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Beware of the Human Resources Laws Overseas

Have you ever wondered why you see people in the pubs in Europe all day? When we walk around American cities, at 2:30 p.m. people are working and the restaurants are empty.

Yet, in Paris, Amsterdam, London or Rome, we see locals having coffee or drinks, socializing during normal working hours. What are the reasons for this?

First of all, the locals may not work the kinds of hours we Americans do. It's quite possible that the people you see sipping Cinzano are off the clock. Germans average a 35-hour work week, so you could be catching the "Hoffbrau Haus crowd" after a shift at work.

However, there are alternate explanations.

One could be that the people working are actually supposed to be at work, at their desks. In several countries, employers can't ask about the whereabouts of their staff on a continuous basis. They must show cause of their concerns to appropriate "work councils."
Another reason could be that the people are, in fact, working. Meetings in coffee shops are not uncommon in the United States. Cafés in Europe have a business culture as well.
But another rationale for the 3 p.m. pub crowd could be that the people you see not working have been terminated by their employers -- yet continue to receive paychecks. Those paychecks can be up to 80 percent of the salary the employee would receive if they were working.

The human resources atmosphere in many countries obligates employers to commit to an employee with a "permanent contract."

This seems strange to Americans. U.S. companies do pay into unemployment benefits, and discharged employees often receive unemployment checks for a set period.

In Europe, those unemployment laws are much more stringent and employee-friendly. And employers may be paying a much larger share (50 percent isn't uncommon) into the unemployment fund. Naturally, rules are country-specific, but remember that socialized (therefore subsidized) health care and free university tuition are common benefits available to everyone in most Western European countries.

The money has to come from somewhere: high personal income taxes and enormous corporate taxes and fees.

As an example: In Austria, when one opens a bank account with 1,000 Euros, it magically becomes about 920 Euros after the bank takes all of its fees. Once a bank deposit is made, the bank will be subject to various government fees.

French students are protesting the peeling back of worker benefits. If France wishes to compete on a world scale in any industry that's dependent on high labor content, then CEOs need to be able to hire and fire at will. When large-client orders come in, a firm needs to be able to bring on more people. When business slows down, companies can't survive unless they can reduce their variable costs.

But in France, labor always was seen as a fixed cost.

With the French government as a partner in most French industries, firms exist not only to provide value to customers, but also to provide jobs.

The HR issues extend way beyond employment. They can include what you can (and can't) ask of an employee. Laws may encompass work hours, counter heights, safety equipment, desk space, smoking permission, travel restriction and bathroom facilities.

For example: German mothers receive one full year of maternity leave from their employers. And no one can be terminated for being pregnant.

In the United States, we believe we're one of the more progressive, humane countries. We can't ask personal questions (sex, religion) on job applications.

Yet Europeans often call American employees three-time losers:

First, we often mortgage our homes (in our 50s) to pay for children's college educations, compared to free education for Europeans.
Second, employers can terminate us at that age, while many Europeans enjoy either lifetime employment or lifetime income regardless of employment.
Third, since our health care is often tied to American employers, losing our jobs means losing our coverage. Our European counterparts receive socialized medicine provided by their governments, regardless of employer. The European HR squeeze therefore does have its purpose.

How can U.S. firms entering foreign markets escape some of the HR bind?

Use consultants, not employees. The Netherlands (which numbers about 16 million people) employs more management consultants than the United States, precisely because of HR laws.
Seek small entrepreneurial firms instead of employees, as you may not be able to terminate employees easily (depending on the country).
Find a partner, a firm that complements your business. Let the partner deal with the local laws.
Employ the foreigner you wish in the United States, and send them back overseas to work. Depending on the country, this person may have to reside in the United States for a part of each month or year.
Find people who understand these issues during your due diligence.