The regulatory employment law landscape is rapidly changing and comes with an ever-increasing complexity, which makes it challenging for multinationals to manage compliance with the applicable rules. This guide contains summaries of the employment law rules regarding hiring and dismissing employees in 60+ countries, and analyzes them to discover the similarities and differences.
This guide sets out the employment law rules on hiring and dismissal in 62 countries.
It contains a summary overview of domestic employment laws without specific industry focus. The guide also does not include regional, state or province legislation (except for Canada, where the analysis covers Ontario and Quebec).
Each of the 62 countries in scope has its own country page, summarizing the onboarding specifics when hiring employees (e.g., types of employment contracts, whether there is a need to establish a legal entity when hiring someone, etc.) as well as the rules when dismissing employees (e.g., if the employer needs to give notice or pay a severance indemnity, the collective dismissal thresholds etc.)
When companies want to employ people, especially when it concerns a first hire in a new territory, some insights on the employment laws of that country are required. Generally, the analysis shows that, irrespective of the location, and notwithstanding regional or country specifics and differences, similar matters need to be considered, or questions asked, when hiring employees.
Although in most countries employers are obliged to register in that country for tax purposes when hiring employees, it is not always required to establish a legal entity. There are, however, quite a few countries where no separate legal entity is to be established for the purpose of hiring employees, but a branch office is to be opened instead.
In the majority of countries, a written employment contract is mandatory. This is particularly true for specific types of employment contracts, such as fixed-term contracts. Some countries do not explicitly require written employment contracts, but the employer has to provide a written statement with some key details regarding the employment relationship (such as remuneration, working hours, time of payment, vacation entitlements etc.).
In just over 50% of the countries, there are no language requirements when it comes to drafting an employment contract, as long as the parties to the agreement understand its content. As such, the agreement can be drafted in a mutually understood language.
In all other countries, it is mandated that the employment contract be drafted in (one of) the national language(s). In these countries, parties can always provide a translation of the contract in another language, but in case of discrepancies between both versions, the version in the official language will always prevail.
In case there is no employment contract in the official language, the most common consequence is that the contract cannot be used as evidence in court, or is not enforceable until a translation has been provided.
The probation period is the period at the beginning of the employment during which the employee is “on trial”, meaning that he/she is being assessed to determine whether the contract will become permanent. In general, during the probation period, it is easier to dismiss an employee because either a shorter notice period applies, or the dismissal does not need to be motivated.
In almost all countries it is allowed to include probationary periods in the employment contracts. The exceptions are Belgium and Chile, where probation periods are not allowed by law. Thai labor law is silent on probation periods, but in practice, parties can agree to put it in place.
The maximum term of the probation period often depends on the job level. The higher the rank, the longer the probation period can be. In France for example, the maximum probation period is two months for office workers, but four months for executives.
In 22 countries it is mandatory to organize a medical examination before hiring someone, regardless of the position they are applying for.
In most countries, reference and education checks are permissible with consent of the individual, bearing in mind data protection and privacy considerations. For criminal background checks, either consent of the individual is required, or the employee needs to be applying for specific jobs justifying such a check. In 11 countries, however, criminal background checks are allowed for each hiring.
In about 60% of countries, executives are considered as employees, which means they are working under an employment contract and protected by employment legislation. In most of these countries, they do not however fully enjoy the same protection as regular employees, as they fall outside the scope of some specific regulations (for example, executives are often excluded from working time regulations).
In about 30% of countries, executives can either work under an employment contract or on a self-employed basis. If they are self-employed, their rights are not governed by employment law, but by commercial law and the terms agreed on in their contract with the company.
Finally, in about 10% of countries, executives work on a self-employed basis.
Given the geographical span of the guide and the wide variety in employment law rules, it is difficult to draw general conclusions that cover the whole world.
