Legal Q&A: What are the rules for using overseas employees?

Answer

Putting in place either a robust contract for services or employment contract is a key step in any employee/contractor relationship and should be done sooner rather than later, irrespective of where a contractor or employee is based. 

This aside, arguably the most important areas which are often overlooked but should certainly be considered before employing overseas employee or engaging overseas contractors are: 

  • (a) which law should govern the contract 
  • (b) how enforceable are the provisions of a contract against the employee/contractor 
  • (c) what happens to any intellectual property created by such employees/contractors in the course of carrying out their duties under their respective contracts and 
  • (d) if hiring employees, do you need a local entity and how do you deduct the correct taxes.
When drafting an employment contract or contract for services, it is important to realise that irrespective of whether the contract in question is expressed to be governed by English law, it will always be subject to the mandatory local laws of the jurisdiction in which an employee or contractor is based. 

Advice from local lawyers should therefore be sought at the outset and the relevant governing law chosen carefully: it may be more appropriate to have all local laws govern the contract. This holds particular relevance when negotiating restrictive covenants, confidentiality obligations and termination provisions.

Generally under English law, any intellectual property created by an employee in the course of his employment is held to be the property of the employer, unless the employment contract says otherwise. 

However despite this, it is advisable to include a provision in an employee’s contract confirming this and making clear what is considered to be within scope. In contrast, any intellectual property created by a contractor is not owned by the company engaging the contractor and accordingly, any contract for services should contain specific intellectual property provisions setting out the agreement between the parties. 

Depending on where in the world the overseas employee or contractor is based will often determine how local laws govern the ownership of intellectual property and also the attitude of the employee/contractor towards the ownership of any intellectual property created. It is therefore advisable that this issue is dealt with and recorded early in the process.

Another absolute vital issue whenever you are employing overseas workers is whether you will need a local entity in order to do that. The position varies from country to country. It may well be that for a UK start up, all of the red tape involved in hiring overseas employees makes it unviable in the short term. 

It is also important to use a payroll provider who will deduct the correct taxes in the jurisdiction where the employee is working. There can be serious civil and sometimes criminal penalties if this is not done.

Daniel Rooke is an associate at international law firm Taylor Wessing.

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