A foreign-owned subsidiary operating in the United States faces a compliance deadline it may not yet have identified. Across multiple layers of federal employment legislation, enforcement priorities have shifted in 2025. Foreign employers – from European holding structures to Latin American operating entities – are now subject to heightened scrutiny of their employment contract terms, worker classification practices, and dismissal notice obligations.
Updated employment regulations in the United States took effect progressively through 2025, with key compliance milestones falling before mid-2026. The changes affect foreign employers operating through any US entity structure. including a Delaware LLC, a branch office. Alternatively. A wholly-owned subsidiary. and touch termination procedure requirements, social security contribution obligations, and mandatory workplace policy disclosures. Foreign employers that have not audited their US employment agreements since 2024 face direct exposure to federal enforcement and private litigation.
This alert covers what changed, which business categories are affected, and the five immediate actions foreign employers should take now.
What changed and when it took effect
Federal employment legislation in the United States has undergone a series of coordinated updates. The primary changes cluster around three areas: worker classification, mandatory disclosure requirements in employment contracts, and updated thresholds governing collective agreement obligations.
On worker classification, federal enforcement agencies significantly tightened the criteria used to distinguish employees from independent contractors. The prior multi-factor test has been supplemented with a stricter economic-dependence standard. Workers who previously fell outside direct employment are now, in many cases, reclassified as employees under federal labour law. This directly affects social security contribution obligations, which attach to employees but not to independent contractors.
On employment contracts, updated federal guidance requires that certain disclosures be made in writing at the time of hiring. These include the basis of pay, anticipated work location, and the applicable termination procedure. For employers that relied on oral agreements or short-form offer letters, these omissions now constitute a compliance gap enforceable before a US District Court.
On collective agreement and workforce thresholds, revised rules lower the headcount at which certain consultation and bargaining obligations are triggered. Foreign employers with smaller US operations – previously below the threshold – may now fall within scope. This is particularly relevant for European parent companies accustomed to works council structures, where US obligations are often underestimated or overlooked entirely.
The dismissal notice requirements have also been clarified. Under federal employment legislation, advance written notice obligations now apply more broadly when reductions in force affect a defined minimum number of workers within a 30-day period. State-level mini-statutes in key jurisdictions mirror and, in several cases, exceed the federal standard.
Which foreign employers are affected
The updated rules apply to any employer subject to US federal employment legislation. The threshold criteria are straightforward: if a foreign employer has US-based workers, whether employed directly or through a US entity, the rules apply. The legal form of the US presence is irrelevant. A Delaware LLC, a New York branch, a US holding company, or a registered employer operating without a formal entity structure are all within scope.
Several business categories face heightened exposure.
- Foreign companies using contractor arrangements to staff US operations, who have not updated their worker classification analysis since 2024.
- European groups with US subsidiaries that have imported their home-country employment contract templates without US-specific adaptation.
- Technology and professional services companies with remote US workers hired through employer-of-record platforms, where contractual responsibility for compliance may be unclear.
- Latin American holding companies with US investment vehicles that also employ US-based staff in operational roles.
- Any employer with more than a minimal US headcount that has not reviewed its collective agreement obligations or dismissal notice procedures in the past 12 months.
Foreign employers in regulated industries – financial services, healthcare, and any business with securities reporting obligations to the Securities and Exchange Commission (SEC) – face an additional layer of scrutiny. Employment compliance deficiencies in these sectors attract regulatory consequences beyond private litigation.
Disputes arising from the updated rules are likely to proceed before a US District Court or through private arbitration under AAA arbitration or JAMS rules. Both bodies have updated their employment dispute procedures in parallel with the legislative changes, shortening timelines and increasing the cost exposure for non-compliant employers.
For a detailed review of how these changes interact with your US entity structure, see our analysis of corporate law matters in the United States.
To receive an expert assessment of your US employment compliance exposure, contact us at info@ferrazwhitmore.com.
Immediate actions for international companies
Foreign employers should treat the following five steps as time-sensitive. Inaction now creates direct legal and financial exposure that is disproportionately costly to resolve after enforcement begins.
1. Audit all US employment contracts. Review every employment contract in use across US operations. Confirm that each agreement includes the mandatory written disclosures now required under federal employment legislation. Pay particular attention to termination procedure clauses and pay-basis descriptions. Contracts lacking these elements should be amended before the next hire or renewal.
2. Reclassify workers where necessary. Run the updated economic-dependence analysis across all contractor relationships. Where reclassification is indicated, update the contractual arrangement and register the worker for social security purposes without delay. Voluntary correction is treated more favourably than correction following an enforcement audit.
3. Check collective agreement thresholds. Verify whether your current US headcount now triggers collective agreement or bargaining obligations under revised thresholds. This check must be done at the entity level, not group level. A Delaware LLC with 25 US employees may now have obligations that did not previously exist.
4. Update dismissal notice procedures. Confirm that your internal HR procedures reflect the current dismissal notice requirements under federal and applicable state legislation. If your reduction-in-force protocol was drafted before 2025, it should be reviewed. Written notice obligations now apply at lower headcount thresholds than before.
5. Confirm dispute resolution clauses. Review employment contracts to ensure that dispute resolution clauses – whether pointing to AAA arbitration, JAMS, or a US District Court – are enforceable under current federal rules. Courts have recently scrutinised mandatory arbitration clauses in employment agreements. Clauses that are ambiguous or non-compliant with updated procedural requirements may be unenforceable.
Foreign employers managing parallel obligations in other jurisdictions should note that employment law changes in the Americas often move in clusters. Our alert on employment regulation changes in Brazil covers a comparable set of updates affecting operations in that market.
For comprehensive employment law support across US jurisdictions, our team advises on the full scope of employment law matters in the United States – from contract drafting to dispute resolution.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our employment law practice supports foreign employers operating in the United States on the full range of compliance, contract. Additionally. Dispute matters. from employment contract structuring and worker classification analysis to termination procedure guidance and representation in AAA arbitration and JAMS proceedings. Our attorneys combine Portuguese civil law expertise with English common law tradition, giving international clients a counsel team that understands how US employment obligations interact with European and Latin American parent-company structures. As an international law firm advising on US employment matters, Ferraz &. Whitmore works with in-house legal teams. European holding company boards. Additionally, international entrepreneurs who need a lawyer in the United States with cross-border fluency. The firm's dispute resolution practice includes experience before federal courts and major arbitral bodies. To discuss your US employment compliance situation, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.