While I am being purposefully vague as to the details, it’s safe to say that employment- related liability for U.S. companies operating overseas is on the rise.
I think part of this can be attributed to the fact that more U.S. companies are, for the first time, expanding into foreign markets.
While overall this is a positive trend for the U.S. economy, it does carry significant risk for those first-timer companies unfamiliar with the extraterritorial reach of U.S. employment laws.
Counsel representing companies based outside the U.S., or U.S. companies with foreign operations, should be aware of the U.S. employment laws that apply to conduct that takes place outside the U.S.
Below, I’ll go over the basic framework for the extraterritorial application of U.S. employment law.
International Reach of U.S. Employment Law
Currently, three major U.S. employment laws apply extraterritorially:
- Title VII of the 1964 Civil Rights Act. Bars discrimination in employment based on race, color, national origin, religion and sex.
- American with Disabilities Act; bars discrimination based on disability and requires employers to make reasonable accommodations where necessary.
- Age Discrimination in Employment Act. Makes it unlawful to fail or refuse to hire any person based on their age. It applies to persons 40 years of age or older
Each of these three laws also makes it illegal for an employer to retaliate against an employee because the employee exercised rights under the law.
Who’s Covered Under these Laws?
These laws apply to U.S. citizens employed outside the U.S. If the employee is not a U.S. citizen, the laws do not apply.
Thus, U.S. resident aliens working abroad are not covered.
But not all foreign employers that employ U.S. citizens outside of the U.S. are subject to these U.S. employment laws.
Numerical Threshold Must be Met
Each of these three laws has a numerical threshold. Under the ADEA, the company must have 20 or more employees.
Both Title VII and the ADA require 15 or more employees.
An employer that meets the numerical threshold must still fall into one of the following 3 categories to be subject to these U.S. Employment laws:
- An employer incorporated in the U.S.: Significantly, a foreign branch of a U.S. company also will be considered a “joint employer” and subject to U.S. employment laws.
- An Employer not incorporated in the U.S. but having sufficient contacts with the U.S.: “Sufficient contacts” is determined under the “totality of the circumstances” test. The factors a court will consider include i) the company’s principal place of business; ii) the nationality of the dominant stakeholders; and iii) the nationality and location of officers and directors; and
- A non-U.S. firm “controlled” by a U.S. company: Courts examine various in determining control including extent of shared operations and degree of common ownership or financial control.
How to Limit Liability
While there are numerous measures a U.S. company can implement to minimize employment-related liability in connection with its international operations, the basic framework for a best practices program should include written policies that prohibit discrimination and retaliation under U.S. law.
These policies are ordinarily included in manuals distributed to each employee.
Another component of a company’s best practices program should include complaint handling and investigation mechanisms. Many employment disputes can be resolved internally without the aggrieved employee filing a lawsuit.
Finally, a solid training program should be implemented to educate executives, managers and supervisors about the applicability of these U.S. employment laws.
This training should include a review of the substantive laws and the appropriate response of an employees’ right s are being violated
With more U.S. companies expanding overseas, it’s no surprise that employment-related liability is on the rise. U.S. companies should be aware of the legal implications of their employment practices outside the U.S. Doing so will go a long way towards minimizing employment-related liability.