Trans-National Employment Law Issues€¦ · Trans-National Employment Law Issues August 13, 2009 Jordan W. Cowman * Dianne Carlson Hoofard Akin Gump Strauss Hauer & Feld LLP 1700

AA-i ©Copyright 2009, all rights reserved.

ACC International Legal Affairs Committee

LEGAL QUICK HITS SERIES

Trans-National Employment Law Issues August 13, 2009

Jordan W. Cowman*

Dianne Carlson Hoofard

Akin Gump Strauss Hauer & Feld LLP 1700 Pacific, Ste. 4100

Dallas, Texas 75201 214-969-2794

214-969-4343 (fax) [email protected] [email protected]

* Jordan Cowman and Dianne Hoofard gratefully acknowledge the tremendous assistance of Cory

Hartsfield and Brad Pugh in the preparation of this paper, former and current associates respectively at Akin Gump Strauss Hauer & Feld.

AA-1 ©Copyright 2009, all rights reserved.

I. Introduction

As trade becomes increasingly international in scope, U.S.-based businesses are taking advantage of new and unique opportunities abroad, with more frequent transfers of labor and capital. While there are a myriad of considerations that form the basis of the decision to expand business operations abroad, employment-related costs play a pivotal role in the success or failure of U.S. businesses expanding abroad. Most often, we think of U.S. businesses moving operations overseas to take advantage of perceived “cheap labor” in less developed countries. Many U.S. companies have found themselves in legal and financial trouble, however, when they fail to take into account the real cost of employment abroad – compliance with foreign employment practices, regulations, treaties and the extra-territorial reach of U.S. laws. In this regard, there is an emerging trend of which multinational companies should be well aware, a trend that carries with it global liability implications.

The trend follows the latest attacks on globalization—a global effort to protect workers and hold multinational corporations accountable for business practices abroad. Although this effort has been pursued on many fronts, including monitoring workplace operations, strengthening international laws and enforcement mechanisms, as well as implementing social labeling initiatives, the newest pursuit to achieve corporate accountability has been through legal advocacy. Stemming from this recent litigation, there are three emerging issues to which multinational companies should pay particular attention: (1) the International Labor Rights Fund (ILRF) and

other non-profit groups’ use of U.S. laws, including the Alien Tort Claims Act (ATCA), to require multinational companies to comply with internationally recognized worker rights; (2) non-profit groups’ efforts to hold U.S. companies liable for actions arising in foreign countries, involving foreign residents, and stemming from actions of the U.S. corporation’s foreign subsidiary; and (3) courts’ recent incorporation or adoption of international norms into U.S. case law.

II. Emerging Trends

The following cases, when considered separately, present important issues affecting some specific types of multinational companies. When considered in the aggregate, however, these issues should concern all companies operating in multiple countries. Multinational companies must think globally when acting locally, and take into account the direction of international employment standards.

A. Unocal Settles Case With Burmese Workers Alleging Human Rights Violations

Filed by the ILRF, this case alleged that Unocal violated the ATCA by aiding and abetting forced labor, murder, and rape committed by the Myanmar military in connection with a pipeline project. This case, seen as a key test for human rights activists, was pending in both the Ninth Circuit and California state court before the parties reached a settlement. The settlement came on the heel of two rulings, both potentially adverse to Unocal. The first adverse ruling was issued by the United States Supreme Court in Sosa v. Alvarez-


Machain, 124 S. Ct. 2739 (December 2003), where the Court held that the ATCA provides a private right of action and allows parties to sue in the United States for violations of the law of nations.

The second adverse ruling came in September 2003, when a Los Angeles County Superior Court judge denied Unocal’s motion to dismiss. The denial cleared the way for trial on the Burmese workers’ California law claims that Unocal was vicariously liable for involuntary servitude in violation of the state constitution, unfair business practices and unjust enrichment.

This settlement, the first reached in the approximately three dozen similar ATCA cases filed against other U.S. major corporations including Chevron Texaco Corp., Ford Motor Co. and IBM Corp., is being heralded as landmark settlement which would likely only encourage lawyers to file more and broader human rights abuse suits. What is clear from this development is that U.S. multinationals must take these kinds of claims seriously.

In September 2002, a three-judge Ninth Circuit panel reversed a district court’s grant of summary judgment for Unocal on the worker’s claims of forced labor, murder and rape under the ATCA. In overturning the grant of summary judgment, the panel adopted a modified version of the legal standard for aiding and abetting developed by the international criminal tribunals. While the Ninth Circuit granted En Banc Review, vacating the panel’s decision, in light of the Supreme Court’s

ruling in Roper v. Simmons,1 discussed below, perhaps this—incorporating international standards into American law— is an even more alarming trend for multinational employers.

B. U.S. Company Settles Claims for Acts of Foreign Subsidiary, Against Foreign Citizens, on Foreign Soil.

Another significant settlement likely to impact the way multinational companies do business occurred in the case of Rodriguez-Olivera v. Salant Corporation, Case No. 97-07-14605-CV. Salant Corp., a U.S. Corporation, was faced with liability for the acts of its foreign subsidiary which took place on foreign soil and against foreign citizens, when 14 workers at Salant Corporation’s foreign subsidiary were killed in a bus accident. This settlement, similar to Unocal, also came after an unprecedented decision by the Texas trial court that the U.S. company was subject to jurisdiction in the U.S. for the actions of its foreign subsidiary, involving actions on foreign soil and against foreign citizens, allowing the case to proceed to trial.

1. Factual Background Of The Rodriguez-Olvera v. Salant Corporation Action

Plaintiffs brought a wrongful death and personal injury lawsuit in Texas state court against Salant Corp., a New York-based clothing manufacturer, with subsidiaries in both Texas and Mexico arising from an accident that occurred in

1 125 S. Ct. 1183, 2005 WL 464890

(2005).


Mexico. All plaintiffs in the action were residents of Mexico, estates in Mexico, or heirs of residents of Mexico.

In June 1997, fourteen young workers at Salant Corp.’s Mexican subsidiary were killed when the company’s bus, which was taking the workers to the clothing company’s maquiladora, overturned and burned in a sewage ditch. The workers were employed by a maquiladora that was operated by a Mexican subsidiary of Salant Corp.

The lawsuit focused attention on the “unacceptably low standards of worker safety” in U.S. managed and operated plants south of the border. The negligence-based complaint set forth allegations that Salant Corp. failed to maintain the bus properly and the bus driver was not adequately trained to drive the vehicle.

Salant Corp. filed a motion to dismiss under the doctrine of forum non conveniens, contending that Plaintiffs’ claims were actually against the maquiladora, not Salant Corp., and that the action should be tried in Mexico. In response, Plaintiffs argued that all of the decisions for the maquiladora were made by personnel at Salant Corp.’s Eagle Pass, Texas facility and all the decision-makers lived in Texas. Plaintiffs’ counsel successfully argued that, among other things:

• it was not inconvenient for Salant Corp. to try the case in Texas because Salant Corp. had its principal place of business in Texas;

• Texas, as opposed to Mexico, has the “most significant relationship” with the case based “on the qualitative nature of those contacts as affected by the policy factors;”

• as a jurisdiction with laws limiting liability and the recovery of damages, Mexico had no interest in applying such laws, unless a citizen of its own jurisdiction was a defendant in the action, even if the triggering event occurred in Mexico;

• the laws of Texas would have no “substantial adverse effect” on commercial interrelations between Mexico and the U.S.;

• Texas had a strong interest in regulating corporations doing business in Texas, including a policy of deterring and punishing corporations’ tortious conduct, thus, Texas’ own policies would be thwarted by the application of Mexico’s laws to the action; and


• although the bus accident occurred in Mexico, the tortious conduct occurred in Texas. Residents of Texas were employed as the managers of the maquiladora and were responsible for the acts that occurred in Texas that allegedly contributed to the accident.

Although Salant Corp. and Mexican trade officials protested the case being heard in Texas, the trial court denied Salant Corp.’s motion to dismiss on the ground that Salant Corp.’s subsidiary in Texas made the operating decisions for the company’s Mexican operations. Despite appeals by Salant Corp, both the Fourth District Court of Appeals in Texas and the Texas Supreme Court rejected without comment the company’s pre-trial attempts to have the case dismissed on jurisdictional grounds.

Trial began on July 26, 1999, in the border town of Eagle Pass, Texas–home of Salant Corp.’s Texas headquarters. After two weeks of testimony and shortly after Plaintiffs rested their case, the insurers for Salant Corp. agreed to settle the case for $30 million.

The court determined that the case should be tried in the U.S. because the alleged negligent acts or omissions of Salant Corp. were actually performed in Texas. Because the Texas subsidiary purchased the bus, transported the bus to the maquiladora, prepared the budget for transportation for the maquiladora, and directly managed the transportation operations for the maquiladora, the court found that the

relevant decisions regarding the transportation, including decisions regarding the bus involved in the accident, were made in Texas. The Plaintiffs’ lawyers who handled this case offered the following advice for a U.S. company who may face liability for claims arising from its maquiladora: make all the decisions regarding the maquiladora from within the maquiladora. Prohibiting U.S. companies or subsidiaries from operating and managing the maquiladoras should prevent any potential plaintiff from being able to argue that the U.S. has jurisdiction over the case because the negligent acts or omissions were performed by the U.S. companies or their subsidiaries.

2. Professional And Industrial Reactions To The Salant Corp. Lawsuit

The case against Salant Corp. could have major repercussions for the estimated 3,000 foreign-owned factories in Mexico. However, the case fell short of setting a legal precedent because the case settled during the trial.

Labor advocates predict the Salant Corp. settlement will cause maquiladora factories in Mexico to become more safety conscious, concluding that the price of the settlement will send a message to foreign owners of maquiladora. Pharis Harvey, formerly of the International Labor Rights Funds in Washington, explained that “[e]ven if it’s not legal precedent, the settlement sends the message to other companies that might have decided to take those (safety) standards less seriously.”

The case will undoubtedly encourage more foreign workers to attempt to sue


American corporations with operations in Mexico. The attorney for Plaintiffs in the Salant Corp. case has suggested that the amount of the settlement should convince foreign companies that improvements must be made in safety. “There are hundreds of these maquiladora factories with tens of thousands of workers. They will see a big upgrade in worker safety,” according to Plaintiffs’ attorney.

According to University of Texas professor Rodolfo de la Garza, at the very least the successful claim of the maquiladora workers shows that the enactment of NAFTA in 1994 is helping create a “new body of law linking employee and employer relationships across the border.” The extent to which claims such as Plaintiffs’ in the Salant Corp. case will be allowed in the courts in the U.S. is unclear at this time. Likewise, despite the above-cited predictions, the actual repercussions of the settlement of the case are presently unknown.

C. Courts Incorporate International Standards into American Law and Address Whether U.S. Laws Should Be Applied on Foreign-Flagged Cruise Ships.

In addition to the settlements by multinational companies in Unocal and Salant, which will, at the least, encourage more suits against U.S. companies with foreign operations based on either the ATCA or on control of the foreign subsidiary by the U.S. company, and at most signify the next globalization battle, there are two cases that are certain to impact globalization efforts of

multinational companies. The first is Roper v. Simmons,2 where the Court held that the Eighth and Fourteenth Amendments to the United States Constitution prohibit the execution of individuals who were under 18 years of age at the time their capital crimes were committed, abrogating a case heard fifteen years earlier. At first blush, the case appears rather innocuous as it relates to the potential liability of multinational companies. However, this decision likely will have sweeping consequences on companies seeking to do more business in foreign countries or outsource operations overseas.

The Court in Roper both incorporates and cites as authority international standards as a basis for its opinion. This proposition—that American law should conform to the rest of the world—should concern both corporations and citizens alike. Also, based on the majority’s decision, it is a practice likely to be utilized in the future: “it does not lessen our fidelity to the Constitution or our pride in its origins to acknowledge that the express affirmation of certain fundamental rights by other nations and peoples simply underscores the centrality of those same rights within our heritage of freedom.”3 At the least, this implies that the Court will incorporate international standards in other areas of case law, where such standards bear on the matter at hand. At most, as Justice Rehnquist stated in his dissent, “what these foreign sources ‘affirm’ rather than repudiate, is the Justices’ own notion of how

2 125 S. Ct. 1183, 2005 WL 464890

(2005) 3 Id. at 1200,


the world ought to be, and their diktat that it shall be so henceforth in America.”4

The second case is Spector v. Norwegian Cruise Lines,5 in which the Supreme Court determined in a plurality opinion that Title III of the ADA can require a foreign registered cruise ship to comply with certain components of the U.S.’s stringent disability law where these components do not interfere with the internal affairs of the vessel. This is another area in which the U.S. civil justice system is being used to regulate the activities of foreign businesses in the area of human rights and other areas of law. While the decision did not invoke international standards as a basis for its opinion, it did extend US law to cover activities offered by a foreign vessel to US consumers based on the status of the consumer rather than the legal status of the entity being regulated.

