A recent European Court decision (Mahamdia v Peoples Republic of Algeria) has held that clauses in the Service Agreements of EU based Executives that try to confer the exclusive jurisdiction of courts outside of the EU will be invalid.

The general rule is that the parties to any agreement are free to accept the jurisdiction of the courts of a particular country to hear a dispute arising under that agreement. However, under the Brussels Regulation there are restrictions imposed in the employment context.

The European Court has now held that in order for there to be a valid jurisdictional clause it has to offer the choice to the Executive to sue either in the EU courts or in the original named  jurisdiction.

This ruling will have most impact on Global companies headquartered outside of the EU, such as US or Asian Industrial Engineering companies, whose standard Service Agreements for their senior mobile executives is with the parent company. Such Service Agreements often stipulate that the Service Agreement will be subject to the parent company’s home country’s courts.

The ruling means that exclusive jurisdictional clauses should be reviewed and their usefulness is now limited for Non EU employers.