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Global HR Hot Topic—January 2014: Employment Contracts Outside the United States | White & Case LLP - JDSupra
A Field Guide to Overseas Collective, Individual, Indefinite, Fixed-Term and Probationary Work Agreements
When a US organization sets out abroad and signs up staff overseas, the first obstacle it hits is deciding what to do about employment agreements. American employers rarely embrace the idea of tying themselves to their rank-and-file staff with legally enforceable signed contracts. Indeed, domestic American employers disfavor, even shun, written work contracts, seeing them as mostly unnecessary and always restrictive. This is why so few working Americans have documented employment agreements (the exceptions tend to be some but not all senior executives, pockets of technical and sales staff, and the small percentage of American labor that is unionized and protected by collective bargaining agreements).
Outside the United States, though, written work contracts (or quasi-contractual "statements of employment particulars") are widespread, usually recommended, and often legally required. In fact, collective and individual employment agreements play such a vital role in human resources overseas that many foreign workers talk less in terms of having or getting a "job" than about having or getting an "employment contract"—staff in many countries actually see their contract as their job. Accordingly, written work agreements abroad come into play at each stage in the employment life cycle overseas. They are obviously important when hiring and "onboarding." Because these documents address compensation, they become crucial at bonus and salary review time. They also prove important when management needs to restructure or cut back some benefit or term/condition of employment, as well as when an employer needs to buy, sell or merge with another entity. Discipline and data privacy clauses in employment agreements factor into internal investigations, and because these contracts usually address severance, they factor into individual dismissals and reductions-in-force. And employment agreements remain vital even after separation, at least when an employer has to enforce a restrictive covenant (non-compete, non-solicit or confidentiality provision), has to protect its intellectual property, or has to claw back money an employee may owe.
But American organizations setting off overseas may emerge from their employment-at-will cocoon inexperienced at crafting and executing written work agreements with their rank-and-file staff. This leaves them at an awkward strategic disadvantage and at risk of making rookie mistakes. For example, too many American employers evade work contracts overseas even though these documents actively protect their own interests against opportunistic claimants. And US employers too often jump to the conclusion that they can export a sort of homemade employment-at-will by engaging foreign staff under serial fixed-term agreements—a problematic strategy that rarely works well in the real world.
Our discussion here offers an international field guide to both collective and individual employment contracts, including quasi-contractual "statements of employment particulars."
In part one we discuss the strategic role employment contracts play in human resources overseas. In part two we inventory the various types of work agreements overseas. Finally, in part three we offer a survey (formatted as a chart) of the surprisingly disparate foreign laws regulating fixed-term employment contracts and probation clauses.
Part 1: The strategic role of employment contracts overseas
To explain how employment contracts work in the cross-border context we begin by debunking a widespread misunderstanding that sows a lot of confusion and causes countless mistakes: Contrary to frequent assertions otherwise, there is no such thing as a worker who has "no contract." Every employee on Earth is party to a binding and enforceable employment contract. Indeed, what separates the employer/employee relationship from a master/slave or indentured servitude relationship is the existence of an employment agreement terminable at least by the employee. And so the very nature of employment is inherently contractual—employment means my offer to work in exchange for your offer to pay me wages as consideration. Therefore, for example, every day-laborer in Africa is party to a binding and enforceable employment contract, as is every undocumented illegal at-will worker in the United States, as is everyone with a desk job, every maid, nanny, busboy, gardener, roofer and barista. Whenever you hear about some employee said to have "no contract," the speaker is wrong—either mistaken or speaking loosely, colloquially and inaccurately.
Of course, an employment contract might be for just one hour's work. It might be informal. It might be oral. And in the United States, it might be terminable-at-will. But it is nevertheless a legally binding, enforceable, full-fledged contract—just as, for example, an oral and terminable-at-will lease is a binding contract that holds both landlord and tenant to rights (habitable premises) and obligations (rent).
To understand how every worker has a binding work contract, consider the right to final pay. Even a casual, undocumented, terminable-at-will laborer who quits or gets fired can enforce a legal obligation, in contract, to recover wages for the last pay period worked. If a boss withholds an ex-employee's final paycheck (as bosses sometimes do), the worker has a viable claim—in contract—to collect. Under that contract, the boss must pay the full wage rate agreed, but no more. This principle is so basic it reaches at least back to Biblical times. In the parable of the workers in the vineyard (Matthew 20:1-16), a "landowner…went out early in the morning to hire" a crew of day-laborers. Throughout that day the boss kept signing up additional work crews, engaging candidates "standing in the marketplace doing nothing" at 9:00 a.m., noon, 3:00 p.m. and 5:00 p.m. "When evening came" the boss paid a full "denarius" (day's wages) to each laborer—even the stragglers "hired about five in the afternoon." The lesson, of course, is that this boss's compensation philosophy, however unorthodox, met his contractual obligation to his first-hired laborers, who found themselves tied to their own contracts, struck that morning, to work that day in exchange for one denarius. The laborers' binding employment contracts left the quixotic boss free to reward his later-hired crews more generously.
