Mexico — 9 min
No matter how big your business, no one likes to get sued. The financial costs of handling the lawsuit can be significant, and if things don’t go your way, the settlements can be substantial.
When you’re building a cross-border team, your exposure to risk can increase, especially if you misclassify contractors. Global employment lawsuits can be varied in cause, ranging from breach of contract to intellectual property disputes. It’s enough to keep legal, finance, and HR all awake at night.
Fortunately, the risks can be mitigated and managed. Many troubles are triggered because of failure to comply with employment legislation. Failure to comply with payroll and related employment legislative requirements carries significant risks and penalties, but avoiding danger is typically straightforward. Understanding relevant laws and statutes goes a long way toward protecting your company. But, if you’re employing a global workforce, there is great variability from country to country and even state to state. Working with a partner with global expertise is essential to reduce risk.
This guide covers common reasons international employers face lawsuits and the best strategies to avoid legal trouble abroad.
Intellectual property (IP) refers to the intangible assets (“creative outputs of the mind”) generated by your company. IP is distinct from physical property such as buildings, goods, and infrastructure, although both enjoy protections under the law.
Some common types of IP include:
Copyrights include written works, music, graphics, and software or code.
Patents cover inventions, methods, designs, and processes, or significant improvements on existing inventions, methods, designs, or processes.
Trademarks include words, phrases, logos, or images that designate products or services as unique and distinct from others of similar nature.
Trade secrets include the various types of confidential information, formulas, techniques, and recipes held by your company.
IP violations occur when a third party knowingly or unknowingly uses IP without consent or permission. IP infringement could include something as obvious as putting another company’s logo on your own goods or marketing your services under the same name as another company’s services.
In a traditional business setting where everyone works and produces IP in one place, the owner of the IP is generally clear. However, in remote work settings, when using contractors, and with cross-border teams, ownership can become muddled. This opens the door to inadvertent IP violations and complaints against your business.
The consequences of IP violations include financial fines and penalties, injunctions against ongoing and future infringement, and even criminal consequences for deliberate violations.
However, consequences vary greatly based on a variety of factors.
Location. The state or country in which the trademark or patent is registered and in which the violation takes place will determine the size of the penalty.
Scale. The amount of IP being infringed is another determining factor, increasing with the size of the violation.
Profits. The greater the profit on stolen IP, the greater the consequences.
Intention. Willful violation generally incurs a greater penalty and can even incur criminal penalties such as prison time.
Worker misclassification is always a concern for HR. It comes with many risks and consequences, including fines and penalties, as well as the loss of IP.
Misclassification of an employee or contractor can end a relationship, leaving the question of who owns the work produced unanswered. This opens you up to legal action and the loss of your IP. Not only does losing your IP harm your company, but legal questions about IP ownership could also cause potential partners to avoid working with your business.
Remote workers do not necessarily expose your IP to additional risk, but you do need to be aware of how to protect your IP when your team is distributed across multiple countries. When you work with team members in other countries, transfer of IP to your business is essential. If you work with an employer of record (EOR) or other partner, you must ensure that your IP is transferred to you with no intermediaries involved.
For more information on intellectual property rights and remote teams, check out helpful guide.
There are many ways to avoid IP lawsuits.
IP infringement can happen when you outsource activities. Producing media in house adds a layer of protection for your unique creative output.
Managing misclassification effectively creates more stable working relationships and clarity of IP ownership.
IP protections vary from country to country. Partnering with a reputable employer of record when hiring abroad can help you protect your IP. Just be sure to work with an EOR with its own local entity to ensure your IP is not exposed to third parties.
Stellar IP protection like Remote’s IP Guard helps you in a variety of ways.
We use local entities to provide greater protection than companies who employ your workers through partners.
Our two-step process for transferring your IP to you offers a very high level of protection.
We work with companies in a wide variety of industries, giving us a wide base of expertise.
