In the times when the Steve Jobs of the world are sacked from their own companies and firms frequently get into legal trouble for defaulting employee benefits, it is necessary that companies study employment laws specific to the offshoring destinations they operate in. While the knowledge of labor laws is beneficial when working in distributed teams, for captives it becomes imperative.
But, even when working with third parties it is critical to “make sure that [customer companies] are not held responsible for anything wrong the provider does with his employees,” says Ricardo Saur, Executive Director, Brasscom, Brazil’s association of software and service companies.
Moreover, the steep rise in Merger and Acquisition (M&A) activities across the world today also requires companies to keep track of the local laws. In the U.K., Transfer of Undertakings Protection of Employment (TUPE), a significant yet tricky piece of legislation, for instance, protects employees when businesses change hands. Employers must understand what liabilities can arise.
Also, today’s rapidly evolving economies have rapidly evolving laws. The change in U.S. Fair Labor Standards Act (FLSA) in 2004, for example, rendered millions ineligible for overtime. Companies opening shop in foreign lands must keep track of such changes lest they lose out on monetary savings.
Ease of Hiring and Firing
The ease of hiring and firing varies from country-to-country depending on the local laws. For example, a recent study by The World Bank shows that the ease of hiring in China is 11 and that of firing is 40 (on the scale of 0 to100). While in Germany, these are 33 and 40, which means that while it is equally difficult to fire someone across these two places, it is easier to hire someone in China than in Germany. Interestingly, in the U.S. both stand at 0 points (See Table).
Similarly, the Doing Business Index of the World Bank study ranks countries with respect to the ease of hiring and firing. Law reforms have made it easier to do business in many offshore and nearshore destinations such as China, India, Mexico, Romania, Russia and Ukraine, while laws have become tougher in the
Czech Republic, Vietnam, U.K., Poland, Philippines, Lithuania, Jamaica and Hungary.
