When you expatriate employees abroad, it is important to define clearly the new contractual arrangements between the employer and the employee prior to the employee’s departure. The annex to the work contract, called in French “avenant au contrat de travail” will differ whether the employee is seconded, expatriated or working under a new local contract in the host location. The only common points to all these different situations is that you must make an annex to the work contract that leaves to work abroad.
The goal of this section is to provide you with the necessary reflex to chose the type of annex or “avenant”, the specificities of this annex which we believe need to be clearly addressed (and which are common to all contracts amendments), as well as any particularities or mistakes to avoid when writing this annex to the work contract.
It is most often recommended to maintain a work contract with the home firm to which you add an annex or “avenant”. The key point is to always respect the labor laws of the host country while remaining subject to the home country labor laws, the firm’s home specific rules “accords d’entreprise” and the mobility rules applicable within the company.
However, we will differentiate five different types of annex to the work contract.
The home country contract remains applicable during the secondment. The main amendment of a secondment contract is the section concerning “social security protection”. Indeed, the employee seconded remains subject to the French mandatory social security scheme of his home country. Therefore, this clause must be clearly identified and must corresponds to the definitions provided by the totalization agreements signed with other countries or with the European agreements signed on social security matters if you are seconded an employee within Europe.
In case of a secondment, the employee remains subject to the decisions taken by his home employer and must follow management requests of the home employer. For this reason, a clause must clearly identify that the employee maintains his obligations with his home employer.
The home contract can remain in place but you can also decide to suspend this contract during the period of expatriation. This depends mainly on the habits of your firm but it is, however, recommended to suspend it during the expatriation period.
During an expatriation, it is often necessary not only to sign amendments “avenant”to the home contract but also to sign a local contract with the host location. The local contract is not always requested (i.e. United States, UK, etc) by the labor legislation of the countries where you expatriate employees. However, a local contract is often a prerequisite prior to obtaining a work permit (i.e. Australia, Saudi Arabia, Morocco, etc).
Explaining split contracts is not the goal of this section. For this reason, we will not delve deeply into it and we will not develop on how to put one into place. However, it is important to keep in mind that if all the labor laws are properly respected and that the responsibilities are clearly identified, split contract can be put in place.
The split contract by definition consists in signing two local contracts with the employee, one with the home and the host employer. This type of contract can only be in place if the employee works in two countries that are often close to one another in space and in agreements (i.e. the two countries have an agreement in regard to social security). One of the contract is the main contract, which will respect all the local labor and social security laws in the first location but will remain a “partial” work contract (i.e. meaning that the employee does not work constantly for that employer), the other “partial” work contract being for the work realized in the other location. The second contract will also respect labor laws applicable in the second location.
This is a contract signed between the home location, the host location and the employee, in order to identify clearly all the rules applicable during the period of the expatriation.
This contract is a contract signed with the host location and respects labor laws applicable in this location. This type of contract is often similar to local regular contracts signed in this location. However, the conditions of termination at the end of the expatriation have to be clearly identified. Indeed, the idea is to avoid having to pay termination payments in the host location at the end of the assignments particularly if it is because of internal transfer or a return to the home employer.
You will find below a list of the amendments that we believe to be key when preparing an annex to the work contract.
Goal of the addendum : It must be clearly written that the annex comes in addition to the work contract that remains either applicable or is suspended during the period of the assignment abroad. Also mention which laws and rules will apply during the expatriation.
Place of work, job title and reporting requirements : Identify in the annex the name of the host firm, its address, the city and the country location. Define the goal of the assignment, the job title, and the reporting requirements with the host and home employer.
Default clause : This clause is necessary in case the employee is unable to obtain the work permit or unwilling to go ahead with the medical visit.
Length of the assignment : Identify the date of departure and the planned date of return. Confirm whether the date of return is at a fixed date or whether the assignment can be extended. We recommend that from the beginning, it be written that the assignment may be extended, allowing more flexibility.
