The top 5 reasons global employers get sued, and how to avoid them—from 3 lawyers

Global employment is on the rise. Hiring across borders comes with many benefits—it helps businesses close talent gaps, expand into new markets, and manage costs. But there are also risks. Make compliance mistakes—even unintentionally—and your organization could face a lawsuit.

As Assistant General Counsel, Product & Employment at Rippling, I serve as a legal advisor to Rippling’s PEO and EOR teams; before moving in-house, I was a litigator at Latham & Watkins in San Francisco. For this webinar, I was joined by Jose Irias and Rio González, employment counsel at DLA Piper who regularly advise multinational employers on global workforce management, global expansion, and workforce restructuring. 

Jose and Rio walked us through five of the most common reasons global employers get sued—and what employers can do to avoid lawsuits and protect themselves when engaging workers around the world. Below, read more about the risks they highlighted, and watch the webinar on demand so you don’t miss anything we shared on this important topic.

The top 5 reasons international employers get sued

The more countries your business hires in, the more laws there are to know—and the more risk and headache you’re likely to encounter. But complying with global employment laws isn’t optional. Running afoul of the law can result in penalties ranging from hefty fines to lawsuits to even jail time, depending on the jurisdiction.

Below, learn about how to spot some of the most common potential risks—and, importantly, how to mitigate them.

1. Mistakes during the hiring process

Some of the most common risks can happen during the application and hiring process.

1. Misclassifying employees as independent contractors

Companies that aren’t set up to hire employees locally—either through their own local entity or by engaging with an Employer of Record (EOR)—sometimes engage with workers as independent contractors, assuming it’s easier. But depending on the circumstances, this runs a risk of misclassification.

Worker misclassification claims in many jurisdictions work similarly to the US: If an individual brings a misclassification claim, the courts assess many different factors to determine whether they did, in fact, have an employer-employee relationship. Generally speaking, there’s a greater risk of a misclassification claim, regardless of the jurisdiction, when the engaging company:

• Supervises and controls the contractor.
• Provides the contractor with tools and equipment.
• Pays the contractor a monthly salary rather than fees based on invoices for completed work or projects.
• Provides the contractor with employee benefits.
• Engages the contractor on an indefinite basis.

2. Unlawful practices during the application process

It’s important to be aware of other jurisdictions’ laws and regulations even when screening job candidates.

For example, outside the US background checks are only appropriate for certain hires and are subject both to employment and privacy laws. Depending on where you hire, you may need employee consent to conduct a background check, and the type of background check you run will need to be closely related to the type of role the employee is applying for. In some jurisdictions, criminal background checks are only allowed if the employee will be working with sensitive financial data or managing assets—and in some cases, taking adverse employment action based on the results of a criminal background check is even considered discriminatory.

Another example: collecting demographic information from job applicants. While this is standard in the US, it can be considered discriminatory in many other jurisdictions—for example, collecting diversity data is common in the US, but could potentially form the basis for a discrimination claim in the event of an adverse hiring decision, or violate data privacy laws in foreign jurisdictions.

3. Using noncompliant or non-localized employee documents

Employment agreements, IP agreements, and other employee documents need to be enforceable in all jurisdictions where you hire, which means they often need to be localized for each jurisdiction, despite the time and cost savings of using a single template. 

Other things to consider:

• Do you need bilingual employment agreements? In some jurisdictions, like France, a document needs to be in the local language (French, in this case) to be enforceable.
• What types of signatures are allowed? Can you use an electronic signature? In some jurisdictions, like Germany, a wet signature or qualified electronic signature is required.

How to avoid lawsuits related to the hiring process

• Carefully consider the criteria for how you will classify your workers.
• Be cautious not to run background checks in countries where it’s prohibited or restricted.
• Ensure any pre-employment inquiries about diversity data comply with local requirements. 
• Use approved, country-specific templates for all employment documents.
• Provide employees with mandatory, country-specific policies.

2. Non-compliance with wage, hour, and leave requirements

Once you hire a worker in an international jurisdiction, day-to-day risks arise from potential noncompliance with wage and hour laws and leave requirements. 

1. Not meeting vacation and public holiday requirements

Knowing and complying with time off requirements can be complex since they vary so much around the world.

While the US doesn’t have federal requirements for holidays and paid time off, many other countries around the world do. For example, in Mexico, the Senate recently approved a law that increases mandatory paid vacation time from six to 12 days for the first year of work.

And while it’s common for unused PTO to roll over to the following year in the US, in Norway, for example, employers can face penalties for employees who haven’t taken their allotted PTO by the end of the year.

2. Not following long-term leave requirements

In the US, paid parental and caregiver leave entitlements are generally left up to employers, but in other countries, they’re more often statutory rights—and new laws around the world are providing for greater parental and family leave. For example, beginning in January of 2024, Denmark instituted new rules for solo parents and LGBTQ+ families, granting them additional leave and allowing for part of their leave to be transferred to a close family member. Employers need to know and comply with varying regulations in every jurisdiction where they hire employees.

3. Not paying the right minimum wage and overtime rates

Complying with minimum wage and overtime rate rules isn’t something you can set once—for example, when onboarding a new hire in another country—and forget. Minimum wage and overtime laws can (and do) change frequently—so it’s crucial for employers to stay up-to-date on any changes in jurisdictions where they hire to ensure their pay rates comply with statutory minimums. A good way to do this is by using global payroll software with built-in compliance support.

