Issuing UK employment contracts to employees based overseas – do you know what you are signing up for?
The recent case of Green v SIG Trading Limited provides a useful reminder to employers about the dangers of using standard UK terms and conditions for overseas hires, including lack of clarity as to what terms truly govern the relationship and creating the potential for employees to cherry pick which jurisdiction to bring claims in.
Mr Green, a UK national living abroad for some time, began working for SIG Trading Limited, a UK company (SIG). Mr Green's remit was Saudi Arabia (Saudi), and he would commute there from his home in Lebanon for days at a time. SIG had established business operations in Saudi and while there Mr Green was based at the offices of SIG's local partner, Fanar Trading Limited. Mr Green's place of work was therefore Saudi Arabia, although he did travel to the UK on business very occasionally.
SIG issued Mr Green with its standard UK employment contract, governed by English law. SIG's rationale was that it was administratively simpler to issue a contract it already had a template for than putting together a Saudi Arabian contract for Mr Green. Mr Green was paid in pounds sterling but did not pay any income tax or National Insurance in the UK.
When SIG elected to close its business operations in Saudi Arabia, Mr Green was made redundant. He brought a claim for unfair dismissal under English law in the Employment Tribunal (ET). The ET dismissed his claim on the grounds that it had no jurisdiction to hear it. The ET reasoned that Mr Green lived and worked abroad – developing entirely new business in Saudi Arabia – and therefore did not have a sufficiently close connection with the UK to fall under the jurisdiction of British employment laws. The ET accepted SIG’s argument that use of English law contracts was for administrative ease and nothing more and took into account Mr Green’s tax situation.
Mr Green appealed, and the Employment Appeals Tribunal (EAT) ruled that he could bring a claim for unfair dismissal in the UK. He had a binding contract with SIG stating that English law applied and that the English courts and tribunals had jurisdiction. The EAT stated that this binding contract, stating the parties' intentions, should not have been overlooked by the ET when determining whether it had jurisdiction. The case has now been remitted to the ET to consider the merits of the unfair dismissal claim itself.
Key points for employers to note:
- Using standard UK employment contracts for overseas hires may give the employee rights in the UK that they may not otherwise have had. However, use of a UK contract will not necessarily stop local laws applying. Are you creating a situation where the employee can cherry pick between two jurisdictions and claim in whichever forum gives them greater rights or higher compensation? What might be a fair dismissal in one country could easily be unfair in another.
- Remember that when an employee works in a given jurisdiction certain local employment laws are likely to apply automatically, for example with regards to holiday entitlement, working time, minimum wage, overtime or notice periods. A UK contract complying with British employment laws may fall short against local minimum requirements. Is using a UK contract giving you sufficient clarity as to what the correct terms of employment should be, or is it storing up claims in the foreign jurisdiction that could come back to bite later?
- Pay particular attention when attempting to engage employees overseas on fixed-term contracts. In many jurisdictions improperly drafted documentation can render the employee an automatic permanent hire under local laws. Well-intentioned UK fixed-term contract provisions could easily fall foul of these rules.
- Issuing a contract under local laws is likely to reduce the risk of an overseas-based employee bringing claims in the UK, particularly where the connection of their employment to the UK is otherwise tenuous. However, each case will turn on its own particular facts: where is the employee working? For the benefit of whom? From whom do they take instructions? What does their contract state? Where do they pay their taxes and social security charges?
For further information, please contact Chris Williams at firstname.lastname@example.org