Liat Shaked-Katz
Herzog, Tel Aviv
shaked@herzoglaw.co.il

Orly Gerbi
Herzog, Tel Aviv
gerbio@herzoglaw.co.il

Introduction

The phenomenon of ‘digital nomads’ has grown dramatically in recent years. The Covid-19 crisis created a situation in which employers, in whose view remote working was not a valid option or even considered to be an alternative (let alone the option to work from anywhere (WFA)), were forced, by this unexpected global force majeure, to continue their operations with remote working whether they liked it or not. There’s nothing quite like a highly infectious virus and lengthy lockdowns to impact decision-making processes.

The digital nomad alternative was previously only chosen by a limited number of (adventurous or free-spirited) individuals, wishing to find their optimal work–life balance, enjoy different cultures or reduce the cost of living; however, the inevitable new reality of remote work has dramatically changed the situation. Employers and employees now realise that remote working is possible and has its advantages (depending, of course, on the applicable roles and services; however, we note that the term ‘digital nomad’ generally refers to roles that can be digitally performed or, to cite the Organisation for Economic Co-operation and Development, to a ‘location-independent, technology-enabled lifestyle’).

Once employees started to work remotely, the path to changing their work location or finding the courage to be a digital nomad became much shorter and the scope of the phenomenon has, therefore, dramatically increased. Furthermore, employers have also started to realise the benefits of this arrangement, mainly that their newfound ability to offer location flexibility attracts new talent and can improve employee retention rates.

Based on discussions with employers, as well as with digital nomads and a review of some of the (many) existing applicable social media groups, it is apparent that despite the growing scope of the phenomenon, only a few employers have taken control of it, analysed the legal implications of WFA and digital nomads, and implemented clear policies to regulate the matter. In this article, we wish to briefly describe the main legal considerations that employers should take into account before permitting their personnel to WFA or become digital nomads.

It should be clear from the outset, it may be legal to WFA or be a digital nomad, however, there are substantial legal issues that must be considered and settled first, in order to avoid unnecessary and significant legal exposures (some of which may also have criminal implications).

Taking the first step – what employers should consider

First, employers should acknowledge that there are legal constraints to working in different locations. Indeed, we live in a global world and in this technological era we have all become so much closer to one another; however, as stated on (too) many vacation t-shirts, it is ‘same-same but different’. Different countries have different legal regimes and there are legal implications when working outside of your base (home) country. Furthermore, each country sets its principles based on its specific interests and values. Accordingly, if employers do not wish to allow WFA, they need to be explicit on the matter and clearly state in their remote work policy that remote work only means working remotely from the home location, otherwise this may not be clear. In recent years, employees have started to work from foreign jurisdictions, even in some cases without their employer being aware of the fact. Moreover, even after employers have been made aware, in many cases, no legal analysis was carried out.

Second, employers who wish to allow WFA and engage digital nomads need to set a clear policy detailing, among other things, a clear request process for obtaining approval to be engaged as a digital nomad and the specific conditions for such approval. In doing so, employers need to consider whether the specific individual can legally work from the requested jurisdiction, as well as the relevant legal implications.

Below are the main legal considerations that should be taken into account:

