How to terminate employees abroad

Terminating employees is a difficult matter on several levels. First of all, it can be challenging to handle from an emotional point of view—after all, job loss can have a severe negative impact on the employee’s life. Second, employee termination is subject to a myriad of different rules and regulations, and employers who fail to comply with all the legal requirements risk being drawn into a lawsuit.

Things get even more complicated for employers who work with a globally distributed team. That’s because employment laws differ from country to country, meaning that employers need to be familiar with local termination rules in order to avoid lawsuits and other legal issues when terminating overseas employees.

Read on as we take you on a deep dive into the ins and outs of terminating employees abroad. But first of all, let’s go through the basics of employee termination.

Employment termination rules differ from one country to the next, but there are a few basic principles most countries adhere to:

• Notice period: In most countries, employers are obligated to give employees advance notice of employment termination. The minimum statutory notice period varies and generally ranges from one week to one month. Usually, shorter notice periods apply during the employee’s probation period. Long-tenured employees are often entitled to longer notice periods. In general, no notice must be given to employees who are dismissed for gross misconduct.

• Letter of termination: A letter of termination is usually a formal requirement in the termination process. The moment in which the employee receives his or her termination letter usually marks the beginning of the notice period.

• Final pay: An employee’s final pay must include all outstanding compensation the employee is entitled to. Again, rules vary from country to country, but the last paycheck usually includes the employee’s salary as well as pay for any unused leave days or outstanding bonuses—calculated on a prorated basis.

• Severance pay: Some countries mandate employers to provide severance pay which is a type of unemployment compensation that is paid to employees who are let go due to layoffs or downsizing. The amount of severance pay usually depends on the employee’s length of service.

• Grounds for termination: With the exception of countries that follow the principle of at-will employment (e. g. the United States), employers need a valid reason for terminating an employee—at least if the latter is hired under an indefinite employment contract. Every country has different rules regarding employee dismissal, but justified grounds for termination usually include employee misconduct, underperformance, long-term illness as well as economic reasons such as downsizing or operational restructuring.

• Exit interview: Conducting an exit interview may not be a legal requirement, but it should definitely be part of any organization’s employee offboarding checklist, since it gives both parties a chance to part ways on good terms and give constructive feedback.

Hiring employees overseas means entering an employment relationship that involves two parties that are subject to different employment laws. In this context, it’s recommended to draft an international employment contract that details the legal terms of the employment relationship.

Usually, the employment law on which the contract is based is that of the country where the employee is based. This means that he or she is entitled to the same rights and benefits that would apply if he or she was working for a local employer.

However, there are international frameworks such as Rome I under which employees and employers can choose which employment law should govern the employment relationship—as long as the choice of law doesn’t conflict with local interests. In such cases, the employment agreement should contain a so-called “choice of law”-clause that indicates which employment law was chosen.

So, what does this mean with regard to terminating employees abroad? It simply means that termination procedures must follow the rules and requirements as outlined in the employment law that governs the employment relationship.

Employment termination should never be taken light-heartedly, but even less so when terminating employees overseas. Unless the employment has been placed under a different employment law, the employee enjoys the rights and protections that are standard in the country where he or she resides.

It is hence vital for the foreign business employing the worker to have a thorough understanding of local termination rules. But even businesses that do their due diligence cannot be sure to mitigate all risks.

The most common risks associated with terminating employees abroad are: 

• Discrimination lawsuit: Terminating employees based on discriminatory factors such as their gender, age or race is illegal almost everywhere in the world. Employees who feel discriminated against by their dismissal could decide to file a discrimination lawsuit against their former employer.

• Wrongful termination lawsuit: When it comes to terminating employees overseas, the main risk is falling into the wrongful termination trap. Wrongful termination is when employees are fired for a reason that is illegal. What counts as wrongful termination differs from one country to the next, which is why it’s all the more important to really understand the provisions of local employment laws. Examples of wrongful termination include breach of contract or violation of company policies when dismissing the employee.

• Reputational damage: Improper employee termination management can result in bad press which, in turn, can have a severe negative impact on the business’s reputation. This is especially the case when employees decide to file a lawsuit against the company.

The best protection against these risks is to thoroughly document the reasons for terminating a certain employee and to compile evidence as a back-up.

As we’ve seen, terminating international employees is anything but easy. Here are a few actionable tips to help you ensure your employees get a fair treatment that complies with legal regulations:

• Conduct thorough research on local employment laws: Understanding the laws in the employee’s country of residence is the first step towards a fair and compliant termination process.

• Think about employment rights and termination possibilities early on: Businesses should know what they sign up for when hiring international employees. This includes checking out the employment regulations that apply in the employee’s home country before making a decision regarding the choice of law for the employment contract.

• Check the fineprint of the employment contract: Checking the employee’s employment contract is a simple yet effective way to avoid issues further on in the termination process. It’s always good to go through the individual agreement to check if there are any restrictions or requirements that need to be respected in addition to those imposed by law.

• Don’t forget about collective bargaining agreements: In countries like Italy or France where trade unions are very strong and influential, employers should further look into existing collective bargaining agreements (CBAs) to see if they contain further regulations for terminating employees.

• Consult a local employment law expert: Understanding all the ins and outs of employment law can be difficult without a legal background. That’s why having a local employment law expert on retainer is an absolute must.

There’s no doubt that having a local expert at hand who can help with specific questions regarding employment termination in their jurisdiction is a big relief. Ideally, however, globally expanding businesses have a strong partner by their side who can handle international employment matters for them, including employee termination.

An Employer of Record (short: EOR) is a third-party service provider that specializes in employment outsourcing services for businesses that want to hire employees abroad. The major advantage of hiring overseas employees through an EOR is that the client business doesn’t need to set up a legal entity in the new market.

Instead, the employee is hired under the entity of the EOR who becomes the official employer in the eyes of the law. The client business remains in control of the employee’s day-to-day activities and projects while the EOR handles the administrative side of the employment relationship, from legal onboarding to payroll management to termination.

Using an Employer of Record allows businesses to take the headache out of employee termination. The benefits of working with an EOR when terminating employees abroad include:

• Full compliance with local rules surrounding employee termination,

• Final pay and severance package is arranged,

• Respect for country-specific termination procedures,

• Local knowledge to ensure nothing is overlooked, and

• Advice on valid reasons for employee dismissal.

Need help finding a reliable, experienced Employer of Record partner to hire your next employee overseas? At Lano, we work with a global network of vetted EORs that can help you with all things employment in more than 170 countries worldwide. Book a demo with our expert team to learn more.