Analysis of the countries in scope showed that countries in all regions often recognize a number of similar concepts with respect to individual termination of employment contracts. In Brazil, Colombia and Ecuador, a dismissal with reason is only possible when based on reasons stipulated by law. However, while in Ecuador no indemnities are due provided the employer complies with a very strict process with up-front government approval, in Colombia a severance indemnity is due, and in Brazil, both an indemnity in lieu of notice and a severance indemnity are due. Although the same principle applies, the interpretation and legal context can vary widely.
Many legal systems also reflect similar concepts such as summary dismissal for fault or serious reason, and protection against dismissal for certain categories of employees (e.g. maternity, sickness, political mandate, etc.).
There are also similarities when it comes to notice periods or severance payments.
In about 70% of the countries analyzed, employees are entitled to a notice period. In most of these countries, the notice period can be replaced by an one-off compensatory indemnity in lieu of notice (which generally equals the remuneration the employee would have received during the notice period), or a type of garden leave (which typically implies that the employee is not meant to work anymore, but will continue to stay in service and receive regular salary payments until the notice period expires). In a minority of the countries, the employee is required to work the notice period or for the employer to obtain the explicit consent of the employee to have it replaced by an indemnity in lieu, or a garden leave arrangement. In most of the countries, the length of the notice period is connected with the number of years served.
In general terms, a severance indemnity concerns a payment which the employer is obliged to make because it dismissed the employee, or because it is standard practice to negotiate with the individual on such a payment. Severance indemnities are, in general, not linked to any notice period. Its amount is often linked to the years of service of the employee within the company.
In the majority of the countries, specific rules kick in when, within a relatively short timeframe, several employees are dismissed. In these countries (73% of the countries in scope), it means that, once specific thresholds are exceeded, a specific procedure needs to be followed before proceeding with the dismissals (for example, an information and/or consultation procedure, or prior authorization by authorities). Please note that a social plan is generally negotiated in the framework of collective dismissal, and therefore the cost comparisons provided below do not apply.
More details on the collective dismissal thresholds can be found on the country-specific pages.
What are the different systems for individual dismissals?
When looking at the different regulations, we can, in general, distinguish a few different systems applicable in case of individual termination of the employment, as reflected in the pie chart below.
In the interactive table below, you can see for each country whether an indemnity in lieu of notice or severance pay is due and if so, whether it is capped. The table also contains information on any other indemnities related to the dismissal, if due. Note that this does not include payments related to payroll settlements or additional indemnities such as outplacement services.
What is the reference income for the calculation of the indemnities and social security charges?
For the purpose of estimating the dismissal cost, it is not sufficient merely to know what indemnities are due, but the reference income on which these indemnities are to be calculated needs to be clear. When analyzing the aggregated data, it is apparent that, in most cases where a severance indemnity or indemnity in lieu of notice is payable, it concern indemnities to be calculated on the sum of the annual base salary, the annual variable salary, and the annual benefits.
In only 17 out of the 52 countries that provide for a severance indemnity, there are also social security charges due on top of the indemnity. In eight of these countries, the charges are, however, capped.
In the interactive table below, you can find an overview of the calculation base of the indemnity in lieu of notice, severance indemnity, and other legal indemnities for every country analyzed. It also shows whether social security charges are due on such payments, and whether such charges are capped.
Can the dismissal be revoked?
Different procedural requirements apply in case of individual dismissal in different countries. In some countries, the termination of the employment contract needs to be authorized, either upfront or post-factum.
Where upfront approval by a court or authority is required, the dismissal is not effective until this approval has been obtained. Such upfront approval processes apply in two countries.
In the majority of the countries (about 85% of the countries), the courts or authorities do not need to give their approval prior to the dismissal, but can review the dismissal afterwards, and even rule that the employer has to reinstate the employee (with back-pay and possible additional indemnities). Hence the importance in many countries of concluding a settlement agreement between the employer and the employee.
There are, however, also a few countries where the courts do not have the authority to reinstate employees and can only resort to awarding (additional) indemnities to the employee, compensating for any damages arising from the dismissal.
