2020 was, among other things, the year of remote working. Companies accelerated their digitalization so quickly that they covered four or five years' predictions in six months; office space and physical location plunged in priority; and hiring and onboarding became virtual overnight.
But now, with remote working well-established and remote working abroad poised to become a new trend, it's time for organizations to consider the long-term implications of these changes—including critical legal and regulatory aspects that might have been overlooked in the initial rush but could well come back to bite later.
For a better understanding of the legal issues associated with remote working abroad, People Matters approached Kathryn Weaver, employment partner and head of the Hong Kong office at commercial law firm Lewis Silkin. Her explanation came down to this:
The legal implications of remote working abroad mainly relate to which country's laws a remote worker will be governed by.
Determining that, however, can sometimes be complicated, and Weaver shared some pointers on the key areas that should be taken into consideration.
What are the circumstances of the remote working abroad arrangement?
There can be many different arrangements for remote working abroad, but some of the most common are:
Employer in country A hires employee in country B to work remotely for them from country B (for example, a Hong Kong-based company hires someone already located in Malaysia, who will work remotely for them from Malaysia). Assuming that this arrangement is permanent and the employee is spending all/most of his/her time working in Malaysia, it is likely that this employee would be subject to the income tax and social security regimes of Malaysia.
Employer requires employee to work temporarily from another country (for example, a company sends someone originally located in Hong Kong to work remotely for 6 months from Malaysia to carry out a project). After a period of time, that employee may potentially become entitled to the employment rights of the host company and subject to its taxation regime. However, the employee’s employment contract is likely to have a Hong Kong governing law and jurisdiction clause in it, meaning that the employee will be governed by Hong Kong's laws provided the connection to Hong Kong remains strong.
Employee requests to work temporarily from home from his/her home country (for example, a Hong Kong employee asks to work from her parents’ house in Australia for 6 months until the COVID-19 situation improves). Under this arrangement, employers should ensure they have a remote working agreement with the employee in place, which includes a Hong Kong governing law and jurisdiction clause. This agreement would likely also indemnify the employer against liabilities resulting from the arrangement.
During a mandatory home-working period, an employee moves to another country to work from there without notifying their employer (for example, a Hong Kong employee flies to Thailand to work from a resort there, without mentioning this to his/her employer). This scenario can be highly problematic for employers, but is fortunately uncommon and can often be addressed by the employment contract. As the employment contract will often state a place of work, moving away from that place without consent effectively breaches the contract, and employers can take action accordingly.
What are some common legal implications of remote working abroad?
Employment rights: it is important to specify in an employment contract, and any related remote working arrangement, which governing laws and jurisdiction apply. However, even where an employment contract and remote working arrangement expressly states this, in some countries, such as Australia, employees who stay there for long enough automatically acquire local employment rights; in other countries, such as Singapore, this is generally not the case.
Social security and pensions: employees working remotely abroad might acquire new legally mandated benefits, including pension rights, in their host country, which the company may have to provide on top of the employees’ original home country benefits.
Taxation consequences: employees may be subject to paying income tax in both their home and host country, depending on how long they spend in both and whether there is a Double Taxation Treaty in place between the two countries. Also, if the company does not already have a presence in the country the employee is remote working from, the employee carrying out work in that country may inadvertently create a permanent establishment of the company, leaving it exposed to paying business taxes.
Immigration issues: does the employee have the right to work in their host country? In some cases, the answer may be yes—for example, if they are remotely working from the country they are a passport holder of; in other cases, no—for example, they are working from a holiday resort in Thailand where they hold a tourist visa only. There could be serious implications for both employer and employee if an employee is found not to have the relevant documentation to work in the host country.
Health and safety: employers have a duty of care, supported by health and safety legislation in many countries, to take reasonable steps to ensure the health and safety of their employees. This could include carrying out a risk assessment of an employee’s remote office arrangements to ensure they provide a safe environment for the employee to work in, and putting in place adequate insurance to cover accidents at work, even where they happen remotely. At the more extreme end, employers should also consider whether it would be a breach of their duty of care to send their employees to a country with a high rate of COVID-19 infections or require them to remain in such a country.
“Remote work across borders is not something that you should go into lightly,” Weaver advises. “You need somebody within your organization who has good knowledge of tax compliance, immigration, and APAC employment laws. Because of the pandemic, employers have very kindly been allowing their people to work abroad as needed, and it's only later that employers find themselves facing these questions. It's very important to take legal advice in advance, and if that's not possible, then as soon as you can, because many of these implications take effect after a period of time.”
What should the next step be?
As questions—and potential legal entanglements—around remote working abroad become more common, Weaver believes that long-term, employment contracts will have to change.
“The future of work is very much going to be based on working everywhere, at different times, on different things,” she says. “So, the employment contract, which is now quite traditional and restrictive, will have to become more open and principles and mission-based, rather than being limited to a certain location and working hours, for example. The contract will be far more flexible, because we are turning into global, nomadic employees and need our contracts to reflect this new way of working.”
On the other hand, she predicts that shorter-term remote working agreements or policies will become much more detailed and commonly used, precisely to reduce the risks of the unexpected legal implications set out above. “We will start to see more remote working agreements that say, specifically, we permit you to work in this jurisdiction for this period of time, you will have to return by this time, and we also have the right to ask you to return at any time before that on reasonable notice.”
The agreement, she says, would likely also include tax arrangements, confirmation of right to work in the host country, health and safety obligations, a clear governing law and jurisdiction clause and a number of warranties and indemnities to protect the employer.
Of course, there is ultimately only so much companies can do about the cross-border legal issues arising around remote work. “Companies are being asked to be more fluid, but the way laws are currently structured does not allow that fluidity,” Weaver observes. “We are quite territorial right now about the handling of issues, such as employment rights and social security.”
Still, that fluidity may eventually develop, especially in the context of the Asia Pacific region, where jurisdictions are attempting to work more closely together—such as the Greater Bay Area, or on a far larger scale, ASEAN. And with remote working set to remain a long-term, large-scale model, simple necessity may be the driving factor in smoothing out cross-jurisdictional issues, whether immigration, taxation, employment or health and safety.