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Termination
For those countries that use a civil law system, employee terminations are more difficult. These countries restrict the grounds of dismissal, provide legal recourse for violation, and require liberal notice and severance pay. The concept of acquired rights is applied and organizations, especially in the European Union, have complex laws around employment terminations.
In some countries, an employee's contract of employment will be transferred automatically on the same terms as before the transfer to a related or affiliated business entity. The receiving business unit or new employer, therefore, cannot reduce an employee's terms and conditions unless it meets the exception criteria available under the relevant acquired rights laws. Regardless of whether the deal is a stock (shares) or asset purchase, the new employer assumes a legal obligation to perpetuate existing employment terms or conditions.
| For example: | Transfer of Undertakings (Protection of Employment) or TUPE is the acquired rights law in the United Kingdom that essentially freezes all terms/conditions of employment in the event of business outsourcing or other business transaction, so the receiving party inherits these same employment terms at the time of the transaction. |
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Severance Pay. Country law, customs, and business practices regulate severance pay throughout the world. Severance pay is common for most countries and is typically viewed as a type of long-term service benefit. Severance pay arrangements are usually tied to acquired rights in the European Union and similar concepts in other regions. Most severance arrangements will have a notice period depending on the business trigger and regulatory environments. A notice period is intended to reduce the surprise of termination and allow the employee time to start searching for alternate employment. The amount of severance and notice period required can be based upon:
- Length of service
- Basis of payment (hourly vs. salary)
- Occupational category
- Age
- A fixed amount per company policy
The actual notice periods can range from one week up to six months. The standard severance can vary from one week per year of service to one month per year of service. Become familiar with the statutory notice periods and severances in the countries of operation. When an employee is terminated "for cause", most organizations will be able to avoid making severance payments and local employment laws will typically have provisions for these circumstances.
Severance pay can create a high contingency cost for the company and remain on the "books" as a liability for many years. This cost grows over the years, particularly if the workforce is long–tenured. It may be useful to establish a fund for paying this contingent liability. In fact, some countries require this.
| For example: | According to a recent study by the International Finance Corporation, termination costs for redundancy (down– or right sizing) could be as high as 130 weeks depending on tenure of the employee and the country. |
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The International Labour Office (ILO) is an international organization that promotes, encourages, enhances and strengthens social protection and dialogue on work–related issues. It provides studies and information on global wages and related topics, which can be accessed on their website. There are more studies on employment related practices in specific countries available at www.ilo.org.
Memory Jogger
A U.S. company should expect to pay ____ severance pay to international employees, compared to employees in the U.S.