2019 INTERNATIONAL PRACTICE GROUP SYMPOSIUM

OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 3-1

SETTING UP YOUR MULTIJURISDICTIONAL

DOCUMENTS FOR SUCCESS

Rebecca L. Marks – Ogletree Deakins (Boston)

Bernhard Mueller – Ogletree Deakins (Columbia)

Setting Up Your Multi-Jurisdictional Documents for Success

Global Mobility

Bernhard Mueller

In this global economy, business may inevitably transcend borders and require personnel to move to different countries to establish new operations, manage critical functions or departments overseas, transfer essential expertise and skills to an affiliated entity elsewhere, or simply allow key personnel to expand their global expertise in order to advance within the company. Having the right talent at the right place may become essential to the success of a globally-focused enterprise. Over the past decades, such trans-border movement of executives and employees has accelerated, whether structured as a short-term visit, a temporary assignment, or a long-term foreign transfer of employment. Successfully managing these global mobility assignments requires a careful consideration of the documents required throughout such global personnel assignments.

As a starting point, it may be prudent to formalize the working arrangements of the international assignment, whether by entering into a new or amended Employment Agreement, a detailed Expat Assignment Agreement, or simply a Letter of Understanding that lays out the terms and conditions of the foreign assignment. While formal employment agreements are rare in the United States with employment generally characterized by the “at-will” relationship and simple job offer letters, they are common or the standard in most countries. Several foreign countries require the posted employee to provide a formal employment contract in order to obtain work visas / work permits, and employers need to fully understand the larger implications of such requirements. These agreements often have an effect on the way an assignment is structured and under what terms or conditions an individual will be allowed to work in the host country.

For instance, in order to obtain a work visa (Z-visa) for China, the visa applicant generally must first obtain a Foreigners Employment Permit of the People's Republic of China issued by Chinese government authorities for Human Resources and Social Security. See Embassy of the People’s Republic of China in the United States, How to Apply for Visa (visited 2/24/2019) <http://www.china-embassy.org/eng/visas/hrsq/#Z>. Obtaining this Permit requires the Chinese employer to submit a series of documents online, including a Chinese employment contract. At the same time, however, the individual’s U.S. employer (and in some cases even the individual personally) may not want the temporary assignment to China be subject to the local Chinese employment laws and thereby potentially trigger protections provided under those laws that may become very costly upon the termination of the foreign assignment. Thus, the employer may want to draft a separate Assignment Letter for the individual to sign, with the mutual understanding that the local employment agreement submitted for the work permit / visa application shall not actually govern the parties’ relationship and the assignment to China, but that the Assignment Letter is the determinative document.

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Whatever the form chosen, the document should include:

clarification of the employing entity (whether it would continue to be the home country employer, a local or host country affiliate, dual employers or even an international holding affiliate)

job title and specific duties / responsibilities related to the assignment compensation and benefit arrangements any tax equalization arrangements any negotiated or “special” agreements that are particular to the assignment (such as mobility

premiums, cost-of-living adjustments, housing allowances and home leave arrangements) relocation and repatriation arrangements clear beginning and ending of the term of foreign assignment termination provisions anti-bribery law compliance obligations dispute resolution process confidentiality and restrictive covenant protections

In many countries, the parties may not to contract out of certain basic legislation such as rules governing public holidays, vacation, hours of work, overtime pay, data protection, maternity leave and discrimination. Such legal requirements cannot usually be altered by employment agreement, but it may be possible to adjust compensation to take such mandatory payments into account. For instance, EU Regulation No 593/2008 provides that:

An employment contract shall be governed by the law chosen by the parties. Such a choice of law may not, however, have the result of depriving the employee of the protection

afforded to him by provisions that cannot be derogated from by agreement under the law that, in the absence of choice, would have been applicable.

If the law applicable to the individual employment contract has not been chosen by the parties, the contract shall be governed by the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract. The country where the work is habitually carried out shall not be deemed to have changed if he is temporarily employed in another country.

Where the law applicable cannot be determined pursuant to the above rule, the contract shall be governed by the law of the country where the place of business through which the employee was engaged is situated.

Where it appears from the circumstances as a whole that the contract is more closely connected with a country other than that resulting from the previous rules, the law of that other country shall apply.

European Commission Regulation 593/2008 of 17 June 2008 On the Law Applicable to Contractual Obligations (Rome I), 2008 O.J. (L177/6).

