Friday, September 23, 2011

USA: Terminating Staff Outside US Employment-at-Will

By Donald C. Dowling, Partner, White & Case LLP, New York City

“Employment-at-will” means the right to end employment (for an employee to quit and for an employer to fire) for any reason or no reason, except that an employer cannot legally dismiss an employee for a discriminatory, retaliatory, or statutorily-prohibited reason. The U.S.—including some of its territories and excluding only Montana—is the world’s only major employment-at-will jurisdiction. “American exceptionalism” in this particular regard of employment termination law means that, from the point of view of a U.S.-headquartered multinational, firing employees gets stricter, more complex, and more expensive upon stepping outside the U.S.

American employment law mavens make the case that the U.S. employment-at-will doctrine has eroded over the years. Speaking historically, this is a fair point. But speaking geographically, America’s employment-at-will rule remains robust. Other countries—even other common law jurisdictions with legal systems descended from England’s like Australia, Canada, Hong Kong, Ireland, Jamaica, Malawi, New Zealand, South Africa—impose significant restrictions on unilateral firings even in the absence of any allegation of discrimination. “Despite dire predictions of the demise of [U.S.] at-will employment in the early years of the 21st century, it appears that ‘funeral arrangements’ may still be a bit premature.” (P.J. Strelitz et al., “Employment-at-Will,” International HR Journal Thomson West, Summer 2008, at 16.)

Americans refer to employment-at-will as a “doctrine” or “rule,” but actually it is the opposite—it is a mere label for the absence of any affirmative rule. Actual legal rules (for example, the U.S. Fair Labor Standards Act and U.S. Title VII) grant enforceable legal rights (for example, the FLSA right to overtime pay and the Title VII right to a non-discriminatory workplace). “Employment-at-will,” on the other hand, just describes a legal vacuum—the absence of affirmative rights, the negative concept that the law, in the absence of some express agreement providing otherwise, does not grant either party to an employment relationship any right to continue the relationship, any right to pre-termination notice, any right to access an in-house claims procedure, or any right to termination pay.

Outside the U.S., laws regulate how, when and why an employer can end an indefinite-term employment relationship. Many foreign employment termination laws impose steep notice/severance pay costs and cumbersome pre-firing procedural steps. Unfortunately we have no commonly-accepted term for discussing these laws, no widely-used label for the opposite of employment-at-will. Some refer to “indefinite employment” regimes while others (particularly in the Philippines) call this the “security of tenure” doctrine. But whenever we discuss all the world’s termination laws outside employment-at-will, we necessarily talk in generalizations. For example, Canada, Japan, the Netherlands and Nigeria regulate no-cause firings, but each does so in its own unique way. We might call all four countries “indefinite employment” or “security of tenure” jurisdictions, but Japan and the Netherlands are closer to a “lifetime employment” model than are Canada and Nigeria.

Employment-at-will and indefinite employment/security-of-tenure are so different because they evolved in two different environments—two divergent ways of understanding what an employment relationship is. Employment-at-will reflects the contract metaphor view while indefinite employment/security-of-tenure reflects the paternal metaphor view. The employment-at-will contract metaphor sees employer and employee as equals who freely enter a two-way business agreement to provide services (even if it is just an oral agreement terminable at will). If an employment contract expressly includes some special termination provision, then that provision controls. Otherwise, the default understanding is that one party, the employee, can end the employment relationship at any time without penalty by quitting, and so the other party, the employer, can also end the relationship at any time without penalty, by dismissing. After all, a bilateral agreement runs in two directions.

By contrast, the indefinite employment/security-of-tenure paternal metaphor sees bosses as accountable to their staff by virtue of an inherently-unequal relationship—bosses hold the economic bargaining power while employees are functionally dependant. As a quid pro quo to a boss’s right to assign work and set the pay rate, the law attaches responsibilities. Just as we have laws that impose duties on parents and even pet owners not to commit neglect, and just as we have laws that impose a duty of support on spouses, the parental metaphor sees bosses as guardians who owe their employees certain duties. A boss who decides to enter an employment relationship locks himself into the relationship unless and until he complies with mandated termination procedures. If he later decides to end the relationship, he will have to get a legal separation analogous to divorce or emancipation proceedings, and he will have to pay mandated notice and severance pay analogous to alimony and child support.

Of course, each of these metaphors is a legal fiction. Getting a job is not really the same as entering a commercial contract, and employees are not really helpless dependants. The point is that these metaphors explain why, as contrasted with employment-at-will, indefinite employment/security of tenure jurisdictions impose strict employee protections.

Individual employment terminations outside U.S. employment-at-will are heavily regulated in ways that surprise those experienced mainly with the U.S. A U.S. multinational in the difficult position of having to reduce staff overseas needs to get familiar with the ins and outs of applicable termination laws. Come up with a viable strategy for employees who agree to separation packages in exchange for releases. In the reduction-in-force/“collective redundancy” context, jettison any U.S.-honed approach. Craft a comprehensive project plan that accounts for overseas laws and foreign labor relations realities.