The coronavirus (COVID-19) pandemic has fundamentally changed the way of working – very likely for the long term. For many employees, this means working from home, but for others, this opens a whole range of options as to where they live and work, and for some, the prospect of working abroad has understandable temptations. Many companies have recently introduced new policies allowing employees to work from anywhere they want, including foreign countries. 'Work from anywhere' is the order of the day, however implementing this maxim is not as straightforward as it might immediately seem and can lead to a variety of legal issues that employers must consider, including tax, social security, employment rights and immigration. Even temporary work abroad involves a multitude of legal issues that must be clarified, from which considerable risks arise for the employer.

Employees may gain local employment law rights

Temporary work abroad generally does not affect the applicable legal regime. Employment contracts that are subject to the employee's home country employment law by virtue of the choice of law clause remain subject to local law, even if employees temporarily work abroad.

However, the situation may be different if the foreign activity exceeds a quantitative scope, such as several months of activity abroad, and the 'usual place of work' is shifted abroad as a result. In this case, a favourability comparison would have to be made. For the employee working abroad, the provisions of the foreign law that provide a more favourable legal position than the home country's provisions are then applied on a selective basis. Any protection acquired will therefore depend on the involved country's legal regimes. It is worth noting that there are countries where individuals are afforded greater or different employment rights, for example in relation to holiday, minimum pay and on termination. This obviously leads to a patchwork of legal regulations that may be applicable. As this is not exactly legally reliable, employers should consider whether the employment relationship should be permanently subject to the law of the foreign country to avoid such a patchwork.

Immigration regulations – the obligatory 'right to work' test

Employers will need to undertake a 'right to work' test before allowing an employee to work abroad. For those employees seeking to work in a country other than their usual place of work, it must be checked whether a residence or work permit is required. It is a common misconception that one may enter a country as a visitor, or even as a tourist, and work remotely from a country without first obtaining a work visa. Most countries determine the need for a visa by the activity that the individual will be doing, not the duration of a stay. Therefore, even if one is permitted entry as a visitor for 90 days, it does not mean he or she is allowed to work remotely during that time. Unauthorised work abroad, particularly in non-EU countries, should therefore be strictly prohibited to avoid any illegal employment of foreigners and the administrative or criminal sanctions associated with it.

Tax implications

Further attention must be paid to the unintended tax implications of having employees working in a foreign country. The question to be asked here is whether a 'taxable economic success' is achieved through the work abroad and whether this (unintentionally) creates a permanent establishment abroad that is relevant under (company) tax law. This very much depends on the individual facts of the case and particularly on the position and authority of the employee. Typically, there is a specific risk if the employee's role includes sales activities that usually involve negotiating and concluding contracts on behalf of the employer.

Social security

The question of which social security regime applies cannot be answered in a blanket manner and essentially depends on the duration of the stay and which host country is involved. Unintentional compulsory insurance abroad and the punishable non-payment of contributions that are owed should be ruled out before commencing the work abroad. In most cases, the employee will become subject to the social security of the country where the work is undertaken. It will therefore also have to be taken into the overall consideration that a foreign payroll service will have to be engaged to properly process the payroll, observing that foreign social security and tax regime.

Health and safety – know the local laws

Employers are under a duty to protect the health, safety and welfare of their employees, irrespective of where they are working, including when they are working from home and in a home abroad. This involves carrying out risk assessments and considering any local health and safety requirements.

Data privacy & security

Companies must also identify whether the role of the employee requesting to work abroad involves the processing of personal data. If it does, it must be considered which data protection regimes apply in the circumstances and seek local advice where appropriate. All personal data transfers that will take place must be identified and executed under consideration of the host country's local data protection requirements. Particular attention must also be paid to data security threats, given the increased risk of hacking and cyber fraud when employees are working remotely abroad. The use of VPNs and multifactor authentication can help to counter these threats. If data is to be stored on servers in the host country, potential access rights of local authorities must be considered.

Best practice advice

Since every employee's request to work abroad is associated with individual risks, such a request should only be approved after the legal implications have been identified and addressed in a corresponding 'working abroad agreement', which minimises or excludes the risks for the employer. A few other practical points to consider are: (i) determine which law will apply to the work abroad arrangement and familiarise yourself with the most important regulations; (ii) introduce a general 'working from anywhere' policy which puts in place a proper process for employees and company stakeholders to follow; (iii) use probationary periods and fixed-term arrangements to assess how the arrangement is working for both the employee and the employer; and (iv) ensure that the employee will remain liable, to the extent legally permissible, for any additional taxes or social security that might arise.

Originally Published by Financier Worldwide Magazine.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.