Stated this way, our point that every employee everywhere has a work "contract" sounds perhaps pedantic. But this point offers a profound lesson for any American multinational contemplating whether, when or how to document employment agreements abroad: The overseas employment contract question is never about whether to offer or withhold an employment contract from anyone, because every employee already gets a binding and enforceable contract, anyway. Rather, overseas, the employment contract question is a much simpler and narrower issue: Whether, when or how to reduce existing, legally binding employment contracts to writing.
Even so, many American bosses tenaciously cling to the strategy of keeping their staff arrangements oral. This is because under United States employment-at-will, employers see routine written work contracts as simultaneously superfluous and restrictive. Most American bosses, even in California, avoid written work contracts (other than for some senior executives, sales, technical and unionized staff), to keep nimble and flexible. It is a lot easier to change terms and conditions, and to escape alleged commitments, when nothing gets reduced to writing.
But outside American employment-at-will this logic flips on its head. Employment law outside the US differs radically, and that difference overturns the strategic case against reducing work arrangements to writing. Overseas legal systems reject employment-at-will in favor of so-called "indefinite employment" (in the Philippines, "security of tenure"). Under indefinite employment, a job is like a marriage in that the law binds two parties to each other. As in a marriage, that bind is breakable— the parties can get a "divorce"—but to allow a split, laws impose legal process and costs. Usually laws force the richer party (the wealthier spouse or the employer) to pay the poorer one an indemnity (alimony or severance pay). The double threats of this legal process and this indemnity give the richer party (wealthy spouse, boss) a strategic incentive to cut a deal up front (prenuptial agreement, employment agreement) spelling out the terms of both the relationship and any eventual dissolution. Of course, that deal will not be worth much unless the parties write it up—a mere oral prenuptial agreement or oral employment agreement may not help the party later trying to enforce it.
A separate reason why written work contracts are so helpful abroad is because when an employment dispute flares up White & Case 3 overseas, the employer tends to bear the burden of proof. If a worker claims his boss once promised him, say, an extra month's vacation, a huge bonus and triple severance pay, how does a boss disprove that? The best way to rebut a fabricated or mistaken allegation of an employer commitment is to invoke the text of a thorough, non-corroborating written employment contract.
For these reasons, written employment agreements are almost always a best practice outside the United States. A Canadian law firm has said that a "written employment contract is one of the most effective tools an employer has to quantify and contain employment-related liabilities and expectations." (Sherrard Kuzz LLP, Management Counsel, 6/08)
In addition to this strategic case for putting overseas employment contracts in writing, an even more compelling reason to document foreign work relationships is legal compliance. Many (although far from all) jurisdictions actively require that work contracts be written up or at least documented as quasi-contractual "statements of employment particulars." A Chinese law says, simply, "a written employment contract shall be concluded in the establishment of an employment relationship." (Employment Contract Law of the People's Republic of China, 2008, art. 10) The entire European Union requires written employment agreements or statements, as do Mexico and Qatar. (EU directive 91/533/EEC; Mexico Labor Code art. 24; Qatar Labor Law no. 14 [2002] at art. 38) Other jurisdictions that require written work contracts or statements include Albania, Bahrain, Chile, Costa Rica, Egypt, Ghana, Guatemala, Indonesia, Kenya, Korea, Kosovo, Nepal, Nicaragua, Nigeria, Oman, Russia, Tanzania, Uganda, Vietnam and many others. These jurisdictions impose legal penalties if an employer keeps its employment arrangements oral. Granted, the fines for failing to write up work agreements are usually fairly low, at least on a per-employee basis (in Bahrain, for example, the fine is US$530 to US$1,325)—but some places impose steep penalties (for example, in Albania, 25 months' pay at minimum wage).
Oral contract jurisdictions: While many countries force employers to write up their employment arrangements, perhaps an equal or greater number of jurisdictions do not. Just keeping to the first three letters of the alphabet, countries that tolerate oral employment arrangements include Afghanistan, Angola, Argentina, Australia, Benin, Brazil, Burkina Faso, Canada, Colombia and others.
Part 2: Types of written employment agreements abroad
Understanding the strategic and compliance advantage that written work contracts offer outside the United States, the question becomes: How do employers strategically document their overseas employment arrangements? That is, what are the various kinds of employment agreements, and how do they work?
Written employment contracts (and statements) come in various types, but those types split into two broad categories—collective and individual.
