- Multinationals based outside the United States that enter the
U.S. market and employ U.S. staff tend to encounter hurdles, and to
make mistakes, because the U.S system of labor/employment
regulation is of a fundamentally different character from those of
every other country in the world. - Multinationals entering the U.S. market can avoid five common
mistakes if they focus on certain fundamental differences between
U.S. workplace regulation and that of other countries. - The five main problem areas are: the unique
“employment-at-will” system; uniquely U.S. “offer
letter” employment contracts; a unique regime regulating
unions and organized labor; the unique procedural hurdles of U.S.
lawsuits and litigation; and the lack, under the U.S. system, of a
comprehensive data protection law.
Every country’s own legal system is of course unique. Local
laws vary significantly even between next-door
neighbors―French law differs significantly from German,
Venezuelan law is unlike Colombian, and Thailand’s laws are
quite distinct from Cambodia’s. But as to regulation of the
workplace, one legal regime diverges fundamentally from
all the rest: The United States stands apart in its own one-country
category as the world’s only jurisdiction operating under
so-called “employment-at-will.” Just a step across the
world’s longest international border, for example,
Canada’s various federal and provincial
labor/employment law systems do not follow employment-at-will.
When entering the U.S. market and
employing U.S. staff for the first time, a multinational
headquartered outside the United States (and its executives and
human resources experts) may not appreciate what makes the U.S.
workplace regulatory system so unusual. Basic features of the
labor/employment regime tend to surprise those from countries with
more mainstream approaches to structuring employer/employee
relationships. Not surprisingly, these unexpected features of U.S.
workplace law often cause expensive mistakes. Many of those
mistakes happen repeatedly.
U.S. labor/employment law is complex;
it takes a multi-volume treatise or an entire law school course
just to summarize it adequately. Here, this short crash course on
the laws that regulate U.S. employment relations attempts a
practical and concise approach by focusing only on what makes the
U.S. system different, cataloging the most common
employment-law challenges that confront outside-U.S. companies (and
managers) steeped in their own home-country workplace laws, when
they enter the U.S. market and start employing staff stateside.
Our discussion lists, and explains, the
five most common mistakes that overseas-based employers make when
they come to the United States and employ workers in any of the 50
states.
- Managing human resources while overlooking
the unexpected ramifications of employment-at-will
As noted, the United States is the only
country with an employment-at-will system. While employment-at-will
originated under old English common law, these days even England,
Ireland, Canada, Australia, South Africa, Jamaica, Kenya, Malawi,
Hong Kong, Singapore and all other Anglo-system countries have
moved beyond.
U.S. employment-at-will has several
unusual features:
- Dismissals. Under
employment-at-will, the employer can legally dismiss (fire, lay
off, make redundant) an employee for any reason or no
reason―other than an illegal discriminatory or retaliatory
reason―without notice and without owing any severance pay.
Therefore, generally, in the absence of a special contractual
obligation, under U.S. law whether an employer did or did not have
“good cause” for dismissal is not even a legally relevant
issue. - Cuts. An employer can
legally demote, cut pay, “restructure” or otherwise
reduce or eliminate any term or condition of employment for any
reason or no reason―other than an illegal discriminatory or
retaliatory reason―without notice and without having to get
worker consent or do a “buy out” (except for cuts to
certain protected benefits provided under an employee benefit plan
that is subject to the Employee Retirement Income Security
Act). - Regulations.
Employee-protective legal systems outside the United States impose
various types of rules on employers that laissez faire
employment-at-will leaves unregulated, a matter for each employer
to decide when it structures its internal HR policies and
offerings. For example, besides not requiring dismissal notice or
severance pay, U.S. law does not require issuing written work
rules; does not require issuing written employment agreements or
statements; does not require paying profit-sharing or any bonuses;
does not impose caps on hours worked in a workweek; and generally
does not require paid or unpaid vacation, paid or unpaid public
holidays, paid sick leave, paid maternity leave or other paid
leaves, although some U.S. laws require certain unpaid
leaves, and laws in a minority of U.S. states and cities require
some types of paid leave.
One U.S. state has technically eliminated employment-at-will:
tiny-population Montana, but by international standards even
Montana’s system is notably employer-friendly. To some,
California seems to have gone its own way in regulating employment
law, but even California retains employment-at-will, albeit with
significantly more exceptions and employer obligations.
Employment-at-will is a sort of legal
vacuum. Scientists say “nature abhors a vacuum,” and what
rushed in to fill the employment-at-will legal vacuum is
discrimination and harassment law (under U.S. employment law,
harassment is a form of discrimination). Compared to other
countries, in the United States a huge percentage of worker
disputes and court lawsuits involve a claim of discrimination,
harassment or retaliation for complaining about discrimination or
harassment; these claims tend to allege “animus” against
the employee-victim because of one of about a dozen
“protected” traits―race, national origin, religion,
disability, old age over 40, gender, veteran status, genetic
predisposition and a handful of others.
