International Labor And Employment: Pitfalls And Solutions

Monday, May 4, 2009 - 00:00

Editor: Please tell us about Akin Gump's international labor and employment team.

Cowman: Your reference to "team" is a good one; the international labor and employment group at Akin Gump has some of the best and brightest attorneys in the practice of law, but the team you mentioned is much larger than that. It has to be - we can't handle the international labor and employment law issues of our clients without a really strong working knowledge of international public policy, international equity plans, tax issues, merger and acquisition issues, arbitration and litigation. Members from each of those groups contribute their expertise to solving our clients' legal issues.

Editor: Why do domestic companies engage a U.S. law firm to advise them with respect to the opportunities and challenges of globalization?

Cowman: Even sophisticated corporate buyers of legal services with highly skilled in-house lawyers can run into trouble when doing business overseas. Moving people, capital and ideas around the world is challenging. Laws overseas are different from U.S. laws, both in substance and in application. Therefore, we team with highly regarded and trusted local counsel - with whom we have spent substantial time developing both personal and professional relationships - to secure the right results for our clients.

Editor: What is the purpose of international human resources compliance audits?

Cowman: Proactive legal, risk and compliance reviews provide critical backstops for multinationals, especially in today's troubled times. We team with clients to better position their business by analyzing and quantifying the legal risks and business challenges facing their overseas operations. Lawyers sometimes are seen as "business preventers" who can't or won't help businesses do business. Yet, when top executives utilize their in-house and outside legal talent strategically, the result can be the identification of priorities for allocating resources, managing risks, and, importantly, working around those risks to capitalize on opportunities. There is huge value in uncovering serious issues that might otherwise go unnoticed until significant, sometimes catastrophic, consequences occur. For example, actions that could violate the FCPA can lead to fines and criminal penalties. Being well-versed in a wide range of legal issues is a critical element in providing sound and valuable legal advice. Multinationals all too often overlook world-wide attorney-client privilege preservation strategies, much to their peril. Developing top-quality legal strategies for international companies is a blend of art and science. Common sense is necessary, but common sense alone will not solve complex legal issues.

Editor: How can a business avoid serious issues arising from problematic employers in the international supply chain?

Cowman: Codes of conduct, if properly enforced, can be an effective means of ensuring that suppliers are treating their employees fairly. Yet, if those codes are not properly enforced, there are plenty of plaintiffs' lawyers willing to bring lawsuits in the U.S. against multinationals on behalf of overseas workers, alleging such things as failure to enforce codes of conduct.

Editor: Some of the U.S. plaintiffs' counsel firms are going overseas. Is this the kind of issue they might be looking for?

Cowman: Yes. Through the creative minds of the plaintiffs' bar, laws such as the Alien Tort Claims Act - which was enacted in 1789 and intended to combat piracy on the high seas - are being used to try to hold U.S. multinationals responsible in U.S. courts for labor and employment practices overseas. These laws were not intended to be used this way. What happens in practice in the U.S. legal system is that even if a claim is not stated in a complaint, the court will not necessarily dismiss the case. And if the court won't dismiss the case, the defendant is forced to litigate, which costs a lot of money. The cost of litigation often leads defendants to settle meritless claims, which encourages plaintiffs' counsel to file more of these lawsuits. With careful planning, though, much of this litigation can be avoided.

Editor: Why is it important to understand the policy instruments and direction of international organizations such as the ILO [International Labor Organization], the WTO [World Trade Organization] and the OECD [Organization for Economic Cooperation and Development]?

Cowman: Law, business and politics intersect at the ILO, WTO and OECD. For too many years, U.S. business has given organizations such as these short shrift. Some international organizations such as the ILO issue what is often referred to as "soft law" - as opposed to "hard law" enacted by governments - that is not by itself enforceable but is simply recommended for adoption by member nations. Business needs to provide input at the inception, before the soft law becomes hard law. It's time for U.S. businesses to wake up and strategically engage these international organizations. We know these organizations well, and frequently interact with them.

Editor: Does understanding the reach of U.S. law help corporations avoid inappropriate behavior overseas?

Cowman: Yes. The original Title VII was part of the Civil Rights Act of 1964, prohibiting employment discrimination on the basis of race, color, sex, religion, and national origin. When President Bush signed the Civil Rights Act of 1991, Title VII was changed to cover U.S. citizens working abroad for U.S.-controlled businesses. Aggrieved employees can file an EEOC charge here in the U.S. and file a lawsuit, in addition to making local claims under the host country's law.

Editor: What if the employer's compliance with the U.S. law might violate local law?

Cowman: There is a "foreign laws defense" section in Title VII. If a conflict of law arises where following Title VII would violate local law in a foreign country, the foreign law controls. There are nuances, of course, but that's the basic direction of the law.

Editor: What can be the consequences of multicountry reductions in force, restructurings, mergers and acquisitions or business combinations if the employment factors are not handled correctly?

Cowman: Terminating someone's employment overseas can trigger huge severance obligations, and, if not properly handled, can result in substantial liability. With RIFs, the issue is magnified. It can be shocking to find out what the price tag is when laying off workers overseas. Some clients with operations in South America, for example, won't close down an unprofitable plant, as it is less expensive to keep the plant open at a financial loss than to close it and be required to pay the large severance indemnities.