In America, for practical purposes the only kind of labor representative organization is the labor union. So American collective bargaining agreements always tend to involve unions. US labor law makes unions American workers' only viable choice for workplace representation because US labor law is skeptical of employer motives. US labor law assumes bosses given the chance will infiltrate and corrupt worker groups, and so US law forbids employers from "dominat[ing] or interfering with the formation or administration of any labor organization," even from contributing any "financial or other support." (National Labor Relations Act §8(a)(2), 29 USC §158(a)(2)) This blunt rule succeeds at keeping American worker representatives fiercely independent of employers—and it also, of course, outlaws management sponsored and funded worker bargaining groups.
Not so abroad. Foreign governments exploit the fact that employers are richer and better organized than workers by saddling management with the responsibility to structure and fund in-house worker groups—even groups empowered to bargain with management over terms and conditions of employment and grievances. So outside the United States, in addition to trade unions, workers band together in other bargaining groups that employers themselves have to organize, structure and even fund (groups that stateside would be flatly illegal employer "dominat[ed]" labor organizations). These other worker representatives include "works councils" at various levels, health and safety committees, "workers' committees," "joint committees," and ombudsmen who advocate for employees.
Where local labor law authorizes more than one kind of employee representative, employers must bargain—and ultimately enter into agreements with—all of them. Subject to quirks of each national system and depending on customs within each workplace, these various labor representatives usually have power to strike deals with the employer or its bargaining agent, deals the parties often go on to reduce to writing. These writings are collective bargaining agreements. They fall into two categories: employer privity agreements and sectoral agreements.
Employer privity agreements: When an employer signs a contract with its own collective bargaining representative (union, works council, health and safety committee, workers' committee, joint committee, ombudsman), the parties bound to that agreement are, obviously, the employer and the bargaining agent themselves. Usually but not always, the bargaining agent's commitment binds individual employees, too. These direct collective labor accords range from broad framework agreements that set out general terms and conditions of employment for the day-to-day workplace (grievance resolution procedures, pay scales and the like) to ad hoc, one-off resolutions of specific grievances or issues (agreements accepting pay cuts, agreements letting the employer outsource a function). And when management needs to do a reduction-in-force, agreements with labor representatives include so-called "social plans" and similar accords that set out how the layoffs will work. All these various labor agreements between management and employee representatives are enforceable as contracts (except in England; for some reason England presumes collective labor agreements are non-contractual). (UK Trade Union and Labour Relations (Consolidation) Act 1992, art. 179)
Sectoral agreements: In countries from France, Germany and Spain to Argentina, Brazil and beyond, trade unions somehow convinced their governments to confer on them the immense power to negotiate collective agreements with employer bargaining groups that apply at the regional or national "level." This means these labor contracts actually bind an entire industry sector (say, automobile production, telecommunications, media, retail)—even non-parties, non-signatory employers and nonunion member workers. These so-called "sectoral" agreements typically require every employer in the given industry to pay higher wage rates, richer benefits, extra vacation, premium severance pay or other enhancements over statutory minimums. This sectoral collective agreement system, not surprisingly, bewilders and blindsides American headquarters because it is so fundamentally un-American—parties get bound to so-called "agreements" that they not only never have agreed to, but that they had no voice whatsoever in making.
Besides the collective agreement, the other kind of written employment contract is of course the individual agreement between an employer and a single employee. Individual work agreements raise issues of both form (drafting and execution formalities) and substance (content and term). The rest of our discussion addresses the form and substance of individual employment agreements outside the United States.
Form: Drafting and execution formalities
When employers setting out abroad confront individual employment agreements, they ask about contract form. What should employment contracts look like and how should they get duly executed? But that is the wrong question because it assumes overseas employment commitments run in both directions, like business commitments in commercial contracts. Yet employmentcontext commitments tend to be a one-way street running the employees' way. Legal systems abroad impose a double standard on enforceability of employer versus employee commitments:
On one hand, foreign laws tend to hold bosses to most all commitments to their staff, even promises made casually, tentatively, orally or by custom and practice. (See our Global HR Hot Topic of Dec. 2013) Indeed, France will actually force an employer to make good on employee-favorable provisions buried in confidential internal management guidelines never meant for employee distribution. On the other hand, laws in most jurisdictions let workers escape their own oral, emailed and even written promises made to management, unless attested to in a formally executed contract—and not always even then. Many countries will hold a boss to its promise, for example, to give employees a raise, end-of-year bonus, reduced work schedule or extra vacation benefit, regardless of whether the boss made that promise orally, in a casual email, in an unsigned "statement of employment particulars" or in a formally executed contract. Yet these same jurisdictions will often let an employee evade an oral, emailed or casually-written promise to the boss—for example, an employee's casual agreement to reimburse damage he caused, to give the boss title to IP he created, to refrain from competing after he quits, or to release accrued overtime pay claims. An employer that wants to hold workers to commitments like these better get formal, duly executed contracts signed, sealed and delivered pursuant to law.