Reference to the home compensation : Identify the compensation of reference to be used to calculate home social security contributions, expatriation premiums and that will be the compensation upon return home, unless a salary increase is applied during the assignment.
Compensation during the assignment : Identify the real compensation that the expatriate will receive during the assignment (base salary, expatriation premium, cost of living adjustment, etc), as well as the rules applicable when calculating the adjustments (annual or semi-annual adjustments for example) of each element of the compensation.
Benefits-in-kinds : List all benefits-in-kinds that the expatriate will benefit from (housing, utilities, car, annual home leave, etc) and determined how those will be given to the expatriate (through an allowance, reimbursement, etc).
Social security protection : This clause to the annex is probably one of the most important. It has to be clearly listed whether the expatriate will be seconded or expatriated, then detail the type of protection the expatriate will benefit from (private insurance, CFE, CRE / IRCAFEX, foreign social security coverage).
Vacation entitlement : You can decide that the expatriate will benefit from at least the same number of vacation days local employees in the home location get. However, the host location can guarantee different conditions for vacation days and normally that will apply first. The legislation that applies in regard of the numbers of hours to work per week is a local decision. Therefore, anything that differs from the host location in favor of the employee will be considered as a benefit. National holidays applicable are those in the host location.
End of assignment : The idea in this clause is to clearly determine the conditions that apply in different scenarios, regular end of the assignment, extention of the assignment, early termination of the assignment or the conditions of an early end of assignment.
As a reminder, please note that the employer, if he is the party ending the assignment abroad, has a legal obligation under article 122-14-8 of the French labor code to bring the expatriate back to his home location and include him back in the home local firm.
This forces the employee to pay for the expenses of the expatriate to come back to the home country and to provide him with a similar position as the one the expatriate had prior to leaving on assignment.
This is the reason why we recommend that the following details be included in the annex :
- the procedure to include the expatriate back in the home location staff ;
- the budget provided by the employer for the purpose of moving back;
- the administrative help (housing, enrollment of the children in a school.
Applicable law during the assignment : In general, the law applied to the annex to the work contract and all its implications are determined by the different signatories of the annex to the work contract.
By default, the law applicable in the home location, where the original work contract was signed, applies. However, it is still recommend to clearly mention the law applicable in the annex, as well as the part of the industry common rules “convention collective” that applies to work abroad (if it exists).
Competent court system : In case there are discussions on how the annex to the work contract needs to be applied and in case of a termination of the work contract, it is important to know which court system is competent.
In general, if it is the host firm that calls upon the law, it will contact the host court system, if it is the home firm that calls upon the law, it will contact the home court system. If it is the employee that calls upon the law, he will be able to choose between the host or home location court system or the location where the annex was signed. Therefore, it can be mentioned in a clause that only the court system of the home location employer is applicable in case of any issue with executing the work conditions mentioned in the annex to the work contract.
When the host location rules force you to have a “local” contract signed, careful to the conditions in case of a termination of the “local” contract. Indeed, certain legal system obliges the employer to pay termination payments or departure payments even if the employee remains an employee in the home location. In those countries, it is important to look at the work contracts available and the possibilities they allow. The decision often taken is to sign a “local” contract with a duration of application equal to that of the expatriation annex. However, it is important to study carefully this question in each country.
Before terminating an employee on expatriation, it is recommended that the employee be brought back to the home location in order to end all legal and work connections with the host location. This will allow to reduce the risk of having two types of rules application in two different legal systems concerning termination.
This is one of the great paradox of labor law, it recognizes the right for an employee to be brought back in the home location staff because it recognizes the concept of an “international group” and the concept of “mobility intra-group”. However, when the employee is terminated, all these concepts no longer exist and the employee can benefit from the rules application in two different legal systems. Therefore, the employee can cumulate the termination payments available in both countries. The termination cost gets extremely expensive.
As a conclusion, do not overlook any clause of the annex to the work contract and do not forget that as the employer you have a theoretical obligation to inform which obliges you to provide information about the host location (ie the word “theoretical” is used because this obligation only exists in the industry common rules “convention collectives”.