Global menu

Our global pages

Close

Global workforce reorganization part 2: working across jurisdictions

  • United Kingdom
  • Coronavirus - Workforce issues
  • Employment law
  • Tax planning and consultancy

31-07-2020

As employers continue to grapple with the plethora of challenges caused by the COVID-19 pandemic, the displacement of workers or restructuring of working models resulting in workers working in jurisdictions different to their usual workplaces raises complex questions.

The pandemic has demonstrated that the physical location of workers in the workplace may no longer be considered significant to achieving an effective labour model, particularly where there is no negative impact on productivity. It is therefore widely anticipated that post-pandemic, many organisations will embrace more flexible working models.

With travel more difficult due to ongoing restrictions and tourism impacted as a result, many governments are looking at ways of encouraging visitors, including through schemes that would allow visitors to remain in the country for longer periods and potentially work remotely from that location. For example, the recently-announced Barbados Welcome Stamp, a year-long visa that will allow people to relocate to the island for up to 12 months.

However, working across jurisdictions raises a number of complex issues. Structuring and documenting the arrangement correctly will require a detailed assessment of the individual circumstances. This briefing note highlights some of the issues to consider.

Engagement model

If a worker is to work from a different country from that in which they originally worked, the identity of the employing entity should be clarified. Will the worker remain employed by the original entity or will they be employed by a separate legal entity in the country in which they will be working?

The laws in certain jurisdictions place restrictions and, in some cases, prohibit particular models of engaging staff. For example, in Turkey, there is a requirement for an employer to have an established local legal entity in order to employ staff in the country, as otherwise they cannot register for social security. In the UAE only a locally-registered business can apply for a visa for their staff.

Even in those jurisdictions where there are no legal requirements for a local legal entity, which is the case in much of Europe, there may be practical reasons why a local legal entity or the local registration of an entity is necessary. In the People's Republic of China (“PRC”) for example, the application of employment laws usually requires the employer to be a PRC-registered entity. In Greece, in order to dismiss an employee, the employer must be registered with a state-run electronic system which generates the termination process.

Further, in several countries there are restrictions on employees being employed by an entity either within the same country or elsewhere, and then also working for another entity. In some cases, this restriction will apply even within the same group of companies. In some jurisdictions this “labour leasing”, “labour dispatch” or “employer of record” model may require the legal employer to hold an official licence to be able to operate as such. Or there may be restrictions on the duration of such labour supply or on the types of roles into which workers can be supplied.

Applicable employment laws

Where there are longer-term or permanent arrangements, the question whether local employment and other relevant laws will apply to the arrangements (and, if so, the nature of any rights afforded to the worker) will be critically important. This is especially pertinent where the employment laws of the overseas location are more favourable to the worker, for example in terms of pay, hours of work, leave, termination rights and the enforceability of post-termination restrictions. The applicability of collective agreements and co-determination rights of local works councils can also be impacted.

The starting point is that, as long as the choice is expressed or demonstrated with reasonable certainty, the parties have freedom to choose the applicable law. However, this freedom is usually limited by legislation, with many jurisdictions having conflict of law rules that require the application of local employment law in certain circumstances where they are more favourable to the employee.

In all EU member states (other than Denmark), for contracts made on or after 17 December 2009 and where the governing law of the employment contract has not been chosen, under the so called Rome I Regulation the particular circumstances will determine the governing law. Consideration is given to where the work is habitually carried out, the place of business and/or the closeness of connection with a particular country. This includes consideration of the place from which the worker carries out tasks and receives instructions, where the employer and/or worker are based, the location of any tools or equipment, the place to where the worker returns after completing the tasks, how the worker is paid, how the worker is managed and the locations from which disciplinary decisions emanate.

Regardless of the governing law of the contract, there will be certain "mandatory rules" of the country where the worker works that automatically apply. These typically include statutory employment rights, such as protection against termination of employment and discrimination. For example, in the Netherlands, even where the contract states that the employment may be terminated by the employer giving written notice, it is mandatory for the employer to seek the court's approval in order for the termination to be effective. Further, where workers are temporarily assigned to work in another jurisdiction, legislation may guarantee those workers a certain level of rights in that jurisdiction subject to certain requirements, for example in Europe under the Posted Workers Directive.