So the question of how to document a work contract morphs into a somewhat different question: How does a boss bind a worker to commitments made to the employer? To answer that question, look at the employment contract execution formalities in the relevant jurisdiction. Check for four issues: contract format/execution; language; electronic signatures/imaging; and appendices/amendments. Have employees memorialize their commitments in documents that meet these formalities.
Contract format and execution: Written employment contracts come in various formats. Sometimes they are simply casual offer letters, offer emails, or electronic documents executed electronically with an "I accept" mouse click, never reduced to paper. In the European Union, Tanzania and elsewhere, laws bind employers to unsigned "statements of employment particulars" they give to staff. At the other end of this spectrum are employment contracts with all the bells, whistles and formalities of negotiated business accords—"whereas" clauses, definitions sections, Roman numerals, wet-ink signatures witnessed, authenticated, notarized—sometimes even filed with a government agency.
The ideal format for making a work agreement fully enforceable against an employee depends on the importance of the employee's commitments in the agreement, as well as on the local jurisdiction's law and practices for contract execution. In a few countries employers have to write individual employment agreements onto government-issued forms, and then file those forms with a local labor agency. Some jurisdictions (Central America, Dubai Free Trade Zone, Ecuador, Oman, others) require filing individual work agreements with government labor offices, although not necessarily on government forms. Elsewhere, though, employers can use whatever contract format and execution practices work in the local jurisdiction to bind parties to their commitments.
Language: What language an employment contract gets written up in is rarely a big issue for local domestic employers, but employment agreement language can be a headache for US-based multinationals, especially those that have designated English as their official "company language." American organizations prefer English, but foreign work contracts and statements need be written in a language that renders them enforceable. Judges in all countries can be hostile to even technically enforceable foreign-language accords. And contracts are never enforceable in a language one party cannot be proven to understand. Imagine, for example, a Japanese employer doing business in Kentucky and having its local Kentucky staff sign Japanese-language acknowledgements. No Kentucky judge would enforce those. For the same reason, expect Japanese and other judges to be reluctant to enforce local employeesigned agreements in English.
Beyond intelligibility to the parties, some jurisdictions flatly require drafting employment agreements in the native language—even if both employer and employee speak, say, perfect English. (See our Global HR Hot Topic of Nov. 2011) And the jurisdictions like Central America, Dubai Free Trade Zone, Ecuador and Oman that require filing work contracts with a government labor office effectively require local language, if only because government labor agencies (at least outside Scandinavia) reject foreign-languages filings. (No one expects the US EEOC or NLRB to process filings in, say, Arabic or Dutch.)
Where law affirmatively requires employment contracts in the local language, American multinationals usually like to format agreements dual-language/dual-column. This is a good practice except where work agreements need be filed with the government. Whenever an employment dispute winds up in local court, expect the local-language version to control—even if the contract has an "English-supersedes" clause.
Electronic signatures and imaging: In our 21st-century high-tech world, multinationals adopt sophisticated "paperless office" platforms like PeopleDoc that electronically warehouse personnel files, human resources documents and employment contracts. France and some other countries offer electronic signature protocols and analogs to the common law "best evidence" rule that facilitate electronically executing and storing HR documents, including perhaps even employment contracts. But speaking globally and speaking of employment contracts specifically (as distinct from ancillary worker-ratified HR documents like tax forms, acknowledgements and benefits enrollments), the safest course in many countries remains executing and retaining paper wet-ink-signed original employment contracts. An electronic signature or even a printed-up pdf might not be admissible evidence when an organization later petitions a local court to hold an employee to contractual commitments—especially in civil law countries and especially in disputes over restrictive covenants, IP ownership assignments, employee debt instruments and compensation clawbacks. So even an organization that stores all its HR documents electronically might consider an exception for original employment agreements, particularly in formalistic civil law systems that emphasize document-execution formalities without updated evidence rules for authenticating electronic signatures and paperless images. That said, in jurisdictions like Central America, Dubai Free Trade Zone, Ecuador and Oman that require filing employment contracts with government agencies, employers might destroy their paper employment agreements if government acts as the custodian of originals.
Appendices and amendments: We have been talking about an employment contract as if it is a single, self-contained document. But what about ancillary, separate or later arrangements between employer and employee, like employment contract amendments, separate restrictive covenants, free-standing IP assignment agreements, subsequent expatriate assignment letters, employee-acknowledged work rules/handbooks/codes of conduct, employee consents/waivers, emails and letters changing job title/position/pay rate, new employee benefits, stock option grants, employee loan documents, consents to claw back compensation and releases of claims? Do these documents rise to the level of amendments that change an employee's contract? Or are they somehow separate and lesser documents?
