ECJ rules on applicable law of Employment Contract

08 October 2013

Stephen Musgrave

The European Court of Justice has provided a useful reminder that where a contract of employment contains no choice of law clause, the law applicable will not always be the law of the country where the employee works. Under the Rome Convention, a national court can find the applicable law is that of another country with which the employee has a closer connection.

The facts

Mrs Boedeker, a German national and resident, was employed by Anton Schlecker, a large German business with branches in a number of EU territories. After working in Germany from 1979 to 1994, she signed a new employment contract as a manager in the Netherlands business. On 19 June 2006 Schlecker informed Mrs Boedeker that her position would cease to exist from 30 June 2006 and invited her to move to Dortmund, in Germany, on the same contractual conditions.

She lodged a complaint against her employer, but took up the new position, and then days later declared herself unfit for work on medical grounds. She brought various actions before the courts in the Netherlands, claiming that Netherlands law should be declared applicable to her employment contract. Her contract said that the mandatory laws of Germany were applicable to it but did not expressly choose a governing law. She argued that her second contract should be annulled and she should be awarded damages.

The courts in the Netherlands found in her favour on the basis that she had worked there solely for more than 11 years. Schlecker appealed against the judgment, arguing that the contract was governed by German law because all the other connecting factors indicated that the employment relationship was more closely connected with Germany.

Relevant Law

Article 6(2) of the Rome Convention states that a contract of employment shall, in absence of choice, be governed:

(a) by the law of the country in which the employee habitually carries out his work in performance of the contract, even if he is temporarily employed in another country; or

(b) if the employee does not habitually carry out his work in any one country, by the law of the country in which the place of business through which he was engaged is situated,

unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.

The Supreme Court of the Netherlands referred the following questions to the ECJ on the interpretation of Article 6(2) of the Rome Convention:

1) "if an employee carries out the work in performance of the contract not only habitually but also for a lengthy period and without interruption in the same country, should the law of that country be applied in all cases, even if all other circumstances point to a close connection between the employment contract and another country?

2) And if so, would the employer and employee need to show at the commencement of the work that the employment was intended to be carried out over a long period without interruption in the same country?"

Analysis

The ECJ was asked to decide whether the fact that an employee had worked for a lengthy period and without interruption in the same country meant that the national court could disregard the law of the country where the work has habitually carried out, where it appears from the circumstances as a whole that the contract is more closely connected with another country.

German law could be applicable because the employer had a legal entity governed by German law, remuneration was paid in German Marks (prior to the introduction of the Euro), pension arrangements were made with a German pension provider, Mrs Boedeker had continued to live in Germany, where she paid her social security contributions, the employment contract referred to mandatory provisions of German law, and the employer reimbursed Mrs Boedeker's travel costs from Germany to the Netherlands.

The ECJ held that 'habitually carries out his work' must be broadly interpreted, whereas 'the place of business through which the employee is engaged', falls to be considered only where the court is not in a position to determine the country in which the work is habitually carried out.

In determining the applicable law, preference must be given to the connection between the employment contract in force and the country where the employee habitually carries out his work. This means it is not then necessary to consider the secondary factor of the country in which the place of business through which the employee was engaged is situated.

Any other interpretation is contrary to the purpose of Article 6 which is to guarantee adequate protection to the employee. However, the Advocate General pointed out in his Opinion (issued prior to the full judgment) that this interpretation must not automatically result in the application of the law most favourable to the worker.

Accordingly, the national court must take into account all of the elements which define the employment relationship and single out one or more as being, in its view, the most significant. The factors the ECJ referred to as 'significant' include the country in which the employee pays taxes, the country covered by social security scheme and pension, sickness insurance and invalidity schemes, salary determination and other working conditions.

The ECJ found that Article 6(2) must be interpreted as meaning, "even where an employee carries out 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 that provision, disregard the law applicable in that country if it appears from the circumstances as a whole that the contract is more closely connected with another country."

This meant that the second question did not need to be answered, but the ECJ commented that it is possible to take into account evidence of the employer's and employee's intentions.

Effect

Disputes over the applicable law of contracts of employment of employees posted away from their home territories are common, and often expensive to resolve. This case provides a useful reminder that all of the facts must be considered, such as where the employee pays tax on employment income, and where they are covered by social security benefits, pension, sickness insurance and disability schemes. Working continuously without interruption in the same country for a lengthy period of time will be a factor to consider, but not necessarily mean that the applicable law is not the law of the country towards which all the other relevant factors point.