It may also be possible in some cases, depending on treaty provisions, for the agreement to allow for an election to remain on the home country’s social security, social insurance, medical and/or related schemes. Many of those treaties require the individual to obtain, through the home country employer, a Certificate of Coverage from their home country confirming that the individual is covered and will remain covered under the home country’s social security / social insurance program. For instance the recent agreement between the United States and Brazil, which became effective October 1, 2018 and is similar to U.S. social security agreements already in force with 26 other countries, eliminates dual social security coverage when

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a worker from one country works in the other country and has coverage under the social security systems of both countries for the same work. 83 Fed. Reg. 52298 (2018).

The terms of the agreement will also depend on how the employment relationship for the global assignment is structured. International assignment agreements are primarily used for secondments, dual employment, and global employment companies. If an individual is transferred to another country (i.e., localized there), this type of global employment shift should better be structured based on a termination of employment with the home country employer – including termination of any applicable employment agreement – and a more standardized local employment agreement with the destination country employer. The potential problem with an actual employment transfer arises from the termination of employment with the original company, which can create substantial expenses for statutory severance, vacation, benefits and other payout obligations triggered by the employment termination.

The most common type of assignment chosen by global companies is the secondment assignment, where the employee remains employed by the original company and “seconded” to provide services to benefit the destination company in another country. The original employment relationship continues, with modifications setting forth the terms of secondment. The costs can be allocated between the two companies through a secondment agreement, taking into consideration transfer pricing and other tax obligations. Employees generally favor secondments to maintain their home country tax qualified retirement or other existing employment benefits while on assignment in the destination country. Secondment agreements should address repatriation scenarios, e.g., whether the employee can request an earlier return, what will happen if the home country employer no longer has an equivalent position available at the end of the assignment, how to handle situations where the host company is not satisfied with the employee’s job performance, etc. Many secondment agreements fail to consider these eventualities, resulting in preventable legal liability and/or litigation.

Which entity actually serves as the employer in a global mobility assignment will depend on how the employment relationship is structured and the duration of the assignment. The company has to balance the business goals of the global assignment with the laws of each country where the employee will travel and work. Many countries impose specific employment requirements for purposes of work visa issuance, residence permits, tax treatment, executive management functions, etc.

Decisions about the terms and conditions of the assignment of an expatriate (as documented in an assignment letter or agreement) can have substantial tax consequences and therefore need to be carefully considered PRIOR to applying for visas and work permits. For example, if the salary of an expat employee assigned to the Netherlands is below a certain threshold, then there are lucrative tax benefits called “the 30% ruling” in which 30% of the salary can be tax free. The minimum to meet the “30% ruling” requirement in 2018 was € 37,296, meaning that the if the employee pays tax on at least that amount, any income up to 30% above that minimum amount is tax free. See Dutch Ministry of Finance, Expat tax break to be shortened (visited 2/24/2019) <https://www.government.nl/topics/income-tax/shortening-30-percent-ruling>. Similarly, if an expat is assigned to the United Kingdom for a temporary period of up to two years, the expat’s UK housing, utility and subsistence costs should be tax deductible expenses, whether or not these are paid by the employer or by the expat personally. With the high cost of UK accommodation (particularly in London and the South East of England) and the top rate of UK tax at 45%, this can be a hugely valuable tax relief, but it does need to be structured and documented correctly from the outset of the assignment. That also means that all documents needed for the expat assignment, including work visa / permit applications, need to be consistent with an anticipated assignment of not more than 24 months. Nick Day, Top 10 Expat Tax Tips for Individuals Moving to the UK (visited 2/24/2019) https://www.taxinnovations.com/expat-tax-tips-moving-to-the-uk/>.

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While the assignment is being planned, the sending company should also evaluate any domestic tax consequences that may be triggered if the expat will participate in the host country’s compensation and benefits program, From a U.S. perspective, such participation may potentially lead to adverse U.S. tax consequences, particularly related to Internal Revenue Code Section 409A dealing with Deferred Compensation Plans, 26 U.S. Code § 409A (2018), and Section 457A dealing with deferred compensation paid by “non-qualified entities”, 26 U.S. Code § 475A (2018). These rules are extremely complex and apply to all types of deferred compensation plans and programs globally with U.S. citizen participants. Generally Code Section 409A requires compliance with various rules on the timing and form of payment and the timing of certain deferral elections made, unless exemptions apply. “Deferred Compensation” is defined broadly to include equity incentive and long-term incentive plans that pay over several years. Code Section 409A contains exclusions for certain foreign plans that meet 409A rules. Also, there may be potential 409A concerns related to tax equalization payments made over a number of years, where the payments would be considered a form of deferred compensation. In addition, Section 409A may also be applicable to a non-U.S. executive taking an assignment in the United States. Participation in home country benefit and equity compensation plans that do not meet the specific 409A requirements could potentially have an adverse impact on the executive, unless those plans are modified to comply with Section 409A prior to the executive becoming subject to U.S. taxation. 26 U.S. Code § 409A (2018).