A rule of thumb is that an employer should execute as a full-blown employment contract any ancillary HR arrangement that it might later need to prove against an employee—for example, documentation of a material downgrade like a pay cut, demotion, extra work assignment, job transfer, restrictive covenant, IP assignment, debt instrument or clawback acknowledgement. Memorialize these downgrades in documents executed like employment-agreements-in-chief. Cross-reference (or replace and revoke) the parties' original employment agreement, and file and track these amendments along with the employee's main agreement. (Some employee debt instruments need even additional formalities, as negotiable instruments, as do some employee releases.) On the other hand, vested rights rules usually make job upgrades (pay raises, promotions, relaxations in work hours and job duties) enforceable against the employer anyway, even if not documented as formally executed contract amendments. (See our Global HR Hot Topic of Dec. 2013)
Substance: Content and term
Having discussed technicalities for formatting and executing individual work agreements, we now address the substance and content of employment contracts. What should individual employment contracts say? Which topics should they address and which should they omit? How can an employer craft employment agreements to maximize flexibility? And what about term?
Always begin the employment agreement content inquiry by checking whether the jurisdiction in question is one of those we discussed that force employers to enter written employment agreements or statements. In those places, the same law that requires written employment contracts or statements almost always sets out a list of topics that the required work agreements or statements have to address. Indeed, some countries like Japan, do not mandate written employment contracts in the first instance but nevertheless impose a list of topics that any written employment agreement must cover, if the employer and employee choose to enter one. (Japan Labor Standards Act art. 15.1; Enforcement Regs. art. 5) Always be sure a written employment contract addresses each statutorily mandated topic. The statutory topics tend to be the "usual suspects"—job title, place of work, pay rate, office hours, termination procedures, contract term and the like. But a few jurisdictions get more granular and affirmatively require that work agreements address some unexpected and peripheral topics like frequency of payday (EU directive 91/533/ EEC at art. 2(2)(h)), expatriate assignment status (EU directive 91/533/EEC art. 4) and taxpayer identification number (required in Bahrain, Indonesia, Costa Rica, Guatemala, Russia and elsewhere). Vietnam requires work contracts somehow disclose "safety and hygiene conditions." Costa Rica and Mexico for some reason require work contracts disclose the employee's gender, nationality and marital status. And Bahrain, Indonesia, Oman and jurisdictions apparently unconcerned about age discrimination require that employment contracts divulge employee date of birth. (See our Global HR Hot Topic of Sept. 2013)
Otherwise, work contracts can cover whatever topics the parties want. Obviously an employer should be sure to document all matters it has a business or human resources reason to cover. This requires attention to local nuance. For example, Canadian and Jamaican employers should quantify "common law notice." English employers should document employee consents to transfers and office moves, and employee opt-outs of England's divisive optional statutory cap on hours. Of course, in all countries written employment agreements or addenda need to document restrictive covenants like non-competes, non-solicit of customers and employee confidentiality (see our Global HR Hot Topic of June 2012), IP invention assignment agreements, employee loans and payments subject to employer clawback, and any fixed term or probation. A good practice is for employment agreements to address compensation, benefits and severance pay specifically enough to rebut later employee claims of orally-promised enhancements. But in documenting compensation, be careful when articulating bonus eligibility. Many countries' laws interpret ostensibly discretionary bonus provisions to be mandatory or (as in England) subject to a "reasonable discretion" standard. Also consider future cutbacks: Any employer that might later need to reduce compensation, benefits or terms/conditions of employment should have its work contracts expressly cede permission for the possible cuts. (See our Global HR Hot Topic of Dec. 2013)
This brings us to the controversial issue of employment contract term. Outside the United States, employers are rarely free to make their work contracts terminable-at-will. (See our Global HR Hot Topic of Dec. 2012) This restriction makes the issue of contract term all the more important. There are three possible employment contract terms: indefinite term, temporary or fixed term, and probationary.
Indefinite term contracts: When a foreign employment contract is open-ended as to term with no end date, its term is "indefinite" (sometimes loosely called "permanent")—the employee keeps his job until he quits or gets legally fired. Because laws abroad restrict employers from firing without demonstrable good cause, American bosses sometimes get the clever idea to craft a contractual "good cause" definition that picks up as many infractions as possible—harassment, safety violations, tardiness, poor performance, breach of code of conduct, maybe even messiness, bad attitude and lack of work. Unfortunately, foreign legal systems rarely defer to wide-open contractual clauses that define good cause so broadly. Instead, jurisdictions tend to apply their own, narrower definitions. (See our Global HR Hot Topic of Feb. 2013)
And yet certain employment contract clauses can add texture to the way indefinite term employment might end. We already mentioned that Canada, Jamaica and other jurisdictions give employers a keen incentive to quantify pre-dismissal "common law" notice, which in those countries substitutes for severance pay. Well-drafted notice clauses let the employer pay out notice in lieu, wholly or partially (although pay-in-lieu clauses can be void in Switzerland and elsewhere). "Garden leave" provisions that let employers relieve workers of duty before separation are routine in some markets, where they act like non-competes— albeit at full base pay. And employers in England and elsewhere often favor imposing months or even years-long pre-quit notice provisions—but this strategy is less attractive to US employers that prefer to push exiting lame duck workers who have resigned off the payroll, off the headcount, and out the door.
