Remote work is here to stay: How do multinational employers manage?

George Waggott
George Waggott Law, Toronto, Ontario
george@georgewaggott.com

Introduction

Remote work is now an established part of workplaces worldwide. While the Covid-19 pandemic was in many instances the catalyst for this transformation, the shift towards remote work is a long-term trend because the development of technology has made remote working arrangements cheap and effective. The underlying technological and economic realities that have made remote working arrangements viable and cost-effective also mean that remote work will remain a fixture of workplaces around the globe for the foreseeable future. This article covers four key legal topics that multinational employers need to consider when managing remote working arrangements with their employees.

Right to work remotely

Numerous recent disputes have arisen about whether employees have rights to insist on the right to work remotely. These disputes can take various forms. An employee who works remotely for an extended period may eventually claim that working remotely is their right under their employment contract. This can be based on the concept that remote work is an essential contract term which cannot be changed. In these circumstances, an employer’s decision to require that an employee return to the office (or begin office work after being exclusively remote) may give rise to a constructive dismissal claim against the employer.

Employers should be aware that the consistent actions of the parties to an employment contract may be interpreted as expressing an implicit term of the contract. In other words, an employer’s consistent consent to an employee working remotely may be interpreted as confirmation that remote work is an implicit term of the contract. This may be the case even in the absence of such a term in the text of the written contract. Indeed, in some instances employees may be able to claim that the parties consented to remote work arrangements which amended contract terms which had given the employer the default to determine the work location.

Courts and tribunals in Canada and the UK tend to be more willing to read implicit terms into a contract on the basis of the actions of parties. In other words, the actual facts of ongoing employment relationship may be paramount to the terms of relevant contracts or policies. In contrast, US courts generally tend to follow a more literal reading of the contractual text. However, these differences are relative, and all three jurisdictions follow the same basic principles of interpretation, which will focus on a combination of the contract wording and the actions of the parties.

Employers can protect themselves from legal uncertainty about an employee’s entitlement, or lack thereof, to work remotely by including explicit language in their employment contracts that defines the parties’ intent regarding remote work. This wording should also be reinforced in relevant communications, and employers should be explicit about the fact that there is no permanent right to remote work.

Jurisdiction shift

If an employee moves from one jurisdiction to another, their statutory entitlements and the related venue for the adjudication of any related legal claims may change to the laws of the other jurisdiction. Any such jurisdiction shifts can occur when a worker crosses national borders. There may also be a similar change to legal rules where a worker crosses between different sub-national jurisdictions within a country. Examples would include moving to a different province in Canada or different state in the US.

The question of whether or not there is jurisdiction over work is often quite technical, with a need to review the specific facts and prevailing legislation. A solid working assumption is that workers generally have statutory rights based on the laws of the jurisdiction where work is being performed. In the context of remote work, this will mean that when a remote worker relocates to a new jurisdiction, many of an employer’s legal obligations may change. This change, which occurs by operation of law and is not something which is easy to opt out of, can include a worker’s entitlements to benefits and pay, vacation, statutory holidays, and the rights and entitlements upon termination.

Employers may protect themselves to some degree by specifying which jurisdiction’s laws govern their employment contracts. However, employers should be aware that courts and tribunals around the globe often have discretion to refuse to enforce such clauses and instead require that the employment relationship will be subject to the laws of the jurisdiction where the worker is located and performing work. This approach is based on the principle that workplace laws are typically considered to be remedial in nature, operating to regulate the work as performed within the jurisdiction, without regard to where the employer, client or recipient of the worker's services is based.

Remote monitoring

Many organisations have instituted remote monitoring to manage remote workers more effectively. Remote monitoring, including tracking employee logins and keystrokes, can be a useful management tool, but employers must ensure that their remote monitoring is compliant with privacy laws. In the case of remote workers, this could mean that more than one set of legal rules will apply to monitoring and related employer processes.

In Canada, the main privacy legislation is the federal Personal Information and Electronic Documents Act (PIPEDA), with some provinces having their own privacy legislation that is largely similar to PIPEDA. The approach which PIPEDA follows is based on similar privacy principles which apply under EU law. In relation to remote monitoring, PIPEDA requires employers to inform employees how and why they are being monitored. Employers must also obtain employee or worker consent for the collection, use, storage and disclosure of personal information, with any use being consistent with the reasons for collection. These rules can have extra-territorial application, since they govern the conduct of the organisation without regard to where the worker is based. In other words, assigning work to a remote worker who is based outside of Canada does not insulate the organisation from the requirement to comply with applicable PIPEDA rules.

US privacy law has more regional variance because different states have significantly different degrees of privacy protection for employees. For example, California has extensive privacy protections for workers including pursuant to the California Consumer Privacy Act, and the California Privacy Rights Act. California law requires employers to advise employees specifically on what data they collect, why and how they will use it; workers have the right to request access to their data, correct inaccurate data, or even ask for the deletion of their information. Conversely, Texas has no specific privacy legislation that applies to workers, although federal privacy laws still apply. The result can be a wide divergence in terms of requirements based on where the employer and the remote employee is based. All of this reinforces the importance of obtaining current advice from local counsel.

The EU’s main privacy law is the General Data Protection Regulation (GDPR). The GDPR imposes extensive obligations on organisations, with a focus on a detailed review of procedures applicable to the collection and use of data. In the context of remote work, employers must be able to articulate a valid legal basis for remote monitoring, inform employees about the monitoring, permit employees to exercise their rights over their data, and ensure the security of employee data. Additionally, foreign employers with EU employees must appoint an EU representative. There are essentially no exemptions to these rules, so relevant employers with employees working remotely in the EU will need to review GDPR requirements closely and determine how they will comply.

Tax implication of home offices

The use of remote workers may also give rise to tax issues at the corporate level. In particular, multinational employers may be taxed on the basis that an employee’s home office constitutes a ‘permanent establishment’ (PE) of the employer. If this is the case, there may be resulting obligations to make ongoing corporate and tax filings.

In cases where there is a PE, tax treaties typically govern how much of an employer’s income is taxed by each country where the employer operates. Where two countries have a tax treaty, and an employer located in one country carries on business in a second country, the second country can only tax the profits of the employer that are attributable to the employer’s PE in the second country. Most tax treaties, including those signed by Canada, the US and most European countries, are based on the OECD’s Model Tax Convention. The updated OECD framework for determining if an organisation has a PE may cause many remote workers’ home offices to be reclassified as PEs. In other words, there is general support for the concept that a home office or remote work location may give rise to a corporate tax obligation.

According to the most-recent OECD framework, an employee’s home is a PE of their employer if either of the following two tests are met: (1) the Working Time Test, where the employee works from home more than half of their working time within any rolling twelve-month period; and (2) the Commercial Reason Test, where there is a commercial reason for the activities to be undertaken at the employee’s home.

This reinforces the importance of closely reviewing the relevant arrangements, which may have substantial financial and compliance implications.

Conclusion

Remote work is almost certainly going to remain a fixture of workplaces. As a result, employers must proactively manage the legal and regulatory challenges this creates. Clear contractual language and awareness of the differences between the regulatory frameworks of different jurisdictions will go a long way in protecting employers from legal risk.