Employing staff overseas brings with it a number of legal considerations which do not play a part when employing staff in the UK. Unfortunately, all too often the significance of these considerations only becomes apparent if a dispute occurs between the employer and the employee based abroad. However, employers would be wise to consider, at the outset of the employment relationship, the following three key issues.
- Applicable law - Is the law of a foreign country involved, either as a matter of contract or because an international rule or convention applies to the situation?
- Territorial scope - Does a UK statute offer protection to those who work outside the UK, for example protection against unfair dismissal?
- Jurisdiction - In the event of a dispute, in which country should the employment contract be enforced?
This bulletin will consider the second of these questions, the tricky issue of territorial scope of UK legislation, which has generated case law at the highest level. The test for territorial scope will differ depending on which statute is relied on, whether that statute contains provisions dealing with territorial scope and, if it does not, whether case law has cast light on the interpretation of the relevant statute.
So, what does the case law say?
In the context of dismissal, the Employment Rights Act 1996 (ERA96) is silent about its territorial scope. The main case on the territorial scope of unfair dismissal rights is the House of Lords’ judgment in Serco Limited v Lawson (2006) and it is useful to remind ourselves of this before looking at two recent judgments.
Serco Limited v Lawson (2006)
Mr Lawson was British and ordinarily domiciled in England. He was employed by Serco, a company registered in England and Wales. However, he carried out all his work for Serco on Ascension Island. Both the employer and the employee therefore had close connections with Great Britain although all the services were performed abroad. The Court of Appeal held that the tribunal was unable to hear Mr Lawson's complaint.
The House of Lords considered an appeal alongside two other cases raising essentially the same issue (Botham v Ministry of Defence and Crofts & others v Veta Limited). The issue was: what is the territorial limitation of the right not to be unfairly dismissed under section 94(1) of ERA96?
The House of Lords held in favour of Mr Lawson, finding that the correct question was whether there was employment in Great Britain and that this depends on whether the employee was working in Great Britain at the time of his/her dismissal, rather than what might have been contemplated in the employment contract.
In his leading judgment, Lord Hoffmann observed that someone working entirely abroad would be unlikely to satisfy the test unless the employer was based in Great Britain. Even then, the fact that the employee was recruited in Britain by a British employer would not be sufficient to bring him/her within ERA96: "something more" would be required. Lord Hoffmann identified certain specific circumstances where ERA96 would apply notwithstanding that the employee worked abroad.
- Peripatetic employees. The Lords held that a peripatetic employee's base should be treated as his/her place of employment.
Expatriate employees. Whilst reluctant to set down any precise definitions, Lord Hoffman identified the characteristics of a few exceptional cases in which expatriate employees might be able to bring claims for unfair dismissal.
- Employees working for a British employer operating within what amounts to an extra-territorial political or social British enclave in a foreign country (such as civilians working on a military base abroad).
- Employees posted abroad by a British employer for the purposes of a business carried on in Great Britain (for example a foreign correspondent working for a British newspaper).
- Although Lord Hoffman could not think of any more specific examples, he stated that employees who do not fit into the above categories, but have "equally strong" connections with Great Britain and British employment law, might also be covered.
Ravat v Halliburton Manufacturing and Services Ltd (2012)
In a subsequent case, Ravat, the Supreme Court threw into question the significance of the three Lawson categories. In cases where the employee's place of work is not Great Britain, the only question to ask is whether the connection with Great Britain is sufficiently strong to enable it to be said that Parliament would have regarded it as appropriate for the tribunal to deal with the claim.
At the time of his dismissal, Mr Ravat was working on a rotational basis in Libya (working 28 days in Libya and then 28 days on leave in Great Britain) but was held by the Supreme Court to have the right to bring a claim for unfair dismissal under ERA96 since his employment had substantial connections with Great Britain.
The following factors were indicative of a substantial connection with Great Britain:
- Mr Ravat's home was in Great Britain.
- His salary was paid in sterling after deduction of UK income tax and national insurance contributions.
- He was retained on the normal UK pay and pensions structure which applied to other UK-based employees and was treated as a "commuter" under his employer's international assignment policy.
- His contract was stated to be subject to UK law and he was repeatedly reassured by his employer that his employment relationship with them was governed by UK law. In practice, human resources issues in relation to him were handled in Great Britain, including his redundancy.
Clyde & Co LLP and another v Bates van Winkelhof (2012)
In Clyde & Co LLP and another v Bates van Winkelhof, the Court of Appeal considered, amongst other issues, territorial scope in the context of the claimant’s sex and pregnancy discrimination claims. Ms Bates van Winkelhof had become a partner of Clyde & Co LLP after it acquired certain parts of her then firm, Shadbolts. At that time, she was seconded to, and employed by, a Tanzanian law firm, Ako Law, as part of a joint venture arrangement with Shadbolts.
An employment tribunal decided that Lawson was the most useful authority when determining territorial scope issues under the Equality Act 2010 (which is silent on the matter) and held that it was able to hear Ms Bates van Winkelhof’s sex and pregnancy discrimination claims. The tribunal highlighted as relevant, among other factors, the fact that Ms Bates van Winkelhof worked at least partly in Great Britain; visited London regularly for work; was paid from London; the LLP agreement was governed by English law and all invoices were generated from Great Britain. The Court of Appeal upheld this decision on the basis that there was a sufficiently strong connection with Great Britain despite the fact that she worked principally in Tanzania.
On appeal, Clyde & Co argued that the tribunal should have carried out a comparative exercise in which the factors suggesting a connection with Great Britain were compared with the factors pointing towards another jurisdiction, in this case Tanzania.
The Court of Appeal rejected this argument stating the following:
- A comparative exercise will be appropriate where the employee is employed wholly abroad. There is then a strong connection with that other jurisdiction and it is necessary to identify factors which are sufficiently powerful to displace the territorial pull of the place of work, and some comparison and evaluation of the connections between the two systems will typically be required.
- However, that is not necessary where the applicant lives and/or works for at least part of the time in Great Britain, as was the case here. The territorial attraction is then far from being all one way and the circumstances need not be truly exceptional before the connection with the system of law in Great Britain can be identified.
- All that is required is that the tribunal should satisfy itself that the connection is: "sufficiently strong to enable it to be said that Parliament would have regarded it as appropriate for the tribunal to deal with the claim".
From an employer’s perspective, if an employee who works abroad seeks to bring a tribunal claim in Great Britain, it will be crucial to recognise any factors which could indicate a sufficiently strong connection to Great Britain.
It is clear from Lawson that an expatriate, who lives and works abroad, has to show a particularly strong connection with Great Britain to overcome the general rule that place of employment is decisive. Employees in this category therefore have a greater burden of showing “substantial connection” than an employee who works at least partly in Great Britain, as was the case in Ravat and Bates van Winkelhof. Both of these cases are helpful in clarifying some of the factors which may indicate an employee has a sufficient connection to Great Britain to be able to bring a claim here.
We understand that Clyde & Co is seeking leave to appeal this aspect of the Court of Appeal judgment and so we will have to see what happens in due course.