Temporary or fixed-term contracts: Foreign legal systems actively impose firing restrictions to protect indefinite term workers. (See our Global HR Hot Topic of May 2013) To make firings easier, cheaper and faster, American employers sometimes get the clever idea of hiring overseas staff for temporary, short, repeating fixed terms—if not daily or weekly, then monthly, annually, or every two years or so. Or else employers might tie employment term to the duration of a single current project. This way the employer might avoid firings altogether—a boss inclined to dismiss a worker would merely stop renewing the serially rolled-over chain of employment contracts as soon as the current one expires. But this strategy usually fails, at least after an employee has been on board for a while. Obviously the jurisdictions that affirmatively grant severance protections to indefinite term workers have a compelling policy interest to hold bosses to their severance obligations by not letting them exploit fixed-term contracts. Therefore, very many (although not quite all) jurisdictions regulate fixed-term work contracts. For example, the European Union requires all its member states to rein in and cap fixedterm contracts. (EU Directive 1999/70/EC) While fixed-term agreements are now becoming more common in Europe and Japan, European and Japanese courts are actually striking many of them down. (E.g., German Federal Labor Court Decisions 9 AZR 51/13 (Dec. 12, 2013); 7 ABR 91/11 (July 10, 2013))
Many jurisdictions prohibit fixed-term employment agreements altogether unless the job itself has a built-in expiration or is inherently temporary (apprenticeship, seasonal work, filling in for someone on leave, actor in a play). In addition, laws in many places flatly cap serial fixed-term contract rollovers: After an employee reaches the cap, employment automatically becomes indefinite-term by operation of law, and any purported contractual end date becomes instantly void. The chart below offers examples of many countries' regulations of fixed-term employment contracts.
Another danger with fixed-term agreements is that firing a fixed-term worker early can get much more expensive than dismissing similarly situated recently hired indefinite-term staff. Law in many countries accelerates wages owed to the end of the fixed term, and in countries like Honduras, the employer cannot even invoke a duty-to-mitigate defense crediting wages that the early-fired employee might earn on a next job.
Employers often find themselves writing much bigger severance checks to recently hired fixed-term employees than would be owed had the staff been indefinite term.
Fixed-term work agreements also raise bureaucratic obligations. Countries from Angola to Peru and beyond require employers to file or register with the government fixed-term employment contracts—but not indefinite-term agreements. (Also, jurisdictions like Colombia affirmatively require that fixed-term, not indefinite term, agreements be in writing—but for obvious reasons, fixed terms should always be written and signed by the employee anyway.)
Probationary contracts: Another employer strategy for reserving some freedom to fire in indefinite employment countries, at least for a while, is to put new hires on probation, keeping them terminable-at-will as long as possible. Many countries do indeed let an employer hire staff into some sort of probationary status or trial period. But legal systems do not want employers to abuse open-ended "probation" to evade statutory severance protections, so laws tend to regulate how long probation can run and even how and when a boss can fire a probationary worker. A recent New Zealand case awarded thousands of dollars in wrongful dismissal damages to a fast food worker terminated at the end of a mere three-hour probation. (Salad Bowl v. Howe-Thornley, [2013] NZEmpC152CRC (10/13)). Countries like Bahrain, China, Japan and Russia impose limits on the reasons for dismissing probationary workers. Probation in Costa Rica, Pakistan and South Africa is for the most part illusory because probationary workers get essentially the same severance protections as non-probationary staff. The chart below offers examples of many countries' probation regulations.
Part 3: Laws regulating fixed-term employment contracts and probation clauses
This chart offers a broad summary of laws regulating fixed-term employment and probation, as of 2013. Check local law for nuances and updates.
Fixed-term employment restrictions (where job is not inherently temporary)
Maximum probation period
Fixed-terms disfavored unless job inherently temporary. Max. term 36 mos.
Up to 6 mos., but for high-level
Fixed-term OK only if job inherently temporary. Max. period 5 yrs. Successive renewals may make term void. Termination requires 1 – 2 mos. notice. Fixed-term employee fired without cause can win severance pay (usually full pay till end of term).
3 mos.; termination requires 15 days' notice or severance pay.
No limit on fixed-term, but if the reason for fixed-term is to avoid severance restrictions, dismissal notice, or layoff rights, then employment will be treated as indefinite.
Not regulated; first 6 mos. of employment is at-will anyway.
No limit, but successive renewals may void the end date. Early termination only if in contract.
5-year cap including rollovers.
3 mos.; 6 mos. for some jobs. Termination cannot be arbitrary.
Fixed-term OK only if job inherently temporary. Max. 2-year term. If terminated early, employee gets severance pay of 50% of compensation till end of term. Early termination clauses introduce complexities and might be best avoided.