These three recent developments indicate a trend toward globalization—not only incorporating global standards of enforcement, but creating exceptions to legal applicability based on no more than the status of the consumer of the services.

III. Additional Examples of U.S. Corporation’s Liability for Its Foreign Operations

Legal, social, political, and human rights organizations have made efforts to keep the foreign activities of U.S. corporations in the public eye, particularly when the foreign activities do not satisfy the standards followed in the U.S. corporation’s domestic operations. The alleged egregious

4 Id. at 1129, *41. 5 545 U.S. 119 (2005)

activities include low wages, lax safety and working standards in the workplace, slave labor, sweatshops, and other human rights violations. The following example of these organizations’ efforts to hold U.S. companies accountable for their operations in foreign countries and an explanation of the possible implication of these efforts:

The National Lawyers Guild (the “Guild”), a U.S.-based organization, has presented an initiative that, if successful, would no longer allow U.S. companies to be able to escape liability for the acts of their Mexican subsidiaries. The Guild’s perspective is simple: if the parent is making the decisions for the subsidiary, the subsidiary’s workers need to have the right to sue the parent when the subsidiary, as the parent’s agent, violates the workers rights under American and Mexican law. In an effort to have its initiative recognized, the Guild continues to publicize and highlight the substandard activities of U.S. companies in foreign countries. Such increased awareness by the public may result in more public pressure on the U.S. parent corporations to maintain higher standards in their foreign operations and pressure on the legislature and courts in the U.S. to hold U.S. companies responsible for their actions in foreign countries.

There also are many human rights/corporate social responsibility organizations that have their own agendas. Most of these groups are actively harnessing the power of the Internet, and several web sites now exist regarding international human rights abuses and corporate social responsibility breaches. Some of the more important web sites include the following:

The Global Alliance For Workers (http://www.theglobalalliance.org)


Human Rights Watch (http://www.hrw.org)

The Global Compact (http://www.unglobalcompact.org)

Universal Rights Network (http://www.universalrights.net)

Workers Rights Consortium (http://www.workersrights.org)

Public Citizen Global Trade Watch (http://www.tradewatch.org)

International Labor Rights Forum (http://www.laborrights.org)

The postings on these websites are good resources, and they illustrate the risks and pressure points facing multinational corporations when they do not abide by domestic and international standards expected of businesses operating in the global marketplace.

IV. Avoiding United States Jurisdiction For Claims Arising Abroad6

In determining that the U.S. had jurisdiction over the claims of the Mexican plaintiffs, the Salant Corp. trial court relied on the evidence indicating that the maquiladora was operated and managed by Salant Corp.’s Texas subsidiary. Apparently, the Texas subsidiary was responsible for all operations of the maquiladora, made all decisions regarding operations, and was

6 Adapted from “Are Your Operations

Abroad Exposing You to Liability under U.S. Law?” A Texas Court Recently Answered “Yes,” January 2001, International Quarterly, by Jordan Cowman and Kimberly Rich.

involved in the day-to-day operations of the maquiladora. The Texas subsidiary purchased the bus that was involved in the accident, as well as hired the driver of the bus. Based on these factors, the trial court determined that the Texas courts had jurisdiction over the action.

No state or federal court in the U.S. has issued an opinion conclusively addressing whether courts in the U.S. should have jurisdiction over such claims. Therefore, no present legal authority dictates what specific factors are to be considered in determining whether a U.S. court should have jurisdiction over claims arising from an employer’s overseas operations. However, based on our experience and court decisions, consider the following list of recommendations which may assist U.S.-based businesses in minimizing exposure in the U.S. for actions arising from foreign-based operations:

• prohibit the U.S. companies/subsidiaries from exercising control or management over the foreign operation;

• move the decision-making authority to a country outside of the U.S.

• maintain separate corporate structures for the foreign operation and the U.S. companies/subsidiaries;

• although the U.S. companies/subsidiarie


s may suggest general policies, prohibit the U.S. companies/subsidiaries from dictating specific, detailed, policies or procedures for the foreign operation;

• limit or eliminate the transfer of personnel between the U.S. company and the foreign operation;

• prohibit the U.S. companies/subsidiaries from directly purchasing equipment or products for the foreign.

Generally, U.S. companies should also attempt to limit exposure to liability for their operations abroad whenever possible. For example, the U.S.-based companies should not have the foreign operation provide transportation for the workers (Salant Corp. provided transportation for its workers, rather than having its workers use community transportation). In another attempt to limit liability, U.S. companies with operations abroad may consider increasing safety and improving working conditions, if necessary.

V. Potential Personal Jurisdiction Over U. S. Parent Corporation Of A Foreign Subsidiary

Aside from the potential to be subject to jurisdiction in the U.S. stemming from the facts related to the Salant Corp. case, U.S. parent companies may also face

jurisdiction in the U.S. or Mexico based on the parent corporation relationship to a foreign subsidiary. Because a parent-subsidiary relationship alone does not subject the parent or subsidiary to personal jurisdiction where either transacts business, the U.S. parent should not automatically be subject to personal jurisdiction in the U.S. for the actions of its foreign subsidiary. If the parent and its subsidiary maintain separate corporate structures, then the actions of one should not be imputed to the other for purposes of deciding whether either transacts business in a particular forum. The parent or subsidiary may be subject to personal jurisdiction where the parent exercises control and manages the operations of the subsidiary or where the subsidiary acts merely as an agent of the parent. There are a few legal opinions, however, that hold that contacts should be imputed to the parent when the subsidiary was established for, or is engaged in, activities that, but for the existence of the subsidiary, the parent would have to undertake itself.

A. Personal Jurisdiction - Minimum Contacts

To subject a defendant to personal jurisdiction, the defendant must have certain minimum contacts with the forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.7 Whether there are sufficient minimum contacts depends upon the quality and nature of the activity.8 The court must determine whether the

7 International Shoe Co. v. State of

Washington, Office of Unemployment Compensation and Placement, 66 S. Ct. 154, 158 (1945).

8 Id.


nonresident has purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.9

To establish specific jurisdiction, the defendant must have purposely directed its activities at the resident of the forum, and the litigation must result from the alleged injuries that arise out of or relate to the defendant’s activities directed at the forum.10 The focus is on the relationship between the defendant, the forum, and the litigation.11

Where the cause of action is not related to or does not arise from the defendant’s activities in the forum, the forum may still assert general jurisdiction over the defendant if the defendant’s contacts with the forum are of a continuous and systematic nature.12

B. Personal Jurisdiction - Parent/Subsidiary

The mere existence of a parent-subsidiary corporate relationship does not subject a foreign corporation to domestic jurisdiction.13 Although a majority of the

9 Hanson v. Denckla, 78 S. Ct. 1228, 1240 (1958).

10 Burger King Corp. v. Rudzewicz, 105 S. Ct. 2174, 2183-84 (1985).

11 Helicopteros Nacionales de Colombia, S.A. v. Hall, 104 S. Ct. 1868, 1872 (1984).

12 Id. at 1872-73. 13 Henry v. Offshore Drilling (W.A.)

PTY., LTD., 331 F. Supp. 340, 341 (E.D. La. 1971) (where a foreign subsidiary and a local parent have failed to maintain separate corporate identities, there is no personal jurisdiction over the foreign subsidiary without a showing that the subsidiary was “present” in the forum through its direction and manipulation of local parental activities).

cases dealing with the agency relationship between a parent and subsidiary regarding to personal jurisdiction address the situation where jurisdiction is sought over the parent through its subsidiary’s local activities, the same legal principles apply.14 Generally, the courts examine personal jurisdiction, venue, and whether a subsidiary can accept service of process on behalf of the parent based on the same standard - whether the subsidiary is acting as the “alter ego” or “agent” of the parent.15

To determine whether a parent is found or transacts business in a jurisdiction through a subsidiary, the courts focus on whether the parent controls the acts and policies of its subsidiary.16 This analysis is similar to the analysis undertaken by the court in Salant Corp.

Use of a subsidiary to transact business does not necessarily subject the parent to jurisdiction.17 Where a wholly owned subsidiary is operated as a distinct corporation, its contacts with the forum cannot be imputed to the parent.18

14 Walker v. Newgent, 583 F.2d 163, 167 (5th Cir. 1978).

15 Sportmart, Inc. v. Frisch, 537 F. Supp. 1254, 1257-58 (N.D. Ill. 1982).

16 Dunlop Tire and Rubber Corp. v. Pepsico, Inc., 591 F. Supp. 88, 89 (N.D. Ill. 1984).

17 Cannon Mfg. Co. v. Cudahy Packing Co., 45 S. Ct. 250, 251 (1925) (no personal jurisdiction over parent in breach of contract suit where subsidiary purchased product from parent and sold product to dealers, separate books were maintained, and transactions between parent and subsidiary were treated as if between wholly independent companies).

18 Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 773-774 (5th Cir. 1988); AT & T Co. v. Campagne Bruxelles Lamber, 94 F.3d 586, 590 (9th Cir. 1996) (majority interest in subsidiary


Similarly, a parent’s contacts with a forum will not be imputed to the subsidiary where the corporations maintain separate identities.19

In Gardemal v. Westin Hotel Company,20 a Fifth Circuit case, a U.S. citizen filed a wrongful death action against Westin Hotel Company, a U.S. corporation, and its Mexican subsidiary, Westin Mexico, on behalf of her husband, who died in an accident during their stay in a hotel owned by Westin Mexico. According to the court, to establish that Westin Mexico operated as the alter ego of the Westin Hotel Company, there must be evidence that the control exercised by the parent corporation “is not mere majority or complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own and is but a business conduit for its principal.” The court held

did not suffice to confer jurisdiction); Mylan Laboratories, Inc. v. Akzo, N.V., 2 F.3d 56, 63 (4th Cir. 1993) (a foreign corporation is not construed as doing business within a state merely because of its ownership of all of the share of stock of another corporation doing business in the state); Perfumer’s Workshop, LTD v. Roure Betrand du Pont, Inc., 737 F. Supp. 785, 788 (S.D. N.Y. 1990) (no personal jurisdiction over foreign parent based on presence of subsidiary); Jamesbury Corp. v. Kitmura Valve Mfg. Co., LTD., 484 F. Supp. 533, 535 (S.D. Tex. 1980) (no personal jurisdiction over foreign corporation, the mere transaction of business through a wholly owned subsidiary does not render the parent company present in the locale of its subsidiary for jurisdictional purposes); Williams v. Canon, Inc., 432 F. Supp. 376, 379 (C.D. Cal. 1977) (no personal jurisdiction over foreign parent based on presence of subsidiary).

19 See Gardemal v. Westin Hotel Co., No. 98-50119, 1999 WL 626972 (5th Cir. Aug. 17, 1999).

20 Id.

that liability could not be imputed to the Westin Hotel Company because (1) Westin Mexico banked in Mexico and deposited all of the revenue from the Mexican hotels into its account; (2) Westin Mexico was incorporated in Mexico and adhered to required corporate formalities; and (3) Westin Mexico maintained its own staff, assets, and insurance policies. Further, the court held that it had no jurisdiction over Westin Mexico because there was no evidence concerning the extent, duration, or frequency of Westin Mexico’s business dealings in Texas. Westin Mexico had no employees in Texas; had no office or address in Texas; had never owned, bought, sold, or leased property in Texas; and had never registered to transact business in Texas.