4. Not following the right overtime exemption rules

In the US, the Fair Labor Standards Act (FLSA) defines which workers are exempt from overtime pay. Internationally, the rules for overtime rate exemption are different—and often more narrow. For example, while a white collar worker is often overtime exempt in the US, in another jurisdiction, they might need to be on a senior executive level before meeting overtime exemption requirements.

How to avoid lawsuits related to wage, hour, and leave requirements

• Use a compliance system that flags potential local minimum wage and overtime pay issues.
• Use a time and attendance system that helps employees accurately track their time and take required breaks.
• Use a leave management tool that integrates with your T&A and payroll systems and applies relevant PTO policies and holiday calendars by country.

3. Mishandling of discrimination and harassment

In areas of discrimination, harassment, and pay equity, many jurisdictions are increasing protections, as well as damages and penalties for employers who fail to comply with their laws—plus extending limitations periods for employees to bring claims against their employers. That’s creating increased risk for international employers, like the ones below.

1. Not having sufficient workplace policies

An important part of preparing to hire international workers is creating workplace policies that comply with the laws in their local jurisdictions. This is especially important when it comes to regulations around discrimination and harassment; you’ll need locally compliant workplace policies that take into account:

• What statuses are protected from discrimination in that jurisdiction.
• How discrimination and harassment are defined under the law.

Also important for employers to consider is whether they need a whistleblower policy. For example, organizations that hire internationally need to know whether they fall under the EU Whistleblower Directive, which requires every company or public body in the EU with 250 or more employees to implement an internal reporting policy for whistleblowing.

2. Not properly training managers and employees

Writing policies is only the first step. Next is making sure that both managers and employees receive proper training so they know and understand your local policies. All training should be focused on local requirements—and be sure to know whether any type of training is required by law in the local jurisdiction.

3. Delaying investigation and/or response to a report

Investigations and responses to discrimination or harassment claims need to be timely. When your organization expands into a new jurisdiction, it’s helpful to have a plan in place before you receive a report so that you can properly and quickly investigate and respond to any allegations you may receive.

4. Engaging in discriminatory pay practices (even unintentionally)

Around the world in recent years, there’s been a heightened focus on pay equity. For example, in April of 2023, the EU adopted the Equal Pay and Pay Transparency Directive, which says that employees have the right to access and assess pay information broken down by sex, and that all companies with at least 150 employees (and later, 100 employees) will be required to report on gender pay gaps. Other jurisdictions around the world are passing or considering similar measures.

Considering the focus on pay equity in many parts of the world, international employers should consider their pay practices and be cognizant of pay discrepancies that could appear discriminatory, even unintentionally.

How to avoid lawsuits related to harassment & discrimination

• Add mandatory, country-specific policies to relevant company documentation.
• Use a global learning management system that assigns localized, mandatory training and enforces deadlines.
• Implement an internal reporting channel for whistleblowing.
• Respond promptly to all reported incidents.
• Implement transparent compensation bands for every role and run pay inequity analyses, where required.

4. Mismanagement of works councils

If your organization engages workers in the EU, you’ll need to understand works councils—employee representative groups that exist at the company, entity, or plant level (as opposed to unions, which are often industry or country-wide). 

Works councils have different rights that vary by country, and it’s up to employers to know the rights and responsibilities of any work council they engage with.

1. Not knowing when a works council requirement is triggered

In some jurisdictions, employers are obligated to take certain active steps to set up a works council once they have a certain number of employees. In other jurisdictions, once the headcount threshold has been met, employees have the right to form an election to set up a works council. It’s up to employers to know what their obligations are.

5. Unlawful terminations and layoffs

While the risks that come with international terminations and layoffs could fill an entire article on their own, there are a few that tend to be particularly common.

1. Assuming employment at will exists

“Employment at will” is a concept that generally isn’t recognized outside of the US. Most other jurisdictions require lawful grounds or basis for termination—plus, employees are almost always entitled to statutory notice periods and severance pay when they’re let go. Employees who succeed in unfair dismissal claims may be entitled to reinstatement to their previous position with back wages, plus, depending on the jurisdiction, their employer might face additional penalties and fines.

2. Terminating employees for performance

In many jurisdictions, performance terminations are difficult and require documented warnings to the employee, as well as attempts to address their performance failures over time, often through a performance improvement plan (PIP).

3. Not following the law regarding redundancies or reductions in force

A global reduction in force can require time and advanced planning in international jurisdictions. Here are some of the things to keep in mind:

• Employees for layoffs or terminations must be lawfully selected, which means you need to determine whether there’s any legally mandated selection criteria in impacted countries. For example, some jurisdictions have last-in, first-out rules, or protected employees who can’t be terminated (like employees on maternity leave or elected representatives).
• You may need to build in time to notify labor authorities of your plans—or even to receive permission for layoffs.
• You may need to draft country-specific termination documentation.
• If you have a union or a works council, plan for the time you’ll need for your information and consultation obligations, where required.

How to avoid lawsuits related to terminations and layoffs

• Train people managers on termination laws in relevant countries.
• Standardize a process for documenting employee performance and issuing warnings.
• Plan time for each country’s mandatory notice period before termination begins.
• Carefully select international workers during reductions in force (RIFs).
• Use approved, country-specific templates for all termination documents.
• Partner with local legal counsel specializing in termination law.

Want to reduce your risk? Use an EOR to manage international employees

An Employer of Record (EOR) helps you hire contractors and employees and avoid misclassification risk—without having to create your own local entity or master local employment laws.

Rippling EOR can help international businesses of all sizes with:

• Hiring and onboarding
• Global payroll
• Benefits administration
• Localized compliance

Learn about all of this and more in our webinar.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.