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“I know that I have to comply with UK employment laws (minimum wage, notice periods, unfair dismissal protection. etc.) if I’m hiring an employee who lives and works in the UK. But, what employment laws apply to people I hire who live and work outside the UK?”
It’s something we often get asked at SeedLegals, it’s relevant to many SeedLegals users and it’s an important question with a three-part answer, so we thought it worth doing the research and sharing in this blog post.
So, here we’ll explain:
Depending on how the local jurisdiction has defined how their employment law applies, there are certain rights that you cannot exclude, no matter how you write an employment agreement or what law the parties choose.
These ‘non-excludable’ rights often exist in the employment sphere. Take someone who undertakes her work in France but is employed by an English company, let’s call her Sally.
In Sally’s situation, her employment contract is entitled to state that the contract is subject to English law and can state that English employment rights will apply (where possible).
But, in France, French employment law states that if you undertake the majority of your professional work in France, you are entitled to 5 weeks’ holiday plus 11 bank holidays (and any additional holiday agreed through collective bargaining agreements) regardless of who employs you or where that employer is based.
In other words, because France have decided that the qualifying condition for holiday entitlement is linked exclusively to where the individual in question undertakes their work, any contract, whether governed by English, Belgian or German law, that seeks to offer less holiday to Sally than the French minimum number (e.g. the UK only requires 28 days) would be illegal under French law. Sally would be entitled to go to the French courts to insist on her employer giving her at least the minimum number of holiday permitted under French law.
This is something to be aware of when employing individuals who will undertake their work outside of the UK. At SeedLegals we are working on releasing internationally compliant employment contracts to deal with this issue, stay tuned for that.
In the meantime, if this is a problem that is going to impact you, we recommend hiring such an individual on a consultancy basis (more detail on that below).
The Employment Rights Act (the statute which contains many of the employment protections in our law) is silent on whether its provisions apply to individuals beyond our shores. So, that question was left up to the courts, trying to interpret what the legislators must have intended when drafting the statute.
The courts decided that for employees working abroad the task was to look at the underlying employment relationship and evaluate whether it had a closer connection to the UK, or whether it had a closer connection to the foreign country in which the employee was working. If a closer connection to the UK, then English law would apply. If a closer connection to the foreign country, then local laws would apply instead.
When making this inspection the courts said that the general rule is that the place of work is decisive in deciding where the closer connection lies. e.g. if employed by the UK company but living and working in the Ukraine, then Ukrainian employment law would normally apply to the employee’s contract.
But, the courts have also said that this rule was only a general rule, and that exceptional factors can swing the balance the other way. What the judges have not done is provide an exhaustive list of what those exceptional factors are. Neither could we find a reported case where it has been successfully argued that UK employment law applied despite the individual living and working in a foreign country.
You should craft your employment relationship with these in mind to minimise the chance of an unpleasant surprise when your US employee alleges you have unfairly dismissed her under UK employment law, when you were under the impression you could fire US staff without cause under US employment laws.
The best we can do is summarise what factors have been deemed relevant in swinging the balance:
The second point related to this question is that the UK has created different employment categories depending on the work one does. Employment protections (unfair dismissal protection, holiday pay, minimum wage, etc.) only apply to “employees” or “workers” (to differing degrees) as compared to people who are genuinely self-employed and who receive no statutory protection.
There are a variety of factors that the law takes into account when deciding whether someone is a genuine employee of the company, compared to someone who is genuinely self-employed.
The courts have said they look at the substance of the working relationship as opposed to simply what the underlying contract says the relationship is (take Uber for example, they insist their drivers are self-employed and the contract they offer to those drivers says as much, but the courts have repeatedly held they are employed by the tech company).
The gist of these tests is to look at how much autonomy the individual has during the working relationship. Can they choose their own hours? Do they have to wear a uniform? Are they paid through a company payment system? Can the individual use a substitute if they are unable to work that day? Have they been offered any company benefits? Does the individual have to bring their own equipment or have they been given company equipment? The less autonomy the more likely they will be considered an employee and so entitled to the employment law protections the UK offers (or potentially the employment law protection offered by the foreign jurisdiction).
The takeaway from this point is that if you are worried about having to comply with domestic or foreign employment law obligations when making your foreign hire, you can circumvent those obligations by ensuring you contract with the hire on a self-employed basis and they act as a contractor for the company instead of an employee.
On SeedLegals we have Advisor and Consultancy agreements that are drafted so as to ensure the person you are hiring will be working on a self-employed basis and you will not need to worry about having to comply with any obligations under employment law – these are all completely free under our Quick Agreements plan, they’re now market standard and used by thousands of UK companies.
As an employer, you can make sure you do not have to comply with employment law obligations (whether domestic or foreign) by hiring people on a self-employed basis rather than as new employees.
If hiring employees who will be based and work in a foreign country but nevertheless for your company, the underlying employment contract can be governed by English law, but be aware of certain employment rights in the employee’s local jurisdiction that cannot be excluded.
For more information, reach out to us at SeedLegals.