Application Of Title Vii And Other Anti-Discrimination Laws To Employees Of U.S. Companies Working Outside The United States

I. Introduction

This presentation and paper focus on the broad sweep of the Federal Arbitration Act (“FAA”), 9 U.S.C. §1 and 2; and the U.S. Equal Employment Opportunity Commission (“EEOC”) Enforcement Guidance (Notice 915.002:10/20/93) on Application of Title VII and the American Disabilities Act to Conduct Overseas and to Foreign Employers Discriminating within the United States (EEOC Guidance); cases cited therein and other cases addressing fact situations within the scope of this Topic.1 For in depth coverage, see Attachments A and B.

II. Applicable Law

A. The Federal Arbitration Act “(FAA”). 9 U.S.C. §1 and 2
The Age Discrimination Employment Act (“ADEA”). 29 U.S.C. §621. et seq:
The Civil Rights Act of 1964. 42 U.S.C. $2000 et seq.; Amended 1991 by
Public Law 102-166, in particular Section 109
The Americans With Disabilities Act (“ADA”) 42 U.S.C. §12101:
The Fair Labor Standards Act (“FLSA”). 29 U.S.C.S 201:
The Equal Pay Act (“EPA”). 29 U.S.C. $206.

1) Although the FAA was enacted in 1925, judicial opposition to enforcement of arbitration agreements in employment matters did not significantly abate until 1991, when the Civil Rights Act of 1964 was amended, and endorsed Alternative Dispute Resolutin (“ADR”) as a mechanism to resolve disputes arising under Civil Rights and other federal laws.

Ten (10) years later, the U.S. Supreme Court in a five (5) to four (4) Decision, Circuit City Stores, Inc. v. Saint Clair Adams, 532 U.S. 105, 123, 121 S.Ct. 1302, 1313 (2001) citing Gilmer v. Interstate Johnson/Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991), limited the exclusion from coverage by the FAA to “seamen” and “railroad employees”; and essentially embraced all other contracts “within the Congress’ commerce power …” Circuit City at 114, and at 123, extolled the benefits of ADR. Currently, the conditions precedent to enforceability are:

  1. Bilateral obligations under the agreement.
  2. ADR administrative fees, mediation/arbitration fees borne by employees should be substantially the same as what they would incur in court proceedings, except employees bear their own attorneys’ fees, unless otherwise provided by the Agreement or statute.2.
  3. Arbitrations must be authorized to impose remedies co-extensive with judgments that could be issued in a court or jury trial, including interest, liquidated or punitive damages.
  4. Discovery is permitted in the reasonable discretion of the arbitrator.

The logistics of mediation or arbitration in the context of fact situations to be discussed
herein are beyond the scope of this Paper (and my knowledge or experience). However, litigation involving the statutes addressed, in my view could be diverted to ADR resolution forums based upon appropriately written agreements or treaties.

2) In 1984, the Age Discrimination in Employment Act of 1967 (“ADEA”) was amended to cover “any individual who is a citizen of the United States employed by an employer in a workplace in a foreign country”; and a U.S. employer that controls an employer whose workplace is in a foreign county and engages in a practice prohibited by the ADEA, shall be jointly responsible for the unlawful practice of the foreign employer. See Section 4(h) ADEA. Note, however, the prohibitions of Section 4(h) shall not apply where the foreign employer is not controlled by an American Company. 29 U.S.C. §623(h).

3) In general, the 1991 Amendments to Title VII, prohibit acts or omissions that have the effect of discriminating against employees based upon race, religion, national or ethnic origin, gender, including sexual harassment and disability; and may be applied to employers outside the U.S. and its territories, protectorates, etc.

III. U.S. Anti-Discrimination Laws Apply Extraterritorily
A. To Employers Controlled by American Companies.

A rebuttable presumption exists that American-controlled foreign subsidiaries’ discriminatory actions are the actions of the American parent. Whether “control” exists depends upon analysis of the following factors:

a) interrelations of operations

b) common management

c) centralized control of labor relations

d) common ownership or financial control of the employer and the parent company. 29 U.S.C. §623(h)(3)

As to age discrimination of employees working in the U.S. or its territories, absent a treaty to the contrary, it is the EEOC’s position that ADEA applies to foreign as well as U.S. employers.3

B. Litigation of the “Control” Issue Is Fact Intensive4

In situations addressed prior to or at the very early stages of the creation or acquisition of a non-U.S. operation, the opportunity exists to avoid a determination by the EEOC or an American Court that “control” of the foreign workplace resides with the American company. The factors listed in III. A. were developed in cases litigated by the National Labor Relations Board (“NLRB”), where related employers, one a union signatory, the other non-union, were alleged to be “single employers” or “alter egos,” both bound to the collective bargaining agreement. The first three factors are generally dispositive resulting in a “control” determination. Conversely, the fourth factor in and of itself is not dispositive. “Interrelations of Operations,” “Common Management” and “Centralized Control of Labor Relations” are functions that can be designed to rebut the presumption of American “control.”

