According to the Rome Convention of June 19, 1980 (applicable for employment contracts entered into with until December 16th, 2009) as well as the European Regulation 593/2008 (for employment agreements concluded afterward), if the contract sets out which law applies, the law chosen by the parties regulates the employment relationship except if it has for result of depriving the employee of the protection afforded to him by the mandatory rules of law which would be applicable in the absence of choice.
Difficulties start when the contract is silent on the applicable law, in particular when the employee carries out his/her duties in several countries. This kind of issue generally arises at the time of the termination and might put the employer in trouble for failure to terminate the contract in compliance with the law that eventually applies to the contract.
In order for the parties to determine which law actually governs the contract, the two aforesaid texts provide that the relevant law is:
- either the law of the country where the employee normally carries out his/her duties;
- either if the employee does not carry out his/her activity in a specific country, the law of the country in which the place of business through which the employee was engaged is situated;
- or the law of the country with which the contract is closely connected.
In a recent decision of September 12, 2013, the European Court of Justice (Case C-64/12) has specified the meaning of this last criterion. The Court ruled that among the significant factors suggestive of a connection with a particular country, account should be taken in particular of:
- the country in which the employee pays taxes on the income from his activity, and
- the country in which he is covered by a social security scheme and pension, health insurance and invalidity schemes.
- all the circumstances of the case, such as the parameters relating to salary determination and other working conditions.
In that particular case, the employee of a German company had been working more than 15 years in Germany before being appointed Manager in the Netherlands where she carried out her duties for more than 10 years. Her position in the Netherlands having been removed, she was assigned to a new position in Germany by her employer.
Her employment contract was silent on the law governing the parties.
The employee claimed that, according to Dutch law, she was entitled to refuse to be assigned in Germany whereas her employer claimed that according to German law, the employee had no other choice but to come to work in Germany.
The question was therefore to determine which law was applicable to the employment relationship: the law of the country where she had habitually carried out her activity for more than 10 years and without interruption (Dutch law) or the law of the country with which the contract is more closely connected (German law)?
The European Court stated that German laws applied because “where an employee carries out the work in performance of the contract habitually, for a lengthy period and without interruption in the same country, the national court may, under the concluding part of [the Rome Convention], disregard the law of the country where the work is habitually carried out, if it appears from the circumstances as a whole that the contract is more closely connected with another country”.
In that case, to determine that Germany was the country with which the contract was the most connected, the judges looked at the fact that:
- the employer was a legal person governed by German law;
- the remuneration was paid in German marks (prior to the introduction of the Euro);
- the pension arrangements were made by a German pension provider;
- the employee had continued to reside in Germany where she paid her social security contributions;
- the employment contract referred to mandatory provisions of German law;
the employer reimbursed the employee’s travel costs from Germany to the Netherlands