In Walker v. Newgent,21 also a Fifth Circuit case, a U.S. citizen filed an action against General Motors and Adam Opel AG (Opel), a German corporation, to recover damages for injuries resulting from an accident in Germany based on defective design of an Opel car. Opel was a wholly owned subsidiary of General Motors but never maintained an office in Texas, had no employees in Texas, and only sold cars to importers prior to the cars entry into the U.S. Opel had its own engineering and design staff and its own suppliers. Opel and General Motors did not have the same corporate offices nor any mutual officers or directors and maintained a customer and seller relationship. The court held that despite the fact General Motors owned 100% of Opel’s stock, it did not exercise actual control over Opel. Accordingly, there were no facts to support personal jurisdiction over Opel.

21 Walker v. Newgent, 583 F.2d 163

(5th Cir. 1978).


In contrast, in Reul v. Sahara Hotel,22 a federal district court in Texas held that the parent, a New York corporation authorized to conduct business in Texas, exercised complete control over the subsidiary, a California corporation, and as a result, the activities of the parent could be imputed to the subsidiary. The two corporations had common officers and employees. The parent also issued all invoices, handled the bookkeeping, maintained a laboratory, and had one insurance policy on behalf of itself and the subsidiary. Further, the corporations were advertised as one corporation with branch offices.

The presence of one in a forum state may not be attributed to the other so long as a parent and a subsidiary maintain separate and distinct corporate entities.23 A parent is expected to exercise a degree of control over its subsidiaries.24 To establish jurisdiction

22 Reul v. Sahara Hotel, 372 F. Supp. 995 (S.D. Tex. 1974).

23 Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 774 n.18 (5th Cir. 1988) (no personal jurisdiction over foreign parent where subsidiary and parent kept separate books and bank accounts, filed separate income taxes, did not have identical memberships on the boards of directors, and had different management).

24 Williams v. Canon, Inc., 432 F. Supp. 376, 380 (C.D. Cal. 1977) (no personal jurisdiction over foreign parent in antitrust case where companies had overlapping membership on the boards of directors, the subsidiary used the parent’s trademark, personnel from the parent periodically conducted training schools for the subsidiary, the parent made basic decisions concerning pricing and the opening of U.S. branch offices, and the president of the subsidiary lived in Japan); Sportmart, Inc. v. Frisch, 537 F. Supp. 1254, 1258 n. 7 (N.D. Ill. 1982) (Even a parent corporation, let alone a minority shareholder, is permitted to engage in limited inter-organizational activities

over a parent based solely upon the activity of a subsidiary requires that the degree of control exercised by the parent be greater than normally associated with common ownership and directorship.25 Even one-hundred percent ownership of the subsidiary’s stock does not necessarily establish an “alter-ego” relationship.26

For a parent to be a subsidiary’s “alter-ego,” the parent must both control and manage the subsidiary.27 The parent controls the subsidiary when it dictates general policies, but it manages the subsidiary when it controls the internal affairs of the subsidiary and determines the subsidiary’s day-to-day operations.28 Jurisdiction may also be established where the parent exercises continuing supervision of and intervention in the subsidiary’s affairs, especially if the parent exercises its abilities to influence major decisions that could lead to violations of the law.29 Sufficient control over the operations of a subsidiary renders the subsidiary the instrument, rather than merely the investment, of the parent, and supports the conclusion that the parent is transacting

without destroying its corporate separateness for jurisdictional purposes).

25 Savin Corp. v. Heritage Copy Products, Inc., 661 F. Supp. 463, 469 (M.D. Pa. 1987).

26 Id.27 Williams v. Canon, Inc., 432 F.

Supp. 376, 380 (C.D. Cal. 1977); Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 773-74 (5th Cir. 1988) (our cases require proof of control by the parent over the internal affairs of the subsidiary in order to fuse the two for jurisdictional purposes).

28 Williams v. Canon, Inc., 432 F. Supp. 376, 380 (C.D. Cal. 1977).

29 Campos v. Ticketmaster Corp., 140 F.3d 1166, 1173 (8th Cir. 1998).


business in a district, despite the formal separation of corporate entities.30

This determination requires a fact-specific inquiry into the realities of the actual relationship between the parent and subsidiary.31 The courts consider the following factors to determine whether corporate formalities are being observed or whether the parent is both controlling and managing the subsidiary: 1) whether the parent and subsidiary have separate books and bank accounts; 2) whether the companies file separate income tax forms; 3) whether officers or directors of the parent have majority membership on the board of directors of the subsidiary; 4) whether the companies hold separate directors’ meetings; 5) whether the subsidiary is actually managed by officers of the parent; 6) whether the companies have a common marketing image; 7) whether the companies use the same trademark or logo; 8) whether the companies share employees; 9) whether the companies have integrated sales systems; 10) whether the companies interchange managerial and supervisory personnel; 11) whether the subsidiary acts as a marketing arm of the parent or as an exclusive distributor; 12) whether the parent provides financing for the subsidiary; 13) whether the subsidiary is grossly under capitalized; 14) whether the parent pays for the expenses of the subsidiary; and 15) whether the subsidiary has independent business or assets.32

30 Id.31 Koehler v. Bank of Bermuda

Limited, 101 F.3d 863, 865 (2nd Cir. 1996). 32 See AT&T Co. v. Compagne

Bruxelles Lambert, 94 F.3d 586 (9th Cir. 1996) (no personal jurisdiction over foreign parent where parent’s subsidiary, the defendant, held a majority of

In Kramer Motors, Inc. v. British Leyland, LTD.,33 a Ninth Circuit case, the court held the facts were insufficient to find that the subsidiary was acting as the “alter ego” or “agent” of its parent corporations, two British manufacturing companies, and the facts were also insufficient to subject the parent corporations to jurisdiction solely through the subsidiary’s presence in the U.S. The record revealed the following facts: (1) the corporations shared some directors; (2) the parent corporations had general executive responsibilities for sales and operations in relation to the subsidiary; (3) the parent corporations reviewed and

seats on subsidiary’s board, owned eighty percent of subsidiary’s stock, included subsidiary in consolidated income tax returns, and requested subsidiary to make a $1.5 million investment); Southmark Corp. v. Life Investors, Inc., 851 F.2d 763, 773-74 (5th Cir. 1988); Savin Corp. v. Heritage Copy Products, Inc., 661 F. Supp. 463 (M.D. Pa. 1987) (no personal jurisdiction over foreign parent where parent owned a majority of the stock in the subsidiary, there was an overlapping of directors and officers, parent provided the domestic corporation with some financial support, and an employee of the parent used office space of subsidiary once a week); Dunlop Tire and Rubber Corp. v. Pepsico, Inc., 591 F. Supp. 88 (N.D. Ill. 1984) (personal jurisdiction over parent in antitrust case where the parent regularly placed persons in various high positions within subsidiaries to ensure understanding of parent’s policies; the parent exercised control over capital expenditures and financial operations of subsidiary; and the parent controlled pricing policies); In re Siemens & Halske A.G., Berlin, Germany, 155 F. Supp. 897, 898 (S.D. N.Y. 1957) (motion to quash service of process upon subsidiary of German corporation denied in antitrust case where subsidiary was held to be the alter ego of its parent because parent held its entire stock; overlapping memberships on boards of directors; subsidiary had no independent business; and expenditures over the budgeted fee paid by the parent for services had to be pre-approved by the parent).

33 Kramer Motors, Inc. v. British Leyland, LTD., 628 F.2d 1175 (9th Cir. 1980).


approved major policy decisions; (4) the parent corporations guaranteed obligations on behalf of the subsidiary; (5) executives of both corporations worked closely regarding the pricing of vehicles for the U.S. market; and (6) the parent corporations approved a proposal by the subsidiary to consolidate the distribution of vehicles in the U.S. However, the record did not show that the executives and directors of the parent corporations ever controlled the subsidiary’s board or formed a board majority. The parent corporations did not control the subsidiary’s internal affairs or determine how it operated on a daily basis. The subsidiary had primary responsibility for distribution, marketing, and sale of the vehicles, parts, and accessories within the Unites States. Finally, the parent corporations and the subsidiary dealt with each other as distinct entities.

Similarly, in Miller v. Honda Motor Co., LTD.,34 a First Circuit case, the court held there was no basis for the assumption of personal jurisdiction over the parent. The court found that direct involvement of the parent corporation with goods destined for the North American market ended dockside in Japan with the sale of the goods to the subsidiary. Although there was common membership on the boards of directors by two officers, the day-to-day operational decisions of each company were made by separate groups of corporate officers. Of the fourteen directors and officers of the subsidiary only one was an executive of the parent, and he had no involvement in running the operations of the subsidiary. The parent reimbursed the subsidiary for warranty repairs and charged the subsidiary

34 Miller v. Honda Motor Co., LTD,

779 F.2d 769 (1st Cir. 1985).

interest on delayed payments. The subsidiary controlled its own advertising and marketing schemes. Further, the subsidiary maintained a separate system for personnel management, financial planning, and real estate planning.

In Sportmart, Inc. v. Frisch,35 a federal district court for the Northern District of Illinois held that personal jurisdiction over the foreign defendant corporation had not been established. The plaintiff argued that the defendant transacted business in the jurisdiction through a U.S. distributor controlled by the defendant. The defendant only had a 34 percent minority interest in the distributor and of the five members on the board of directors of the distributor, only two were also members of the defendant’s board of directors. The distributor was the defendant’s exclusive distributor for the U.S.; however, sales between the two companies were negotiated on an arm’s length basis. The distributor was responsible for its own advertising, accounting, legal work, bookkeeping, and pension management. The books and records of the two companies were maintained separately, and there was no exchange of employees between the two companies. Although the defendant monitored the distributor’s financial records and performance activity, it did not participate in operating decisions such as sales policies and prices, warehousing, salaries and promotions, or collection of accounts receivable or inventory.

35 Sportmart, Inc. v. Frisch, 537 F.

Supp. 1254 (N.D. Ill. 1982).


In contrast, in FDIC v. British-American Corp.,36 the court denied the defendant’s motion to dismiss for lack of personal jurisdiction. The parent, a Bahamian corporation, drastically decreased the size of its operations in the Bahamas and created a subsidiary in North Carolina. A consulting agreement with the parent was established with an extensive list of duties to be performed by the subsidiary on behalf of the parent. Most of the officers and directors of the two companies were shared, and most of the principal officers of the parent resided and transacted business in North Carolina. The parent held out to its shareholders that it was doing business in North Carolina by sending notices listing North Carolina as its address, sending out maps of the operations in North Carolina, and stating that its central administrative functions were performed in North Carolina. The companies also had joint legal representation.

A parent-subsidiary relationship alone does not ordinarily establish the necessary agency relationship for serving process on the parent through a subsidiary.37 However, where the substance of corporate independence is not preserved and a subsidiary acts as an agent of the parent, the corporate separation may be disregarded.38 Further, the agents employed by a corporation are not restricted to a class of individuals, but may be partnerships,

36 FDIC v. British-American Corp., 726 F. Supp. 622 (E.D. N.C. 1989).

37 Lamb v. Volkswagenwerk Aktiengesellschaft, 104 F.R.D. 95, 101 (S.D. Fla. 1985).

38 United States v. Watchmakers of Switzerland Info. Ctr., Inc., 133 F. Supp. 40, 45 (S.D. N.Y. 1955).

corporations, or other forms of business entities.39

To accomplish service of process on the parent through a subsidiary as an agent of the parent it must at least be shown that the parent exercises such a degree of control over the subsidiary that the activities of the subsidiary are the activities of the parent or that the parent controls the subsidiary’s activities to the extent the subsidiary is only a department of the parent.40

39 Id. at 46. 40 See Lamb v. Volkswagen

Aktiengesellschaft, 104 F.R.D. 95, 98 (S.D. Fla. 1985) (motion to quash service of process upon subsidiary of German parent denied, the court held that the subsidiary was acting as an agent of the parent based on an agreement between the two corporations demonstrating that the parent’s authority over the subsidiary was absolute, and the parent determined the subsidiary’s day-to-day operations); Mylan Laboratories, Inc. v. Akzo, N.V., 2 F.3d 56 (4th Cir. 1993) (no personal jurisdiction over foreign parent where there were no officers or directors in common; parent did not assert any control over subsidiary’s marketing, purchasing, pricing, management, or operating policies; subsidiary maintained own books and records, manufacturing facilities, personnel, and managing executives; and subsidiary formed its own contractual relationships); In re Siemens & Halske A.G., Berlin, Germany, 155 F. Supp. 897 (S.D. N.Y. 1957) (motion to quash service of process upon subsidiary of German corporation denied in antitrust case where the court held the subsidiary was acting as an agent of the parent because the subsidiary devoted itself exclusively to the business of the parent by negotiating and servicing contracts; advising potential customers; advising and assisting with patents; furnishing technical and economic information from the United States; selling and purchasing United States products all on behalf of the parent).


