At one time or another, many companies with international operations may look to transfer employees between the company's offices. There are many reasons why companies do so. A company might have an international secondment or assignment program, for instance, that provides employees with the benefit of gaining experience living and working in a new market. In other situations, a company may require the skills and experience of a particular employee in a part of the business that the company wants to establish or grow, or a company might simply desire the specific skill-set of a foreign manager or executive. In each of these situations, there is likely to be consideration of immigration and local employment laws by the employer (often tied to the visa terms), but the impact of the laws in the employee's country of citizenship are often overlooked in these situations. Failure to consider the applicability of Australian laws when transferring employees outside of Australia can have significant consequences for the employer.
In particular, there are two aspects of Australia's employment-related laws that should be reviewed: Australia's Fair Work legislation and the Superannuation Guarantee (compulsory retirement benefit) laws.
Australia's Fair Work Laws
Whether Australia's Fair Work legislation will apply to work performed outside of Australia by an Australian employee can be a complex question. The answer is not always clear and often involves an analysis of the applicable facts at hand. Part of the reason for this is that the Fair Work Act 2009 ("the Act"), which came into full effect on January 1, 2010, is largely untested.
The Act applies to a "national system employer" (as defined by section 14 of the Act) and its "employees" (as defined by section 13 of the Act). The definition of national system employer includes any Australian corporation registered in Australia pursuant to Australian corporations' laws (which includes a sole trader, partnership, trust or a public or private company). The definition also includes any foreign corporation (i.e., a corporation incorporated outside of Australia) that carries on business in Australia. (See, e.g., New South Wales v. Commonwealth (1990) HCA 2; Re: Dingjan, Ex parte Wagner (1995) HCA 16). The definition of national system employer; therefore, can extend to Australian corporations that operate in an overseas location through a branch or office, as well as situations where an Australian employee is sent from one corporation to a related overseas company, such as a U.S. parent company, in circumstances where the employee maintains a relationship with the Australian corporation.
In an attempt to avoid the applicability of Australia's laws, some employers seek to terminate the worker's employment in Australia prior to the transfer taking effect. If conducted correctly, this can work to break the continuity in employment and prevent the applicability of the Act to the employee's overseas employment. (With the exception of benefits provided to employees under Long Service Leave laws in Australia which may continue to apply in certain circumstances). However, many employers make fundamental errors with respect to the manner in which the international assignment is offered and processed, the type of documentation that is provided to the employee relating to the international transfer, or how the leave accruals are handled. To prevent costly mistakes, it is important for employers to appropriately characterize the nature of the international transfer before the employee is sent to the overseas location and to ensure that this is clearly articulated and agreed to by the employee.
Australian law requires the employee to sign written contractual terms confirming his or her acceptance of the new terms of the employment. As such, the employer needs to determine whether the international assignment is to be regarded as a short-term assignment for a specific purpose or a fixed-term, after the completion of which the employee will return to his or her employment in Australia. Alternatively, the employee may be offered new employment directly by the related overseas corporation pursuant to localized terms and conditions of employment. In either case, there must be clear evidence that the terms have been agreed to by both parties and the entire arrangement must be consistent with whichever approach is adopted.
Where the employee elects to accept new employment with the related overseas corporation, the employee's Australian employment must first be terminated effectively. Otherwise, the employer will not only be obligated to continue to provide the employee with benefits under the Act, but the employee also will likely end up having rights and entitlements under the laws of both countries. We have seen employees in these types of situations who have filed claims against their employers in both countries, claiming separate benefits and entitlements in each jurisdiction.
Foreign Corporations Carrying on Business in Australia
Determining whether or not a foreign corporation is "carrying on business" in Australia sometimes requires a comprehensive examination of the employer's activities in Australia. It is necessary to conduct an analysis of the business activities against the various tests applicable under Australia's corporate laws and other common law principles. Generally, the various tests look to whether the corporation is deriving any income sources from Australia or receiving any gains arising from assets or dealings that have a necessary "connection" to Australia. If the employees of a foreign corporation are conducting work in Australia and such work benefits the corporation and has some type of relationship to Australia, these factors would weigh heavily for finding that the corporation is carrying on business in Australia. As a consequence of such finding, the employee working in Australia for the foreign employer must be provided with benefits and entitlements in accordance with the Act. However, the Act does not apply in cases where a foreign employer that has no business operations in Australia is merely permitting an employee to work remotely from Australia and the employee's work does not relate to Australia in any way other than just the fact that the employee is physically located there.
