Reasons to Arbitrate Disputes between Multinational Companies and Third-Country National Employees

Article excerpt

Because globalization is as much about capital as it is about labor, multinational companies hire third-country nationals out of competitive necessity. This article discusses why litigating claims for breach of the covenant-notto-compete (and other restrictions in post-employment agreements with TCN employees) is a poor mechanism for protecting the employer's interest and why arbitration is a better alternative.

Overseas employment is now commonplace. In an era of increasing globalization and outsourcing, multinational corporations typically face a shortage of either local managers with requisite skills and knowledge of international operations or cheap labor.1 Therefore, it has become a competitive necessity for these companies to assign highly qualified third-country nationals (TCNs) to these positions.2 However, U.S.-based multinational companies (MNCs) are discovering that offering traditional incentives, such as bonus plans and stock options ("carrots"), and using restrictive covenants-not-to-compete ("sticks") are not always effective for retaining talented TCN employees.

Recent cases in European Union (EU) countries involving the extraterritoriality3 of U.S. choice-of-law and -jurisdiction clauses illustrate that "stick" provisions in international employment contracts often collide with foreign legal protections, resulting in significant litigation exposure and enforcement problems for employers. This article argues that arbitration, though subject to some criticism, would make it easier for MNC employers to enforce restrictive postemployment provisions in cross-border employment agreements. Supporting the use of arbitration in this situation are exemptions for arbitration from certain EU and U.S. federal laws, robust international conventions favoring the recognition and enforcement of foreign arbitral awards, and the Kompetenz-Kompetenz doctrine, which allows arbitrators to determine their own jurisdiction without court interference.


For purposes of this article, the term "TCN expatriation" refers to a TCN hired by a U.S.- based, private-sector MNC (or its subsidiary)4 to work at the employer's place of operations in a foreign country, and the TCN is neither an American citizen nor a citizen of the country in which he or she will be temporarily working.5

Many writers on expatriation in the workplace have drawn a distinction between TCNs depending on where they work. For example, a foreign national who is assigned to work for an MNC in the United States is commonly called an "inpatriate." 6 These employees generally are protected under U. S. labor and em ployment laws; therefore, they can sue and be sued by their employers in U.S. courts.

U.S. citizens who work abroad for U.S. employers are generally referred to as "parent country nationals" (PCNs) and they too can sue and be sued by their employer in the courts of the United States for matters arising out of the employment relationship.

Data on TCN Expatriation

One 2009 study of global trends found that 37% of expatriate employees were relocated to or from a non-headquarters country.7 Despite the recent global economic downtown, 37% of MNC employers reported an increase in 2008 foreign expatriation while 42% reported no change from previous years. However, 33% expected the number of total expatriates to increase in the 2009 fiscal year.8

Why MNCs Hire TCNs

Several reasons have been advanced to explain why TCNs are hired. They typically have lower salary and benefit requirements compared to PCNs,9 are more flexible than PCNs, and willing to work under challenging conditions in developing countries. Some commentators have argued that because TCNs have a foreigner's understanding of corporate policies, they may communicate these policies more effectively to other foreigners. 10 Career TCNs tend to be migratory and employers value them for their global perspective and cross-cultural competence, especially when an MNC decides to establish a new operation in an unfamiliar foreign location where it lacks local expertise. …