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COVID-19 and Cross-Border Furloughs and RIFs

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During the last month, we have been talking a lot about the legal challenges involved in laying off or furloughing workers in the United States. How do you go about selecting employees? Do you have to bargain with the union? Do you have to provide WARN notices? Can furloughed employees remain on your health plan? Further complicating company’s decision-making is the emergency relief in the CARES Act that has been made available to encourage employers to retain employees and the generous, albeit temporary, expansion of unemployment benefits to employees.

But as we all know, COVID-19 has affected the global economy. U.S. companies that are laying off, furloughing or reducing pay for their workers in the United States are also thinking about doing the same with employees (some of whom are U.S. expatriates) who work in their foreign operations. After all, if a company is going to be reducing its U.S. headcount or salaries by a certain amount, shouldn’t this be done on a consistent basis across the rest of its operations?

Human resources managers for multinational companies and international employment lawyers have long known that you cannot have one-size-fits-all policies and benefits for a cross-border workforce. As complicated as U.S. employment law has become, U.S. employers still have much more flexibility when it comes to layoffs and furloughs than employers in other countries because most non-union employees in the U.S. are “at-will” employees who can be terminated without cause so long as the decision is not motivated by an unlawful discriminatory or retaliatory motives.

In many countries, no-cause layoffs are either illegal or the employer is required to pay the separated employees a statutory — and often substantial — severance, usually based on the employees’ seniority. While other countries often do permit reductions or redundancies for economic difficulties, companies are frequently required to negotiate the reductions with unions or works councils and, in some countries, failure to negotiate the decision with the works council can prevent any reductions from taking place. In certain countries, they must also obtain government approval before proceeding. Given that most countries have more employee-friendly laws than the U.S., companies should not be surprised if expatriates avail themselves of legal remedies in the country of their foreign assignment if they are included in a layoff.

U.S. companies with employees in other countries should also keep in mind that new laws that have been enacted in many countries in response to the COVID-19 pandemic might make it more difficult to terminate employees at this time. On the other hand, much like the U.S. Congress did with the CARES Act, governments in many other countries (including the UK, France, Germany, Italy, Canada, Australia, South Korea, and Peru, to mention a few) are offering subsidies to employers to help them retain employees on their payroll, even if those employees remain furloughed. Hence, it may be more beneficial to a company’s bottom line to retain employees in certain countries despite a decision to lay off employees in the United States.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.