Discrimination occurs when a company treats an individual differently or less favorably based on factors such as age, race, national origin, religion, gender identity, sex, pregnancy status, sexual orientation, or other factors. Accusations of discrimination can lead to lawsuits and other serious consequences for companies and workers.
These lawsuits can be based on a variety of accusations:
Denial of benefits
Discriminatory hiring practices
The size of settlements for discrimination lawsuits depends on a variety of factors.
Does the company show a pattern of discrimination?
How many plaintiffs claim discrimination?
What level and type of harm did the plaintiff suffer?
How big were the economic consequences for the plaintiff?
How much did the company benefit from the discrimination?
Because the consequences of discrimination lawsuits are so extensive, it makes sense to go out of your way to avoid them. The following practices can help.
Employment discrimination laws can vary greatly from country to country and even by state, province, or region within a single country. Make sure to research all regulations in all locations where your teams are located.
Because of the wide variation across locations, your policies should reflect global norms against discrimination. This is especially important if your company is headquartered in areas of the world with weaker discrimination protections.
To avoid lawsuits, it’s important to provide regular training for leaders, hiring managers, interviewers, and the rest of your organization. This training should include the globally compliant policies discussed above as well as content unique to specific locations.
Remote-first recruiting practices place equal treatment and diversity in the workplace front and center. By adopting these practices, you reduce your risk of discrimination in recruiting. You also create a culture of inclusion where differences are valued.
In the US, companies must understand the five major federal laws pertaining to discrimination. Violations of these statues are subject to penalties and consequences.
Title IX of Civil Rights Act of 1964. Title IX states, “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied benefits of, or be subjected to discrimination under any educational program or activity receiving federal financial assistance.” The effects of this are far-reaching, but for employment purposes, men and women must be trained in equal numbers and with equal resources.
Pregnancy Discrimination Act of 1978. This prohibits discrimination against people based on pregnancy.
Equal Pay Act of 1963. The Equal Pay Act prohibits discrimination on account of sex in the payment of wages by employers engaged in commerce or in the production of goods for commerce. This requires that men and women be paid equally for the same job.
Age Discrimination in Employment Act of 1967. This act prohibits employment discrimination against people over the age of 40.
Title I of the Americans with Disabilities Act. Title I of this act prohibits private employers, state and local governments, employment agencies and labor unions from discriminating against qualified individuals with disabilities in applying for jobs, hiring, firing and job training.
Businesses can be sued for breach of contract, which means failing to adhere to the agreements they establish with employees or independent contractors.
There are four main types of contract breaches.
Minor: A minor breach of contract occurs when a small portion of the requirements are not met but you provide the substance of what you agreed to. Depending on the effect on the non-breaching party, consequences may not be severe
Material: A material breach occurs when you provide something materially or significantly different or of less value than what was agreed to.
Actual: An actual breach of contract occurs when you fail to fulfill a specific aspect of the contract entirely.
Anticipatory: An anticipatory breach can be claimed if it appears that you are not going to fulfill the requirements of the contract.
Consequences of contract breach judgements include the following:
If you are found to be in breach of contract, you will most likely be required to pay damages to the other party. These could include compensatory damages to cover what was lost as a result of the breach of contract. These damages could include such things as lost wages as a result of wage discrimination and the legal costs of the non-breaching party.
You may also be liable for punitive damages above compensation to the non-breaching party meant to punish you for the breach. These can be quite extensive depending on the specifics of the case.
You may be required to take specific actions aimed at remedying the breach of contract and the consequences caused to the other party. This could include actions such as giving someone their job back or implementing discrimination training in your workplaces.
The contract itself could be canceled, relieving all parties of responsibility of fulfilling the obligations of the contract.
Location: The location in which the contract was made has a major effect on the assessment of damages. Laws governing contracts vary greatly from place to place and have an impact on what constitutes breach of contract.
Timing: There may be a statute of limitations on how much time a plaintiff has to file a breach of contract lawsuit. This will vary based on location and the terms of the contract.
