Snell & Wilmer
Legal Alert


spacerspacer15spacer8 spacer spacer8

March 2014

Dear Friend of Snell & Wilmer,

In today’s global marketplace, companies need to be informed about foreign, domestic and even international laws and practices that impact, or may potentially impact, their businesses in the various regions they serve. This edition of Global Connection offers insight into undocumented workers and the Labor Relations Act in the United States, as well as international trade compliance guidance. It also includes an overview of the United Nations Convention on Contracts for the International Sale of Goods (CISG), which is an international treaty with more than 80 signatories that governs international sales agreements between signatory countries.

We hope this edition of Global Connection proves useful as you continue to seek out new opportunities at home and abroad. Please feel free to contact me if you have ideas for future articles, or topics for the Global Connection, or if you would like to be included in future international events hosted by the firm.

Best regards,

Lindsey E. Martínez


The United Nations Convention on Contracts for the International Sale of Goods: What is It?

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is an international treaty governing the sale of goods. The United Nations Commission on International Trade Law drafted the CISG, which was opened for signature on April 11, 1980. Its purpose is to encourage and develop international trade on the basis of equality and mutual benefit, important ingredients in promoting friendly relations between countries. These uniform trade rules are intended to remove legal barriers between countries with distinct social, economic and legal systems, which may otherwise serve to stymie trade relations.

More than 80 counties are signatories to this treaty, including the United States, Brazil, Canada, Denmark, France, Germany and Japan, just to name a few. It is applied to international sales contracts meeting specific criteria. A contract for the sale of goods is “international” within the meaning of Article 1 of the CISG where the parties have, at the time the agreement is concluded, their relevant places of business in different countries. A relevant place of business has been interpreted to mean principal places of business. This means that where parties to a contract have their relevant places of business in different countries that are signatories to the CISG, the CISG will likely apply. Article 6 of the CISG provides that “[t]he parties may exclude the application of this Convention. . .” This is based on the premise that parties to a contract are free to designate the law that should govern their agreement. In order to exclude the application of the CISG, clear language indicating that both contracting parties wish to apply law other than the CISG must be present in the contract. This affirmative opt-out requirement requires express language from both parties that they do not wish to apply the CISG to the agreement and a statement of what law should apply in lieu of the CISG. Merely stating that another country’s laws will apply is ineffective without express language disclaiming the application of the CISG. Such a requirement is premised upon the promotion of good faith and uniformity in international trade, two of the guiding principles of CISG interpretation.

The CISG defines the formation of contracts, and buyer and seller obligations. Goods, under the CISG, are items that are moveable and tangible. Pursuant to Article 3(2), the CISG “does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services.” In order to determine whether the seller’s obligations consist preponderantly in the supply of labor or services, a comparison is made between the economic value of the obligations regarding the goods, as if two separate contracts had been made. Where the obligation regarding the supply of labor or services amounts to more than 50 percent of the seller’s obligations, the CISG is generally inapplicable.

Companies with relevant places of business in signatory countries who are engaging in international trade should be aware of the CISG and its potential application to their agreements around the world.


A Vital Link to Any International Trade Compliance Program:
The Human Resource Manager

Governments in every country are taking international trade compliance seriously. Unlike other company departments that heavily rely on automation to track supply chain compliance, those departments responsible for international trade compliance must rely on human interaction to ensure laws, regulations and company policies are followed. Thus, the human resource department is a vital link to ensuring compliance with a company’s international trade policies and procedures and those human resource managers should not shirk from such responsibility.

There is a myriad of international trade laws and regulations that a company must adhere to if it decides to enter the global marketplace. In the United States, the most notorious laws include the Export Administration Regulations (EAR), the International Traffic in Arms Regulations (ITAR), the Foreign Corrupt Practices Act (FCPA) and those regulations enforced by the Office of Foreign Asset Controls (OFAC). To ensure proper compliance with these laws, among others, a company must rely on several different departments, including accounting, operations, sales, marketing, legal, and human resources.

In many companies, a trade compliance manager is directly responsible for coordinating these departments to ensure compliance. Other companies rely on their legal departments. But, some companies still have trade compliance as a collateral duty for an individual in one of the several departments listed above, usually operations – which has its own pitfalls. Outside the trade compliance and legal departments, the human resources department should rightfully be empowered to ensure compliance amongst a company’s employees, independent contractors, sales representatives, foreign and domestic staffing agencies, and, most importantly, senior management.