However, the complex analysis often does not stop there. Where the laws of a country other than where the worker is based are sought to be relied on, a further consideration may then be the territorial scope of the applicable legislation. For example, in Great Britain, the unfair dismissal legislation is silent on its territorial application, with case law determining the tests to be applied, including examining the connection with Great Britain in the employment relationship.

Finally, it is also important to bear in mind that the fact that a country's law is the governing law of a contract does not mean that claims under that contract can be automatically brought in that country's courts. Whether a national court has jurisdiction to hear a claim with an international angle will be determined by applicable local legislation (or EU legislation, where applicable).

Taxation and social security issues

Where workers are working outside their usual country of work, there are likely to be complex cross-border tax and social security issues to consider. These will be governed by domestic tax laws in the relevant countries and double tax treaties that provide which country has taxing rights.

Interpreting double tax treaties (and more importantly, a particular jurisdiction’s approach to interpreting that double tax treaty) is often complicated and can vary between jurisdictions. The key issues that workers/employers will need to consider are (i) workers’ individual residence; (ii) which country will have taxing rights in relation to employment income; and (iii) whether workers/employers will need to make social security contributions in the jurisdictions from where the worker works.

Individual residence is an important issue for workers, since typically a worker pays tax in the jurisdiction of residence. While consideration of the various residence tests in different jurisdictions is outside the scope of this briefing, it is important to note that one of the key aspects that many jurisdictions consider is a threshold number of days spent in that jurisdiction. Further, some countries may have special domestic rules for taxing employment income, which may result in certain other administrative obligations being imposed on employers.

Individual residence is a question of domestic law, with the relevant double tax treaty providing a tie-breaker only if both jurisdictions claim that an individual is resident in that jurisdiction. However, many jurisdictions have provided some guidance/concessions in relation to their domestic tests in the context of the COVID-19 pandemic. For example, the UK and Ireland have both provided guidance on how to interpret exceptional circumstances. Individual residence however continues to depend on the individual facts and revenue authority approach. For example, the reason for the worker being in a country during the pandemic is likely to be relevant, with potential distinctions in concessions between workers voluntarily staying in a country during the pandemic as opposed to being prevented from leaving a country due to travel restrictions or quarantine.

There may also be special tax rules that apply to workers performing certain types of roles. For example, different considerations may apply to directors. Further, certain countries have agreements between them relating to tax. This is especially relevant in continental Europe, where workers often live in one country but travel to another country to work (for example Germany/Luxembourg, France/Luxembourg, Belgium/Luxembourg, Germany/the Netherlands, Germany/Austria). These rules are complex, but in summary they allocate taxing rights to the country where workers exercise their employment and not where they live, and provide special exemptions.

There are also a number of additional considerations and pitfalls to watch out for where workers are working across jurisdictions. For example, whether and where social security contributions are required to be made and the risk of remote workers creating a permanent establishment in another jurisdiction, with consequent tax implications. Further, many countries, for example India, use a tax residence-type test for certain company law/regulatory matters. Therefore, care should be taken to ensure that these are not breached and that the arrangements are routinely monitored.

Immigration

Up until now, immigration concerns have focused on crisis management; as global workforces now start to mobilize other issues come to the fore. From an immigration perspective, concessions were put in place in some jurisdictions during the lockdown period but a number of questions remain unanswered. For example, if an individual’s job description has essentially changed during the lockdown period or if they suffered a reduction in salary or working hours, this may have an impact on their immigration status in many jurisdictions. Is there a risk that there may be visa/ work permit cancellations in another jurisdiction?

Another concern is the period of time an individual is outside the country in which they habitually work since days count for immigration purposes, particularly if that individual intends to apply for permanent residency or citizenship.

If a worker is a national of the country in which they wish to work, immigration issues will often not arise. However, where immigration issues do arise, either for the worker or their family, it will be important to take early immigration advice and factor the timescale for this into the plan. Careful and agile planning will be necessary as the implications for illegal working can be serious for both the worker and employer, including criminal liability in some cases.

Further, in some jurisdictions, the structure of the arrangement will impact on immigration considerations, so this will also need to be determined at an early stage. For example, those jurisdictions, such as the UAE, which require the employing entity to be locally-registered in order to obtain visas.