Editor: So, I take it that your team would be involved with the M&A lawyers and the client when Akin Gump advises about an overseas acquisition or merger.

Cowman: That's exactly right. Labor and employment issues can be a large and often overlooked cost in any international business combination and should be closely examined before, during and after a transaction.

Editor: Why are global data privacy issues of great concern to employers?Cowman: The European Union, for example, has some very strict employee data privacy directives, but they're not all uniformly enforced. Each member state has its own data privacy authority that enforces the law; some do so more strictly than others. Some very hefty fines have been issued in the EU for sending out personally identifiable information without all the proper protocols and safeguards.

Companies attempt to comply with the EU privacy directives in several ways. Some, like General Electric, have issued what are called "binding corporate rules." Other companies use intercompany agreements, safe harbor provisions or employee consents. With consents, though, the question arises whether that consent was freely given. If you have to disclose your date of birth, name, Social Security number or other personally identifiable information to receive a paycheck, is that really a genuine, meaningful consent? Many other countries have similar laws, together with their own quirks and nuances on procedure and enforcement.

Editor: So are you looking primarily at the treatment of U.S. employees of U.S. multinationals in terms of how their private information is handled within the company and to whom it's divulged?

Cowman: It is much broader than that. These laws generally apply to all personally identifiable data, and to all covered businesses. These laws also cover third parties that administer benefits or payroll operations, for example. Businesses must adhere to specific safeguards and protocols to ensure that personally identifiable data is not used beyond the proper scope and does not go where it is not supposed to.

Editor: Why do forward-thinking global corporations recognize the necessity of having strong corporate policies embodied in codes of conduct and in corporate social responsibility and development programs?

Cowman: The twin forces of corporate social responsibility and sustainable development are proving to be good business. While it would be great to think that companies are doing this just because they have a social conscience - and I think they do want to do the right thing - it certainly helps that high consumer demand for fair trade, CSR-made products continues.

Editor: If you say you will treat your overseas employees in a particular way but you do not, is that likely to provide a cause of action based on that failure to adhere to the code of conduct? Taking it one step further, must your suppliers also comply with those rules, and do you in some way become liable to the employees of those suppliers if they do not benefit from the terms of the code?

Cowman: There will be many groups, including the International Labor Rights Forum, that will praise a policy of ethical sourcing, but then, in the same breath, complain that it doesn't go far enough. Certain groups pressure multinationals into adopting codes of conduct, seemingly to "help" them, and then closely monitor how those policies or codes are enforced. Adopting codes of conduct, compacts, and sustainable and ethical sourcing programs may expose a multinational to unforeseen scrutiny, relentless corporate campaigns, press attacks and U.S. litigation brought on behalf of overseas workers. The business community needs to be informed of these things and make reasoned choices; while adopting certain codes may seem like a good idea, businesses need to carefully consider all of their options and possible consequences before pulling the trigger.

Editor: What is the advantage of U.S. businesses going to a firm such as Akin Gump rather than directly to local firms? Or, to a global megafirm that has affiliate offices throughout the world that says they exercise quality control over their branches.

Cowman: Certainly global megafirms have advantages, but there are also disadvantages. For example, the quality of service that their local offices provide may vary, and there may be a tendency to "oversell" their capabilities. Our approach is different: my expertise comes from the fact that I've met and worked with counsel in other countries. For three years I served as an employer advisor at the ILO in Geneva. I have helped solve legal problems in over 50 countries. Akin Gump's expertise comes not from being the experts in any one country's law, but from managing the problems that arise based on handling many cross-border issues over many years. We have known most of the lawyers we work with for a long time, but we are not bound to a single firm. We can cherry-pick, which means we can get the best people around the world, who know not only the law but how the law is applied. This is an effective means to providing high-value legal advice. We know the right questions to ask. And based on my experience, I can tell you that 99 percent of the battle is knowing the right questions to ask, which, in turn, will yield quality legal advice.

You have to know the people at an overseas law firm and have a relationship with them to get the best advice at a fair price. If you just look at Martindale-Hubbell or call a global megafirm, you may not be getting the advice you can trust at affordable rates. You may get good advice, but there's also a chance that you won't. We know the best firms to use, and the best lawyers within those firms. Our team provides quality control and an ongoing communications link that assures that our client's matters will get a firm's attention, and with the ability to select the best firm, we're not bound to any particular firm.

Editor: Could you say a few words about the "global employment company" concept?

Cowman: One interesting thing Akin Gump is working on is the design and formation of "global employment companies" that will employ and manage relationships with a large global company's expatriate and globally mobile employees (relating to, e.g., payrolls, pay scale, taxes, benefits, housing, equity, etc.) from more strategic locations abroad. Rather than handling all the tasks associated with such employees' expatriate status from the company's home-country headquarters, transnational employers may discover that these tasks can be advantageously handled from another and more advantageous place; Ireland and Hong Kong, for example, are very popular locations for a variety of reasons. It's a leading edge innovation that may save money, but certainly will save a lot of headaches and simplify administration and logistics. Expatriate management is extremely complicated; there are a huge number of moving parts. Those are the types of challenges Akin Gump helps companies get their minds around.

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