Similarly, the impact of Code Section 457A on offshore employees is often overlooked in mobility assignments. Section 457A imposes immediate taxation (including interest, if applicable, and a 20% excise tax penalty) on any type of compensation that is deferred under a non-qualified deferred compensation arrangement of a “non-qualified entity,” once such compensation is no longer subject to a substantial risk of forfeiture. That means that income is recognized and tax may be due at vesting of the compensation promise, even though the actual compensation is not paid until a future date. “Nonqualified Entities” can include foreign corporations with U.S. employees, or employees of partnerships with U.S. and foreign entities based in “tax indifferent” jurisdictions. These could also include U.S. and foreign joint ventures or could apply to U.S. employees of foreign employers. For example, Section 457A could apply to U.S. expatriate employees working for a U.S. multinational in a foreign manufacturing subsidiary located in Hong Kong (a “tax indifferent “jurisdiction) and the U.S. expatriate is granted vested Stock Appreciation Rights (SARs) that are exercisable in 24 months from date of grant. Because the SARs grant is subject to Section 457A, it is immediately taxable on date of grant if the amount is currently determinable. If not, then it would be taxable when such becomes determinable (presumably at exercise). 26 U.S. Code § 475A (2018). Because of its adverse and potentially serious impact, the applicability of Section 409A and Section 457A needs to be thoroughly researched and understood as it applies to the broad spectrum of compensation and benefit plans and programs which the executive may participate.

Immigration laws and visa requirements vary from country to country and the process of obtaining the appropriate employment visa or other permit in order to legally work in the host country can be challenging, document intensive, and time consuming. The appropriate visa category may depend on the duration of the assignment, the type of position to be held in the host country, the background of the visa applicant, the type of activities that the individual will perform in the country, etc. The process for obtaining a work visa can be cumbersome and the types of documents required vary from country to country, and even among the different work visa types of a specific country.

Documents that are frequently needed are official corporate records confirming the legal existence and financial viability of the sponsor company in the host country, evidence that the sponsor organization is officially registered as a company authorized to sponsor a foreign national (e.g., being registered as Standard Business Sponsor in Australia), evidence that the sending company and the local sponsor company

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are affiliated through common ownership, and employment agreement/assignment letter detailing the need for the assignment and qualifications of the individual, documents confirming the candidate’s education or expertise required for the job, evidence that the individual will have life and health insurance during the assignment period, official criminal background checks / police reports from each country where the assignee has resided for at least six months since the age of 16, and marriage and birth certificates for accompanying family members. Many of these official documents may need to be legalized or apostilled prior to submission for the work visa / permit application. This legalization process can be rather time consuming and expensive.

Code of Conduct Implementation and Language Requirements

Rebecca Marks

The following chart provides high-level guidance to Code of Conduct implementation and language requirements in representative countries. While this chart is generally correct, please note that there are exceptions in almost every country depending on when in the employee life-cycle the Code or policies are implemented, the size of the employee population, the exact content of the Code of Conduct and other variables. Where employee consent is not required, it is always advised.

COUNTRY EMPLOYEE

CONSENT

REQUIRED

(SUBJECT TO

CONTRACTS)?

COLLECTIVE

CONSULTATION

REQUIRED

(ABSENT UNION)?

GOVERNMENT

NOTIFICATION

REQUIRED?

LOCAL LANGUAGE

REQUIRED FOR EMPLOYEE

DOCUMENTS?

Australia No No No N/A

Brazil No No No Yes

Canada Yes (or sufficient notice)

No No N/A - Except that Quebec1

requires French.

Chile No No Yes (for internal rules only)

Yes

China No Yes No Yes

Colombia Yes (individual) No No Yes

Costa Rica No No No Strongly recommended

1 Quebec: All workers in Quebec have the right to work in French. They can speak and write in French and ask for French work documents and tools, including computer software, and they cannot be fired or refused a job if they are not fluent in English, unless it is a bona fide requirement of the job. The Charter of the French Language (Charte de la langue française)

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COUNTRY EMPLOYEE

CONSENT

REQUIRED

(SUBJECT TO

CONTRACTS)?

COLLECTIVE

CONSULTATION

REQUIRED

(ABSENT UNION)?

GOVERNMENT

NOTIFICATION

REQUIRED?

LOCAL LANGUAGE

REQUIRED FOR EMPLOYEE

DOCUMENTS?