The primary reason a human resources department should have vital involvement in international trade compliance is that it is usually responsible for the employee handbook drafting, revisions and enforcement. The employee handbook should have sections on, among others, international trade compliance, political donations, ethics and gift policies. In addition, the human resources department is responsible for drafting and maintaining “silo” policies and procedures that may impact compliance by the several departments referenced above and essentially supplement the employee handbook. Further, the human resources manager is usually responsible for explaining to senior management the importance of the various company compliance policies and the impact such compliance has on individual employees in carrying out their job responsibilities. As the protector of what is acceptable employee behavior, the human resources department plays a vital role in ensuring such conduct complies with all laws.

Obviously, a fundamental responsibility of the human resources department is the hiring and termination of employees and even temporary staffing positions within the United States and globally. Therefore, in regard to export compliance, the human resources department acts as a firewall against unauthorized “deemed exports,” in addition to the required screening of the potential employee against the various prohibited lists maintained by the governmental agencies. It is vital that a record of the screen be placed into the potential employee’s file—even if not hired—and maintained for five years. Simply, a screening should become a standard practice that includes a background check and e-verification, where required.

A little bit more tricky for the human resources department that is removed from the technological side of business operation is the concept of “deemed exports.” A deemed export occurs when a foreign national is exposed to controlled technical data, items or services while in the United States. Thus, when a human resource manager hires an individual, the company should have a policy that references the “do’s and don’ts” related to hiring foreign nationals for domestic positions and ensuring a deemed export does not occur. This is sometimes a tricky proposition due to the various employment laws that prohibit discrimination based on national origin, race or ethnicity. A well-developed policy will assist in walking the fine line between international trade compliance and adhering to the employment laws.

The flipside to the deemed export concern is when a company decides to open operations in a foreign country and the need to develop firewalls to avoid unauthorized exports of technical data, items, and services to foreign employees or independent contractors. If the individual is not a direct employee, the human resources department will need to work directly with the independent contractor or staffing company to ensure that the company is in compliance with the various international trade laws from both the United States and the foreign jurisdiction. The most important responsibility is to ensure that such mandatory compliance is written into any agreements.

This is also a serious concern for human resource managers when a company’s United States assets and operations are acquired by a foreign entity. Thus, the importance of senior management in addressing such human resource issues in regard to any expansion or merger. Such matters must be handled delicately and cannot simply be one more issue to pushoff until the “deal is done.”

Once the employees are hired, the human resources department is responsible for initial training and orientation. Even if specific “job” training is conducted by the individual department for whom the employee will work, the human resources department is responsible for ensuring and tracking such training. Therefore, just as discrimination, harassment, drug policies, etc., are addressed upon hiring, so should international trade compliance, specifically in regard to international trade and standards of conduct issues (i.e., domestic and foreign bribery).

In several recent cases, employees who were caught violating international trade laws (and related company policies) have attempted to argue as a defense that the company had minimal, negligible or no training on international trade compliance or even a company’s ethics policies. Although such defenses have been unilaterally rejected, the companies at issue have faced significant criticism by the judicial system and the media. This has led to judges taking a proactive involvement in any settlement by companies for international trade violations.

The human resources department also plays a vital role during any internal, external, or governmental investigation. First, one of the initial inquiries from investigators (or a due diligence team from an acquiring company) is to review the policies, procedures, employment agreements, and training discussed above to see what foundational compliance occurred and if there were gaps in the established system. Thus, this request reflects the importance of maintaining good records for a minimum of five years.

Second, although there is a rush to interview employees about a possible violation, the employee may be entitled to certain rights pursuant to an employment agreement, union agreement (regardless of whether the employee at issue is actually union) and applicable law. With the assistance of counsel, the various “privileges,” including the attorney client and attorney work product privileges should be preserved. There has been a trend in recent years to utilize non-attorney consultants to perform internal investigations. But, consultants may not be able to maintain the various privileges, and any investigative results could be subject to mandatory disclosure during judicial proceedings (or in due diligence activities during a merger or acquisition).

Third, to the extent that an employee refuses to cooperate with an investigation or is implicated in wrongdoing – regardless of whether the wrongdoing is negligent, reckless, willful or intentional, the human resources department will be responsible for documenting the issue and possibly implementing employee corrective action or discipline, to include employment termination.

Finally, it is standard practice for human resources departments to conduct exit interviews for terminated or resigning employees. Although many issues are addressed in such interviews, the human resources manager should specifically inquire about any ethics and legal compliance concerns that the employee may have about a company. In some cases, the employees are voluntarily resigning their positions because of unethical conduct for which they can no longer be a part. For those companies that are public, government contractors or otherwise receive government funding, the employee may be developing a “whistleblower” action or qui tam suit associated with False Claims Act violations.

