Blogs

Legal Grounds for Employee Termination, Compensation and Risks Across the World

Authors
Atlas Team Profile Photo

Atlas Team

Atlas helps innovative companies like yours to expand, onboard, manage and pay international teams in 160+ countries.

LinkedIn
Published: 31 May 2024

Expanding your business overseas? Remember the employment law landscape is not one-size-fits-all.  

The employment law landscape surrounding the termination of employment is complex and rapidly changing, making it challenging for multinationals to manage global compliance.  

From notice periods to appropriate grounds for termination, each country has its own employment laws, processes, and precedents. Even the smallest deviation from local requirements can have consequences arising from legal challenges, such as compensation payouts, legal counsel costs or larger financial penalties.  

Whether your company is expanding its global footprint or you’re beginning to offer remote working to employees, it is essential to have a thorough understanding of the specific employment law landscape of each region you operate within. 

In this article we explore some examples of the key national differences regarding employee terminations and suggest ways to navigate team changes on a global scale while remaining legally sound. 

Understanding the global employee termination landscape 

As well as leading to serious legal pitfalls, a lack of in-country knowledge can cause you to miss loopholes or valid/invalid reasons for termination, so it’s worth familiarizing yourself with the main differences before you start hiring in a new territory. 

Take “at-will” employment — a concept referring to an employment relationship that can be terminated at any time by either employer or employee for any or no reason, with or without advance notice or procedures. Provided there are no discriminatory reasons underlying the decision, at-will employment is permitted across the USA (with the exception of Montana), granting US-based employers significant flexibility in the termination process.  

In Hong Kong, too, dismissal of an employee is frequently easier to achieve than in many other countries. Provided that all outstanding salary, allowances, unused annual leave, severance, notice entitlement, and other relevant payments are paid out according to the employment contract and applicable law, the employer does not need to provide a reason to proceed with the termination. 

On the whole, though, at-will employment is the exception, not the rule. In jurisdictions with strong employee representative bodies (such as trade unions) and high employee protection, including many European countries, reasons like project end or undocumented poor performance may not be accepted as legal grounds for termination and will be considered as “dismissal without cause”, which can be difficult when business objectives are at odds with employment law requirements.  

Discover the best countries to expand your business into

From the dynamic business hubs of Asia Pacific and Europe to the bustling markets of Latin America, the innovative North America or the Middle East crossroad.

Get Your Atlas Global Expansion Guides

In most countries, even when you are legally permitted to terminate employment without undertaking a prescribed process, you may still have to pay severance unless you have “good cause” (the definition of good cause differs from country to country but tends to apply in cases such as established gross employee misconduct). In addition to severance pay, there is likely also a notice entitlement to be observed as working time or paid out (if possible), as well as requirements in some countries to make payments to the employee at the end of employment regardless of the circumstances (such as 13th and/or 14th month salary payments in Italy, amongst other countries).  

It is also important to be aware of the nuances between individual and collective dismissals. In many places, specific rules apply when you dismiss more than a specific number of employees within a set time frame.  

When it comes to employee termination, never rely on assumptions 

While your HR team might be familiar with the termination process in their own region, it is highly unlikely that those same procedures can be applied across geographies. In many cases, a legally valid reason for termination in one country is thornier ground elsewhere. 

For example, fixed-term contracts can be used to engage employees for a specified length of time or for the duration of a set project, giving employers security and flexibility. However, laws governing employment contracts vary widely from country to country, making fixed-term employment risky business unless you know what you’re doing.  

In Germany, fixed-term employment contracts are generally only renewable up to three times in a two-year period, while in Japan, an employee can request and the employer must accept that their employment will be considered permanent once they have been employed for five years, even if their fixed-term contract states that employment should end by a certain date. In Lithuania, fixed-term employment contracts for jobs of a permanent nature cannot exceed 20% of all employment contracts at the company.  

Similarly, dismissing an employee on the grounds of their performance can be a nuanced concept, with each jurisdiction having their own take on the legalities of the approach. In India, it is recommended that an employee typically goes through a 3-6 month performance improvement program (PIP) before the termination process can begin. 

In Malaysia, too, employers bear the burden of proof to show that they have warned the employee about the unsatisfactory performance in a clear and specific way and have given the employee time and opportunity to improve, before resorting to termination as a final option. Further, any termination notice must set out the reason for termination and the employee should be given an opportunity to respond and explain; if not resolved, a “domestic inquiry” should be held by the employer to decide whether the dismissal is justified, which is part of the procedural fairness of the process.  

Discover the best countries to expand your business into

From the dynamic business hubs of Asia Pacific and Europe to the bustling markets of Latin America, the innovative North America or the Middle East crossroad.

Get Your Atlas Global Expansion Guides

Special protections can also cause confusion for HR teams, affecting everyone from employees on maternity leave to those with a disability, depending on the specific jurisdiction. In Germany, for example, the selection exercise during a redundancy process must involve the employer taking into consideration and evaluating employees based on various criteria including their length of service, age, maintenance obligations, and also if there are any employees who have a disability.  

Some countries have protections that are somewhat culturally unique. For example, in Italy a female employee’s contract can’t be terminated within her first year of marriage.  

How to navigate employee terminations across different territories 

Expanding your operations overseas? Below are some approaches to consider when approaching employee terminations in unfamiliar jurisdictions:

  1. Offer a mutual termination agreement 
    By signing a mutual termination agreement, an employee agrees with the terms of the termination, including the termination date, and generally waives their right to bring legal or disciplinary actions against their former employer. While this can help to avoid unpleasant workplace situations, be aware that local laws still apply and the negotiations involved can still take time and resources.  

  2. Be conscious of probationary periods 
    Terminations during probationary periods are generally more straightforward for the employer, so it’s important to evaluate new employees from the commencement of their employment. On the other hand, while probationary periods are permitted almost everywhere, the length can vary widely depending on the location and seniority of the role. In France for example, the maximum probation period is two months for blue collar workers but four months for executives. 

  3. Minimize risk by partnering with an Employer of Record 
    By working with an Employer of Record (EOR), you can reduce your day-to-day administration with confidence that you are globally compliant.  

A global EOR will hire international workers on your behalf and handle all the local HR, payroll, and tax requirements, then the employees will work for you on the basis of a commercial agreement with the EOR. This means that the EOR assumes responsibility as the legal employer, ensuring all relevant employment laws and protections that employees are entitled to are fully observed and there are no missteps in navigating the challenging aspects of global employment law.  

Atlas HXM has dedicated legal and HR expertise across more than 160 countries, designed to simplify your processes, take the hassle out of international expansion and free up your team to focus on the real priority: hiring the best talent anywhere in the world.

Atlas has entities in 160+ countries

Yep, including the one you're thinking now.

Get in touch today!