Hiring Abroad: Employment Law Traps You Can Avoid

Read This First

This post is meant to do two things: highlight that employment law outside the United States is complicated and very different from what you may be used to, and convince you that you need to localize your employment practices before you hire It is not a comprehensive treatment of any one country. I

Companies often ask us to draft one employee handbook or employment contract to cover multiple countries. That is virtually never possible. We almost always have to make modifications. The best and usually least expensive approach is to tailor your handbooks and contracts to each specific country. The next best option is usually to maintain a global template for your handbook and your contracts and change as little as possible for each jurisdiction. The worst is to keep them identical everywhere.

Are Your U.S. Employment Contracts Exposing You to Lawsuits Abroad?

If you expand into foreign markets without localizing your documents and practices, the answer is probably yes. Once you cross a border, the rules change. U.S. templates and assumptions will not protect you.

Focus on three things: contracts, handbooks, and pay. Each country has its own requirements, and copying U.S. documents creates unnecessary risk. The fix is straightforward: localize your agreements and policies, follow local procedures for adoption and delivery, and map mandatory pay before you hire or fire.

Case Study 1: The Washington Contract in Vietnam

A Seattle company used English-only agreements governed by Washington law, with Seattle arbitration, for its Vietnam staff. Read that again.

Then they terminated five Vietnamese employees. The employees sued in Vietnam. The company wanted us to force litigation in Seattle. We had to explain that no court in the U.S. or Vietnam would allow that for local employment relationships. We then helped them understand Vietnamese law and settle with the employees.

They settled because their contracts and practices violated multiple Vietnamese labor laws. The alternative—court-ordered reinstatement, back pay, and administrative fines—would have been even more costly and disruptive.

Key Takeaway: You cannot contract around Vietnam's labor jurisdiction for local employment relationships.

Case Study 2: Europe's Non-Compete Shifts Catch an American Tech Company

A U.S. tech company rolled out its standard global non-compete agreements across several EU countries. Within months, reforms and enforcement trends forced them to revisit dozens of contracts. They spent close to $50,000 on legal fees across multiple jurisdictions to clean up agreements that should have been localized from the start.

The broader point: Employment equirements vary by country. Do not assume that what's good in your home country is good anywhere else.

What Changes When You Cross a Border

Contracts

China: Have a written contract with your employees within one month or you owe double wages for months 2–12. After 12 months without a written contract, the employee becomes open-term, which makes termination extremely difficult.

Spain: A written contract is not always mandatory, but if employment exceeds four weeks you must provide key terms in writing within statutory time limits. Collective bargaining agreements set many specifics. Spain also requires that employees be heard before disciplinary dismissal. Skip this step and you risk an unfair dismissal finding.

Vietnam: Use Vietnamese or bilingual agreements. English-only contracts are risky with authorities and courts. Document termination grounds and processes carefully.

Mexico: Contracts must reflect statutory bonuses, vacation rules, and profit sharing.

Handbooks and Workplace Rules

China requires clear, properly adopted rules if you plan to terminate for misconduct such as theft, commercial bribery, unauthorized side work, or data exfiltration. Get signed acknowledgments in Chinese and keep distribution records. Without a compliant handbook, "for cause" termination may not stand.

Remote work adds another layer. Some countries regulate telework through written agreements covering equipment, costs, and health and safety. Portugal is one example—expect a detailed written telework agreement.

Adoption and Translation Checklist

1. Draft a country-specific handbook aligned with local laws.
2. Translate into the local language and confirm legal terminology.
3. Follow local adoption procedures.
4. Distribute to all employees and collect signed acknowledgments.
5. Keep delivery records for audits and disputes.

Compensation and Statutory Pay

In China, a 13th-month bonus is customary but not mandatory unless you promise it. In Mexico, aguinaldo, vacation premium, and PTU are strict legal obligations.

Budgeting and Payroll Planning

1. Map statutory benefits before making offers.
2. Adjust compensation for country-specific laws and payroll cycles.
3. Align payroll calendars with 13th or 14th month payments where customary or required.
4. Put bonus policies in writing to avoid creating unintended entitlements.

Non-Competes and Confidentiality

China limits post-employment non-competes to senior managers, senior technical staff, and others with confidentiality duties. The cap is two years, and monthly compensation is required during the restricted period. If you do not specify an amount, courts often apply a local benchmark.

Elsewhere, the rules differ. Several European jurisdictions have banned or heavily restricted non-competes or require real consideration. Use them sparingly and reinforce confidentiality and IP protections instead.

Data Privacy and Trade Secrets

Define confidential information precisely. Train teams on handling it. Align collection and retention practices with local data privacy laws. Combine contractual protections with operational safeguards.