Denmark Depends Depends No Recommended if not all employees fluent in English

Finland Depends Depends No Recommended if not all employees fluent in English

France No Yes Yes (approval) Yes2

Germany Yes (individual and collective)

Yes No Strongly recommended

Hong Kong No No No English is an official language

Indonesia No Yes Yes (approval) Strongly recommended

Israel No No No Recommended if not all employees fluent in English

Italy No No No Strongly recommend

Japan No Yes Yes Strongly recommend (Rules of Employment must be in Japanese)

Malaysia Yes No No Strongly recommended

Mexico Yes (collective, for disciplinary rules only)

Yes (for disciplinary rules only)

Yes (for disciplinary rules only)

Strongly recommended

New Zealand No No No N/A

Norway No Yes Yes (for Staff Rules only)

Recommended if not all employees fluent in English

Philippines Yes (collective) Yes Yes English is an official language

2 France: Any document containing obligations for the employee, or provisions whose knowledge is necessary for the execution of the employee’s work must be written in French. French Labor Code, Article L.1321-6. Note that even fluency in English has generally not been sufficient to overcome this requirement, so that an employee could be due a bonus even if he claims he did not meet the objectives because they were written in English. Cass. Soc. 29 juin 2011, no 09-67.492. However, there have been a couple of exceptions. For example, the French Supreme Court ruled that an employee fluent in English could be held to the rules in an English-language stock plan which had the effect of preventing him from exercising his options. However the distinction seems to have been that the stock and the stock plan originated with the English-language parent company. Cass. soc., 16 mai 2007, n° 05-45.281. The French Supreme Court made another exception when it held that although Air France employmentdocuments had to be in French, due to the international nature of the profession and international safety standards requiring the ability of pilots to read and understand technical documents in English, those did not have to be provided in French. Cass. Soc., 12 juin 2012, pourvoi n°10-25822.

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COUNTRY EMPLOYEE

CONSENT

REQUIRED

(SUBJECT TO

CONTRACTS)?

COLLECTIVE

CONSULTATION

REQUIRED

(ABSENT UNION)?

GOVERNMENT

NOTIFICATION

REQUIRED?

LOCAL LANGUAGE

REQUIRED FOR EMPLOYEE

DOCUMENTS?

Poland No No No Yes3

Singapore No No No English is an official languages

South Africa No No No English is the language of business, but should ensure all employees understand and read English

South Korea Yes (majority vote)

Yes Yes Strongly recommended

Spain No No No Strongly recommended

Sweden No No No Recommended if not all employees fluent in English

Turkey Yes No No Strongly recommended

United Kingdom

No No No N/A

3 Poland: The law requires not only that Polish be used for all employment documents, but even non-employment related documents: if any party to any agreement to be performed in Poland is a Polish entity, the agreement must be concluded in Polish. The Act on the Polish Language of October 7, 1999 (as amended)

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Rebecca L. Marks (Boston)

Bernhard Mueller (Columbia)

Setting Up Your Multijurisdictional Documents for Success

Global Mobility Requires Documentation

• Need to formalize the terms & conditions of the global assignment

• Options:• New or Amended Employment Agreement (uncommon in the U.S.)

• Detailed Expat Assignment Agreement

• Letter of Understanding

• Status of existing employment agreement while employee is on global assignment?

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Is Expat Agreement Mandatory?

• Formal employment contract may be required for work visa application.

• Example: Chinese Z-visa • Requires Foreigners Employment Permit issued by Chinese government

agency

• Must submit Chinese employment contract

• Consider drafting a separate Assignment Letter superseding the Chinese contract

Terms of Assignment Document

• Which entity will be employer

• Job title and duties/responsibilities during assignment

• Compensation & benefits

• Tax equalization arraignments (if any)

• Start and end of assignment

• Relocation/repatriation arrangements

• Confidentiality/restrictive covenants (to extent allowed)

• Dispute resolution

• Termination provisions

• Any other special arrangements (e.g., cost-of-living adjustments, housing allowance, etc.)

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Local Employment Law Could Trump Contract

• Many countries prevent parties from altering/contracting away basic employment law protections

• For instance, EU Regulation No 593/2008:

The parties’ contract and choice-of-law term may not deprive employee of the protection afforded by provisions that cannot be derogated from by agreement under the law that, in the absence of choice, would have been applicable.

Tax Implications Need To Be Considered

The structure/terms of expat assignment will have tax consequences.