For example, a wrongful dismissal claim in another country gets
framed in the United States as a discriminatory dismissal
claim. A claim overseas alleging “disproportionately”
imposing discipline gets brought in the United States as a claim
for discriminatory discipline. A bullying claim overseas
gets asserted stateside as a discriminatory harassment
claim. And an abuse-of-discretion case in another country (say,
challenging a low pay raise, a withheld bonus or a demotion) gets
framed in the United States as a claim of discrimination
in pay or terms/conditions of employment.
Therefore, stateside, most every HR decision and policy needs to
account for complex doctrines of U.S. discrimination law.
Multinationals headquartered abroad but operating in the United
States make mistakes related to employment-at-will when they stomp,
rather than tiptoe, through the minefield of nuanced discrimination
law doctrines that disgruntled U.S. workers commonly
invoke―because employment-at-will leaves them no better
claim.
And a separate challenge (if not really a mistake) related to
employment-at-will’s laissez faire regulatory approach is that
employers setting up new U.S. employment operations face too many
choices, compared to other countries. A new U.S. employer must
decide on a full suite of HR policies and HR
offerings―ideally set out in a U.S. “employee
handbook”―and must make many basic decisions, including
for example even what holidays to offer, if any. (The day after
Thanksgiving is a sacrosanct rest day in many U.S. workplaces but
is just another regular workday, business as usual, in others.) A
mistake that overseas-based employers are vulnerable to is
voluntarily offering overly expensive HR
offerings―such as above-market vacation and severance pay
policies―that mimic the generous legal mandates common
outside employment-at-will.
- Imposing formal written
employment contracts on U.S. staff
U.S. law does not require employers to
issue either written employment contracts or written statements of
employment particulars, and only a tiny percentage of U.S.
non-government workers are party to formal written employment
contracts (the exceptions tend to be some, not all, high-level
executives and technical workers). Instead, most U.S. workers
either work under an oral employment arrangement or else have a
so-called “offer letter”―in effect, creating an
informal employment contract.
Some U.S. workers are parties to formal but limited-topic
restrictive covenants, non-competes, non-disclosure agreements and
intellectual property assignments. These are formal contracts, but
they address only special topics―not employment terms
generally.
Superficially, a U.S. offer letter looks like
correspondence―a letter, not a contract. It addresses some
but not necessarily all key employment terms. Almost all
well-drafted offer letters contain a clause declaring employment is
“at-will” (point # 1 above). The employer is supposed to
sign the offer letter and typically the worker is also supposed to
sign as “AGREED.”
In the United States even HR experts and lawyers tend to say
that an offer letter is not a “contract” because it
expressly says employment is at-will, and many U.S. offer letters
contain a clause inaccurately claiming: “This Is Not a
Contract.” But legally, in all 50 U.S. states, any offer
letter accepted by the worker is a contract, enforceable
until terminated or changed. For example, most U.S. offer letters
set out the worker’s wage rate; if (hypothetically) an employer
were to underpay a worker less than the offer letter’s stated
wage rate but above statutory minimum wage, that worker enjoys a
legal right―under contract law―to force the
employer to pay the difference until the last day worked or until
the employer lowers the wage going forward. The point is that while
a terminable at-will agreed offer letter leaves the employer free
to dismiss the worker and to change employment terms going forward,
it contractually prohibits the employer from making
changes retroactively. Even the label or phrase “offer
letter” is deceptive. As soon as the employee addressee
executes or accepts the document, it converts, as a matter of law,
from a mere “offer” to a full-on (albeit
terminable-at-will) contract.
Employers headquartered overseas operating in the United States
are prone to the mistake of giving U.S. job applicants overly
formal, overly detailed employment contracts that restrict the
employer’s flexibility to make changes going forward. These
formal employment agreements sometimes export employer-restrictive
“garden leave” and severance pay provisions that are
uncommon and may be inappropriate in the U.S. context. A better
practice is to embrace the quirky practice of the
informal-but-written terminable-at-will U.S.-style offer letter
contract. These documents, unusual as they may seem from an
international perspective, are familiar to onboarding U.S. staff
and perfectly suited to the U.S. HR environment.
- Managing labor relations while
overlooking the U.S. approach to organized labor
In U.S. parlance, “labor law” refers to collective
labor relations while “employment law” means workplace
law regulating individual employees. U.S. labor law generally
recognizes trade unions―in the United States called
“labor” unions―as the only legal form of
collective labor representative, meaning that an in-house works
council, worker committee or even health-and-safety committee is
subject to being held flatly illegal. Also under U.S. labor law,
collective bargaining agreements are bilateral, between one union
and just one company (or a voluntary “multi-employer”
consortium of signatory companies). And U.S. labor law does not
impose union contracts industry-sector-by-sector. This means that a
non-union U.S. employer: has no bargaining relationship with any
labor union; it need not (indeed may not) sponsor any
in-house worker/management bodies; and it need not comply with any
industry-wide (“sectoral”) collective labor contract. By
definition, it has no negotiating obligations or relationships or
agreements with any worker representatives.