For example, should the foreign company be incorporated in the country in which its workplace exists, the Board of Directors and officers should not mirror those of the related U.S. company. Financial dealings with the American company should be “arms length.” Services provided by one to the other should be invoiced at market rates and paid in the normal course, rather than by “offsetting” book entries. Wherever possible, the foreign company should be adequately capitalized and have some independence in managing its money and operations.

There is, of course, a balancing of the value of reducing the “control” risk, and the risks and potential cost of losing operational and financial control of valuable assets hundreds or thousands of miles from the United States and those charged with responsibility for the entire company. In the final analysis, employment litigation insurance, if available for the foreign affiliate and effective human resources and labor relations preventative programs may mitigate the risk of employee lawsuits.

IV. The Fair Labor Standards Act (“Flsa”) And The Equal Fay Act (“Epa”) – Unchartered Waters

A. The EPA, as an amendment to the FLSA, has coverage coextensive with the FLSA. The FLSA provides no coverage for an employee whose services are performed in a foreign country. The EPA has not been amended to provide coverage beyond that of the FLSA. It would appear then, that extraterritorial jurisdiction does not exist in respect to either statute.

However, as I was taught in law school, “that which is plausible is perilous,” and believe, depending on what side you are on, it may be necessary to “think outside the box.” Therefore, careful review of the case law is encouraged. See Wirtz v. Healy, 227 F.Supp. 123 (M.D. Ill (1964); Wolf v. J.I. Case Co., 617 F.Supp. 858 (D.C. Wise. 1985).

V. The Foreign Laws Defense

Section 109 of the 1991 Amendments to the Civil Rights Act of 1964, provides “it shall not be unlawful,” under either Title VII or the ADA, for an employer to take otherwise prohibited action if compliance with U.S. law, with respect to an employee in a workplace in a foreign country, would cause the employer in the foreign venue to violate the law of the foreign country in which the workplace is located. 29 U.S.C. §623(f)(l).

An essential element of this defense is that the employer demonstrate that compliance with U.S. law, Title VII, ADA or the ADEA would cause the employer to violate the law of that workplace, i.e. foreign law mandatory retirement age. See Mahoney v. RFE/RL, Inc. 818 F.Supp. 1 ((D.D.C.) 1992). A second requirement of the foreign laws defense is that the employer demonstrate it is impossible to comply with both U.S. and foreign laws, In attempting to establish that element, the principle of “reasonable accommodation” to the respective laws is required. Id.818 F. Supp. at 5. cf. Kern v. Dynalectron, 511 F. Supp. 1196 (N.D. Tex 1983).

VI. Treaty Or Other Conflict Of Laws

A. A Treaty May Be Raised As A Defense To A Complaint Where A U.S. Citizen Or Alien Is Working In The U.S. For A Foreign Company

1) Extraterritorial application of the ADEA and EPA may conflict with foreign or international laws or raise “choice of law” issues. The Guidance Division of the EEOC should be contacted to facilitate coordination with the State Department.
2) Friendship, Commerce and Navigation treaties (“FCN”) are commercial agreements between two companies, granting jurisdiction to one country over a foreign employer. Under the terms of a FCN treaty, each signatory grants legal status to the other party enabling each to conduct business in the other’s country on a “comparable basis with the country’s domestic companies” (See McNamara v. Korean Air Lines, 863 F.2d 1135 (3d Cir. 1988) and Note 9 to Exhibit B.

VII. Conclusion

The statutes discussed in summary fashion in this Paper, are not complex. To the contrary the principles of law are straight-forward, and adverse consequences can be avoided or at least mitigated by advance planning and solid command of the facts, from corporate origination, financial controls, human resources and labor relations status.

Attachments A and B constitute a superb product of U.S. tax dollars. On the subjects it covers it is understandable, yet comprehensive. The cited case law, examples and guidance in dealing with the EEOC, combine to make the document an indispensable practice guide and litigation instrument.

My summary is just that. I urge you to become familiar with it.