In United States v. Watchmakers of Switzerland Info. Ctr., Inc.,41 a Southern District of New York case, two Swiss parent corporations argued they were not properly served and that the court lacked jurisdiction. The government relied on the parent corporations’ continuous local activities through their jointly owned subsidiary, also a named defendant, to establish personal jurisdiction over the parent corporations. The defendants formed the subsidiary to increase sales of Swiss watches in the U.S. The subsidiary’s general manager was a former employee of one of the parents, and he reported to the parent corporations monthly. The parent corporations approved the subsidiary’s budget annually. The subsidiary performed advertising and promotional work on behalf of the parent corporations. It also acted as a liaison for service and repair parts. The subsidiary received information and acted on behalf of the parent corporations to protect their trademarks and parts from misuse. The court held that the subsidiary had no independent business of its own, did not buy from the parent and resell, and had no independent stature, and therefore, denied the parent corporations’ motion to dismiss for lack of jurisdiction.

The court also denied a third defendant’s motion to dismiss for lack of jurisdiction. The parent corporation, a watch manufacturer, formed a wholly owned subsidiary to distribute its watches in the U.S. In consideration for its designation as sole distributor, the subsidiary agreed not to handle competing products; to develop a sales policy that would protect the name of

41 United States v. Watchmakers of Switzerland Info. Ctr., Inc., 133 F. Supp. 40 (S.D. N.Y. 1955).

the parent; not to re-export the parent’s products; to employ a sales manager whose exclusive work would be the sale of the parent’s products; and to conduct its organization so as to ensure that the parent at all times would be an autonomous business enterprise. The parent also observed closely the sales policies of the subsidiary. The court held that the distribution agreement under the circumstances reduced the subsidiary to the status of an agent.

There are a few cases that hold that a subsidiary’s contacts should be imputed to the parent when the subsidiary was established for or is engaged in activities that, but for the existence of the subsidiary, the parent would have to undertake itself.42 The question is not whether the American subsidiaries can formally accept orders for their parent, but rather whether, in the truest sense, the subsidiaries’ presence substitutes for the presence of the parent.43

C. Personal Jurisdiction - Minimum National Contacts

Some courts have held that in an action brought under a federal statute providing for national service of process, jurisdiction will be established based on national contacts -- contacts with the U.S. --

42 Gallagher v. Mazda Motor of

America, Inc., 781 F. Supp. 1079, 1084 (E.D. Pa. 1992).

43 Bulova Watch Co. v. K. Hattori & Co., LTD., 508 F. Supp. 1322, 1342 (E.D. N.Y. 1981) (personal jurisdiction over Japanese parent established based on subsidiary where subsidiary marketed and distributed products on behalf of parent).


rather than contacts specifically with the state in which the district court sits.44

44 Mariash v. Morrill, 496 F.2d 1138 (2nd Cir. 1974) (personal jurisdiction over Massachusetts corporations in securities action based on defendants residing within the United States and not contacts with the forum state); Max Daetwyler Corp. v. R. Meyer, 762 F.2d 290, 291 (3rd Cir. 1985) (“in the absence of a governing federal statute providing for nationwide service of process, in personam jurisdiction may not rest upon an alien’s aggregated national contacts”); Dee-K Enterprises, Inc. v. Heveafil SDN. BHD., 982 F. Supp. 1138 (E.D. Va. 1997) (personal jurisdiction over Indonesian corporation in antitrust action based on defendant’s national contacts through use of exclusive distributor in forum); Busch v. Buchman, Buchman & O’Brien, Law Firm, 11 F.3d 1255, 1258 (5th Cir. 1994) (“when a federal court is attempting to exercise personal jurisdiction over a defendant in a suit based upon a federal statute providing for nationwide service of process, the relevant inquiry is whether the defendant has had minimum contacts with the United States”); Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris Inc., 23 F. Supp.2d 796 (N.D. Ohio 1998) (personal jurisdiction over domestic corporations for RICO and antitrust claims based on national contacts); Fitsimmons v. Barton, 589 F.2d 330, 333 (7th Cir. 1979) (personal jurisdiction over domestic corporation in securities action based on national contacts); In re Application to Enforce Admin. Subpoenas Duces Tecum v. Knowles, 87 F.3d 413, (10th Cir. 1996) (“When the personal jurisdiction of a federal court is invoked based upon a federal statute providing for nationwide or worldwide service, the relevant inquiry is whether the respondent has had sufficient minimum contacts with the United States”); United States S.E.C., 115 F.3d 1540, 1544 (11th Cir. 1997) (“the applicable forum for minimum contacts purposes is the United States in cases where…the court’s personal jurisdiction is invoked based on a federal statute authorizing nationwide or worldwide service of process”); Go-Video, Inc. v. Akai Elec. Co., LTD., 885 F.2d 1406, 1415 (9th Cir. 1989) (personal jurisdiction over Japanese corporation established based on national contacts). But see In re Federal Fountain, Inc. v. KR Entertainment, Inc., 143 F.3d 1138, 1139 (8th Cir. 1998) (rejecting the holding in the above cases and holding that every case requires “that there be

In World Tanker Carriers Corp. v. MV Ya Mawlaya,45 an admiralty case out of the Fifth Circuit, the court held that the defendants must have contacts with the nation as a whole in order to satisfy due process concerns rather than with the state in which the case was brought. Similarly, in Paper Systems Inc. v. Mitsubishi Corp.,46 the court denied a motion to dismiss for lack of personal jurisdiction because although the defendants, two Japanese corporations, did not have substantial contacts with the forum, Wisconsin, they admitted having substantial contacts with the U.S.

VI. Extraterritorial Application Of United States Anti-Discrimination Laws

U.S. citizens employed by U.S. companies have the statutory right to sue under U.S. laws for employment discrimination occurring anywhere in the world. Applicants, workers, and terminated employees with U.S. citizenship who are subjected to discriminatory practices occurring abroad may file a charge of discrimination against their U.S. employer under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Age Discrimination in Employment Act of 1967 (“ADEA”), or the Americans with Disabilities Act of 1990 (“ADA”). As a result, U.S. companies needs to consider both the content and administration of their personnel policies throughout the world.

minimum contacts between the defendant and the state in which the defendant is expected to answer”).

45 World Tanker Carriers Corp. v. MV Ya Mawlaya, 99 F.3d 717, 723 (5th Cir. 1996).

46 Paper Systems Inc. v. Mitsubishi Corp., 967 F. Supp. 364 (E.D. Wis. 1997).


A. Extraterritorial Application of United States Employment Discrimination Laws

Section 109 of the Civil Rights Act of 1991 (“CRA”) amends Title VII and the ADA to extend the protection of those statutes to the employment of U.S. citizens in foreign countries. The definition of an “employee” under Title VII and the ADA is amended and expanded by Section 109(a) of the CRA to include: “[w]ith respect to employment in a foreign country, . . . an individual who is a citizen of the United States.”

The CRA closely tracks the definition of an “employee” in the ADEA.47 Congress amended the ADEA in 1984 to cover U.S. citizens working abroad.48 The CRA’s expansion of the definition of “employee” for purposes of U.S. employment discrimination laws effectively prohibits U.S. employers from engaging in unlawful discrimination against U.S. citizens on an extraterritorial basis. While both the ADEA and the CRA are silent on the issue, by implication, foreign citizens employed abroad by U.S. companies are not protected by U.S. law from discriminatory employment practices. However, this lack of statutory guidance has not stopped a group of Mexican plaintiffs from bringing a class action in state court under California law for alleged discriminatory practices occurring in Mexico.49 Accordingly, U.S.

47 See 29 U.S.C. §623(h). 48 See Pub. L. No. 98-459, 98 Sat.

1767, 1792-93. 49 Aguirre v. American United

Global, No. 11859 (Superior Court of Los Angeles County, California, December 1994) (the case settled early in the litigation process; it never went to trial).

companies should be aware that non-U.S. citizens who feel they have been discriminated against in employment may attempt to test the applicability and reach of U.S. laws. However, if a non-U.S. citizen sues U.S. companies in the U.S. under the ADEA, Title VII, or the ADA, the case most likely will be thrown out of court on summary judgment.

B. Potential Defenses Based On Conflicts With Foreign Laws

A U.S. company is shielded from liability under the ADA, Title VII, and the ADEA if compliance with those laws would cause it “to violate the law of the foreign country in which such workplace is located.” The legislative history of the CRA makes clear that Section 109 was intended to ensure that employers would not be “required to take actions otherwise prohibited by law in a foreign place of business.”

These statutory provisions provide U.S. companies with some degree of protection if it is necessary to comply with foreign laws imposing religious, age, or gender requirements for certain types of employment within those jurisdictions. This aspect of the CRA embodies the bona fide occupational qualification (“BFOQ”) defense available under Title VII, the ADA, and the ADEA. With passage of the CRA, the Equal Employment Opportunity Commission (“EEOC”) issued regulatory guidance as to its views on the scope of the “foreign laws” defense. U.S. companies must demonstrate three elements to establish a “foreign laws” defense under the CRA, including: 1) that the action taken by the company is with respect to an employee actually in a workplace in a foreign country;


2) that compliance with Title VII, the ADA, or the ADEA would cause the company to violate the law of the foreign country; and 3) that the employee subject to the discrimination is located in a workplace in a foreign country.

The EEOC’s view in its 1993 Enforcement Guidance Memorandum on the CRA as to the scope of the “foreign laws” defense was rejected when the District of Columbia Circuit reversed the district court’s 1992 opinion in Mahoney v. RFE/RL, Inc.50 In Mahoney, the D.C. Circuit determined that the relevant issue was whether the “foreign laws” defense would apply where an American corporation would have to breach its obligations under German law in a collective bargaining agreement with a foreign union to comply with the ADEA. The D.C. Circuit held that this situation squarely fell within the “foreign laws” defense of the ADEA. The court reasoned that the mandatory retirement provision in the contract with the German union to which the defendant was a party had “legal force” in the sense that it was legally binding and enforceable under German law. According to the D.C. Circuit, if the defendant “had not complied with the collective bargaining agreement in this case, [and] if it had retained plaintiff despite the mandatory retirement provision, the company would have violated the German law standing behind such contracts, as well as the decisions of the Munich [Germany] labor court.”51 As a result, the appellate decision in Mahoney takes an expansive view of the “foreign laws” defense and rejects the narrower interpretation of the

50 Mahoney v. RFE/RL, Inc. 47 F.3d 447 (D.C. Cir. 1995).

51 Id.

defense as construed by the EEOC’s Enforcement Guidance Memorandum. The U.S. Supreme Court rejected the further appeal of the decision on October 2, 1995.52

Another important case concerning the extraterritorial application of U.S. employment discrimination laws is Denty v. SmithKline Beecham Corp.53 In Denty, a 52 year-old Garland Denty worked in Philadelphia for the U.S. subsidiary of a British parent company. Five new positions with the parent company opened up in Australia and the United Kingdom. All five positions were filled with people younger than Denty, with the employment decisions being made by executives of the parent company in the United Kingdom. Denty sued SmithKline in the U.S., alleging age discrimination. The court ruled that extraterritorial application of the ADEA is limited to the case where a U.S. citizen works abroad for a U.S. employer or a foreign entity controlled by a U.S. employer. Denty was working in the U.S., not abroad. Moreover, Denty applied for a job with the British parent company, not with the subsidiary in the U.S. Because the ADEA does not apply to foreign companies in foreign lands, the court correctly threw out Denty’s case on summary judgment.

While the scope of the “foreign laws” defense will continue to be a source of litigation, it equally is clear that U.S. companies cannot rely upon the customs of a foreign country or local preferences and stereotypes to justify discrimination against

52 See Mahoney v. RFE/RL, Inc., 116

S.Ct. 181 (1995), 68 Fair Empl. Prac. Cases (BNA) 1536, 1995 U.S. LEXIS 6136 (U.S. Oct. 2, 1995).