• Internal Revenue Code Sections 409A and 457A, dealing with taxation of deferred compensation

• Tax treatment in destination country• Example: the Netherlands’ 30% tax benefit ruling

• Example: UK tax treatment of housing, utility, subsistence costs

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Documentation Needed for Visa/Work Permit

• Virtually every work visa/permit application requires documents

• The types of documents will vary depending on country and/or visa type

• Documents needed typically include:• Existence and financial viability of sponsor company in host country• Sponsor company is registered/authorized to sponsor foreign nationals• Evidence of corporate relationship• Employment agreement/assignment letter• Candidate’s education credentials/expertise• Insurance coverage• Criminal background check/p0lice records• Dependent family members relationship to principal visa applicant

Global Code of Conduct and Policies

Legal and Cultural Issues

Implementation and Language Requirements

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Legal and Cultural Issues

Legal considerations –• The risk if you leave in “at-will” language or deny your policies or Code as

contractual.• Loss of ability to enforce (e.g., Canada)

• The risk if you make your policies contractual.• Loss of flexibility, reduced ability to change policies (e.g., Japan)

• Will changes in the law result in benefits that are no longer required?• In some countries (e.g., China), public holidays can change every year

Cultural norms versus corporate culture –• What standards are non-negotiable?

• Sexual harassment remains widespread in many cultures

• LGBTQ discrimination

Implementation and Language Requirements

Inclusion in workplace rules

Consultation or co-determination of representative bodies (such as works councils)

Collective bargaining agreements with special procedures

Union involvement

Individual employee consent

Long notice/lead times before enforcement

What language?

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Original signatures?• France• Alberta, Canada

Filing requirements?• Work Rules• Termination Documents

• Italy resignations

Posting requirements?

Do not let your DOCUMENTS be your DOWNFALL

Who is the legal employer? • How to mitigate against joint employer or merged employer claims

• Italian undertakings

Who can sign for the company?• France – must be a director or employee of the same company

Do not let your DOCUMENTS be your DOWNFALL (cont.)

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Rebecca L. Marks (Boston)

Bernhard Mueller (Columbia)

Setting Up Your Multijurisdictional Documents for Success

Rebecca L. Marks

Of Counsel  ||  Boston

Rebecca Marks is a member of the International Practice Group, which

provides worldwide labor and employment law support in over ���

countries.

Her expertise includes cra�ing practical, business-centric advice on

international employment issues for U.S. management of multinational

corporations. She supports U.S. human resources internationally and

helps educate clients about the di�erences between US at-will

employment law and the employee-centric laws of most of the rest of

the world.  She dra�s employment contracts, termination agreements

and policies to conform with parent company standards but still

comply with local requirements. Where necessary, she manages

a�liated counsel in each country in litigation ma�ers. Where disciplines

overlap, Ms. Marks ensures that clients are aware of potential corporate

tax or immigration issues in order to obtain the best results possible in

the management of their overseas interests.

Education

J.D., Northeastern Universi� School of Law, ����

B.Sc., Skidmore College, ����

Admi�ance to Practice

Massachuse�s

U.S. District Court, District of Massachuse�s

U.S. Court of Appeals, First Circuit

Bernhard Mueller

Shareholder  ||  Columbia

Bernhard Mueller is a member of the International Practice Group of

Ogletree Deakins and has more than �� years of experience in handling

employment and immigration law ma�ers for multinational

corporations. A native of Germany, Bernhard focuses his international

employment practice on Europe, Canada, Latin America and Africa,

where he has handled ma�ers involving global workforce mobili�,

European data privacy / data protection compliance issues, global sales

incentive pay plans, employment and expatriate assignment contracts,

employer policies and handbooks, immigration law compliance and

government enforcement ma�ers, and immigration options for

international assignments and technical assistance projects. He

represents clients across the United States and internationally in a broad

range of industries, including manufacturing, aerospace, information

technology, biotech / biopharma, utilities, oil & gas, construction,

telecommunication, and professional services.

Bernhard has been selected for inclusion in Chambers USA as a top

immigration a�orney every year since ����, and he has been named as a

North Carolina Super Lawyer’s Outstanding Young Lawyers –

Rising Stars in ���� and ����.* He is a frequent lecturer on business

immigration law and global mobili� topics before trade associations,

industry groups and professional organizations. He has authored

various newsle�ers and articles on these subjects.

*Disclaimer:

Please follow the link provided for information on the standards for

admission to this group, organization, or publication. �is group,

organization, or publication does not have a financial interest in

promoting any particular lawyer. �ere is no fee charged for

membership in this group, organization, or publication.

Education

J.D., cum laude, Universi� of South Carolina School of Law, ����

MIBS, cum laude, (Master in International Business Studies) Universi� of South Carolina Darla Moore

School of Business, ����

B.A., summa cum laude, Universi� of South Carolina, ����

Admi�ance to Practice

South Carolina

North Carolina