Which law is applicable to the international employment agreement?
We live in a globalised world where it has become quite common for employees to live in one country and work in another. Or to work in multiple countries, be it temporarily or permanently. International employment can offer a lot of opportunities for both employees and employers, but can also give rise to some legal brainteasers. An important one being: which law applies to the employment agreement of an international employee? While the question is straightforward, answering it is not always as simple. But if you want to know anything about your rights as an employee or employer – it’s an important answer to have. In this blog I will explain how to determine which law applies to an international employment agreement according to EU-law.
Rome I
There is an important EU Regulation that contains what are called ‘conflict rules’. These rules are used by courts in EU member states to determine the law that is applicable to an employment agreement. The Regulation is also referred to as ‘Rome I’. It is important to note that this Regulation only governs the applicable law on employment agreements concluded on or after 17 December 2009. This blog focuses solely on those employment agreements, thus agreements governed by Rome I.
The conflict rules for employment agreements concluded before 17 December 2009 can be found in the EU Convention 80/934/EEC. For employment agreements concluded before 1 September 1991, the applicable law is determined according to the international private law of the country in which a case regarding the employment contract is brought before a court.
Choice of law
Most employment agreements with international elements contain a choice of law. This means that the contracting parties (i.e. the employer and employee) have agreed that the law of the specified country governs the contract. According to Rome I, the chosen law is in principle the law applicable to the employment agreement. If a Dutch employer and a German employee choose for the applicability of Belgian law, Belgian law will in principle be the law that governs the employment agreement. A choice of law can be made expressly, but can also follow from the terms of the contract or circumstances of the case.
The fact that parties choose the applicability of the law of a certain country does not always mean that the chosen law is the only law applicable to the employment agreement.
Rome I stipulates that the chosen law may not deprive an employee of the protection that he or she would enjoy from provisions that cannot be derogated from by agreement under the law that would have been applicable if no choice of law was made (the so-called ‘objectively applicable law’). Thus, if certain non-derogable provisions of the objectively applicable law offer a higher level of employee protection than the chosen law, these more protective provisions have to be applied by the employer.
But which law is objectively applicable?
The objectively applicable law
The objectively applicable law is the law of one of these three countries:
the country in which the employee habitually works; or,
if no habitual place of work can be determined: the country in which the place of business of the employer that hired the employee is situated; or,
if it appears from the circumstances as a whole that the employment agreement is ‘more closely connected’ to another country than country 1 or 2, that other country.
(1) The habitual place of work
The objectively applicable law is usually the law of the country in which the employee habitually works. In certain cases the habitual place of work can be easily determined, for example when the employee works in a certain country for 95% of the time. However, in certain sectors, such as the road transport sector or the maritime sector, it can be difficult to determine the habitual place of work, as employees in those sectors often do not mainly work in one country.
It is important to note that if an employee is temporarily posted to another country than the country in which he or she normally works, the habitual place of work is not deemed to have changed. Thus, if an employee normally works in Belgium and is then temporarily posted to the Netherlands, the habitual place of work remains Belgium.
(2) The country in which the employer is situated
In some cases, it is not possible to determine a habitual place of work. If this is the case, the objectively applicable law is the law of the country in which the place of business of the employer that hired the employee is situated (unless criterion 3 applies).
’Place of business’ refers to a permanent establishment of the employer. Usually, the place of business that hired the employee is the establishment that concluded the employment agreement. This is not necessarily the establishment the employee actually works for.
Example
A Dutch employee is employed by an employer that has offices in Belgium and Romania. He was hired through the office in Romania, but mostly gets his instructions from the Belgian office. The place of business that hired the employee is then the Romanian office.
(3) More closely connected with another country
Regardless of the above, if it appears from the circumstances as a whole that the employment agreement is apparently ‘more closely connected’ with another country, the law of that other country is the objectively applicable law.
Whether an apparent closer connection to another country exists, depends on ‘all facts and circumstances’ in a specific case. In this regard, the Court of Justice of the European Union has specified that important factors to take into consideration are (i) the country in which the employee is socially insured and (ii) where employment related taxes are paid. Determining whether there is an apparent closer connection requires a case by case assessment. An apparent closer connection to another country only exists when the connection to that country outweighs the connection to the country of the habitual place of work or place of business that hired the employee.
Example
A German is employed by an employer situated in the Philippines, but works in different countries all around the world. No habitual place of work can be determined. This would then point to the applicability of the law of the Philippines, as this is the place of business that hired the employee. However, the employee lives in Germany, is socially insured in Germany and employment related taxes are also paid in Germany. He has no connection with the Philippines. Therefore in this case, the employment agreement is more closely connected with German law, meaning that German law the objectively applicable law.
Overriding mandatory provisions
To complicate matters further, it can even happen that rules and regulations of three countries apply. If a person works in a country that differs from the countries of the chosen law and the objectively applicable law, the ‘overriding mandatory provisions’ of that country may apply, regardless of the (objectively) applicable law(s).
Overriding mandatory provisions are provisions that are regarded as crucial by a country for safeguarding its public interests, to such an extent that these provisions are applicable to any situation falling within their scope. Each country has its own overriding mandatory provisions. In the Netherlands, provisions regarding the statutory minimum wage and maximum working hours are, amongst others, regarded as overriding mandatory provisions. Please note that the overriding mandatory provisions only apply to the extent that they offer a higher level of employee protection than the applicable law.
Example
A German employee is employed by a Dutch employer. A choice of law is made for Belgian law. The habitual place of work is in Germany, but the employee also regularly works in the Netherlands. In this case, Belgian law is the chosen law and German law is the objectively applicable law. Thus, the employment agreement is in principle governed by Belgian law, but: non-derogable provisions of German law that have a higher level of employee protection than Belgian law, apply as well. During the time the employee works in the Netherlands, overriding mandatory provisions of Dutch law also apply, to the extent that they offer a higher level of employee protection than Belgian and German law.
Final remark
Determining the applicable law to an employment agreement can be very complex, but it is equally important. Finding out which law is applicable to an employment agreement is one of the first steps towards identifying which rules and regulations have to be abided by. In some situations, it is possible that rules and regulations of two or even three countries apply. In such cases, obtaining legal advice (preferably beforehand) can help to get a clear picture of what rules apply and may prevent unforeseen problems and claims in the future.