Myths and Truths About Expatriate Compensation/Benefits
Question: Which country’s labor laws protect an expat?
Answer: It’s the local mandatory labor laws of the host country that apply.
They apply to all employees, even foreigners. The mandatory laws that apply to compensation and benefits include among others: pay rate, overtime, payroll, mandatory benefits, hours, rest periods, vacation/holidays and severance pay.
There are a few exceptions where a home country’s laws apply. These include some supplemental or discretionary plans. However, only a small number of plans are considered discretionary. Examples include executive compensation and equity plans.
No problem you say: “We have our expats sign an agreement that they choose to be governed by U.S. labor laws. Our expats can’t choose to opt out or break the agreement.”
Wrong. Home country choice of law agreements are non-binding and an expat cannot opt out of host country mandatory labor rules.
Some companies are advised to insert these clauses in expat agreements anyway. Why? They may think that the majority of American expats either 1) don’t trust the laws of other countries or 2) believe a U.S. choice-of-law clause is truly legal and expats have no rights under host country law.
But some expats may know that choice of law agreements cannot be enforced. Unfortunately for home country companies, expats posted to rich countries are particularly likely to figure out that host-country law guarantees them more generous benefits — example, the pregnant expat in France.