53 Denty v. SmithKline Beecham Corp., 109 F.3d 147 (3rd Cir. 1997).


U.S. citizens. Consider the case of Abrams v. Baylor College of Medicine.54 In Abrams, Saudi Arabian officials told Baylor College that “Saudis did not want any Jews in their country” and that there was a “paternalistic concern for the safety of Jews traveling in Arab lands.” Baylor rejected Jewish applicants for a rotation program in Saudi Arabia, but the court found this violated Title VII. Consider also Fernandez v. Wynn Oil Co.,55 where a female executive successfully sued her employer when she was refused a job in South America based on a stereotype and the employer’s assumption that South American clients would refuse to deal with a female executive.

C. Potential Liability For Personnel Decisions Of Foreign Subsidiary Corporations

Under the CRA, U.S. companies also can be liable for the discriminatory acts of a non-U.S. corporation that is “controlled” by a U.S. company’s U.S. parent. Section 702(c)(1) of the CRA56 provides that “[i]f an employer controls a corporation whose place of incorporation is a foreign country, any practice prohibited [by Title VII or the ADA] engaged in by such corporation shall be presumed to be engaged in by such employer.” At the same time, the CRA expressly provides that the prohibitions of Title VII do not apply to “the foreign operations of an employer that is a foreign

54 Abrams v. Baylor College of Medicine, 581 F.Supp. 570 (S.D. Tex. 1984).

55 Fernandez v. Wynn Oil Co., 653 F.2d 1273 (9th Cir. 1981).

56 See 42 U.S.C. §2000e-1(c)(1).

person not controlled by an American employer.”57

Section 702(c)(3) of the CRA sets forth a series of criteria to be used in determining whether a U.S. employer “controls” a foreign corporation, including: (A) the interrelation of operations; (B) the common management; (C) the centralized control of labor relations; and (D) the common ownership or financial ownership or financial control, of the employer and the corporation.

The ADEA contains identical language in 29 U.S.C. §623(h) regarding that statute’s extraterritorial application. No case law has developed, however, with regard to the substantive intricacies of these provisions under the CRA. The EEOC’s Enforcement Guidance Memorandum on the CRA relies upon an earlier policy statement delineating the Commission’s view as to the various factors relied upon in assessing the existence of an integrated enterprise or joint employer.58 The EEOC has indicated that it will rely upon the earlier policy statement in assessing whether, in the context of a charge alleging extraterritorial discrimination, a foreign entity is controlled by a U.S. employer.

The CRA does not indicate whether the non-U.S. subsidiary of a U.S. company would itself be liable under Title VII or the ADA. The definition of “employer” under these statutes is not limited by its express terms to U.S. companies. Thus, an

57 See §702(c)(2), 42 U.S.C. §2000e-

1(c)(2). 58 See EEOC Policy Guidance

Memorandum No. N-915, Policy Statement On The Concepts Of Integrated Enterprise And Joint Employer (May 6, 1987).


aggrieved U.S. citizen employed by a U.S. company’s non-U.S. subsidiary might be expected to sue both the American parent and the non-U.S. subsidiary. However, as a practical matter, it would be extremely difficult for a plaintiff to prosecute an action against a U.S. company’s non-U.S. subsidiary, especially if that subsidiary owns no assets in the U.S.59 Neither the CRA nor the ADEA address the potential liability for the acts of non-corporate foreign employers.

Read literally, the statutes apply only to American employers that control foreign corporations. The statutes are silent about other forms of foreign businesses, such as joint ventures.

D. Litigation Concerns For Multinational Employers

Claims involving violation of U.S. employment discrimination laws must first be brought before the U.S. EEOC. However, the EEOC has no overseas offices and no formal procedures in place for processing claims arising in foreign countries. The EEOC’s Enforcement Guidance Memorandum on the CRA outlines the Commission’s procedures for handling discrimination charges arising from overseas employment. The EEOC’s Enforcement Guidance on Extraterritorial Application of ADA and Title VII contains a set of charge processing instructions for EEOC personnel assigned to investigate charges of discrimination.

Under present law and the EEOC’s regulations, it would be extremely difficult for the EEOC to investigate claims of employment discrimination against U.S.

59 See 42 U.S.C. §2000e-5(f)(3).

companies which take place in countries other than the U.S. The subpoena power of the EEOC extends only to “the U.S. or any Territory or possession thereof.”60 Even though Congress passed Section 109 of the CRA, it did not expand the EEOC’s extraterritorial investigation or subpoena powers. At the same time, there is authority for the proposition that documents and information in possession of a foreign corporation can be discovered by a U.S. plaintiff in an employment discrimination lawsuit commenced against its U.S. subsidiary.61

Title VII provides some guidance as to the appropriate U.S. forum for the resolution of employment discrimination disputes. The venue provisions of Title VII provide that any action may be brought in the judicial district where the complainant lives or works (or would have worked), where the employment records are kept, or where the employment action occurred. However, if the employer cannot be found in those districts, then an action may be brought wherever the employer has its principal office.62

E. Conclusions

Although no state or federal court in the U.S. has issued an opinion conclusively addressing whether courts in the U.S. should have jurisdiction over cases arising from overseas, it is recommended that U.S.-based businesses take steps to reduce any potential liability or actions which may subject them

60 See 42 U.S.C. §2000e-9. 61 See, e.g., Flavel v. Svedala

Industries, Inc., 64 Emp. Prac. Dec. (CCH) 43,027 (E.D. Wis. 1993).

62 See 42 U.S.C. §2000-e(f)(3).


to jurisdiction in the U.S. for actions arising from their operations. Personal jurisdiction over a foreign parent corporation, may be established where the parent corporation and its foreign operation fail to maintain separate corporate functions. Generally, a parent corporation is not subject to jurisdiction based solely upon ownership of a subsidiary.

If a U.S. company employs U.S. citizens to work in countries other than the U.S. for its non-U.S. subsidiaries, a U.S. company should consider complying with Title VII, the ADEA, and the ADA with respect to those U.S. citizen-workers. This especially is true for its policy on sexual harassment. If a U.S. company has a policy prohibiting sexual harassment, promptly and thoroughly investigates allegations of sexual harassment, and takes prompt, effective remedial measures against sexual harassment, it can go a long way toward insulating itself against liability for sexual harassment under U.S. laws. Accordingly, U.S. companies should carefully consider distributing and following their anti-discrimination policies with respect to their U.S. citizen-employees in countries other than the U.S.

VII. Structuring The Multinational Employment Agreement

Although it is not a universal practice, many U.S. employers enter into written foreign assignment agreements with their outbound executives. The purpose of a written agreement is to specify the precise terms of an executive’s assignment so that all of the parties understand and acknowledge their respective obligations. In addition, the agreement may be useful as evidence of the employment relationship if foreign tax authorities ever question the executive’s employment status. A written

agreement may also be helpful in the event of employment-related litigation.

U.S. employers should address a number of issues when drafting assignment agreements for U.S. citizen employees abroad, with an eye toward the likelihood of employee-initiated litigation, affording strong defenses to employee claims, protecting proprietary information, and preserving employee loyalty.

Country-specific agreements are essential and individualized agreements are preferable. In some countries even managerial level employees are members of trade unions. An employer’s options with respect to a unionized employee may be limited.

A good foreign assignment agreement, like any good employment agreement, should cover some basic issues. The following issues should be addressed in such an agreement:

1. Location Of The Assignment

The contract should set forth with specificity where the services will be performed. In the case of U.S. citizens, and tax considerations allowing, employers may want to consider establishing a nexus with the United States in order to support the enforceability of U.S. choice law and forum selection clauses. This could include requiring the employee to travel from time to time to the United States and establishing specific reporting obligations in the United States.

2. Employment Term

Because most U.S. employees are terminable at will, employers in the United


States seldom commit to employment for fixed term. Since the concept of at-will employment is, as a practical matter, unrecognized outside the United States, U.S. companies must be prepared to reject notions of at-will employment when expatriating employees overseas. Retaining the at-will employment relationship could result in a presumption of life-time employment if employment is terminated outside the United States. Thus, the contract should have a beginning date, an ending date, if applicable, and terms for renewal of the agreement. In a number of foreign jurisdictions, fixed term agreements are allowed only under limited circumstances. Even where fixed-term agreements are permissible, once the initial fixed-term agreement is renewed, it could be deemed to be renewed by operation of law for an indefinite period, notwithstanding any provision to the contrary in the agreement. Depending on the severity of applicable local law, the employer should consider periodic short term interim arrangements with the U.S. parent corporation to guard against the creation of a “life-time” agreement under local law.

3. Job Title And Duties

Apart from listings of essential job functions prepared as part of ADA compliance programs, U.S. employees seldom have detailed descriptions of their job duties. This is because employers wish to preserve the flexibility to modify job duties at a moment’s notice. The contract should set forth with specificity the title, and more importantly, the duties and responsibilities of the employee. In some jurisdictions, specific reference must be made to the numerical order of the position or title as set forth in the applicable labor agreement. Careful drafting of the duties

clause may preserve the discretion to relocate, transfer, or even demote the employee without triggering a particular country’s severance obligations. Ordinarily, however, the course of conduct between the parties prior to the change request will be deemed to have superseded the written agreement of the parties.

There is more to a job title than one might think. Foreign tax authorities might look to the job title as evidence that the executive’s employer has established a taxable presence in the foreign jurisdiction. Further, the job title might cause the executive to incur local taxation on certain items of compensation.

To the extent that the executive is required to adjust his or her conduct in the foreign jurisdiction to avoid the creation of a permanent establishment, that conduct should be set forth expressly in the agreement.

4. Probationary Or “Trial Periods”

Many U.S. employers—and employees too for that matter—are accustomed to characterizing the first stage of an employment relationship as a “probationary” or “trial” period. There is often a mutual understanding that even “at will” employment relationships can be arbitrarily terminated during such periods. In addition, probationary employees in the U.S. sometimes receive reduced benefits. U.S. employers should exercise caution in using the “probationary” designation for expatriates. An important drafting consideration is whether local labor law allows a “trial period” with reduced termination indemnities (or no indemnities) for termination during or at the end of the


trial period. In some jurisdictions, the trial period must be agreed to by the employee in writing and in advance of the effective date of services.

5. Salary

A formula for payment of salary can be a difficult drafting problem, especially in countries with an unstable currency. The employment contract should specify the exact amount of payment and the currency of payment. The employer should determine whether local labor law requires that salary be paid with any minimum frequency. For example, in a number of jurisdictions, payment of a salary on a monthly basis would not meet local requirements.

It is also important to consider that in many jurisdictions, what might be considered to be fringe benefits from a U.S. law perspective will be included as a part of the “salary” or “remuneration” that serves as a base for computing severance indemnities under local labor law. A base salary of $100,000, for example, could result in a total outlay of substantially more in some jurisdictions. For example, in some countries, local labor law requires the payment of “thirteenth salary,” “fourteenth salary,” or some variant thereof, as additional salary. In addition, local labor law may require the payment of an additional vacation allowance.

In order to ensure accurate budgeting for payroll, U.S. employers should carefully review any potential idiosyncrasies of local labor law that might serve to inflate the wages due to an expatriate.

6. Frequency Of Wage Payments

The employer should determine whether local labor law requires that salary be paid with any minimum frequency. For example, in a number of jurisdictions, payment of salary on a monthly basis would not meet local requirements.

7. Maximum Hours And Overtime

Some countries may mandate maximum hours of work (daily, weekly, or otherwise), and such maximums may apply even to managerial employees. If local law requires payment of overtime compensation to individuals who would be ineligible for overtime under U.S. law, companies should make sure they do not unwittingly jeopardize the exempt classification of similarly situated employees in the United States.

8. Restrictions On Work

In some countries local labor law mandates specific holidays or days of rest (i.e., in some jurisdictions, Sunday work may be forbidden).

9. Compensation And Employee Benefits

It is common for U.S. employers to offer additional compensation and benefits to outbound executives to assist them with the extra costs arising from their foreign assignment. Although each employer may take a slightly different approach, the compensation package of an outbound executive should include, in addition to base salary, incentive bonus and typical employee benefits, one or more of the following items:


1) Tax Equalization or Tax Protection; 2) Cost of Living Allowance; 3) Housing Differential; 4) Relocation Bonus; 5) Reimbursement of Moving Expenses; 6) Reimbursement of Expenses Related to the Sale or Rental of Principal Residence; 7) Dependent Education Allowance; 8) Automobile Allowance; 9) Home Leave Allowance; 10) Emergency Leave Allowance; 11) Currency Fluctuation Allowance; and 12) Spousal Assistance

In some countries, what might be considered in the U.S. to be discretionary fringe benefits may come to be considered as entitlements under local labor law. If a cash or stock bonus is paid more than once, for example, it may come to be viewed as an entitlement of the employee.

