlements are usually calculated as a multiple of annual earnings. In the EU particularly, termination settlements can amount to two to three years of earnings or more.
In Belgium, for example, an employee that is wrongfully terminated may be entitled to up to eight years’ pay. Let’s take a look at a couple of examples of how global terminations can vary.
Termination based on business reasons (for example, an employer’s decision to restructure its business in a way that certain jobs or positions are no longer needed), requires that a process called “social selection” be applied. The employer must identify who among the employees should be given notice if more than one person is to be terminated. Courts require use of a process called “social selection.” Employers must consider the following factors for each employee:
- Number of dependents or maintenance obligations; and
- Disability (if any).
The employee with the highest factor(s) in the social selection process keeps his/her job. It does not matter that the employer may be shutting down an entire global business unit that only has employees with a very rare and specific type of design engineering skill — one of which is employed in Germany. The laws in Germany disregard this.
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The only process that can be used is the one described above, the “social selection” process. If the design engineer in that business unit in Germany ends up being older, married and partially disabled, he/she cannot be terminated. Another younger or single employee must be terminated in his/her place.
The Labor Contract Law requires dismissal to be based on objective and reasonable grounds and appropriate within general cultural and societal norms. For example, if a worker breaks a work rule, this would be called a “disciplinary dismissal.” This type of dismissal is most dishonorable and prejudicial to the employee. Because of this, the courts examine these cases very closely, and only the most egregious conduct cases are approved.
Because of the court’s harsh scrutiny as well as the recognized cultural impact on the employee, employers try to persuade the employee to voluntarily resign by providing monetary incentives. This is a very common practice in Japan. It allows the employee to “save face” and leave the company with honor. Depending on the employee’s position and length of service, the incentive could easily amount to one to two years pay.
The actions taken to reach a legal resolution regarding employment terminations are tedious, require much time from both local and corporate management and incur both corporate and local country legal fees. In addition, if the company loses a labor court case, monetary penalties can be substantial.
Advice? Never, ever try to terminate any employee outside the U.S. without the advice and counsel of an international labor lawyer.