In the interactive table below, you can determine whether up-front authorization, reinstatement or only compensation applies in each country.
The table above only applies to regular employees. Even in countries where the courts can only impose an indemnity, exceptions frequently apply to several types of protected employees (such as trade union representatives) where courts can order their reinstatement.
More details on the dismissal procedures and formalities to fulfill in each country can be found on the country pages.
Do specific rules apply when dismissing executives?
Where executives are considered employees (see above), they generally enjoy the same protection and follow the same rules relating to dismissal as other employees, although there are some exceptions (for example in Sweden, the legislation regarding dismissal conditions does not apply to executives, while in Germany the works council does not need to be heard in the dismissal procedure).
In some countries (for example Hungary), parties may freely deviate from the mandatory provisions applicable to regular employees, but this has to be expressly agreed in the executive’s employment contract, as otherwise the regular rules will apply.
Where executives are self-employed, they can, in general, freely negotiate with the company on the conditions for termination as well as any indemnities due.
The guide sets out three hypothetical cases for the purpose of comparing the individual dismissal cost in the different countries in scope.
The cases have been selected to illustrate the differences between countries. They show the impact of the following elements on the dismissal cost: Age (younger vs. older employee), level of salary (lower vs. higher salary), variety of salary components (which elements to take into account), and tenure (medium vs. higher number of years of service). The same salary figures are used in all countries for illustrative purposes only, and we acknowledge that the figures will not be in line with market practice in all countries. The cost comparison relates to individual dismissals (and not collective dismissals), and the cost projections do not take into account payments which an employer still has to make at the end of the contract (e.g., pro rata bonus awards, settlement of outstanding holidays, etc.).
In each case, the impact of having objective individual or economic reasons justifying the termination versus an unfair dismissal scenario is also illustrated. In general, there is no or little difference in cost for employers between a dismissal for individual reasons or economic reasons. Wherever there is a difference, the projected employer cost is based on a dismissal for economic reasons.
Please note also that the graphs do not always show 62 results, as a few countries were not in a position to provide a cost assessment for each of the cases because either some scenarios are not feasible under the country legislation, or the overall cost for the employer varies too much depending on the court’s decision or negotiations with the individuals.
The interactive graphs below show, in their horizontal bars, the estimated cost in the different countries for each of the three cases, ranked from highest to lowest. The figures date from August 2020 and do not take into account any legislative updates after this date.
The cost projection data clearly show that there are several dismissal systems based on the type of indemnities due. For dismissal with objective reasons, the employer will be obliged to adhere to a notice period and pay out a severance indemnity in 60% of the countries. In the remainder of the countries, either only a severance indemnity is payable, or only a notice period is to be observed.
The situation differs for dismissal without objective reasons, as in most of the countries it means a severance indemnity or other legal indemnity (e.g., indemnity for unfair dismissal) is due. In only three of the countries, only an indemnity in lieu of notice is payable. In many countries, the total employer cost will depend on a number of variables or even be subject to court decision. As a result, the projected cost will often be within a range with a lower and upper threshold. In the graphs for most countries, the upper threshold has been taken into account to illustrate the possible maximum cost attributable to the employer. In such case, the difference between the scenarios with and without reason show the maximum span in which an agreement with the employee can normally be reached. In a minority of the countries, the data reflect the best practice approach and the average employer cost which a company might expect.
In view of the current pandemic, the guide also provides an overview of specific temporary exceptions to the rules regarding hiring and dismissing employees.
Medical exams prior to hiring are not to be carried out or are being postponed in three of the countries in scope.
In some countries, measures have been introduced with a view to restoring employment, for example a reduction of social security contributions when hiring new staff. Further, multiple countries have introduced the option to sign employment documents electronically, where this was not yet possible prior to the pandemic.
In approximately 20% of the countries, the employer is forbidden, or hugely restricted, to dismiss employees while in receipt of some sort of state-funded benefits (such as subsidies or working time reductions) to deal with the COVID-19 situation.