Labor and Employment Issues in Southeast Asia

Read the entire Southeast Asia Report here.

One of Southeast Asia's major assets for U.S. businesses is its large, driven and generally inexpensive workforce. Darren Gardner, a partner in Seyfarth Shaw who frequently represents clients in labor and employment matters in Southeast Asia, talked to InsideCounsel about some of the issues faced by U.S. companies when they employ workers in the region.

[U.S. companies] need to understand that none of these countries [Singapore, Malaysia, Vietnam, Thailand, the Philippines and Indonesia] have developed their [labor and employment] systems to facilitate commerce. It often surprises people that at-will employment and the ability to do what you want with your employees just does not exist in these countries; you are effectively in a system that regulates what an employer can do and how it can be done. And if you want to change anything, it requires the consent of the employees either individually or collectively. Don't underestimate the cultural factors--you might have a law that on its face says the same thing [as a U.S. law], but the way it may be interpreted may be far different from what you are used to.

Ranking Southeast Asia

If you put the countries on a scale from closest to the U.S. to farthest from the U.S., I would probably start with Singapore. Singapore tends to be a jurisdiction where most U.S. countries find it easy to do business. It's generally a relatively straightforward compliance jurisdiction. For non-blue collar positions, [employment] tends to be governed by contracts. It's a market that has developed in line with encouraging private investment, so it's not surprising that the rules are generally easy to comply with.

Malaysia is next. It has central [employment] legislation. Probably it is a little tougher than Singapore, to the extent that if there is a dispute about termination, for instance, you might find that you are more open to challenge than in Singapore, where things tend to operate on a contractual basis. In Malaysia there are unfair dismissal laws, so there is a little more risk in doing things unilaterally.

Thailand has employment legislation and a commercial code. It regulates more than Singapore and Malaysia. It dictates how much people are to be paid and how much they must be paid on termination. It's also developing rules around discrimination. It's one of those counties where you are not going to have a lot of involvement from the authorities. But there is an evolving level of regulation in Thailand, so it is becoming more and more prescriptive about what needs to be done.

The Philippines has a labor code that is prescriptive, but there is a U.S. influence. There are courts and decisions made that may be enforceable and may carry precedence. It's fairly heavily regulated and quite specific, with certain idiosyncrasies. In Malaysia if you are doing a restructuring, you have to use the last in, first out rule. In the Philippines, if you come to an agreement to settle, you have to have a specific form of agreement--certain things that may not be intuitive to U.S. counsel. There could be serious consequences if you don't understand them.

Vietnam is effectively a socialist jurisdiction--much more heavily regulated. If you are changing things, you have to involve your workers and also need to get the approval of the authorities. Take termination. You can only terminate for certain reasons--if you don't meet these [standards], you have an issue--and if you do, you have to demonstrate that you have based your decision on those reasons and you have to make payments [to the person being terminated.] And you have to work through the authorities and get their consent.

In Vietnam and Indonesia, there are requirements for work rules to cover certain aspects of the employment relationship. Thailand has the same thing, though things in work rules tend to be covered by legislation. You have to prepare [work rules] in the local language and file them with the authorities and take them into account every time you want to do anything regarding your employees. The work rules are like a codified handbook--covering grievance procedures, severance payments, leave, maternity leave, everything in the employment relationship.

Culture Shock

The toughest thing is capturing the idiosyncrasies--they are country specific and impacted by culture, so it is often difficult. With globalization, there is a focus on trying to do things consistently around the world. There is a default assumption that the U.S. is a sophisticated system, so what I adopt here would be greater than what is required in a Third World country. But most countries are far more generous [to employees] than the U.S. in almost all respects. The direction the regulators come from is to protect the employee--more protection is built in than there is for U.S. employees.

There are generally minimum wage and hour laws, but I have done thousands of matters across Asia and minimum wage tends not to be an issue. U.S. companies are generally generous in that respect. So that usually does not come into play. The working hours laws are becoming more of an issue. The internationalization of unions means there is an increasing trend to individual employment disputes. In the past, there were fewer individual disputes. Now people are more aware of their rights, so you see more enforcement of the laws and more interaction over employment-related issues.

Court Challenges

In the event you end up in court, generally speaking it's difficult for U.S. companies. Everything has to be in the local language, electronic evidence is not admissible and the presumption is usually against the employer. Generally it is an unrewarding process in most jurisdictions because of the differences between how something would be handled here. Every country is different. They have very local systems. You will not see juries, you could be litigating in a foreign language where the person hearing the case does not understand a word of English and the majority of your evidence is designed to fit around a U.S. system that works well but that is entirely foreign to that country.

The biggest issue I've seen [U.S. counsel confront] is appreciating the differences and understanding that all these countries do have complicated and sophisticated laws that U.S. companies have to comply with. The idea that we can just do what we do here is a fundamental flaw in the logic. And it's hard to fix once you have done it. In terms of the process, you don't just say 'we are management; we are going to change things'. Consultation has a big impact on whether you will be able to do what you want to do.

Areas where [U.S. companies] stumble tend to be working hours, leave, benefits, pensions. Often they will go in and not realize that they are required to provide entitlements--they go in and think they are paying a generous salary, not realizing there are all these things they have to pay for on top of that. They have a human resources system that is technology driven, administered in the U.S., and they want to operate within that, but they suddenly find out that it doesn't work.

The other big one is termination. The ability to do anything quickly, and to do it unilaterally, is problematic. They have a restructuring, they think it's just a matter of money, but in places like Indonesia and Vietnam they quickly find out that that is just not the case. There are minimum requirements and you have to deal with the authorities. So you may make a [termination] payment and the authorities find it is invalid so you have to go through the process again and make an additional payment. That's a common problem because people go in with a future that looks bright, then they want to change the shape of the business, they want to do a layoff, and they find out they can't do it. Particularly in Vietnam and Indonesia, it's very problematic.

Senior Editor

Mary Swanton

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