These features of U.S. labor law bifurcate a stark
all-or-nothing dichotomy, making every U.S. workplace either
“unionized,” or not. And only about 6% of U.S.
non-government workers are unionized; 94% are not.
The late Belgian law professor Roger Blanpain, a champion of
international union solidarity universally recognized as the
greatest international-employment-law expert of his day, once said
that―thanks to the all-or-nothing bifurcated model of
U.S.-style unionization―the money cost to an employer of
being unionized (versus being union-free) is greater in the United
States than in any other country on Earth. Blanpain appreciated how
the bifurcated labor model imposes an outsized impact of
unionization on employer profits and the “bottom line.”
He understood that the U.S. labor law framework explains why U.S.
companies might take proactive steps to maintain direct negotiation
relationships with their individual employees, in the hope of
making unionization seem unnecessary.
Many multinationals based in Europe and beyond bring a different
approach to interacting with worker representatives. They speak of
being “social partners” with their various organized
labor groups, and they proclaim how their collective labor bodies
contribute to business results. Some companies reserve seats on
their corporate boards for labor representatives (although usually
local corporate law compels reserving board seats for organized
labor, anyway).
When these companies enter the domestic U.S. market, the local
model of labor/management relations may appear regressive,
antagonistic, insensitive to social justice and inconsistent with
International Labour Organization declarations on the right to
labor “free association.” These companies may seek to
defuse U.S.-style labor/management tensions, even by declaring
neutrality and committing not to oppose union drives. U.S. labor
unions, of course, welcome this position. U.S. unions might easily
unionize one of these companies, materially pushing up its U.S.
labor “spend.”
A multinational’s social commitments are a vital, laudable
business imperative. Meanwhile, to operate stateside with a blind
eye toward U.S. employers’ usual responses to the starkly
bifurcated model of U.S. labor/management relations might create
distinct strategic, business, operational, financial and
labor-relations challenges.
- Managing HR while overlooking
U.S. court lawsuit processes
Because U.S. employment-at-will leaves employers mostly free to
demote and even fire their staff without having to give notice or
pay anything (point # 1, above), we might assume that U.S. workers
rarely get a viable legal claim to sue an employer in court. And
this assumption actually is correct: By international
standards, employment-context cases tread more lightly on U.S.
court dockets. Many other countries have had to set up
special-jurisdiction “labor courts” expressly to handle
thousands of employment lawsuits pending at any given time, while
in the United States, on both a per-worker and
per-redundant/”laid-off”-worker basis, court-filed
lawsuits are notably less common. In the United States, no one is
surprised to find an employer with hundreds of workers that is not
party to even a single pending employment court case, or a company
conducting a collective redundancy
(“lay-off”http://www.mondaq.com/”reduction-in-force”) without
getting sued by even one dismissed worker.
But in those scenarios where a U.S.
employer does get sued in court, the stakes can get
enormous because of four challenging aspects of U.S. “civil
procedure” (court process):
- Damages. U.S. metrics
for lawsuit money damages radically outstrip comparable awards even
in other developed countries. Imagine two workers, one in the
United States and the other in another developed country, both
suffering the identical workplace wrong―say, the same act of
discrimination, harassment or retaliation. If both sue in court and
win, we might expect the money judgment in the U.S. case to come in
at several multiples, or more, above the money award in another
country. - Discovery. A U.S. court
claimant enjoys a broad right to conduct pre-trial
“discovery.” In the employment context, this means the
employer often must answer “interrogatory” questions in
writing; disclose huge volumes of internal, confidential company
documents including reams of emails and text messages; and require
staff to sit through adversarial under-oath interviews
(“depositions”). Sometimes this discovery ignites
other lawsuits from other workers. - Motions. U.S. court
proceedings typically involve a complex “motion
practice”―pre-trial disputes with lawyers asking the
judge to frame the scope of the case. - Class actions. U.S.
“class actions” are unique because they are
opt-out: Judges have power to define an entire class of
people suing the company, without individual claimants signing up
or even being told about their lawsuit. In other countries, by
contrast, a “collective action” is
opt-in―it merely consolidates the claims of
adversaries who have affirmatively stepped forward and ask
to sue.
In managing the U.S. workplace, avoiding even the occasional
court lawsuit has become a business imperative. Too many employers
headquartered in other countries enter the U.S. market overlooking
the vital need to manage U.S. HR defensively, proactively avoiding
employment lawsuits.