Additionally, the offer of certain benefits relating to spouses or dependents based on the US definition of these persons can invoke claims of discrimination in countries that define these persons differently. Because some nations now define spouse to include non-traditional marriage arrangements, and protect these relationships through civil rights laws, US companies may need to address these issues on a country by country basis when offering expatriate spousal or dependent benefits.

10. Supplemental Salary

In some countries, local labor law requires the payment of “thirteenth month salary” or some variant thereof, as additional salary. For example, if an employer agrees with an employee on an annual salary of $36,000, the employee in fact may be entitled to receive $3,000 per month, plus an additional payment or payments of a half-month’s or a full-month’s salary at a specified time or times during the course of

the year. In addition, local labor law may require the payment of an additional vacation allowance.

11. Mandatory Insurance

Some countries require specific insurance coverage for employees, particularly in regard to pension or retirement, which may exceed insurance offered in a standard U.S.-style fringe benefits package.

12. Mandatory Medical Benefits

In some jurisdictions, local law may mandate that specific medical procedures be offered to an employee. Alternatively, an employer may be in a position to require certain medical procedures that might be prohibited under U.S. law. For example, local legislation may require a medical examination paid for by the employer within a specified period of time before or after commencement or termination of work, or an employer may reduce its potential liability for employment-related diseases if it pays for an initial examination and the examination reveals conditions which, for that reason, can be demonstrated to have arisen later by virtue of some cause other than the employment. Employers should exercise extreme caution when requiring U.S. citizens to submit to any form of medical examinations that might conflict with the provisions of the ADA.

13. Mandatory Vacation

In some countries, local labor law mandates minimum vacation periods for employees that are usually far longer than the vacation packages for comparable employees in the United States. Moreover,


an employer may be required to pay a vacation premium, which may be computed as a certain percentage of yearly earnings.

14. Mandatory Retirement

Another drafting issue concerns mandatory retirement, as some local laws mandate retirement at a particular age, or permit employees at a particular age to retire with full benefits. In some jurisdictions, the mandatory retirement age is different for men and women, and employees may be entitled to retire prior to reaching the mandatory retirement age, and still insist upon full retirement benefits. U.S. employers should carefully review the interplay between local law and the U.S. age discrimination statutes before requiring a U.S. expatriate to retire under a mandatory retirement provision of local law.

15. Funding Termination Indemnity

In some countries, an employer is required to maintain a funded (or unfunded) account with respect to each employee, which is related to or in addition to whatever the employer’s ultimate termination indemnification liability might be. For example, an employer might be required to deposit amounts related to salary level into a bank account earmarked for each employee. Although not necessarily having direct control over the account, the employee might be entitled, for example, to periodic interest payments from the account, or to borrow from the account under certain circumstances for housing or tuition for dependents.

16. Forfeiture Of Local Termination Rights

The employer should consider requiring expatriate employees to agree to forfeit their rights to any termination indemnities they might receive under local law. Such a provision would be particularly important in situations where the employee would receive such indemnities by virtue of his or her re-assignment or transfer to another position. The enforceability of a forfeiture clause may be overridden by state wage and hour laws (in the case of a U.S. citizen) and/or the laws of the local country. Nevertheless, an appropriate forfeiture provision may reduce the likelihood of an employee receiving an expensive windfall when his or her employment has not been terminated. More importantly, in the case of U.S. citizens, a forfeiture provision may enhance the employer’s right to recoup the windfall payment upon repatriation.

17. Impact Of Transfers Or Reassignments

In the United States, employers enjoy virtually unfettered discretion to transfer employees from one location to another. In general, employees refuse such assignments at their peril. U.S. employers are often surprised to discover that this discretion—if it exists at all—is often limited outside the U.S. In many countries, the unilateral request by an employer that the employee transfer to another work site within or outside the country in some circumstances results in the employee having a right to assert “constructive termination,” and therefore demand indemnification. To minimize the risk of a constructive termination, the employer’s right to transfer the employee should be explicitly stated in the employment contract.


In some jurisdictions, however, even the presence of the foregoing language is not enough to avoid termination-liability exposure.

18. Choice Of Law

Whether or not a choice of law clause will be enforced outside the United States (particularly where the law chosen in the contract is U.S. law) can only be determined on a country-by-country basis. As a general rule, labor law is considered to be a matter of public policy in most foreign countries, and a contractual choice of anything other than local law will not be respected by most non-U.S. jurisdictions. This is true in many jurisdictions even where the employee stationed in the local jurisdictions still has contacts with the jurisdiction whose law was chosen in the agreement. Since the local jurisdictions will usually apply local law in any employment-related dispute, U.S. employers may wish to use a U.S. choice of law clause to enhance the likelihood that a U.S. court will entertain jurisdiction over any such dispute.

19. Choice of Forum

Many companies choose to include a provision that will require litigation of all disputes in a particular location. For example, most corporate counsel would prefer to have a New York arbitrator interpret Libyan labor law rather than to have a Libyan arbitrator interpret New York labor law. In most circumstances, corporations choose to have the dispute resolved as close to the location of the parent corporation as possible. As with choice of law provisions, choice of forum provisions in employment contracts are generally disfavored in non-U.S. jurisdictions. Even within a particular

country, however, it may be preferable to insist that all disputes be resolved within a particular metropolitan area. If enforceable under local law, this would permit the subsidiary corporation to have any contested hearing in a location that would minimize the inconvenience for the company’s employees who might be witnesses in the proceedings. In many jurisdictions, the opportunity to regulate by private contract the manner of labor dispute resolution is simply not available. In these countries, the local labor courts have exclusive jurisdiction over all employment issues.

20. Restrictive Covenants

a. Non-Competition

As a general rule, restrictions on competition will be enforced in the United States to the extent that they are necessary to protect legitimate business interests. The restrictions must be reasonable both as to geographic scope and duration. In other countries, in which there may be constitutional or other provisions protecting a “right to work,” any restriction on employment may be forbidden unless, for example, significant separate compensation is paid by the employer in consideration for the employee’s undertaking not to work in a competitive position. In some countries, an employer may not attempt to limit the post-employment activities of an employee under any circumstances.

b. Trade Secrets

The employment agreement should provide the maximum safeguards for the treatment of confidential information and trade secrets both during the course of


employment and for a reasonable period of time thereafter. As a general rule, companies are permitted to take steps to ensure proprietary treatment of trade secrets and confidential information in other jurisdictions. To give these provisions more teeth, an employer should consider using a liquidated damages provisions (known as “penalty clauses” in some jurisdictions).

c. Intellectual Property

Many U.S. corporations require their employees to assign their rights to any patents or inventions developed during their employment. The scope of these assignments varies as a matter of state law. Employers should take care to identify the applicable local law before incorporating such routine intellectual property assignments in a multinational employment agreement. In many countries, the scope of an employer’s entitlement to employee inventions is severely limited. Other countries draw significant distinctions between ownership of copyrightable creations and patentable creations. Depending on the position of the employee and the nature of his or her responsibilities, this is an important issue that should be resolved before the foreign assignment. In other jurisdictions, employers must offer substantial compensation in exchange for an assignment of employee inventory.

d. Blue-Penciling

In the United States, the courts of most jurisdictions will “blue pencil” or edit the geographical scope or duration of a restrictive covenant so as to reduce enforcement of the clause consistent with the court’s notion of what is reasonable.

Blue penciling may also be available as to other key contractual provisions. By contrast, blue penciling is unusual in many non-U.S. jurisdictions. A court may simply void the clause altogether rather than modifying or scaling down the restrictive language. While there is no guarantee that insertion of a clause permitting the trier of fact to modify or edit the employment agreement will allow enforcement, the inclusion of such a clause should be considered in the context of applicable local law.

21. Liquidated Damages

A liquidated damages provision for wrongful termination may be a significant option worth exploring. Many countries outside the United States require far more generous severance benefits to be given to terminated employees than are generally available under U.S. law. Whether a clause limiting damages would be enforceable is, of course, an issue to be reviewed on a country-specific basis.

22. Termination

As with any employment agreement, the foreign assignment agreement should set forth the circumstances under which the employer will be able to terminate the executive’s employment, and under what circumstances the executive will be able to terminate employment voluntarily.

In this regard, the employer and executive should consider any severance pay, redundancy pay or termination indemnity payments which may be required to be paid to the executive under local law. In many countries, these types of payments are mandatory, are not restricted to local


nationals, and may not be waived by the employee.

In addition, there may be certain pre-approval and notice requirements under foreign law that will have to be met to terminate the executive. For example, it may be necessary to obtain approval of a termination from a local worker’s council or a government authority. It may be necessary to give the executive advance notice of termination or payment in lieu of such notice. For the most part, the executive will be unable to waive the application of these local law requirements, even if it is done voluntarily and memorialized in his foreign assignment agreement.

23. Arbitration

Some employers chose to make all employment-related disputes subject to mandatory arbitration. Although the law on mandatory arbitration is in flux even in the U.S., if the arbitration clause is written with sufficient specificity, it is likely to be enforced. In the international context, arbitrability of labor disputes must be reviewed on a country-by-country basis since, in many jurisdictions, the local labor courts have exclusive jurisdictions over employment disputes, even in regard to expatriates.

A number of sub-issues must be addressed if the employer uses a mandatory arbitration clause.

a. The administering authority

The arbitration body which will mediate the dispute can be an important factor. Many U.S. companies prefer to mediate disputes through the

American Arbitration Association (“AAA”) under the AAA’s International Arbitration Rules. Other options include the International Chamber of Commerce (“ICC”), which has significant support in European jurisdictions. The ICC’s rules are administered by its International Court of Arbitration in Paris, France. The rules of the United Nations Commission on International Trade Law (“UNCITRAL”) provide another alternative. But unlike the AAA and the ICC, the UNCITRAL rules do not come with a formal body to administer arbitration.

b. Location of the arbitration

Another point to consider when drafting an arbitration clause is where the arbitration will go forward. The issues that arise in connection with the choice of forum are equally relevant here.

c. Composition of the panel

After determining where the arbitration will go forward, the composition of the panel can be another concern. In some countries, parties may agree by contract that the arbitration will be “in law” or “in equity.” If they choose arbitration “in law,” the arbitrators may be required to be attorneys. Choosing arbitration “in equity” generally is thought to give the arbitrators greater (perhaps undue) flexibility. Arbitrators “in equity” do not necessarily have equitable powers; rather, they are expected to base their decision on overall fairness, instead of strict provisions of law.

Another important concern in determining the composition of the


arbitration panel is the nationality of the arbitrators. Assuming the rules of a specific country allow it, it may be a good idea to insist that one of the members be a citizen of the United States. If the employer does not wish to limit the qualifying criteria to United States citizenship, another opinion would be to insist that one of the members be in good standing with the American Bar Association. This would ensure that at least one of the arbitrators would have some familiarity with basic U.S. commercial and employment law.

d. Vesting the arbitrators with equitable authority

Another issue is whether the arbitrator panel will have the authority to award either preliminary or permanent injunctive relief. Since preliminary and injunctive relief as understood in the U.S. may not be available under a particular country’s legal system, or may be available only in limited circumstances, attempting to vest the arbitrators with equitable powers by contract may provide a means of enhancing an employer’s legal rights in a particular jurisdiction. But whether parties could contractually agree to vest powers in arbitrators that would not otherwise be available in the foreign jurisdiction is a potentially difficult question that must be evaluated on a country-by-country basis.

e. Language to be used in arbitration

The arbitration clause should designate the language in which the proceedings will be conducted. Under the labor laws of certain jurisdictions, the employment contract of even an expatriate must be drafted in the local language.

24. Discovery

In many countries, the right to pretrial discovery is severely restricted, if not non-existent. To the extent that a particular country would enforce such a clause, thought should be given to a contract term wherein the parties specifically agree to some form of pre-hearing discovery that would permit the employer to marshal the evidence needed to enforce an employment agreement in a country where it would otherwise have no opportunity to obtain information.

25. Severability

The employment agreement should contain a severability clause. In most jurisdictions, severability clauses are enforced.