1. Immigration: In general, a tourist visa does not suffice to allow individuals to work from a host location, unless they obtain an applicable work visa (this is usually the case regardless of the status of the engagement and, therefore, also applies to freelancers). Moreover, in general, both the individual and their employer will be in breach of the law in instances where a work visa has not been secured. Therefore, employers should generally ensure that only individuals who are legally permitted to work in the host location, do so. In this context, we note that a growing number of countries that wish to attract digital nomads have introduced new digital nomad visas, which are easier to obtain (eg, Argentina, Greece, Italy, Portugal, Spain and the United Arab Emirates).
2. Governing law and employment rights: In general, the legal plan is that the digital nomad continues to be engaged in accordance with their original employment agreement and be governed by the governing law of their home jurisdiction. However, employers need to ensure that under the laws of the host location, such home jurisdiction law would be enforceable and whether certain additional terms may apply (for example, any minimum salary requirements). One should also note that the basic rule in international employment law is that the law of the jurisdiction in which the work is performed is the law with the most nexus and should apply. The length of the stay in a particular host location may not impact the legal analysis, but the longer the stay the greater the potential impact. Furthermore, even if the home jurisdiction law is enforced, employers should be aware that in many cases, public order principles under the laws of the host location will always be implemented (for example, principles of equality or questions pertaining to the status of the engagement), even when the home jurisdiction law does not support them.
3. Engaging entity limitations: Employers should be aware that in certain locations it is unlawful for foreign employers to engage personnel directly. Accordingly, in order to enable the engagement of digital nomads in such jurisdictions, employers should adopt an applicable legal solution (for example, a payroll company/employer of record) and carefully study and consider the legal implications of such a solution.
4. Tax considerations: Digital nomads should, of course, be responsible for personally assessing the (individual) tax and social security implications applicable to them (for example, in many jurisdictions after 183 days the individual is considered a resident for tax purposes). However, employers should recognise that they may also be subject to various tax implications, as many jurisdictions have a legal requirement for deduction at source of tax and social security payments (note, that specific exceptions may apply due to social security treaties between jurisdictions). It is worth remembering that the compensation that may be subject to withholding tax may also include stock-based compensation, such as stock options and restricted stock units, that are vested or exercised during the employee’s presence in a given jurisdiction. Furthermore, employers must confirm that the engagement of a certain individual in a host location does not create a permanent establishment or any other type of taxable presence for them in the host location, which may result in an exposure to tax payments on the employer’s (potentially overall) activities in such location as well. This is dependent on various factual circumstances, such as the nature of the relevant role and the authority it bears, the number of individuals working from the host location, or whether the employer has a fixed place of business or presence in the host location. Needless to say, if employers are not aware of the locations from which their personnel are working, they cannot control this aspect and may be subject to substantial tax exposure.
5. Data protection interests: Remote work means that personal data relating to the employer’s personnel, clients and other third parties may be accessed from and transferred through various host locations. In such cases, legal data protection requirements may limit the transfer of data, in order to subject it to legal mechanisms intended to protect it. In addition, access to such personal data from the host location may subject the entire data to the data protection laws of such location, which may impose new requirements beyond those which the employer is aware. Furthermore, due to the unique circumstances surrounding the digital nomad’s working environment, we recommend that employers impose adequate security measures and access controls beyond the employer’s ordinary security and data protection obligations (for example, to restrict the use of free public internet connections). In any case, it is highly recommended that a documented data processing impact assessment is conducted in such cases and under some legal regimes this may even be a requirement.
6. Intellectual property assurance: It is in the very nature of the work of digital nomads that there are likely to be intellectual property rights (IPR) in the output of their work or services, which their employers wish to own. The general rule of thumb is that ownership of IPR is determined by the laws of the location in which they are created; it is thus imperative for the employer to know where exactly their employee or freelancer is located when carrying out their duties and to ensure that any IPR created by that individual in that location are properly transferred to the employer under the laws of the jurisdiction itself. The fact that the contract with the digital nomad is governed by the laws of the employer’s home jurisdiction does not suffice.
7. Health and safety obligations: Under many laws, employers have a legal obligation to ensure the health and safety of their employees and such obligation does not disappear (where it exists) when the employee is a digital nomad. Moreover, there may be a higher exposure to health and safety issues when working outside of the employer’s premises or outside of the home location, where the individual’s original health system no longer applies. Therefore, it is highly recommended to set clear terms regarding health and safety issues and to contractually require the purchase of adequate health insurance.

Conclusion

We don’t mean to deter digital nomads or their employers from WFA arrangements. It has never been helpful to ignore developments and advances, rather than acknowledge and regulate them. Our message is simply that employers should no longer be in Covid-19 ‘survival’ mode. Rather, employers should own the situation and take control of the various aspects of WFA. Practical issues, such as the need to have fast and reliable internet access in the host location, are not the only aspects that need to be considered. Employers should, with the help of their (legal, tax and insurance) advisors, set clear WFA/digital nomad policies, setting out a clear process for WFA approval. As demonstrated, such policies should, among other things: limit approval for WFA to a specific jurisdiction or to jurisdictions that meet certain conditions; condition remote work on obtaining a suitable visa; enable employers to control the length of the working period in the host jurisdiction; limit WFA to countries that do not jeopardise the employer’s intellectual property; and limit WFA to countries in which the employer can lawfully carry out such engagements. Implementing such policies will ensure that employers reach an informed decision, which aligns with both their interests and that of their employees.

With all that in mind – digital nomads, what is your next destination?