3 mos. or 1 turnover.
Specifics differ by province but generally no caps. Early termination accelerates pay until end of term absent early termination clause. Unless contract has early termination clause, employee is entitled to be employed for the whole term. Statutory obligation to give notice of termination.
No limit. First 3 mos. of employment
is at-will anyway.
Total max. period 1 yr.; employees with a professional or technical degree granted by a state-recognized institution: max. period 2 yrs.
Labor code does not allow probation except 2 wks. for domestic workers.
10-yr. limit and limit of 2 rolled-over fixed-terms (applicable to Chinese citizens who work for a subsidiary, not for a "representative office").
Max. probation up to 6 mos. varies with length of contract. Termination during probation subject to some restrictions.
If term less than 1 yr., then cap of 3 contracts total. Otherwise, cap of 3 yrs. per contract, but no cap on rollovers.
2 mos. in indefinite contracts or 1/5 of
term in fixed-term.
Fixed-term OK only if job inherently temporary. Max. period 1 yr. generally, 5 yrs. for special technical services. OK to terminate early with notice and severance pay. If employee stays employed after expiration, contract becomes indefinite.
3 mos., but early termination has
same penalties as indefinite.
Max. 30 mos.
26 wks.; can be extended to max. of
No set period.Too many rollovers void end date. Eastern High Court decision of June 28, 2010 found 4 renewals excessive.
Blue collar: no cap; white collar; 3 mos.; 14-day notice of termination.
First 3 mos. of employment are at-will anyway. Probation not allowed
2 year cap including rollovers. If employee stays employed after expiration, contract becomes indefinite.
3 mos. Cap of 15% of workforce on probation, except start-ups.
No restrictions; if early terminated without cause, employee gets 2+ mos., pay per yr. of service.
Fixed-term OK only if job inherently temporary and contract terminates with end of temporary work; no early termination without cause.
30 days; no extensions.
Directive 1999/70/EC requires EU states to cap fixed-terms as to duration and renewals (see the directive’s annex, clause 5). Check EU member state law for specifics.
Probation not EU-regulated. Check member state law.
Fixed term OK only where inherently temporary. Supreme Court is strict on “inherently temporary” (case #KK0 2012:10). No set limit on terms; can be terminated by notice after 5 yrs.
4 mos.; 6 mos. if employer provides 4 mos. training; cannot exceed 50% of fixed-term contract under 8 mos.
Fixed-term OK only if job inherently temporary; fixed-term limited to 18 mos. +1 renewal up to 24 mos. under certain conditions (subject to some exceptions). No cap where employee replaces someone on leave.
2 mos. for most workers; 3 mos. for supervisors/technicians; 4 mos. for executives; renewable once for same period if per collective agreement.
Fixed-term OK only if job inherently temporary. No cap, but longer is harder to justify. Where fixed-term contract meets formal requirements and where job is not inherently temporary: Max. 2 yrs. or 3 renewals within 2 yrs. Other fixed-terms OK under specific exceptions.
Max. 6 mos. 2-wks. notice necessary before termination (unless otherwise agreed).
Max. 3 yrs. and 3 renewals within those 3 yrs. Contracts with up to 45-day break between them are considered renewals.
Max. 1 yr. "trial period."
Fixed-term OK only if job inherently temporary; no cap.
Fixed-term OK only if job inherently temporary. Rollovers void for blue collar "workman."
No set limit, 3 mos. to 1 yr. typical.
Fixed-term OK only if job inherently temporary. Max. initial term 2 yrs., renewable once for 1 yr. If formalities not met, can be deemed indefinite. Severance pay in early termination is 100% of wage to end of term.
In practical effect, fixed terms must total less than 1 year (full severance pay is owed to nominally fixed-term employees dismissed either after 1 year or, per statute, "shortly before the end of the first year" where dismissal is "deemed to have been intended to avoid the obligation to pay severance pay")
No max. term. During probation, dismissal is subject to some limits.
New employees: no justification needed for 1 yr. “Continuation period” of 50 days OK with extra pay. Renewals and existing employees: job must be inherently temporary, max. 3 yrs., including extensions; executives: max. 5 yrs., no justification needed.
6 mos. or less per collective agreement.
Per Labour Contract Act amendment of Apr. 2010, cap is 5 yrs. or 1 renewal. Employee then must request "conversion to unlimited term."
No max. term. Usually 3 – 6 mos.; extensions OK only per specific rules/agreement; termination duringprobation subject to restrictions.
Fixed-term OK only if job inherently temporary. Generally 1 yr. max. term. Fixed-term for CEO/President needs authorization in contract or bylaws.
3 mos.; no probation for recent college grads.
Fixed-term OK only if job inherently temporary. Max. 2 renewals in 2 yrs.