Severity: The amount of harm suffered by the plaintiff will determine consequences, with more severe harm resulting in more extreme penalties.
Intention: If you intentionally entered into the contract with the intent to breach or if you decide after the contract was signed to intentionally breach the contract, expect more severe consequences.
Here are some strategies for avoiding breach-of-contract lawsuits.
All employment contracts should be thoroughly vetted for legality based on the location of the worker. That means you will need specific understanding of local employment laws to ensure fair, compliant contracts.
Contracts should be routinely reviewed and updated according to evolving employment roles as well as for changes in local employment laws and regulations.
Contant contract monitoring for all remote locations and remote workers can ensure that you are meeting your contract obligations
A global partner like Remote can help to keep you compliant when registering new employment contracts with international workers and when developing contracts in new locations. This is vitally important as you expand your global team. Hiring remote employees can be challenging, but the rewards are well worth it.
Wage law violations put you at risk for litigation. Common wage law violations can be the result of misclassifying employees, improper or illegal compensation, and failing to deliver back pay. And wage laws, like many employment laws, vary widely by location.
Local variation goes beyond differences between countries. Laws can vary within countries as well. The US Wages and Fair Labor Standards Act sets some national standards for minimum wage, overtime, and recordkeeping. However, wage laws vary widely by state.
For example, federal statutes dictate the lowest legal minimum wage, but states can establish their own higher minimum wage. So it’s vital to understand laws by state, province, and region.
Remote work continues to grow and more and more companies are recognizing the value of leveraging global talent. However, in order to employ workers in foreign countries on your own, you need a local legal entity. Setting up these entities is both expensive and time consuming. Oftentimes, it doesn’t make sense to spend a year and thousands of dollars opening entities in every country where you wish to employ workers.
An employer of record (EOR) is an entity that serves as the employer of your workers in cases where your company does not own a local legal entity. Using an EOR is the safest way to remain compliant with all local labor law in international countries. As employers, they ensure you and your workers are in compliance.
Organizations that hire internationally can be more exposed to liability under foreign wage laws. Whether you are paying international contractors or working directly with employees using an EOR, you must be careful to avoid violating wage laws in different regions.
Laws vary from place to place, so make sure you know the laws in countries where your workers are and set wages in accordance with those laws. If you aren’t sure, your EOR should be able to help.
Laws can change quickly based on new legislation or case law. Monitor for updates in all places where your workers are and adjust wages as laws change.
Using an employer of record is the safest, simplest way to mitigate risks of wage law violation. Doing so allows you to rely on local employment experts across the world to manage compliance.
Businesses can be sued by employees or contractors who are injured due to negligence, dangerous workplaces, or intentional misconduct by your company. The following factors put you at risk for workplace injury lawsuits:
Dangerous workplaces and storefronts
Failure to maintain equipment
Failure to properly test products
Lack of safety gear or features
Inadequate instructions and training
Wrongful injury settlements are determined based on the cost and severity of the injury as well as the level of responsibility held by the company.
Settlements can include:
Past and future medical expenses
Estimated future losses due to the injury
Pain and suffering
Punitive damages from deliberate or irresponsible practices and workplaces
Carry good workers’ compensation insurance
Monitor and fix hazards
Fully test products and services
Provide proper worker safety training and instructions
Provide proper staffing levels
Comply with OSHA and other standards
The risk of lawsuits is real and can seriously affect not just your bottom line but also your reputation. The most common types of lawsuits include:
Intellectual property violation lawsuits
Breach of contract lawsuits
Wage law violation lawsuits
Wrongful injury lawsuits
A partner like Remote can minimize risk when building a globally distributed team. Remote’s employer of record service allows businesses to rely on Remote’s team of global employment experts to maintain compliance and mitigate risks.
Remote provides a comprehensive way to approach global expansion.
Unifies global contractor payments
Provides employer of record services
Provides payroll management for your international entities in one platform
Consolidates payroll processing
Provides peace of mind with local compliance
Reduces payroll costs and streamline your payment processes
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