- Inserting cumbersome personal
data protections where they do not belong
The European Union’s General Data Protection Regulation
(GDPR) confers broad personal data protection rights on worker
“data subjects,” such as the rights: to be informed about
what personal data an employer/data “controller” has; to
access (see) all a worker’s own data; to have the employer
purge obsolete and business-unnecessary personal data; to get data
“impact assessments,” and to bar the employer from doing
“automated decision-making” and from improperly
“exporting ” or “onward transferring” a
worker’s personal data to third parties or overseas. Beyond the
EU, these days dozens of other countries across Eastern Europe,
Asia, Latin America, the Caribbean and Africa now impose their own
EU-inspired data protection laws conferring most or all of these
same personal-data-protection rights on local “data
subjects,” including workers.
The United States is an outlier in not imposing an analogous
data law. In fact, the U.S. constitutional Bill of Rights may
prohibit a law that infringes someone’s freedom of speech to
disclose personal data about someone else. Even so,
California and a few other states now regulate personal data in a
modest way, and some specific federal laws protect certain
categories of personal data such as medical records, consumer data,
financial credit reports and children’s internet
activity―but not employee records. Even as a complex legal
framework has emerged to regulate privacy and personal data in the
United States, U.S. workers still do not enjoy broad GDPR-like
personal-data-protection rights like personal data
“information transparency,” “data subject
access,” data “impact assessments,” purging
“[un]necessary” personal data, or restrictions against
“automated decision-making,” personal data
“exports” and “onward transfers.”
No responsible employer is cavalier about workers’ interests
in protecting their private information. And in recent years, even
though local U.S. workers still do not expect broad GDPR-like data
protections, attitudes have become more enlightened about the need
to protect personal data and privacy. Still, very few local
domestic U.S. employers promulgate internal HR policies that confer
GDPR-like data protection rights on U.S. staff. Meanwhile, though,
many multinationals based outside the United States have issued
global GDPR-compliant personal data protection policies to
their workforces worldwide, therefore reaching employees in the
United States. Not surprisingly, some of the multinationals that
have voluntarily granted to stateside staff GDPR-like data rights
encounter difficult consequences.
Given the high stakes of the U.S. litigation environment (point
# 4 above), employers operating in the United States should think
hard before issuing any HR policy that grants U.S. workers the full
suite of GDPR personal data protections. In the U.S. context,
scenarios are easy to imagine of a GDPR-compliant policy being used
in court against a well-intentioned but hapless employer.
Three unexpected features of
U.S. HR
Beyond these five mistakes, three
additional features of the U.S. workplace and U.S. labor/employment
law tend to surprise multinationals first entering this market:
- Tiered
legal system.
The U.S. federal government imposes some labor/employment laws,
while individual states and cities impose others. Different, often
overlapping issues of workplace regulation get regulated at these
three different tiers. The result is that the answers to certain
employment law questions can get significantly more nuanced in,
say, San Francisco, California and New York City than in Phoenix,
Arizona or Little Rock, Arkansas. - Medical insurance. The
United States does not offer a public/government-funded medical
system, so U.S. residents need medical (“health care”)
insurance. Many U.S. employers offer medical insurance
plans―employers of over 50 employees must offer them
to avoid potential tax penalties―but workers themselves often
have to pay some or all of the insurance premium. - Private pensions. The
U.S. public pension system, called “Social Security,”
pays retirees only a low replacement rate of their final average
pay, so U.S. workers need supplementary private pensions. Many
employers sponsor tax-deferred defined-contribution private
pensions called “401(k) plans,” but workers themselves
pay the bulk if not all contributions to such plans. And U.S. law
prohibits mandatory retirement―many older U.S. workers choose
to continue to work.
* * *
U.S. labor/employment law is complex.
Indeed, we have not yet even mentioned some entire sub-areas of it
here―such as wage/hour (working time) law; drug testing and
background checking; the comprehensive federal statute regulating
employee benefit plans; workplace health/safety law and the
“workers’ compensation” system for workplace personal
injury claims; unemployment insurance for redundant workers; and
mandated notice before certain large collective redundancies. Most
of these issues have counterparts under employment law in other
countries, but the U.S. approach to regulating them differs.
Our high-level discussion here is meant
not as a comprehensive summary of all U.S. labor and employment
law, but rather as an issue-spotting crash course to point out
which aspects of the U.S. employment law regime differ most
markedly from systems in other countries―to highlight, for a
multinational entering the U.S. market, the most hazardous issues
likely to cause expensive mistakes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
#Crash #U.S #Employment #Law #Multinational #Based #United #States #Avoid #Big #Mistakes #Managing #U.S #Workforce #Discrimination #Disability #Sexual #Harassment