Independent Contractors

Misclassification is common and expensive. China, Spain, and Mexico each use their own tests for control and integration. If a person works under your direction as part of your organization, assume employee-status risk. If you want them classified otherwise, consult qualified local counsel. In many countries, achieving true contractor status is nearly impossible.

Misclassification Audits

1. Inventory contractor roles and evaluate control.
2. Compare duties against local employment tests.
3. Convert high-risk roles before a complaint or audit forces the issue.

Country Notes You Can Use

China

Mandate a written contract within one month. If you miss it, budget double wages for months 2–12 and expect open-term status after 12 months. Route disputes through labor arbitration. Adopt a local handbook listing specific termination grounds. Fund non-competes monthly and only for eligible roles.

Vietnam

Localize contracts (Vietnamese or bilingual). Budget for severance even on lawful resignations with proper notice, subject to unemployment insurance offsets. Document termination processes thoroughly.

Spain

Choose the correct dismissal route. Objective dismissal is for economic or organizational reasons and requires 15 days' notice or pay in lieu, plus statutory severance. Disciplinary dismissal is for misconduct but requires that the employee be heard before the decision. Check collective agreements and local language requirements.

Mexico

Plan and budget for aguinaldo, vacation premium, and PTU. PTU (Participación de los Trabajadores en las Utilidades) is Mexico's mandatory profit-sharing: companies must distribute 10% of the prior year's taxable profits to eligible employees (by May 30 for companies and June 29 for sole proprietors). Expect union presence in many industries and strict enforcement on misclassification and subcontracting.

Dispelling Common Myths and What to Do Instead

Myth: We Can Use Our U.S. At-Will Contracts Abroad
Reality: Most countries require cause, procedure, notice, and often severance.
Action: Localize contracts and governing law, and deliver them on time.

Myth: Spain Always Requires 15 Days' Notice
Reality: Only objective dismissals do. Disciplinary dismissals can be immediate but require a prior hearing.
Action: Pick the correct route, follow the process, and check the collective agreement.

Myth: A 13th Month of Pay Is Mandatory in China
Reality: Customary, not mandatory—unless promised.
Action: Decide your practice, put it in writing, and budget accordingly.

Myth: If Someone Steals From Your Company, You Can Terminate Them for Cause Anywhere
Reality: Not in China unless your handbook says so and was properly adopted.
Action: Update your handbook, get signed acknowledgments, and keep records.

Myth: Independent Contractors Work the Same Everywhere
Reality: Tests differ by country, and misclassification is costly.
Action: Audit contractor roles and convert risky ones.

Myth: Severance Is Only for Wrongful Termination
Reality: In Vietnam, severance may be owed even on lawful resignation with notice.
Action: Map severance obligations country by country.

Myth: We Can Use the Same Non-Compete Globally
Reality: Rules vary widely, and Europe is restricting them aggressively.
Action: Limit non-competes, price them in, and strengthen confidentiality and IP clauses.

When to Engage Local Employment Counsel

International employment lawyers are not experts in every country—it's not possible. But we belong to networks that give us fast access to qualified local counsel almost anywhere. Having handled employment issues across many jurisdictions, we know who to call and what to ask.

Engage local counsel before your first hire in a new country, when planning restructurings or layoffs, and for terminations involving complex facts or potential disputes.

Your Next Steps

Identify your highest-risk country (typically where you have the most employees or newest hires). Audit your contracts, handbook adoption records, and statutory pay calculations. Fix the most urgent gaps first—missing contracts, improperly adopted handbooks, or unpaid bonuses. Prevention always costs less than litigation.

Frequently Asked Questions

What Is PTU?
PTU (Participación de los Trabajadores en las Utilidades) is Mexico's mandatory profit-sharing requirement. Companies must distribute 10% of their prior year's taxable profits to eligible employees by May 30 (companies) or June 29 (sole proprietors).

Is a 13th-Month Bonus Mandatory in China?
No. It's customary but not legally required unless promised in a contract or policy. Once promised, it becomes binding.

When Should I Engage Local Employment Counsel?
Before your first hire in a new country, when planning restructurings or layoffs, and for complex terminations. Prevention costs less than litigation.

Can I Use U.S. At-Will Employment Contracts Abroad?
No. Most countries require cause, procedures, notice periods, and severance.

What Happens if I Don't Have Written Contracts in China?
You'll owe double wages for months 2–12. After 12 months without a contract, the employee becomes permanent (open-term), making termination extremely difficult.

Do I Need to Translate Employee Handbooks?
Yes. Most countries require local language versions. Ensure the translation is accurate, collect signed acknowledgments, and keep records of delivery.

Hiring Abroad: Employment Law Traps You Can Avoid

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.