These days the pressure is on for companies to go global. But leaders in American companies should be aware that they are opening themselves up to increased exposure to liability for personnel actions stemming from their overseas operations.
For companies considering globalization, there is a new variable to factor into the financial plan. According to Workforce Management writer Jordan W Cowman, U.S. companies are facing increased exposure to liability in the United States for actions stemming from their overseas operations.
A few recent cases mentioned in the article How Your Overseas Operations May Expose You to Liability in the U.S.:
Mendoza vs. Contico International–A U.S. corporation had a subsidiary in Mexico. Two payroll workers, who were employed by the Mexican subsidiary, were ambushed and murdered while transporting the company’s cash payroll. The parents of the payroll workers filed suit in Texas against the U.S. corporation, alleging that the U.S. corporation was negligent in allowing the employees to carry such large sums of cash without armed security along a lonely stretch of Mexican highway. Although the murders took place in Mexico, the lawsuit was filed in Texas. In 1994, a Texas district court judge ruled that Texas law applied because decisions about payroll came from the U.S. company’s headquarters. The U.S. corporation agreed to settle the case for an undisclosed amount, which has been estimated at approximately US$1.5 million.
Aguirre v. American United Global–In Aguirre, a Mexican subsidiary wholly-owned by a Los Angeles-based corporation, was participating in “blatant and disgusting sexual harassment” against the Mexican employees. A company executive allegedly demanded that female employees perform a bikini show for him to videotape at a company picnic. The female plaintiff employees (all Mexican residents) originally filed the action in Mexico, but the officers of the U.S. corporation apparently refused to show up for trial in Mexico. Alternatively, the plaintiffs refiled the action in Los Angeles Superior Court and alleged violations under both American and Mexican law. After the corporation’s motion for summary judgment was defeated, the case settled for an undisclosed amount and the corporation reportedly closed down its Mexican operations.
Reasons for this trend? Many foreign jurisdictions lawsuits have damage caps for injuries and wrongful death; U.S. juries have “virtually unbridled discretion” in awarding such damages.
Also, U.S. companies are known for having “deep pockets.” If you’re working for a small subsidiary of a large U.S. corporation, you’re going to sue where the money is.
The Workforce article offers a couple of tips for managers looking to avoid these kinds of issues:
- Ensure that decisions regarding non-U.S. operations are made from within the non-U.S. operation, not in the United States.
- Monitor practices of the non-U.S. operation that could result in liability (e.g., improve its employees’ working conditions, improve worker safety, increase awareness of safety precautions, and impose more stringent safety and health policies).