A human resource manager misses out on a key opportunity (and possible defense) by failing to inquire about such concerns. For example, imagine the scenario when the human resources manager does inquire about ethical lapses, the departing employee answers that he or she has no concerns, and then six months later brings a qui tam lawsuit against the company. Such an admission could lead to a viable factual defense for the company in any post-employment investigation or judicial proceedings.

In conclusion, there is not “one” department that is solely responsible for international trade compliance. Although, it may be convenient to rely on the trade compliance manager or the legal department (when they exist in a company) to ensure compliance, the human resources department actually plays a vital role. When necessary, the human resources managers should request that the company seek knowledgeable legal counsel to assist in the execution of a compliance program, including training, or addressing potential violations.


Undocumented Workers and The National Labor Relations Act

Undocumented Workers Are Employees

It is well established that undocumented workers are “employees”, as that term is defined in the National Labor Relations Act, 29 U.S.C.151, et. seq. (the Act). In essence, the Act protects employees’ rights to engage in concerted (group) activities and union activities.

Whenever it is alleged that a worker has been discriminated against for engaging in concerted or union activities, his/her immigration status is irrelevant to the question of the employer’s liability under the Act.[1] Accordingly, attorneys for the General Counsel of the National Labor Relations Board (NLRB) would object to any questions concerning an alleged discriminatee’s immigration status during the merits stage of an unfair labor practice proceeding (including, of course, the trial).

The NLRB Lacks Authority to Order Reinstatement and Back Pay for Undocumented Workers

It is also well established that the NLRB lacks authority to order back pay and reinstatement for undocumented workers. The Supreme Court has held that such remedies are inconsistent with the policies of the Immigration Reform and Control Act of 1986 – IRCA, 8 U.S.C. 1324, et. seq.[2] Awarding reinstatement and/or back pay to an undocumented worker is beyond the scope of the [NLRB] remedial authority, regardless of whether the employee or employer violated IRCA.[3] [4]

The Hoffman Defense

During the compliance or remedial stage of an unfair labor practice proceeding, an employer may raise the alleged discriminatee’s lack of work authorization as an affirmative defense (the Hoffman defense). The employer bears the burden of pleading and proving this defense.[5]

It is important to note that an employer may not raise the Hoffman defense in a compliance proceeding as a “fishing expedition.” Whenever an employer raises the Hoffman defense in a compliance proceeding, the NLRB General Counsel will file motions for bills of particulars, seeking the employer’s specific evidence in support of its assertion that the discriminatee is not eligible for work in the U.S. Significantly, by subpoenaing discriminatees’ work authorization documents, without underlying evidence of their immigration status, an employer may commit an unfair labor practice.[6] It is only when the employer has produced objective evidence, independent from the discriminatees testimony, that supports a reasonable doubt regarding a discriminatee’s immigration status, that it may interrogate the discriminatee regarding his/her immigration status during the compliance hearing.

It should be noted that an employer waives its Hoffman defense if it enters into a settlement of the merits with the NLRB, including liquidated damages. Liquidated damages are not prohibited by Hoffman.[7] Moreover, an employer may admit liability but contest the award of reinstatement and/or back pay through a Hoffman defense.

New Remedies for Violations Involving Undocumented Workers

The fact that reinstatement and back pay are not available as remedies does not mean that employers that violate the Act with respect to undocumented workers get off scot-free. It is important to recognize that the Act authorizes the NLRB to provide remedies “as will effectuate the policies of this Act”.[8] The NLRB has commented that it would be willing to consider remedies, within its statutory powers, that would prevent an employer from being unjustly enriched by its unlawful conduct.[9]

It should be expected, therefore, that the current NLRB will consider and implement remedies in cases of unlawful discrimination involving undocumented workers, other than reinstatement and back pay, designed to deter employers from engaging in unlawful conduct. In cases involving discrimination for union activities, such remedies may include requiring the employer to hire applicants referred by the union to replace discharged discriminatees; permitting union representatives to meet with the employees in the employer’s premises and/or providing the union with a list of the employees’ contact information.



[1] Tuv Tamm Corp., 340 NLRB 756 (2003). [back]

[2] Hoffman Plastic Compounds Inc. v. NLRB, 535 US 137 (2002). [back]

[3] Mezonos Maven Bakery Inc. 357 NLRB No. 47 (2011). [back]

[4] Hoffman does not preclude awarding compensation to undocumented workers for previously performed work – for example, back wages under the Fair Labor Standards Act – FLSA, 29 U.S.C. 201 et seq. [back]

[5] Tortilleria La Poblanita, 357 NLRB No. 22 (2011). [back]

[6] NLRB Memorandum MO 12-55 (2012). [back]

[7] Tortilleria La Poblanita, supra. [back]

[8] Sec. 10(c). [back]

[9] Mezonos, supra. [back]





Doing Business in Arizona