Expanding overseas? If you intend employing anyone, it is crucial that you understand international labor laws (‘labour’ laws, as it is sometimes spelled). In this article, we look at key international labor standards, as well as general legal principles that employers need to be aware of when moving into a new overseas location.
What is International Labor Law?
International labor law is often defined as the set of rules which apply through public international law (that is, the law between different countries or states), and private international law (the law between individuals or businesses who live or operate in different countries). It sometimes also includes ‘comparative law’: Legal principles as they apply across different countries. We consider each of these aspects of international labor law in this article.
Key takeaway: International labor law covers all laws that apply across different countries, as well as comparisons of laws between different countries.
International Labor Standards
The International Labour Organization (ILO) is a United Nations Agency that sets universal labor standards. These standards are contained in 189 conventions or treaties which individual countries need to ‘ratify’ or sign up to. Once a country has signed up to those standards, it must adopt and enforce them as part of its domestic law. The most fundamental labor standards are contained in the ‘Declaration on Fundamental Principles and Rights at Work’. This declaration sets out four fundamental policies for labor:
- A right of workers to free association and collective bargaining;
- A prohibition on forced or compulsory labor;
- A prohibition on child labor;
- A prohibition on unfair discrimination among workers.
Even where countries have signed up to international labor standards, there are huge variations in compliance and enforcement between countries. Any international enterprise needs to consider carefully the significant reputational risk that operating in some countries may present, if international standards are not complied with.
Key takeaway: In an international expansion you need to ensure that international labor standards are complied with in each jurisdiction that you expand into.
Regional Labor Standards
Another form of international labor law is the set of rules that applies across a select group of countries. The most prominent example is European labor law which sets standards applying across the European Union. Rights for employees under European labor law include:
- The right to a written employment contract;
- The right of employees to free movement across European Union states;
- A right to a minimum of 4 weeks annual leave;
- Health and safety minimum standards;
- Prohibited discrimination;
- Restrictions on redundancies.
The European Union does not make rules related to minimum wages or collective bargaining: These are determined solely by individual European Union countries.
The North American Agreement on Labor Cooperation (NAALC) is a ‘side agreement’ to the North American Free Trade Agreement (NAFTA). Under NAALC, all countries (Canada, United States and Mexico) agreed to enforce certain minimum labor standards covering:
- Freedom of association, and the right to organize;
- The right to collective bargaining;
- The right to strike;
- No child labor;
- A set of minimum labor standards relating to matters such as wages, hours and conditions of employment;
- Equal pay for equal work;
- Health and safety protections;
- Workers’ compensation;
- Protections for migrant workers.
Compliance with these requirements is monitored by an administration office in the labor department of each country.
Key takeaway: In your international expansion, pay attention to any labor standards that apply to the region that you are moving your business into.
Principles of Labor Law In All Countries
In addition to laws which have international ‘reach’ such, as ILO standards and EU laws, there are various general principles that need to be considered in each country that you expand into:
- Employee Contracts. Many countries require that a written employment contract be in place setting out the obligations that employers and employees have towards each other;
- Minimum wage. Many (not all) countries have a minimum wage in place. In an international expansion, enterprises should be particularly careful not to attempt to circumvent minimum wage protections with independent contracting arrangements;
- Employee termination. The grounds for ‘firing’ or terminating employees differ radically in different countries, and even between different states within the one country. While some countries (such as the United States) may permit employers to terminate ‘at will’, many do not: Certain reasons must be present and the termination must flow from a fair process;
- Payroll obligations. In nearly every country, it is the employer that is under the obligation to withhold employee payroll tax and submit it to the tax authorities: Employer submission of payroll taxes is usually taken to define a relationship as one of employment, rather than contracting;
- Employee benefits. Benefits administration is a key obligation of employers. In many locations, employers have to withhold compulsory contributions to healthcare costs, workers’ compensation, pensions and unemployment insurance.
Key Takeaway: Ensure you are familiar with all the key employer obligations set out in domestic law in your international location.
In any global expansion, complying with international labor laws, as well as local labor laws is crucial. A failure to do so can lead to enforcement action from regulators, legal action from employees, and a significant dent to the company’s reputation. Throughout their international expansion, enterprises need to consider the application of international labor standards, as well as region and country-specific rules relating to employment contracts, termination, and other minimum standards.
In order to ensure full compliance, it is worth considering teaming up with a local employment compliance partner. New Horizons Global Partners, as a global Professional Employer Organization (‘PEO’), is able to take on all the legal obligations of an employer in the country of expansion: Employees still work at the direction of your company, while New Horizons ensures compliance with all employer obligations.