The Art of Terminating an Expat in Latin America

• Author: Roberto E. Berry
• Position: Graduate of King Hall, University of California, Davis, School of Law.
• Pages: 02

Mr. Berry is a graduate of King Hall, University of California, Davis, School of Law. He is a former partner of Ater Waynne LLC of Portland, Oregon. He joined Delphi Corporation in 1999, and is now General Counsel for Latin America for Delphi Corporation. The views expressed here are solely his own, and should not be attributed to Delphi Corporation.

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Introduction:The U S. Multinational Expat Context

WHEN U.S. MULTINATIONAL COMPANIES send their employees-commonly known as expatriates, or "expats"-on assignments in Latin America and the corporation subsequently terminates the employee, the corporation may be exposed to wrongful termination liability in the foreign jurisdiction. Imagine, for example, the U.S. multinational corporation that learns that one of its expats in Latin America engaged in significant wrongful conduct, perhaps embezzlement. The decision-makers delay over a month to review the information and decide to terminate the expat. The expat program director then calls the expat, who admits the wrongdoing, and orders the expat to return to the U.S. headquarters for his last paycheck. The paycheck includes all salary due since the last paycheck until the day of termination and all other reimbursements or accrued benefits, but fails to include severance premiums. Even this seemingly fully justified termination exposes the corporation to legal dangers under foreign law. This article focuses on these dangers and discusses ways for U.S. corporations to avoid liability, at least with respect to expats assigned to Latin America.

The Expat's Knowledge of Local Laws

THE VERY NATURE OF THE EXPAT'S ROLE abroad increases the risk of liability. Expats become familiar with Latin American labor protection laws. The typical expat undertakes management responsibilities that usually include hiring, compensating, promoting and terminating local employees. The expat then learns about nationalized health care benefits, premium vacation pay, guaranteed year end bonuses, compulsory profit sharing, and restrictions against the firing of employees that are common throughout Latin America. When the expat is terminated without severance compensation, as in the situation above, the expat will likely remember that the labor protections under foreign labor law may exceed the rights he may have under U.S. law, and will consult foreign counsel to see if he may benefit from those protections.

Indemnification Compensation

PERHAPS THE MOST SIGNIFICANT LATIN AMERICA labor law protection is the right to a severance payment for terminations without cause. Unlike in the U.S., a termination without cause or for convenience in Latin America constitutes a wrongful termination per se, for which an employer is forced to pay severance. This entitlement, which is usually called "indemnification," statutorily mandates the amount that must be paid as severance payments in these cases. In Argentina, for example, indemnification is equivalent to one month of salary per year worked.¹ In Brazil, a terminated employee is entitled to monies deposited by the employer in the Guaranty Fund for Length of Service (currently 8.5% of all salaries paid to the employee over the length of service),² plus a premium of 50% on such amounts if the dismissal is without cause.³ Mexican labor law entitles a worker dismissed without cause to three months? salary, plus twenty days' salary per year worked.⁴ In addition, in Mexico a plaintiff who ultimately wins a labor case also has the right to full salary for the duration of any wrongful termination litigation, even if the plaintiff finds another job the day after filing suit!⁵ These indemnification formulas do not provide for million dollar recoveries, but they can still provide substantial compensation to the employee, especially when employee has a significant length of service with the company. "The very nature of the expat's role abroad increases the risk of liability."

Restrictions on Terminations for Cause

INDEMNIFICATION IS NOT, HOWEVER, due when an employer can demonstrate that the employee was terminated for just cause. Latin American labor laws, however, limit the types of conduct that qualify as cause for termination to acts of dishonesty, violence, unjustified absences, violations of confidentiality obligations, drunkenness on the job, and similar behavior.⁶ These conduct classifications may not materially differ from what is considered cause in U.S. terminations, but the list is not open-ended, and employers must generally bear the burden of proof of showing cause to terminate in con- Page 54 formance with the statutory framework.⁷Most notably, an employee's simple underperformance, without more, would probably not constitute just cause to terminate.

Even assuming the employer learns of employee conduct justifying termination, the Latin American doctrine of "immediacy" requires the employer to promptly terminate the employee after the offending conduct or else be deemed to have forgiven the employee's offense.⁸ Immediacy inquiries are typically decided on a case-by-case basis, but as a rule of thumb, immediacy...