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Interpreting federal laws for overseas employees
of American companies or employees of foreign companies here
by John McDermott
Through the years, Congress has enacted a number of laws designed to prevent discrimination in employment based on race, religion, national origin, gender, age and physical or other handicaps.
It should come as no surprise that they cover U.S. citizens working for U.S companies of the requisite size in the United States. But do they also cover overseas employees of American companies or employees of foreign companies working in the U.S.?
This article attempts to answer some of these questions with respect to the two most prominent federal job discrimination laws, Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act.
Title VII parameters
The most comprehensive federal job discrimination law is Title VII of the Civil Rights Act of 1964, which prohibits any employer or labor organization of the requisite size engaged in commerce from refusing to hire, fire or otherwise discriminate because of race, religion, sex or national origin.
Title VII broadly prohibits discrimination with respect to hiring, promotion and termination as well as compensation, terms, conditions or privileges of employment.
Unlike many other countries, there is no federal statute specifically dealing with sexual harassment. However, in Meritor Sav. Bank v. Vinson, the Supreme Court held that sexual harassment constitutes sex discrimination and violates Title VII.
Congress passed the Age Discrimination in Employment Act (ADEA) in 1967 in an effort to eliminate employment discrimination on the basis of age.
The act prohibits employers, employment agencies and labor unions engaged in industries effecting commerce from discriminating against individuals over 40 because of age by providing that they may not "fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment because of such individual's age."
The ADEA, like Title VII, contains an exception to liability -- the BFOQ defense -- "where age is a bona fide occupational qualification reasonably necessary to the normal operation of the particular business."
This exemption is extremely narrow -- the employer must be able to establish reasonable cause to believe that all or substantially all individuals over a certain age could not perform the job.
Three basic factors affect the applicability of these laws in a transnational setting: the citizenship of the employee, the citizenship of the employer and of any entity controlling the employer, and the place of employment.
Thus, there are at least eight possible situations that must be examined. Listed below are scenarios describing the employer, employee and place of employment.
A. U.S. company; U.S. citizen; U.S.A.
B. U.S. company; Non-U.S. citizen; U.S.A.
C. Foreign company; U.S. citizen; U.S.A.
D. Foreign company; Non-U.S. citizen; U.S.A.
E. U.S. company; U.S. citizen; Outside U.S.A.
F. Foreign company; U.S. citizen; Outside U.S.A.
G. U.S. company; Non-U.S. citizen; Outside U.S.A.
H. Foreign company; Non-U.S. citizen; Outside U.S.A.
There can be little question that both laws apply in situation A, a U.S. employer with U.S. employees working in the U.S. and to situation B, a U.S. company with non-U.S. citizen employees working in the U.S.
It should be equally clear that neither apply to situation H, a foreign company employing foreign citizens outside the U.S., as it would be a clear affront to that country's sovereignty.
But there is -- or at least was -- a substantial question whether these laws would apply in the remaining five circumstances.
The Supreme Court held in EEOC v. Arabian American Oil Co. that Title VII did not apply extraterritorially to protect American citizens employed abroad by American employers.
The court found no "clear evidence" of congressional intent to extend Title VII coverage to Americans employed abroad.
However, Congress disagreed and "overruled" the decision by including within the Civil Rights Act of 1991 a provision that amended Title VII to define a covered "employee" as: "With respect to employment in a foreign country, such term includes an individual who is a citizen of the United States."
Thus, Title VII now clearly applies to U.S. citizens employed by a U.S. employer abroad, but just as clearly, does not apply to non-U.S. citizens working for U.S. employers abroad.
The amendment apparently intended to preclude application of the U.S. law to, for an example, a Japanese citizen working for a U.S. company in Japan. But what about a person who is not a U.S. citizen but is a permanent resident of the U.S., employed by the U.S. company in the U.S. and subsequently transferred to its Tokyo office?
Although the amendment seems to remove all aliens from the reach of Title VII if they are employed abroad, it seems unlikely that Congress intended to deny coverage to a resident alien of the United States while out of the country on assignment.
Like Title VII, the ADEA did not originally expressly state whether it applied to U.S. citizens employed abroad and several lower courts held, as the Supreme Court had with respect to Title VII, that the ADEA lacked sufficient evidence of congressional intent to overcome the presumption against extraterritoriality.
In 1984, Congress responded to these decisions by amending the ADEA to provide for limited extraterritorial application.
Congress amended the definition of "employee" to include "any individual who is a citizen of the United States employed by an employer in a workplace in a foreign country."
Congress also modified the definition of U.S. employer as follows:
1. If an employer controls a corporation whose place of incorporation is in a foreign country, any practice by such corporation prohibited under this section shall be presumed to be such practice by such employer.
2. The prohibitions of this section shall not apply where the employer is a foreign person not controlled by an American employer.
3. For the purpose of this subsection the determination of whether an employer controls a corporation shall be based upon the (A) interrelation of operations, (B) common management, (C) centralized control of labor relations, and (D) common ownership or financial control of the employer and the corporation.
Based on these amendments, most courts have concluded that the ADEA applies abroad only when:
1. The employee is an American citizen; and
2. The employer is a U.S. employer or a foreign company controlled by an American employer.
As was true of the 1991 amendments to Title VII, the Act, while clearly intended to deny coverage to "foreign nationals working for such corporations in a foreign workplace," seems to also deny protect to permanent aliens working abroad.
Curiously, in amending the ADEA to cover American citizens working for U.S. companies abroad, Congress failed to clearly indicate whether the ADEA applies to American citizens or others working for foreign corporations in United States.
Because of this omission, the few courts considering §623(h)(2) have split on whether the ADEA is so limited. One decision held that a foreign employer was not subject to the ADEA with respect to American citizens working in the United States, while at least two district courts have reached the more sensible position that §623(h)(2) does not exempt a foreign company from the ADEA where the employee was an American citizen working in the United States.
Congress, when it amended the ADEA in 1984 and Title VII in 1991, did resolve one question -- do they apply to U.S. citizens employed by U.S. companies abroad -- but left many other questions unresolved.
Although a few lower court decisions have addressed some of them, others are still largely unresolved and are likely to remain so for some time to come.
John McDermott is a professor at Loyola Law School in Los Angeles and a member of the executive committee of the State Bar's International Law Section.