3 mos.; 6 mos. for professionals; 12 mos. for high earners.
Fixed-term up to 180 days OK only for high-level positions. Otherwise, fixed term OK only if job inherently temporary. Contract must be for duration of the temporary task. Where fixed-term contract early terminated without cause, employee can claim unfair dismissal and win reinstatement or damages.
30 days; 90 or 180 days for management and otherspecialized employees.
Max. 3 years (after 7/15 becomes 2 yrs.) and 2 renewals (except as to employees younger than 27 yrs. old: 4 yrs. and max. 3 renewals within 4 yrs.) but if 3+ mo. break (after 7/15 becomes 6+ mo. break) within 3 yrs., the 3-yr. period restarts. Fixed-term contract can be terminated early only with permission of court or the UWVWerkbedrijf agency, or if parties agreed on early termination clause. Employer must give 1 mo. non-renewal notice after 7/15
1 mo. for fixed-term contracts up to 2 yrs.; 2 mos. for others. After 7/15, no probation in fixed term.
Fixed-term OK only if job inherently temporary. No statutory cap.
No max. term but "trial periods" strictly construed.
No max. term but max. 3 renewals. Can terminate early for justifiable cause only.
30 days; no probation for fixed-term employees.
No restrictions, although must be in writing.
Not regulated; should be in writing.
No cap, but after initial term, rollovers must be for inherently temporary work only and term must be till the end of the task.
3 mos. Give 7 days' termination notice.
No restrictions, but term is illusory in that terminated fixed-term employee entitled to same termination compensation as indefinite-term employee.
Under temporary 2009 Anti-Crisis Law, capped at 24 months. Otherwise no cap, but overlong term can be held indefinite. Employment of less than 6 mos. cannot be early terminated except for gross misconduct. After 6 mos., either party can terminate with 2 wks. notice if employee had agreed to 2-wk. termination in writing.
3 mos.; early termination requires notice of 3 work days to 2 wks.
Fixed-term OK only if job inherently temporary. Max. term 3 yrs., including max. 3 renewals within the 3 yrs.
3 mos.; 6 mos. for technical/high-level employees; 8 mos. for directors/top officers. Fixed-term agmts.: under 6 mos., 15 days; 6+ mos., 30 days.
Fixed-term OK only if job inherently temporary; max. 3 yrs. (unless substituting for employee on leave).
3 mos. for non-management; 4 mos. for management; other for fixed-term.
Fixed-term OK only if job inherently temporary, where employer is small business or where employee works high-level position(management, director, chief accountant). Max. 5 yrs. Early termination not allowed unless for cause.
3 mos.; 6 mos. for high-level officers; termination before end of probation OK only for poor performance and after 3-day notice.
No max. 1 – 3 mos. is typical.
Fixed-terms disfavored unless job inherently temporary. Agreement may be deemed indefinite (and "non-renewal" may be deemed unfair termination) if employee had reasonable expectation of renewal.
No cap; practice is up to 6 mos. But “probation” is arguably illusory—employer must respect dismissal rights.
Fixed-term agreement must fit one of four categories:
Temporary contract for specific task/service: for duration of task
Seasonal/special market conditions contract: up to 6 mos
Training/work experience agreements: 1 to 3 yrs. (can be reduced to 6 mos. by collective agreement.
Substitution for on-leave employee: for duration of principal employee’s absence.
Fixed-term void after employee works 24+ mos. within 30-mo. period under 2+ fixed-term contracts.
2 mos.; 6 mos. for college grads; 1 yr. for employers of up to 50 employees.
Fixed-term OK only if job inherently temporary. Max. 2 yrs. within a 5-yr. period.
Max. 6 mos.
No max. term but max. 1 renewal. After 10 yrs., either party can terminate with 6 mos.' notice.
First 1 mo. of employment is at-will; parties can agree to 3 mos. or sometimes 6 mos
Fixed-term OK only if job fits into set inherently temporary categories; max. term depends on type of work, but cap is 1 yr.
Max. 4 yrs. No cap on rollovers and no cap for Dubai International Financial Center (DIFC) employees.
Max. 6 mos.; no cap for DIFC employees.
Max. 4 yrs. unless longer term objectively justified, but employees with 2+ yrs.’ service protected against unfair dismissal. Early termination or non-renewal actionable as unfair dismissal unless employer follows fair dismissal procedures.
No cap; practice is 6 mos. or less.
Generally no restrictions as to term or severance at end of term (state laws may restrict early termination).
Probation not necessary where employment-at-will.
Fixed-term up to 1 yr. OK only if job inherently temporary.
Max. 3-yr. term including max. 1 renewal. Employee entitled to 30-day early termination notice. After 1 yr., employee gets severance pay unless terminated for just cause.
60 days for technical jobs; 30 days for mid-level; 6 days for others. Probationary wage must be 85+of "scale" wage.