Choice of law and choice of forum clauses are routine. But, are those clauses enforceable in employment agreements covering U.S. citizens on foreign assignments? Let’s compare cases involving (1) U.S. employees on long-term assignments in the UK; (2) who each had choice of law and choice of forum clauses; and (3) who each filed suit in U.S. courts under U.S. law contrary to those clauses:
- Martinez v. Bloomberg LP, 740 F. 3d 211 (2d Cir. Jan. 14, 2014) involved an executive assigned from New York to work in the UK. He signed a local UK employment contract providing not only “that English law governed the agreement” but also that “any dispute arising hereunder shall be subject to the exclusive jurisdiction of the English courts.” Despite Martinez’s assertions of potential procedural problems and damage limitations under English law, Martinez was contractually barred from pursuing any claims – even his statutory claim under the ADA — in U.S. courts.
- Acharya v. Microsoft Corporation, 354 P.3d 908 (Wash Ct. App. 2015) involved an executive who resigned from her job at Microsoft’s U.S. headquarters in order to be immediately rehired by a foreign subsidiary of Microsoft (MGR) for her assignment in the UK. Her employment contract with MGR provided that the “terms of this agreement shall be construed in accordance with and governed in all respects by the laws of Switzerland” and that “[a]ny dispute, controversy or claim arising under, out of or in relation to this Employment Agreement, … including tort claims, shall be referred and finally determined by the ordinary courts at the domicile of MGR in Switzerland.” Yet, her subsequent claims for gender discrimination arising out of her employment in London were allowed to proceed under Washington state law.
How can U.S. employers best manage sending U.S. citizens overseas?
Understand the Worksite Presumption Rule
When assigning U.S. employees overseas, there is a general rule: the laws of an employee’s physical worksite are determinative. Thus, when in Rome, do as the Romans. By virtue of working there, mandatory local employee protection laws – such as minimum pay rates, working time, vacation, severance and protection from dismissal – will apply. The relevant law for all European Member States is the Rome I Regulations. In brief, under the Rome regime, foreign employees in Europe will benefit from the mandatory laws of the country with which they have the closest connection, which will normally be the country where the employee habitually works. Both Bloomberg and Microsoft made the correct choice: avoid duplication (i.e., the potential for employees to make claims under both U.S. law and under the law of the country of their overseas assignment) by avoiding U.S. law rather than the reverse.
Customize Paperwork and Avoid Inconsistency
An employer’s best practical protection when embarking on a long-term assignment is to tailor paperwork to acknowledge the specific law of the location of the assignment. Here, in short, is a critical distinction in the cases. Bloomberg localized its choice of law and choice of forum clauses to the locus of Martinez’s assignment while Microscoft localized both for administrative convenience to its European headquarters (Switzerland): a point that the court in Acharya found significant.
But, getting the paperwork right is more than just correctly localizing the choice of law and choice of forum clauses to match the worksite presumption rule. Typically, two separate agreements are advisable:
- An inter-company agreement between the home country entity and the host country entity (to which the assigned employee is not a party) outlining reimbursement between the companies and the inter-company relationship.
- An assignment letter (or in some cases local employment agreement) with the individual employee which acknowledges the application of local law and sets out all relevant terms (e.g., length of the assignment; whether the individual will eventually repatriate; salary, benefits, etc.).
If there is a pre-existing underlying U.S., employment agreement, that too needs to be addressed. It will need to be terminated, amended, or novated by the assignment agreement or a replacement employment agreement so that all documents are consistent. In addition to customizing, these agreements/processes must also be followed in practice. Administrative details – such as where payroll is run, currency of payments, who controls the assignee day to day, etc. – all become critical in determining where claims can be made and which country’s law will apply to resolve such claims.
Be Aware of Exceptions
U.S. employers should be alert to factors that affect the Worksite Presumption Rule:
- Length and Permanency of Assignment. The longer the employee remains in a foreign location, the more likely he/she will acquire local rights. Shorter-term assignments can help to protect against mandatory application of local laws. As a rule of thumb, under 6 months is considered short-term (as it is also a trigger point for certain tax/permanent establishment risks). There is no bright line, but assignments lasting several years (as in Martinez and Acharya) will be considered long-term with a material risk of local laws applying.
- Underlying Employment, Home Base, and Citizenship. Whether the underlying home employment will continue during an assignment, eventual repatriation, the employee’s home base and even citizenship can also come into play. Recently a U.S. citizen’s claims under UK law were rejected. Even though he worked 49% of his time there, he maintained his home (and his partner) in Texas, was paid on U.S. payroll in USD. and was notified of his termination in the U.S. Given those facts, the UK tribunal viewed his work there as merely a continuation of his U.S. employment and, thus, insufficient to justify the application of UK law. Fuller v United Healthcare Services Inc and another UKEAT/0464/13.
- Public Policy. Access to justice locally is also often influential. Some jurisdictions do not afford foreign nationals equivalent employment protection. In fact, in certain Asian and Middle Eastern countries differing laws can apply to local citizens versus foreign assignees. In such locales, choice of law/choice of forum clauses simply won’t work because “an adequate alternative forum” is a sine qua non for any U.S. court to defer to a choice of a foreign forum.
- Highly Mobile Employees. The place of work for such employees is often debatable. Drawing the line between a very long business trip and an assignment can be tricky. Employees hopping between different countries while on assignment can add a further layer of complexity. This, moreover, is further complicated by the 21st century option to work remotely from a location chosen by the employee rather than the employer. See, Employees Working Far Away From The Office: A Jurisdictional Nightmare?
Let’s return full circle. Are choice of law/choice of forum clauses valuable and desirable in contracts for U.S. citizens assigned overseas? Absolutely. Is administrative convenience the primary utility of such clauses? No: the goal here is to avoid dealing with employment disputes under two sets of laws and in two sets of courts. Is there a best-practice for pursuing that goal? Yes: absent one of the noted-exceptions, customize your clauses to embrace the law and courts of the assigned worksite.