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Terminating Jobs Overseas?


You could be exposed to hefty severance liabilities, if you don’t plan ahead.

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									Terminating Jobs Overseas?
You could be exposed to hefty severance liabilities,
if you don’t plan ahead. — VYoma Nair

Terminating jobs is always a difficult situation but when you                                   dismissal is considered a misuse of the employer’s right to
have to do it overseas, the process gets far trickier. The con-                                 dismiss and void.
cept of “employment at will” is unique to the U.S. and world-
wide there are laws and procedures, which if not adhered to,                                    Brazil
could lead to substantial damages awarded in favor of the                                       Brazilian law provides significant benefits to the employee
employee. Knowing the fine print can help companies plan                                        on termination of employment. The amounts payable depend
ahead and save on the often heavy severance costs.                                              on whether or not the employer has a “just-cause” for termi-
                                                                                                nation. “Just-cause” is defined in the legislation.
Dutch rules on termination of employees are unique in                                           All employees in Brazil participate in the FGTS – a Fund
Europe in imposing a priori control over dismissals. Effec-                                     Dependent on Length of Service. Employers are required to
tively, this means that any employer wanting to dismiss an                                      contribute 8% of the employee’s monthly salary to the fund.
employee who is on an open-ended contract must have the                                         If “just-cause” is not established, the employer must pay a
permission of the Central Organization of Work and Income                                       penalty of 40% of the accumulated balance in the fund and
(CWI) or a rescission of the contract by a judge. Even where a                                  an inflation adjustment. An additional 10% fine may be levied
judge agrees to the rescission, severance pay is due.                                           by the Courts.

For an employee over the age of 50, this could amount to                                        China
more than two times his or her annual salary.                                                   Severance pay is due for termination (amongst other rea-
                                                                                                sons) caused by restructuring or difficulties in business
Japan                                                                                           operations. This is one of the main causes for employee ter-
Theoretically, under Japanese civil law, it is not necessary to                                 minations today. The payments, however, are not punitive,
have a valid reason for a dismissal to be justified by law. An                                  severance payment being one month’s salary for each year
employer may dismiss workers at any time, provided notice                                       of service, with half a month’s salary for each partial year.
requirements are adhered to. However, companies should                                          However, if the employee earns three times or more than the
check as any collective agreements in force often list rea-                                     average monthly wage of the region, then the compensation
sons, which constitute grounds for dismissal.                                                   is capped at three times the average monthly wage up to a
                                                                                                maximum of 12 months.
In addition, Labor Standards Law (LSL) has the concept
of a dismissal lacking “objectively rational grounds” and                                       For more information on a Workforce Reduction Assess-
not being “appropriate in general societal terms”. If the                                       ment or Workforce Retention Assessment, please visit:
employee can show that it falls into these categories, the                            

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Nair & Co. provides businesses an integrated solution geared to making your company’s thrust to expanding business overseas less risky, stress free and more strategic in the finance,
tax, HR, compliance and legal arenas. Specialized in working with the unique challenges of U.S.-based technology companies, Nair & Co. has headquarters in the U.K. and offices in India,
China, U.S.A. and Japan and acts for nearly 700 foreign operations in over 40 countries. Nair & Co. employs highly qualified international specialists as your one-point-of-contact client
service director to support your international registration, tax, accounting, compliance, HR and payroll needs. Our unrivalled knowledge base, attention to detail and superior work ethics
protect your company’s operations more effectively and save you time and money. For more information, including awards won, visit our web site at

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