26. Notices

Most contracts contain a provision identifying the party who will receive notice of termination or any other event which requires formal notice as set forth in the contract.

27. Successors And Assigns

This standard contractual provision should ensure that the rights of the contract


will inure to the appropriate successor or affiliate of the employer.

28. Waiver/Amendment

The contract should recite that it can only be amended by written agreement of both parties. In addition, the standard provision that waiver of one part of a contract will not constitute waiver of the entire agreement should be included.

29. Entire Agreement

The contract should include a clause that it supersedes all prior agreements and has integrated all parole agreements.

30. Written Acceptance By The Executive

Interestingly enough, many companies do not require their outbound executives to sign a foreign assignment agreement. In these cases, the employer typically sets forth the terms of the assignment in the form of a memorandum.

In the case of a secondment arrangement, the foreign assignment agreement should be a three-party agreement among the U.S. employer, the executive and the foreign company. It is especially important to set forth in this agreement that the executive remains an employee of the U.S. employer, that the executive is being seconded to the foreign company and that the U.S. employer retains the right to direct and control the conduct of the executive. In addition, if the foreign company is to pay a secondment fee to the U.S. employer (which is typical), the agreement should specify the amount of the fee and how it is to be paid to the U.S. employer.

VIII. Developing and Instituting Global Workforce Policies

A. Developing And Instituting An Employee Code Of Conduct For A Global Workforce

Multinational corporations employing workers throughout the world must reconcile cultural differences with global business ethics. Ethical dilemmas can arise anywhere throughout the world, both on an individual employee basis and on a corporation or organizational basis. Most executives with global business experience would agree that there must be some set of shared ethical values to ensure that a corporation operates within the letter of the law in the various jurisdictions where it does business.

Fostering an awareness of business ethics in a multi-cultural workforce and global marketplace is a challenging endeavor. It is the experience of Akin Gump’s labor and employment law practitioners that it is in the best interests of a multinational employer to make its expectations with respect to ethics explicit by developing a clear employee code of conduct. Once articulated, the challenge is then to communicate and inculcate this explicit code of conduct throughout the organization on a global basis.

1. A Legal Basis For A Global Employee Code Of Conduct

Multinational corporations are the subject of a patchwork quilt of domestic and international laws and regulations that require substantial efforts to ensure compliance with and to prevent violations of


law. On November 1, 1991, U.S. law made compliance efforts even more important. As of that date, the U.S. Sentencing Commission’s Guidelines for the Sentencing of Organizations (hereinafter “Guidelines”) took effect. The Guidelines have of necessity altered the approach of corporate personnel concerned with preventing corporate misconduct and the potential liability that it entails. While the Guidelines are intended only to govern the sentencing of corporations and their managers for violations of U.S. laws, the Guidelines also represent a larger trend in the law which requires corporations and their managers to exercise appropriate diligence in taking steps to prevent violations of the law. More recently the 29-member nations of the Organization for Economic Cooperation and Development (“OECD”) and 5 non-member nations signed the Convention On Combating Bribery of Foreign Officials In International Business Transactions (“Convention”). The Convention commits signatories to implement legislation that will, among other things, criminalize bribery of foreign officials. As a result, corporate compliance programs are now a necessary component of any corporate culture, and a corporate ethics program is a concomitant step to those measures.

2. Designing A Corporate Ethics Compliance Program

The Guidelines define an effective compliance program and articulate standards to apply in evaluating whether a particular program satisfies the law. According to the Guidelines, the hallmark of an effective program to prevent and detect violations of law is that the corporation exercise due diligence in seeking to prevent and detect

criminal conduct by its employees and other agents. For many companies, this requires at a minimum that it develop a written code of conduct and ethics that clearly sets out the standards and procedures to be followed by its employees and other agents. The compliance standards should identify the types of conduct that are prohibited, and an explanation as to the reasons for the prohibitions. The prohibitions should be clear and unambiguous, and the code of conduct should be adopted by both management and the board of directors.

While the scope of the code of conduct will differ depending upon such things as the company’s business, operations, and geographic locations, it nonetheless should contain certain provisions. In particular, the needs of multinational corporations with employees in other jurisdiction must be addressed in the context of foreign corrupt practices and anti-boycott measures. These include directives on: (1) maintaining accurate books and records and an effective internal accounting control system; (2) prohibitions against illegal payments or bribery to obtain business; (3) insider trading; (4) compliance with environmental, antitrust, and employment laws; (5) prohibitions against unlawful political contributions; (6) avoiding conflicts of interest; and (7) compliance with any applicable local laws and regulations applicable to a company’s international operations.

3. Implementation Of A Global Employee Code Of Conduct

Implementation of a code of conduct requires that high-level personnel of a company must be assigned overall responsibility to oversee compliance with


such standards and procedures. These individuals should include directors, executive officers, and those in charge of major business or functional units such as sales, administration, human resources, or finance. Companies whose operating units are geographically dispersed and autonomous should consider delegating responsibility to senior executives in each major subsidiary or division for supervising compliance in their respective units.

The Guidelines also require that an organization must take steps to communicate its standards and procedures to all employees and other agents in an effective fashion. This often requires participation in training programs and dissemination of literature that explains what is required in a practical and effective manner. All employees should be provided with a copy of the code of conduct and each employee should confirm in writing, at least annually, that the employee has read and understands the code of conduct and will act in accordance with its requirements. Of necessity, this may require translation of the document to those languages used in the jurisdictions where the multinational corporation does business.

The Guidelines also require that a corporation must take reasonable steps to achieve compliance with its standards. This is done by utilizing monitoring and auditing systems reasonably designed to detect criminal conduct by employees and other agents, and by having in place and publicizing a system whereby employees and other agents can report criminal conduct by others within the corporation without fear of retribution. The formal issuance of the code of conduct, by itself, will not meet the standards required by the Guidelines. In this connection, some companies have

established a special “800 number” or “hotline” to enable employees to directly contact senior management pursuant to the reporting system.

The Guidelines also require that standards must be developed to consistently enforce the corporation’s code of conduct. This would include appropriate disciplinary measures including a reprimand, salary reduction, demotion, suspension, or termination.

Finally, an effective compliance program requires implementation of controls designed to prevent the reoccurrence of any wrongful conduct. After an offence has been detected, the corporation must take all reasonable steps to respond appropriately to the offence and to prevent further similar offences. This is achieved by taking immediate and commensurate disciplinary actions against wrongdoers to demonstrate a corporation’s commitment to its ethics program.

Employers are often surprised to discover fundamental tensions between compliance with the Code of Conduct and local labor law. Even though conduct may be expressly banned in the Code of Conduct, it may not be sufficient to support termination of employment. Our experience has shown that this dichotomy is particularly acute where the offending employee is a local national as opposed to a U.S. expatriate.

4. A Sample Global Employee Code Of Business Conduct

A sample Global Employee Code of Business Conduct and Corporate Ethics Policy is available from Jordan Cowman,


(214) 969-2794. It attempts to address the concerns of multinational corporations addressed above.

B. Developing And Instituting Effective Personnel Policies For A Global Workforce

1. Business Issues And Legal Issues

Should an employer apply its personnel policies dealing with harassment and discrimination to its overseas locations, even in situations where such conduct is not illegal? This is a very difficult business issue with concomitant legal consequences. Some would argue that to be competitive in foreign nations in which they conduct business, U.S. corporations cannot afford to extend the protections and rights embodied in U.S. employment discrimination laws to foreign nationals in overseas branches. According to this viewpoint, a company would violate its duty to its own shareholders if it extended such rights to foreign nationals under U.S. law on a voluntary basis. On the other hand, some would argue that voluntary compliance with U.S. employment discrimination laws makes good business sense—everyone ought to have the right to work in an environment which is free of discrimination or harassment regardless of the citizenship, and any conduct to the contrary is inconsistent with the notion of a basic and fundamental concern form human dignity.

Few countries afford their citizens the panoply of protections against discrimination found in U.S. law, although this is clearly changing, particularly in the European Union. An employer should take steps to attempt to ensure that foreign nationals cannot invoke the protection of the

employer’s U.S. non-discrimination policies. For example, a recent case in Great Britain allowed a local national to sue for age discrimination even though there were no statutes or laws prohibiting age-based discrimination. The court ruled that a comprehensive, U.S.-style anti discrimination policy in an employee handbook created a contract right in favor of the employee. U.S. employers should also ensure that U.S. expatriates are not exposed to conduct which would constitute a violation of U.S. discrimination laws, even though the conduct would not be actionable under local law. To the extent a foreign employer is actually controlled by a U.S. entity, the U.S. anti-discrimination laws would provide relief to a U.S. citizen who is the victim of discrimination while employed abroad. If the employing entity of a U.S. expatriate is controlled by a U.S. parent corporation, the employer should take appropriate steps to alert foreign managers of their obligations to U.S. expatriates under U.S. law. An employer’s failure to take the necessary risk prevention measures could result in significant exposure in the event a U.S. citizen files a claim under U.S. law.

2. Extending U.S. Personnel Policies Overseas

The EEOC’s Enforcement Guidance Memorandum takes the position that in assessing “control” of a foreign entity by an American employer for purposes of liability under the CRA, “centralized control of labor relations” is the most important factor in determining whether the acts of the foreign employer are imputable to the U.S. employer. In turn, the EEOC’s Enforcement Guidance Memorandum relies upon the


decision in Lavrov v. NCR Corp.63 The court in Lavrov found that there was sufficient evidence of an interrelation between an American parent corporation and its wholly-owned German subsidiary corporation to justify a trial for employment discrimination against the U.S. employer for alleged discrimination committed by its foreign subsidiary. The court treated as relevant evidence the following factors: 1) that the American company had instituted a corporate-wide personnel policy; 2) that certain personnel decisions with respect to employees of the foreign subsidiary required approval by the American company; and 3) that the foreign subsidiary employer was not authorized to change any remuneration plans, benefits, or operating conditions without prior approval of the U.S. employer.64

Accordingly, to the extent a U.S. employer “dictates” policy and exercises control over the personnel policies and decisions of a foreign employer, that degree of control may well subject the American corporation to form of “respondeat superior” liability for discriminatory practices committed in a foreign country by the foreign employer. Control of personnel policies substantially increases the possibility that a court will find the existence of interrelatedness necessary to impose liability under the CRA.

63 Lavrov v. NCR Corp., 600 F.Supp.

923 (S.D. Ohio 1984). 64 Id., at 928.

3. Inconsistent Treatment Of U.S. Citizens Working Abroad

Although increased control by a U.S. corporation over the personnel practices in a foreign country increases exposure under the CRA, it is also the best means to exercise loss control and risk management of employment law liability. To the extent a multinational corporation ensures consistent practices and rules designed to prevent on-the-job harassment and discrimination, employment law exposures can be controlled and reduced.

Another aspect of this problem is the potential for inconsistent administration of personnel policies. Although U.S. employment discrimination laws apply extraterritorially to protect U.S. citizens working abroad (for U.S. companies or U.S.-controlled foreign corporations), non-U.S. citizens have no such legal rights. While a U.S. citizen, for example, would have the right to be free of sexual harassment while working for a U.S.-controlled entity in Russia, a Russian citizen would have no such legal right. To avoid liability for sexual harassment or discrimination allegedly experienced by the U.S. citizen in this situation, the U.S. employer would have to promptly investigate the allegations of discrimination and institute remedial measures where necessary; conversely, Title VII would impose no duty to respond to an allegation of sexual harassment made by a Russian citizen in these circumstances. Aside from inconsistent and difficult personnel administration issues, the difference in treatment of workers based on the same facility raises the specter of morale problems


caused by favoritism and inconsistent treatment.

4. A Sample Global EEO Policy

A sample Global Equal Employment Opportunity policy is available from Jordan Cowman, (214) 969-2794. It attempts to address the concerns of multinational corporations subject to the extraterritorial application of the CRA. The sample policy is premised on the notion that a multinational corporation seeks to rid sexual harassment and other forms of on-the-job discrimination from its workplaces anywhere in the world. There is certainly no “foreign law” that requires an employer to affirmatively engage in sexual harassment or harassment based on any other protected category. The types of discrimination stemming from “foreign law” compulsion are more easily understood in hiring, job qualification, and termination situations. To that end, the sample policy attempts to ensure that U.S. citizens working for the multinational corporation are treated in a manner consistent with the requirements of U.S. employment discrimination laws, as well as prohibiting harassment-type conduct against all employees regardless of citizenship. The “foreign laws” defense is embodied in the portion of the policy dealing with non-U.S. workplaces.

