Legal Challenges of International Telework: Jurisdiction and Regulatory Compliance in a Borderless World

Alfonso Maria Autuori, Labor partner at ECIJA Barcelona

Over three years have passed since the end of the pandemic, and it is clear that one of the most significant legacies left by this event is a profound change in the labor market.

This shift is largely due to the realization that remote work is not only possible but can be highly effective in many industries. Alongside this recognition, there has been a significant increase in workers requesting to telework from a country other than where their employer is based, choosing their location based on personal preferences. For companies, accommodating such requests has become crucial for attracting and retaining talent.

As Spanish lawyers specializing in advising foreign companies, we have inevitably witnessed a surge in inquiries related to the legal framework governing this specific type of international employment relationship. In many cases, neither party has any direct connection to Spain other than the worker’s desire to reside in Spain and work remotely from Spanish territory for purely personal reasons, unrelated to their employer’s operations.

It is important to note that in this context, many governments have actively sought to attract this type of worker. Spain, already an attractive destination for foreign teleworkers due to its high quality of life, has been at the forefront of this trend. In December 2022, the Spanish government introduced a specific residence permit for non-European teleworkers (since Europeans already enjoy freedom of movement and establishment throughout the European Union). This permit comes with a special tax regime, which imposes a flat tax rate of 24% on worldwide income for six years.

While the Spanish government has made strides in the realm of immigration by introducing regulations specifically aimed at international teleworkers, there has yet to be any specific legislation addressing the labor and social security aspects of such cases. As a result, businesses and employees must rely on existing legal principles and regulations, which, while available, are not fully equipped to address these unique situations.

For instance, in the context of Social Security, the criterion used to determine the applicable law—or more precisely, the country in which the employer must contribute to Social Security for a teleworker providing services from another country—is the lex loci laboris principle. This rule is clear and unambiguous: the employer must contribute to Social Security in the country where the worker provides services, with the sole exception being when an international social security agreement allows for the maintenance of Social Security in the country of origin. However, since this exception is typically intended for temporary relocations made for business purposes, this solution presents several challenges for the type of teleworker we are discussing.

One of these challenges is that bilateral agreements often allow for the maintenance of Social Security in the country of origin for only a limited period, usually one or two years, which presents a medium-term problem for teleworkers intending to stay abroad permanently.

Another issue is that some countries, like the United States, do not issue certificates to maintain Social Security coverage in cases unrelated to business-related relocations. This forces employers in such countries to contribute to Social Security in the country where the teleworker is based, such as Spain, with all the formal obligations this entails (e.g., registration with Spanish Social Security, appointment of a representative, etc.).

Even more complex is the issue of the applicable labor law in these cases. Although European law provides a tool, the Rome I Regulation (and the Rome Convention for employment contracts concluded before December 17, 2009), which establishes rules for determining the law applicable to international employment contracts, the chosen law cannot deprive the worker of the protection afforded by the mandatory provisions of the place where the work is performed. Given that much of labor law is mandatory, the general principle of freedom to choose the applicable law is significantly limited, often subjecting the employment relationship to the regulations of the country where the teleworker is established—a country with which the employer may have no connection. For example, an American employer who agrees to let their employee telework from Spain will find it difficult to avoid being subject to Spanish labor law in many relevant aspects, including the regulation of employment contract termination.

In the absence of specific legislation, employers who choose to grant requests from new or existing employees to telework from another country will find it difficult to avoid the legal jurisdiction of the country where the employee provides their services, particularly if this arrangement is stable and long-term. This challenge is less clear-cut in the case of employees who are essentially itinerant, commonly referred to as digital nomads. However, even if the employment contract, addendum, or novation agreement is drafted when the employer consents to the employee teleworking from another country, employers cannot easily circumvent the application of the host country’s labor laws. Therefore, it is essential for employers to seek legal advice in the country where the employee will be teleworking.

Nevertheless, it is also true that employers may find it easier to avoid the potential consequences of non-compliance with the legal regulations of the country where the teleworker is based. This is largely due to the common and inevitable difficulties associated with enforcing international judgments or collection actions, as well as the likely absence of the employer’s assets in the country where the teleworker is providing services.

This creates a layer of complexity and risk management for companies navigating the evolving landscape of international telework, emphasizing the importance of legal guidance to mitigate potential liabilities and ensure compliance with local regulations.