If you have a foreign subsidiary, you need to protect your intellectual property (IP) and company policies with tailored employment agreements. Otherwise, you risk losing valuable assets, facing legal disputes, and damaging your reputation. In this post, we’ll show you how to create an effective overseas subsidiary employment agreement package that covers all the essential aspects.
Introduction
Properly structuring employment agreements should be a top priority when expanding overseas. The right agreements establish clear policies, protect valuable intellectual property (IP), and put you in a stronger legal position. Neglecting tailored agreements for your foreign subsidiaries can lead to critical oversights and issues down the road. This guide covers the key agreements needed and why they are so critical when operating internationally.
Why Employment Agreements Are Essential for Overseas Subsidiaries
Most companies understand the importance of employment contracts and agreements for their domestic employees. But they often neglect their overseas subsidiaries. This is a mistake. Agreements tailored for your foreign subsidiary are just as important — in most instances even more so — than those for your domestic team.
These agreements tend to be more important overseas due to differences in local laws and practices and because in many countries, verbal commitments do not carry legal weight. Only what is in a signed contract exists for legal purposes.
Air-tight employment agreements help protect confidential information and IP. They also set clear expectations around policies and conduct. The right employment document package in place early on can help you avoid numerous issues down the road.
Employment Contracts: Compensation, Conduct, Termination and More
The foundation of your overseas subsidiary employment agreement package should be the employment contract. In most countries and in most instances, this agreement should include the following key terms:
- Compensation and benefits
- Work hours and vacation
- Expectations around conduct
- Termination provisions
- Non-compete clauses
- Confidentiality commitments
Though verbal commitments may be common in some countries, a signed employment contract virtually always carries more weight if disputes arise. Make sure your foreign subsidiary’s employment contracts comply with local norms and employment laws; translating your employment contract from one country to another is a big no-no.
Company Policies and Rules
Your foreign subsidiary should also have a clear written employee handbook, adapted for local norms and employment laws in the local language. Have your employees sign to acknowledge receiving and reading the handbook. Typically (though not always), your company policies and rules should cover the following:
- Work hours, overtime, and time off
- Dress code and conduct guidelines
- Expense reimbursement procedures
- Discrimination and harassment policies
- Safety and security protocols
- Social media and technology usage policies
Confidentiality Agreements: Critical for Overseas IP Protection
Now let’s discuss one of the most critical components of your overseas subsidiary employment agreement package — the non-disclosure or confidentiality agreement a/k/a the NDA (agreement or provision).
This agreement should define your confidential information and trade secrets and outline your employees’ responsibilities to protect this intellectual property.
The benefits of employee NDAs cannot be overstated. Without one, most countries will require you prove the information stolen qualifies as a trade secret under local laws. That’s not only difficult in unfamiliar legal systems; the information stolen is usually not a trade secret because the requirements for information being a trade secret are usually so rigorous.
For instance, our law firm recently was contacted to represent a technology company that had expanding into Asia and was facing significant losses caused by an employee who had shared a proprietary software code with a competitor. We concluded that the company had only a weak case because it had used an American style NDA, rather than one tailored to the region. See NDAs Do NOT Work for China but NNN Agreements Do.
A signed NDA (or in some cases an NNN Agreement) not only makes enforcement easier by clearly designating certain information as confidential, it also puts your employees on notice regarding prohibited misuse.
Your overseas subsidiary NDAs should usually do the following:
- Define what constitutes confidential information
- Give specific examples of protected processes, formulas, and customer lists
- Clarify that confidential information remains protected after employment ends
- Explain that employees cannot share protected IP with unauthorized parties
- Make clear that unauthorized use of confidential information will result in termination, legal action, and repayment of damages.
- Comply with local norms and employment laws.
After understanding the profound significance of NDAs, another pivotal agreement comes into play – the Intellectual Property Assignment Agreement.
Intellectual Property Assignment Agreements
In addition to NDAs, it often makes sense to have your overseas subsidiary employees sign IP assignment agreements, making clear all intellectual property created during employment is company property. This helps (but in some countries does not entirely prevent prevents confusion and disputes if employees later claim ownership over things like:
- Inventions and patents
- Copyrights
- Trademarks
- Proprietary computer code
Like NDAs, IP assignment agreements are even more useful in overseas subsidiaries. This is because without such agreements, some countries will deem employee created IP to belong to your employee, not to you, their employer.
Acknowledging Receipt of Company Policies
It is a good idea to require your overseas subsidiary employees sign a form (in the local language) acknowledging they’ve received and read your company policies and rules. Translated acknowledgement forms close potential loopholes. They prevent your employees from claiming ignorance of company policies and they can be invaluable in litigation.
We like to see our clients include an acknowledgement of receipt form whenever onboarding new overseas hires or updating subsidiary policies and handbooks.
Other Employment Agreements to Consider
Some additional agreements that can round out your overseas subsidiary employment package include:
- Non-compete agreements – Used to limit your employees’ ability to join or start competitor companies after leaving your company. The laws regarding these agreements vary greatly by country.
- Training repayment agreements – Used to require your employees to reimburse training costs if they leave shortly after receiving the training. We are not generally big fans of these agreements unless there is a lot of money at stake — something like a full MBA program, for instance. If you are not going to sue an ex-employee over a $2800 training session, it probably isn’t worth paying a lawyer $1800 to draft such a contract.
- Invention assignment agreements. Used to outline ownership of inventions created outside work hours.
Conclusion: Employment Agreements Protect Overseas Subsidiaries.
Having a solid employment agreement package for your overseas subsidiary is not only a good practice, but a necessity. It can help you protect your IP, enforce your company policies, avoid legal issues, and maintain your reputation. In this post, we covered the key agreements you need and why they are so critical when operating internationally. We also gave you some tips on how to customize them for different regions and situations. Without proper agreements in place, you risk losing confidential data, facing lawsuits, and damaging your company’s reputation. Don’t wait until it’s too late to secure your overseas assets—consult an international employment attorney today to create customized employment agreements that comply with local laws and norms.