IX. Summary Of Selected Cases and Issues Affecting Multinational Employers

• Amnesty International, in collaboration with Global Witness, recently surveyed U.S. diamond retailers

to determine whether their diamonds are certifiably conflict free. On September 18, 2004, activists in forty cities in twenty-six U.S. states questioned retailers on what they are doing to comply with a voluntary system of self-regulation aimed to stop the trade in conflict diamonds.

• The Titan Corporation and CACI International, Inc., two private companies performing contractual services for the U.S. military in Iraqi prisons that have led to public allegations of abuses against detainees by some of their employees, are being publicly called to clarify their human rights policies and practices and to support and facilitate public investigations into the allegations.

• In response to pressure from shareholders, ExxonMobil recently agreed to commit to uphold the core labor standards set forth by the ILO in its


Corporate Citizenship Report.

• In April 2004, governments meeting at the United Nations Commission on Human Rights adopted a resolution asking the Office of the High Commissioner for Human Rights to compile a report setting out the scope and legal status of all existing initiatives and standards on business responsibilities with regard to human rights.

• In late 2001, in response to confirmed reports of child slave labor in the harvesting of cocoa beans in Cote d’Ivoire and West Africa, the chocolate industry, as represented by the Chocolate Manufacturers’ Association, proposed what is now referred to as the Harkin-Engle Protocol. The Protocol calls for the development of industry-wide labor standards, and ultimately a voluntary-based system of corporate

reporting, monitoring, and certification. On June 17, 2004, the chocolate and cocoa industry, at the request of Senator Tom Harkin, conducted a public briefing to provide a review of progress made towards implementation of the Protocol. Representatives from the World Cocoa Foundation, Hershey Foods, and the International Cocoa Initiative were among the participants.

• Human rights groups lodged complaints that Starbucks Coffee had engaged in human rights abuses in terms of coffee growers and suppliers in Central and South America. In response, Starbucks adopted a program (called “Fair Trade Principles”) for improving the lives of coffee growers and ensuring that they received a guaranteed fair price for their harvest.

• Shell Oil Company, under severe criticism for human rights abuses attendant to its


operations in Nigeria in the 1990’s, became the first oil company to acknowledge a responsibility for human rights (and adopted a comprehensive set of “Global Business Principles”, which includes company-wide internal training programs and external public reporting on corporate social responsibility and international human rights issues).65

• Microsoft Corporation recently sought clearance from the U.S. Securities & Exchange Commission in October of 2000 to exclude from proxy materials for its upcoming 2001 annual meeting a proposal requesting that it endorse a list of principles on human rights for workers in China.

• Following Abbott Laboratories’ settlement with the

65 Business Week described Shell’s

program on human rights as a “leading model for others.” “People, Planet & Profits: A Summary Of The Shell Report 2000,” November 6, 2000, at 90. It can be accessed at www.shell.com/human.

U.S. Federal Trade Commission over allegations the company paid a small rival not to market a generic version of Abbott’s lucrative hypertension drug, Abbott appointed a “chief ethics officer” to advise the company on ethical constraints in doing business around the world.

• As a result of Broken Hill Proprietary Co. Ltd’s (BHP’s) involvement in environmental problems at the OK Tedi mine in Papua New Guinea, BHP now requires all firms with whom it contracts to comply with its internal Code of Conduct, which is more stringent than many national laws.

• Several major multinational corporations (including Chevron, Texaco, Conoco, Royal Dutch/Shell, BP Amoco, and Freeport-McMoRan) signed a first-of-its-kind voluntary code of conduct under pressure from the U.S. and British Governments in


which the companies pledged to adhere to a set of principles in maintaining the safety and security of their operations within a framework that ensures respect for human rights and fundamental freedoms.66

• Talisman Energy, Inc. is currently being sued for $2 billion by current and former residents of the Republic of Sudan who claim that the company collaborated with the Sudanese government in a policy of ethnically cleansing civilian populations to facilitate exploration activities in and around Talisman oil fields. On March 19, 2003, the United States District Court for the Southern District of New York denied Talisman’s motion to dismiss. The court held that the plaintiffs had adequately alleged violations of

66 The set of principles can be

accessed at the U.S. Department of State website (http://www.state.gov/www/global/human_rights/001220_fsdrl_principleshtml).

international law and that corporations were proper subjects of such complaints. Rejecting arguments by Talisman that it could not be held responsible for the actions of the Sudanese government, the court emphatically affirmed the availability of federal courts to hear complaints such as the one against Talisman. Following nearly a year of factual discovery, Talisman’s renewed motion to dismiss for lack of personal jurisdiction was denied on August 27, 2004. The case will now proceed to the class certification stage and trial, which likely will occur during the early part of 2005.

• Over a decade ago, ChevronTexaco was sued in New York federal court by indigenous people of Ecuador, who charged it with destroying their local environment by dumping a million gallons of toxic waste into the ecosystem for two decades. The


company’s actions, they claimed, devastated rainforest areas, caused an increase in cancer and other diseases, and brought several tribes to the brink of extinction. In October 2002, the court dismissed the case on jurisdictional grounds, but only on the condition that ChevronTexaco submit to the jurisdiction of the Ecuadorian court, which thus far has denied all of ChevronTexaco’s motions to dismiss. A decision may come as early as January 2005.

• Other recent lawsuits include those against Coca-Cola (for allegedly using paramilitary forces to violently suppress union activity in Colombia), Del Monte (for allegedly employing thugs who tortured union leaders in Guatemala), DynCorp (for allegedly spraying Ecuadorian farmers and villagers with toxic chemicals that were supposed to be dumped on coca plants in Colombia),

the Drummond Company, a mining firm (for allegedly hiring gunmen to torture, kidnap, and murder labor leaders in Colombia), and ExxonMobil (for alleged human rights atrocities – including torture, sexual violence, murder, and genocide – committed against villagers in the Aceh province by Indonesian military troops employed by ExxonMobil to protect its natural gas facilities.

• Broken Hill Proprietary Co., Ltd. (“BHP”), an Australian public company, was sued by Papua New Guinea nationals for alleged losses suffered as a result of the OK Tedi Mine in Papua, New Guinea due to effluents from the mine polluting the waters of the OK Tedi River and adversely affecting adjacent land. BHP owned part of the mine and had managed it since 1987. The litigation was brought in the Supreme Court of Victoria, Australia, with the threshold


question being whether the court had jurisdiction to hear the claims under general principles of private international law. Rather than face an adverse ruling and the risks of further litigation, BHP settled the claims before any jurisdictional determination was made.

• Thor Chemicals (UK), Ltd., an English public company which manufactures mercury-based chemicals, was sued by representatives of deceased South African employees for injuries allegedly suffered while working at the Cato Ridge chemical plant. Thor South Africa, a wholly-owned subsidiary of Thor Chemicals, operated the plant. In this case, the English Court of Appeals had to decide whether England was the appropriate forum in which to commence proceedings. In the end, the court found that England was not an inappropriate forum and allowed the case to proceed.

• Cape PLC, an English public company, was sued by South African plaintiffs for damages for personal injuries as a result of exposure to asbestos while working at Cape PLC’s South African subsidiary. After a lower court denied jurisdiction in favor of a South African forum, the UK House of Lords ruled that the proceedings brought against Cape PLC should not have been stayed in favor of transferring the litigation to South Africa.

• Royal Dutch Petroleum and Shell were sued in U.S. District Court in New York under the U.S. Alien Tort Claims Act for alleged violations of human rights against Nigerian workers who claimed that they and their families suffered retaliation for political opposition to the companies’ oil exploration activities in Nigeria. On September 14, 2000, the U.S. Court of Appeals for the Second Circuit determined that venue


was proper in U.S. courts and that the lawsuit could proceed.

• Esmeralda Corporation, an Australian mining corporation, was recently held responsible for a major cyanide spill in Romania which flowed into Hungary. Attempts are currently being made to sue Esmeralda in Australia for the damage that it has caused.

• General Motors Corp. v. Lopez, et al., 948 F.Supp. 656 (E.D. Mich. 1996) (in case involving theft of trade secrets, if nonresident conducted business, committed tort, availed self of privilege of acting in forum, personal jurisdiction is appropriate under due process clause, even where most conduct arose outside U.S.); General Motors Corp. v. Lopez, et al., 948 F.Supp. 670 (E.D. Mich. 1996) (where GM brought action against German-based VW, VW’s domestic

subsidiary and GM’s former employees who became employed with VW, alleging theft of trade secrets, the court held that the pleadings were sufficient to state claim under RICO, including a holding that federal statutes apply even if the underlying conduct occurred abroad has substantial effects within the U.S.); General Motors Corp. v. Lopez, 948 F.Supp. 684 (E.D. Mich. 1996) (holding that the Lanham Act 15 U.S.C. §1126 (which prohibits trademark infringement and false designation of origin) (1) provides for rights stipulated by international conventions respecting unfair competition, (2) incorporates the substantive provisions of the Paris Convention, including the Paris Convention’s broad prohibition against unfair competition).

• Weeks v. Samsung, 125 F.3d 926 (7th Cir. 1997) (holding that U.S. employee’s


employment discrimination claims against his Korean employer were preempted by a commercial treaty (Treaty of Friendship, Commerce and Navigation) between the Republic of Korea and the United States).

• Nuñez v. Hunter Fan Company, d/b/a Hunter Fan of Tennessee, Inc., 920 F. Supp. 716 (S.D. Tex. 1996) (holding that where no contractual choice of law provision existed, terminated U.S. citizen employed in Mexico could bring suit against parent company in U.S. court and, analyzing case under Texas choice of law rules, U.S. law applied).

• Pisacane v. Enichem America, Inc., 1996 U.S. Dist. LEXIS 9755 (S.D. N.Y. July 12, 1996)(allowing discovery of employment practices of Italian subsidiary of U.S.-based company in age discrimination litigation).

• Denty v. SmithKline Beecham Corp., 907 F.Supp. 879 (E.D. Pa. 1995), aff’d 109 F.3d 147 (3d Cir. 1997) (U.S. citizen could not invoke U.S. age discrimination statute against British parent corporation when denied positions based in U.K. and Australia; since extraterritorial application of ADEA does not apply under these facts).

• Morelli v. Cedel, 141 F.3d 39, (2nd Cir. 1998)(holding domestic employees of certain foreign corporations are protected under the ADEA and a foreign corporation’s foreign employees are counted for the purpose of determining whether the corporation has enough employees to be subject to the ADEA).

• Doe et al v. Wal-Mart Stores, Inc., June 2009. Ninth Circuit upheld the District Court dismissal of all claims against Wal-Mart. This case was brought by the ILRF on behalf of


employees of suppliers of Wal-Mart in China, Bangladesh, Indonesia, Swaziland and Nicaragua, and employees of competitors of Wal-Mart in California. The employees of the foreign suppliers alleged Wal-Mart failed to monitor their poor working conditions and failed to require their employers to comply with local labor laws, resulting in damage to them. The California employees alleged that Wal-Mart’s failure to enforce overseas supplier agreements requiring the suppliers to comply with foreign labor laws resulted in an unfair competitive advantage that in turn caused their employers to reduce their wages or, in some cases, terminated their employment. The District Court dismissed all claims based on a failure to state a claim with leave to amend.

I M P O R T A N T N O T E

This document, and any accompanying exhibits and/or oral presentation, provides general information as to selected issues involving issues surrounding employee relations and termination of employment.

IT IS NOT LEGAL ADVICE AND SHOULD NOT BE USED AS A SUBSTITUTE FOR REVIEW OF YOUR SPECIFIC SITUATION WITH LEGAL COUNSEL.

Efforts have been made to provide accurate information; however, we advise you to seek counsel and advice from a qualified labor and employment lawyer regarding the legality of specific termination procedures. Legal obligations may vary according to the facts and circumstances, as well as the jurisdiction.

Documents

Trans-National Employment Law Issues€¦ · Trans-National Employment Law Issues August 13, 2009 Jordan W. Cowman * Dianne Carlson Hoofard Akin Gump Strauss Hauer & Feld LLP 1700