When expanding into and operating across Europe, US companies need to navigate an entirely different legal landscape and address a number of key issues that impact the success of the business overseas. With a view from Brussels in the “center of Europe”, this checklist covers many of the key legal issues companies encounter when doing business in the EU. With Brexit looming on the horizon, we’ve also addressed some of principal ways this will impact companies trading in the EU market.
1. Commercial agreements
Bear in mind that some commercial agreements (such as agency, exclusive distributorship or brokerage agreements) are regulated at an EU level and that some Member States’ legislation contains protective rules for such distributors.
As EU and US antitrust laws are different, you should also consider whether your European agreement is compliant as the criteria to assess a breach in competition law may differ from the US approach to antitrust issues.
Also, with Brexit approaching, you may want to review your existing contracts to understand how they may be affected. For example, is the territorial scope of the agreement defined as “the EU”, and if so, should this include or exclude the UK post-Brexit? Which party would take the risk of customs duties, conformity checks or delays at the border post-Brexit? And in particular, might either party have the contractual ability to terminate or renegotiate the agreement as a result of Brexit or a Brexit-related event?
2. Disputes: choice of law and forum
Choice of law is an important aspect of the agreement you are negotiating: the same contractual clause could be interpreted differently in different jurisdictions. English law, for example, tends to give a more literal interpretation of the exact words used, while certain other jurisdictions give more weight to contractual common sense. Other concepts that vary across jurisdictions include the extent to which parties will be subject to duties of good faith, and whether certain contractual remedies will be deemed to be ‘penalties’ and thus unenforceable.
Depending on the jurisdiction, additional clauses will be imposed on the contract by statute, for example in relation to consumer protection or personal injury.
You may therefore want to apply a specific jurisdiction’s law depending on various factors such as location of the other parties, the supply of services/delivery of goods, or laws that are more favorable to your business.
Except in specific areas like employment relationships or consumer contracts, parties are generally free to choose which EU law will apply to their agreement.
The same goes for choice of venue (“forum shopping” is a known phenomenon), but in a positive development, EU Member States are currently implementing their own English-speaking international courts designed to deal with litigation involving third party countries (among others Belgium, France, Netherlands and Germany).
As an example, the Netherlands Commercial Court in Amsterdam (NCC) was recently setup and you can read more about it here.
For cross-border contracts, you may also want to consider whether international arbitration might be preferable to litigation as a forum for dispute resolution. A major strength of international arbitration is the ease of enforcement, with 159 countries having signed up to the New York Convention on the enforcement of arbitral awards.
3. Regulatory changes
Understanding the regulatory environment applicable to your business is an important consideration. Some of the higher profile regulations you may have heard of include the incoming new Copyright Directive, the 5th Anti-Money Laundering Directive, or the one everyone has heard of, the General Data Protection Regulation (GDPR). There’s also a new EU-wide foreign investment controls regulation expected to come into force in 2020 that will impact US companies investing in EU based businesses.
Several sectors are heavily regulated in the EU and the rules in place often differ from the US regulations, especially in the fields of healthcare, financial services, chemicals, food, product safety, and consumer information and protection. Ensure that you understand the regulatory environment of new markets that you are entering and monitor your sector’s applicable regulations periodically in order to implement any necessary change in due time.
As a general rule, employment law in the EU tends to be less employer-friendly in the EU than in the US, with termination-at-will clauses not usually allowed and collective bargaining agreements common in some countries. While monitoring your business in the EU, ensure that your employment agreements are compliant with the local legislation as every EU Member State has its own set of rules regarding various aspects such as benefits, employment taxes, termination, and part-time working.
With Brexit on the horizon, review your current arrangements with your UK employees (work permits and mobility) in the EU will not be impacted and implement the necessary contractual changes or restructuring within your company.
Business immigration is a key topic in the EU as various companies are welcoming employees from other EU or third-party countries. You should consider what the options are for your US workers you would like to send in the EU and define the strategy and kind of support you want to provide to your staff and their families.
Make sure you are aware of recent and upcoming legislative changes. For example, Belgium recently implemented the EU Single Permit Directive, containing a new set of rules rendering the administrative process for work permits less burdensome.
6. GDPR compliance
Complying with the GDPR requirements is key for all businesses operating in the EU (or even those with EU customers). There are also particular obligations on those transferring personal data out of the EU and each national data protection authority is monitoring companies closely.
Ensure your business is taking steps to comply with the regulation and consider auditing your data protection policies, together with your data processing agreements, and appoint a data protection officer in order to ensure compliance with the GDPR. Breach of the GDPR provisions are likely to lead to considerable fines: for example, the French data protection regulator, the CNIL, fined Google €50 as Google’s data consent policies were found not to be easily accessible or transparent to its users which runs afoul of the GDPR provisions. For further background, read our recent review of GDPR enforcement actions across the EU.
7. IP registrations
Ensure that you register your IP in overseas jurisdictions and review your IP portfolio to ensure it is up-to-date with registrations and expiration dates.
While trademarks, designs and patents are protect through registration at the local and EU level, bear in mind that the duration of each right is different and that their use or licensing may be restricted by specific Member State legislation (i.e. employee creations).
Specific focus should be given to the UK specific technical notices on IP in case of a no-deal Brexit.
Also, review your current license agreements: while they generally cover the EU as a single licensing territory, the use of your IP may not be relevant in each Member State and you may want to reconsider a more local approach in order to facilitate their monitoring and mitigate challenges from third parties.
An important component of any business’s IP strategy will be the protection of trade secrets. The EU Trade Secret Directive was intended to harmonise trade secret protection across the EU. In this guide we look at the picture as it currently stands in eight major jurisdictions.
8. Financial Services and Passporting
As a US financial services company doing business across the EU, the “passporting” system facilitates utilizing a regulatory license from one EU country across the entire EU. Once you have obtained your financial services licenses with one of the national regulators, no further licence is required to offer the same services in other EU countries, eliminating the burden and costs of additional regulatory approvals in other EU countries.
In addition to passporting of licenses, there are a number of “initials” regulations such as PSD2, MiFiD II, AIFMD, AML, etc. which impose specific compliance obligations to companies within this sector.
Keep pace with the changes
This brief overview illustrates just some of the key legal issues to consider when doing business across the EU. Regulations are constantly changing and Brexit will have a major impact on the strategy US companies should implement to succeed in the EU. We recommend reviewing these issues on a regular basis and seeking local counsel when further input is needed.