Terminating International Employees

Terminating jobs is the least favorite responsibility of any employer, and terminating jobs overseas requires a long drawn out process of documentation and information gathering prior to delivering the termination news. Your business can be adversely affected by hefty severance liabilities if gobal HR consulting professionals don’t plan ahead. Amongst the workforce, termination is often a dreaded thought that can cause anxiety and make them rebellious and create chaos and disturbance in the work environment.

Before hiring overseas, HR professionals should plan for terminations, as it can help in reducing the risk of eliciting claims on behalf of employees due to any unfair layoffs. When a company decides to layoff its employees at its international offices, it must take into account the factors that justify that the dismissal is fair without having to pay any severance compensation. The concept of “employment at will” is unique to the U.S., however, as the termination laws vary across the world from country to country, it is imperative to consider the regulations in an international business expansion and understand its implications.

Brazil Employee termination in Brazil, largely depends on whether the employer has ’cause’ to terminate. Typically, ’cause’ to terminate is limited to cases of gross misconduct and therefore excludes terminations because of poor performance or economic reasons. In the event of an employee being terminated, the balance of their FGTS is given to them. (FGTS – Fundo de Garantia do Tempo de Servico, a severance account funded by monthly employer contributions of 8 percent of salary or Brazilian pension fund). On the contrary, when a termination is “without cause”, the employer is required to pay a penalty payment equivalent of 50 percent of the FGTS balance (40 percent is paid to the employee and 10 percent is paid to the government), in addition to paying the FGTS balance.

Japan A doctrine of “abusive termination” is enforced in Japan, by virtue of its civil code. It outlines the reasons for termination that are deemed ‘fair.’ Although performance issues might be a ‘fair’ reason to terminate, the apparent burden is very high and a termination is seen as a last resort action. In most cases employees agree to resign on receipt of an inflated settlement payment as a unilateral termination is considered high risk.

China The PRC (People’s Republic of China) Labor Law stipulates the reasons when an employer is permitted to terminate. Unfortunately for reasons of performance the employer will have to substantiate that they have provided re-training or alternative posts. Even in conditions where the termination falls within the permitted reasons to terminate, the employer is expected to provide 30 days notice and a severance payment equivalent to one month average salary for each year of service (for periods of less than six months–half a month pay is used, and for periods more than 6 months the employee is deemed to have worked a full year). Note that for employees hired after January 1, 2008, the average monthly salary used to calculate the severance.

The Netherlands The Dutch system on employee terminations is unique in that it imposes prior controls on a dismissal. Any employer wanting to terminate an employee should either approach the Central Work and Income Organisation (CWI) for a permit or have the contract dissolved by the Cantonal Court prior to serving notice of termination on the employee. The CWI and Cantonal Court will assess the amount of severance payment to be paid to the employee based on the strength of case to terminate. Without performance improvement plans and written warnings for a poor performer or a weak set of financials for an economic termination (i.e. evidence of poor trading and inability to sustain current salaries) it is likely that the award will be sizeable. For an employee over the age of 50, this could amount to more than two times his or her annual salary.

To ensure that international expansion operations are devoid of hurdles and to minimize the risks involved, organizations need to acknowledge and understand the fine print on a country’s employee termination policies. It can help intercompany transfer pricing plan ahead and save on the heavy severance costs. Knowing the complexities around the disparate laws is not easy. In a company international expansion, methods of termination that govern businesses of different sizes in different countries is critical. Planning ahead and keeping track of changes in legislation makes a difference.

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