When Is Translation Required for Award Documents?
August 25, 2022
We are frequently asked whether equity award documentation provided by a multinational company to employees / service providers in another country must be provided in local language. Given a recent, significant development on this topic in Quebec, Canada (see more on this below), we thought it would be a good idea to revisit the requirements and recommendations related to translations for equity award documentation.
For purposes of this post, we are assuming the parent company is a US-based company with award documentation that is typically provided in English. (We recognize there are many non-US companies granting equity awards globally that may have award documentation in a language other than English and the concepts discussed below would also generally apply in such cases.)
Should Translations of Award Documentation Be Provided?
Our standard response when asked this question is that it is not required to translate equity award documentation into local language in most countries. Further, ideally, the equity award documentation would not be translated into local language because the documentation being provided in English, rather than in local language, may help support the position that the equity award is different and separate from local employment compensation, which is often helpful from a labor law perspective.
In addition, from a practical standpoint, it is more cost-efficient not to provide translations in various countries where awards may be offered. Costs are often a factor for companies offering equity programs around the world where other mandatory actions (e.g., tax and securities filings) can quickly eat through even generous share plan budgets.
Of course, we caveat our standard response with the point that it is necessary for an award recipient to understand the language of the award documentation; otherwise, there may be a problem of enforceability since, generally, both parties need to understand an agreement in order for the agreement to be binding.
If an employee is working for a subsidiary of a US multinational company, it is often the case that the employee understands English because it is necessary for the employee to do so to do their job. There may be a difference in this respect between a discretionary equity award granted at higher levels of the organization and a broad-based employee plan offered to all employees (including employees for whom it is not necessary to speak and understand English in order to do their job).
That said, there are a few countries where language requirements need to be considered in the context of employee share plans.
New Language Requirements in Quebec May Apply to Equity Compensation
One notable example where translations now appear to be required is in Quebec, Canada, where a new law seems to mandate that the following documents be provided in French language:
- any document related to conditions of employment, and
- any contract of adhesion (i.e., a contract written by one party that the other party is required to accept without making any changes if the other party wants to enter into the contract—a "take it or leave it" contract).
Failure to comply with the new language requirements could lead to monetary penalties as well as civil and administrative sanctions. Whether, and how, such penalties or sanctions will be applied in practice remains to be seen.
The scope of this new law is still not completely clear with respect to equity award documentation provided by a foreign parent company but, at a minimum, it seems that any award agreement an awardee in Quebec is asked to enter into (and any terms and conditions thereof, e.g., the plan, which is usually made a part of the award agreement) must be provided in French.
It is not as clear whether other documentation related to an award, such as summary plan descriptions, plan prospectuses, tax summaries, FAQs, webpages, broker portals, etc. are also required to be translated into French, but it is possible this may be required.
Moreover, it appears the French version of a contract must be the governing document unless an awardee chooses for the English version to control, i.e., it does not appear possible for a company to provide a French translation of a document and dictate that the English version will control in the event of any inconsistency.
It also does not appear to be possible for awardees to elect out of this French-language regime. Previously, in Quebec, it was required to provide certain employment-related documentation in French but, with respect to an equity award from a foreign parent company, it was possible for an employee to waive their right to receive the documentation in French. Many multinational companies would include such a waiver in their equity award documentation. Unfortunately, this does not appear to be a viable approach under the new legislation.
Other Language Requirements and Recommendations for Equity Programs
There are a number of other countries where there are local language requirements, but they are, for the most part, less onerous. For example, in France, it is necessary to translate into French any provision whereby an employee authorizes payroll deductions to be taken from their local compensation. Therefore, for a company offering an employee share purchase program that operates by way of payroll deductions, it is necessary to translate at least the portion of the enrollment form, subscription agreement, or broker website that authorizes payroll deductions.
Similarly, in Mexico, to minimize labor law risks, companies should include a Spanish-language version of certain labor law provisions in the award agreement. However, in these cases, the provisions are usually not very lengthy and therefore this requirement is not typically very burdensome.
There are other countries where it is required, or strongly recommended, that companies obtain a language waiver or consent from awardees indicating they understand the language of the award documentation and/or agree to receive the documents in English, with such waiver or consent provided in the local language. For example, countries where such a translated waiver / consent should be provided include France, Portugal and Romania.
For awardees in all jurisdictions (with limited exceptions), it is advisable to include a provision in the award documentation whereby the awardee acknowledges they can read and understand the language of the award documentation or have consulted with an advisor who understands such language so they can agree to the terms and conditions of the award. In addition, the award documentation should indicate that if a translation is provided, the English version of the documentation will control in the event of any discrepancy between the meaning of the English version and the meaning of the translated version.
Translation Requirements for Equity Plan Filings
A company may need to provide translations in order to submit certain local regulatory or tax filings in connection with an equity award offering. There are a number of countries where this is the case, e.g., to complete an exchange control registration in China or Vietnam, it is necessary to provide the application documents (which may include the plan and award agreements or a description thereof) in local language.
Similarly, to complete certain tax filings in China, the plan and award agreements usually need to be translated into local language. If a company is required to respond to a claim related to an award in a local court or is under audit by tax authorities, it may be necessary to provide some, or all, of the award documentation in local language. Note that, even if certain documents must be translated for submission to a court or governmental authority, this does not necessarily mean translations must be provided to awardees and we would generally recommend companies consider the same points mentioned elsewhere in this post for purposes of providing translations to awardees.
Voluntary Translations of Participant Communications
Some companies want to provide local translations, even if not required by law and even if awardees generally speak and understand English as part of their jobs. This can be seen as a courteous action when the company knows English is not the first language of all participants in a country. It can also help create excitement for a plan that may not otherwise exist where communications are only in English. This is particularly the case for a broad-based purchase plan where a company is trying to generate interest in a new plan or in the rollout of a plan in a new country.
It is fine to do this as an optional item, but companies should be aware that once they start, it can be difficult to discontinue translating documents that have been translated in the past. Companies should also be mindful that this may weaken the argument that the award is not part of local compensation because, in this case, the documentation related to the plan is provided in the same language as the local employment compensation documents.
One solution for companies who want to provide translations as a courtesy, or to generate interest in a plan, is to provide a short summary of the plan or award in local language and/or conduct local employee presentations / information sessions in local language.
Best Practices for Translations of Equity Plan Documents
Like most legal issues related to offering equity awards around the world, it is necessary for companies to review applicable language requirements or recommendations before offering equity awards in a jurisdiction and—as evidenced by the latest development in Quebec, Canada—it is crucial to stay apprised of developments in this area (including that companies should continue to monitor the requirements in Quebec as clarifications on the new law may emerge in the coming months).
Companies should observe the following best practices related to translations if they are required, or decide, to provide them:
- Use a reputable translation service.
- Conduct an appropriate legal review of the translation.
- Include a provision in the documentation whereby awardees acknowledge that the English version of the documentation will control (to the extent permitted by applicable law).
- Keep translations up-to-date with any revisions to the underlying English documents.
Global Equity Services