The applicability of U.S. labor and employment laws to U.S. citizens working outside of the country can be complicated. In general, if the citizen works for a U.S. company outside of the country, they enjoy the same legal protections as if they worked in the U.S. What happens, however, when the U.S. citizen works for a foreign subsidiary of the U.S. parent corporation? According to a new decision from the First Circuit Court of Appeals, neither the U.S. parent nor its foreign subsidiary can be domestically sued for the actions of the subsidiary if the two businesses are independently operated.

In Keane v. Expeditors Int’l of Washington Inc., the plaintiff was a long-term employee of the U.S. company. He then moved to Hong Kong and eventually signed an employment agreement with the defendant’s foreign subsidiary. The subsidiary terminated the plaintiff several years later following a harassment investigation, and he sued both companies in U.S. district court, alleging violation of Title VII and related tort claims. Both companies moved to dismiss the claims.

The First Circuit affirmed the district court’s dismissal of the lawsuit. The court concluded that it did not have jurisdiction over the Hong Kong employer, noting that the company maintained separate finances and day-to-day human resource and other functions. Similarly, the U.S. company was not liable for the alleged acts of its subsidiary due to the lack of control over its operations. Therefore, its actions could not be attributed to the U.S. parent.

The court rejected the plaintiff’s claims that a common code of business conduct and business directives were sufficient to pierce the corporate veil. Companies with independent subsidiaries, whether foreign or domestic, can avoid cross-entity liability if they establish and maintain independent personnel and related policies and systems from one another.  

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