Beware the hidden pitfalls of overseas secondment
While some companies may find overseas assignments or secondments unavoidable, careful thought must be given to these arrangements as they can have serious legal and taxation implications
With the increased globalisation of businesses, it is becoming commonplace for employees to have mobile working arrangements or to be seconded overseas for an extended period. Sending employees overseas not only helps a business strengthen ties between its own network but also provides invaluable learning opportunities for the employees involved and is an efficient way to improve a company’s ability to develop its business internationally. But as the opportunities increase, so too do the challenges.
Cross-border assignments can raise a number of legal issues affecting both the employer and the employee. While tax and immigration are the most obvious issues that need to be considered for overseas assignments, there are other employment matters that employers should turn their mind to. These can be summarised into three key issues.”
This might seem like a simple matter, but jurisdictional issues are one of the biggest traps for the unwary. Employment laws vary considerably from country to country and, in some cases, even between provinces or states. In many jurisdictions, mandatory employment laws, such as an employee’s rights on termination, will apply to the employment relationship whether or not the parties want them to. Such laws will also apply irrespective of any contractual clauses to the contrary.
An employee who has been seconded from mainland China to Hong Kong may have the protection of Hong Kong employment laws even if the employee’s contract is governed by mainland law.
Confusingly, the contractual terms of the agreement are still subject to mainland law. Employees seconded to overseas offices may, therefore, have rights, protections and obligations under two or more jurisdictions. In such a case, an employee may be able to cherry pick the best terms of the contract, which may be much more generous than local market terms, but disregard any they believe to be contrary to local law.
If secondment or assignment arrangements are not documented correctly, this can lead to unintended and often undesired consequences.
The way that a contract is structured can also have implications in relation to the employee’s benefits, tax and immigration status. Often, benefits that are provided to an employee in their home jurisdiction, such as insurance, participation in share schemes or pensions, cannot be maintained when they leave that jurisdiction for an extended period.
Often, companies agree the commercial terms of a secondment without considering whether they should look at entering into new or amended contractual arrangements.
Instead of simply assuming that a secondment arrangement will be most appropriate, employers should give careful thought as to whether a dual contract or a fresh contract with a locally registered group company could work better in the circumstances.
When dealing with staff working on a global basis, you need to plan for what will happen if something goes awry. While you can’t plan for every possibility, there are common issues that can be dealt with up front.
Repatriation is often a key term of secondment or assignment agreements. Employers should think about the circumstances in which they are willing to pick up the cost of bringing their employee home. Will it apply only at the end of the assignment? What about a redundancy situation? What if the employee falls ill? What will it cover? How long will the cover last? What if, in the intervening period, the employee finds another job? Should the new employer pick up the repatriation costs?
Any post-termination restrictions may also need to be amended. In particular, employers should check whether such restrictions are enforceable against an employee in the relevant jurisdiction and on what terms and whether there are any local law requirements that need to be reflected – for example, if the period of post-termination have to be remunerated.
Consideration must also be given to whether any existing definitions within covenants need to be amended to ensure that the company is covered in respect of the work that the employee does on assignment or secondment.
The return of company property on termination can also be a sticky issue if not dealt with in the agreement. The last thing an employer wants is a rogue employee in an overseas jurisdiction in possession of sensitive company documents but who is under no express obligation to return them.
But it’s not all bad news. Given good planning, overseas assignments can be beneficial to both employer and staff. A little forethought goes a long way.
Kathleen Healy is a partner in the expanding employment, pensions and benefits practice in Asia of Freshfields. Based in Hong Kong, she specialises in advising on Asia-Pacific employment and HR projects, and on the multijurisdictional employment aspects of internal investigations.
The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.