Employers are advised to seek legal counsel on this issue, however, as it will usually involve a comprehensive analysis of the employer's business activities and the nature of the employee's position and duties.
Employing Australians Outside of Australia for Work Conducted Outside of Australia
Section 34 of the Act deals with "Extension of this Act beyond the exclusive economic zone and the continental shelf" and provides that the Act applies to "Australian-based employers" (i.e., Australian companies) and any "Australian-based employee," defined by section 35(2) of the Act as an employee:
(2)(a) whose primary place of work is in Australia; or
(b) who is employed by an Australian employer (whether the employee is located in Australia or elsewhere).
Section 35(3), however, clarifies that "paragraph (2)(b) does not apply to an employee who is engaged outside Australia......to perform duties outside Australia......."
As such, if a corporation registered in Australia is the employer of an Australian citizen and the Australian citizen is located in Australia either when an offer of employment is made or at the time that employment commences, the employee will be covered by the Fair Work legislation and entitled to Australian benefits. However, if a corporation registered in Australia is the employer of an Australian citizen and the Australian citizen is located outside of Australia when an offer of employment is made or at the time that the employment commences, whether or not the employee will be covered by the Fair Work legislation is a question that will need to be determined based on the nature of the employee's position and the work that the employee will be doing during the period of their overseas employment.
Likewise, an employee may be covered by the Fair Work laws if he or she is undertaking work for a corporation deemed as a "related bodies corporate" (within the meaning of section 50 of the Corporations Act 2001), which includes (a) a parent company of another company; (b) a subsidiary of another company; and (c) a subsidiary of a parent company of another company (i.e., the two companies share a common parent company). Moreover, the Fair Work laws may apply if the employee is performing any work on behalf of or related to a company's Australian business, particularly where any work-related travel to Australia may be required. In these types of arrangements, the employee may be entitled to Australian benefits under the Fair Work laws and other employment-related laws (excluding superannuation benefits which are discussed further below).
Superannuation – Australia's Employee Retirement Benefits
Except in limited situations, employers are required to make minimum superannuation retirement benefit contributions on behalf of employees (and contractors in some circumstances) in Australia in accordance with the Superannuation Guarantee (Administration) Act of 1992 and the Superannuation Guarantee Charge Act of 1992 (collectively referred to as "the Superannuation Guarantee legislation"). From July 1, 2014, the minimum superannuation contribution required is 9.5% of an employee's "ordinary time earnings." (The applicable "ordinary time earnings" is determined by the employee's occupation and, in some cases, the employer's industry). Scheduled increases are planned over the next five years, during which the minimum superannuation contribution rate will eventually reach 12%.
Employers are not, however, required to make superannuation contributions for Australian citizens who are either:
- Non-tax resident employees paid for work done outside Australia; or
- Resident employees paid by foreign employers for work done outside Australia
Employers analyzing whether an employee is an Australian tax resident for purposes of determining eligibility for retirement benefits should carefully consider Australia's discrimination and general protections laws which prohibit employers from making certain employment decisions based on protected rights or attributes, such as nationality.
In light of the above discussion, employers should be aware that the Fair Work laws and the Superannuation Guarantee legislation require different tests to determine whether an employee is entitled to benefits under those laws. The consequences of non-compliance can be costly, resulting in penalties, awards of back pay damages and fines. For non-compliance with the Fair Work laws, corporations can be subjected to penalties of up to $51,000 per breach, and individuals can be liable for up to $10,200 per breach. If the required minimum superannuation amounts are not paid on behalf of an employee, the employer will be liable for the Superannuation Guarantee Charge, amounting to the total superannuation, owing plus interest and an administration fee. Accordingly, employers' assessment should include a careful analysis of the company's obligations under both the Fair Work Act and the Superannuation Guarantee legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.