Other considerations

Aside from employment, tax and immigration issues, there are often wider legal and practical considerations such as health, safety and welfare duties. In many jurisdictions, the employer will be under an obligation to provide a safe place of work, extending to where the worker is working remotely. The practicalities of arranging a risk assessment should therefore be considered. Additionally, local laws on employer’s liability (or similar) insurance should be planned for.

Benefit schemes that require continued employment in the original jurisdiction should be scrutinised, including pension benefits and whether the structure of the scheme allows a worker to work outside the jurisdiction. In addition, employers should consider whether there are any applicable trade union agreements that impact the structure of the intended arrangement.

A query that often arises is whether the employer will be responsible for remote workers’ expenses, such as utility bills. Many employers provide financial support for any increased costs of remote working, however whether there is a legal obligation to do so will vary by jurisdiction. For example, in Taiwan, expenses such as phone and internet costs must be reimbursed by the employer where the worker is working remotely. In Belgium a specified a lump sum payment should be paid or an indemnity will be applicable.

Summary

Whilst, depending on the nature of the role, it may in many cases be operationally possible for a worker to work remotely in another country, there are wider challenges to consider. In particular, the unique interplay between employment law, tax and social security requirements, regulatory requirements, immigration law and pension implications. Such issues can often cause some complex legal and practical considerations.

There is no getting away from the fact that working across jurisdictions can be a thorny topic from a legal perspective, with potential multifaceted risks for the unwary. Whilst key cross-territorial principles and considerations are often mirrored across jurisdictions, structuring and documenting the arrangement correctly will require a detailed assessment of the individual circumstances.

From a practical perspective, employers should take the opportunity to ensure that their policies are fit for purpose, both in the context of unexpected emergencies such as the pandemic and for when global borders start to reopen.

Practical considerations checklist

  • regulatory requirements – the laws in certain jurisdictions place restrictions and, in some cases, prohibit particular models of engaging staff. Check any regulatory requirements in the jurisdiction that may impact the proposed arrangement
  • application of local employment and regulatory laws – local employment laws may apply and override any intended laws governing the relationship. Ensure that an analysis is undertaken of the individual circumstances to establish whether the employment and regulatory laws of the overseas country will apply and, if so, ensure that associated obligations are understood. An employer cannot require an employee to waive their employment rights but they can be clear as to where they require them to work. Ensure employees inform you when they are working in another jurisdiction and require them to obtain consent
  • tax and social security considerations - cross-border tax and social security obligations are likely to arise. Ensure that these are understood and any pitfalls avoided. For example, could there be additional or double taxation? What evidence should employers and workers maintain to ensure they receive any/all exemptions that apply to them? Do the positions change across jurisdictions? Are there any concessions in place by revenue authorities?
  • immigration, visa and permit requirements –any immigration, visa and permit requirements and obligations will depend on the local legislation of each country and the nationality of the worker in question. Ensure that any immigration requirements are factored into the timescale for implementing the arrangement
  • structuring the arrangement – there are likely to be a number of options for structuring the arrangement, depending on the individual circumstances. Ensure that all options are understood, including any associated risks and documentation required to formalise the arrangement
  • know where your employees are – with many employees now working from home in jurisdictions other than those to which they were posted, it is vital that employers keep tabs on where their employees are and how long they have been there.
  • ensure policies are up to date and fit for purpose – this will include communicating any changes to policy to employees

Our extensive global footprint means that we are well placed to help employers, wherever they have a presence. Our teams across the world have been supporting employers to steer through the legal and practical employment implications raised by workers working across jurisdictions.

Please contact the following partners if you require advice and assistance:

Global:

Diane Gilhooley
Hannah Wilkins
Elizabeth Graves
Constanze Moorhouse

US:

Scott McLaughlin
Michael Woodson
Michael Hepburn
Marlene Williams

Asia:

Jennifer Van Dale
Jack Cai

Europe:

Frank Achilles
Deborah Attali
Valentina Pomares
Ingrid van Berkel
Wijnand Blom

Immigration:

Audrey Elliott 

Tax:

Colin Askew

-->