Shannon Stapleton / Courtesy Reuters Flags near the UN.

The End of Immunity?

Why Foreign Sovereign Employers Should be Concerned

In June of this year, the U.S. Supreme Court held that, despite the Foreign Sovereign Immunities Act (FSIA), investigators could conduct post-judgment discovery into the Republic of Argentina’s assets outside the United States. To justify this decision, Justice Antonin Scalia wrote an overview of the FSIA’s history: In 1976, he explained, Congress replaced the “old executive-driven, factor-intensive, loosely common-law-based immunity regime” with the FSIA. He noted that the “key word” here was “comprehensive”—meaning that “any sort of immunity defense made by a foreign sovereign in an American court must stand on the Act’s text. Or it must fall.”

Despite the conclusion of this most recent case, foreign sovereign employers are often presumed to be immune from U.S. court jurisdiction under the FSIA’s “comprehensive” clause—in spite of a multitude of federal, state, and local laws protecting employees throughout the United States. But breaking these laws could be a costly mistake. Under the “commercial activity” exception to the FSIA, foreign employers could be subject to a myriad of complex U.S. employment laws. And failure to comply with these laws can cost those employers millions of dollars in damages and attorneys’ fees, not to mention reputation costs. 

The FSIA’s commercial activities exception states that a “foreign state shall not be immune . . . in any case . . . in which the action is based upon a commercial activity carried on in the United States by the foreign state.” The statute does not define “commercial activity,” but the U.S. Supreme Court has filled in the blanks. Simply put, a foreign state that acts like a private player in the market (that is, it is not exercising powers peculiar to sovereigns) can be sued based on that activity just like any ordinary U.S. citizen. But where does employment fall in this spectrum? Is it a commercial or a governmental activity? 

The courts have given no uniform answer. Almost 20 years ago, in Holden v. Canadian Consulate, the U.S. Court of Appeals for the

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