Multinational companies may find it enticing to test a new market by using contractors overseas. These firms believe that they can avoid the hurdles of setting up a legal entity, which is needed to hire an in-country employee, by simply working with a local representative to perform consulting work. As wonderful and easy as this sounds, it’s actually inaccurate and presents many risks, especially if you’re using an American or domestic originated agreement to hire contractors overseas.

Independent contractor status is touchy in international markets. In regions spanning from Europe to Latin America to Asia, contractor agreements constantly end up in court and multinationals end up with big ticket bills due to their “safe” consultants. Protect yourself from a nasty legal battle and make sure you understand the risks of using contractors overseas before hiring one.

Risks with Contractor Agreements

You may have a solid agreement with your contractor, but in other countries, the courts typically rule on the side of the employee. Basically, if your independent contractor decides to fight their employment status in court, your agreement will likely be thrown out. There are many risks involved in these cases, which we describe below:

Using a US Independent Contractor Agreement

If you’re using a US-based agreement, it’s most likely due to the fact that you do not have an entity set up in the country where your contractor performs their work. This presents many problems if your contractor decides to battle their job status in court. Risks include:

• Your agreement is void, so your employee can claim anything in order to win because the US agreement is not valid in foreign markets.
• The labor authority rules on employee vs. employer cases and you will need to be present in court with a local entity

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What does the change mean? Pending the outcome, employers should be aware that foreign nationals applying for asylum in South Africa continue to be work authorized but must be immediately terminated if their applications are refused and they no longer have the option to apply for work permits while in South Africa.

• Implementation time frame: Immediate.
• Who is affected: Companies employing asylum seekers in South Africa; foreign nationals in South Africa with outstanding asylum applications.
• Business impact: If an employee’s asylum application is refused, the employment must be terminated and any subsequent work permit application must be submitted overseas.
• Next steps: Employers should review the immigration status of their South African workforce to determine the level of risk exposure. BAL can assist in the process.

Background:The number of employers impacted by the recent change in DHA policy is potentially significant, given that an estimated 10 percent of the South African workforce are foreign nationals with outstanding asylum applications. Nearly 870,000 new asylum applications were submitted to the DHA between 2008 and 2013.

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