Employment Contracts, Individual (PIL)

From Max-EuP 2012

by Wolfgang Wurmnest

1. Subject and purpose of private international labour law

The progressing internationalization of markets also affects the employment market. Many individual employment contracts therefore have cross-border elements. Employers, for example, recruit their workers abroad; others post employees to work in foreign countries. Each legal system therefore needs rules to determine which substantive labour law is to be applied to an international employment relationship. The answer to this question is given by rules of private international labour law (conflict of labour laws). This field of law is—like the rules of substantive law (European labour law)—increasingly subject to European influences. The Rome Convention on the Law Applicable to Contractual Obligations of 1980, a multilateral convention of public international law signed and ratified by all EU Member States, had already contained a conflict rule for individual employment contracts (Art 6 Rome Convention). After the conferment of competencies for the judicial cooperation in civil and commercial matters on the European Union in the Treaty of Amsterdam (private international law (PIL), European law of civil procedure), the Union legislature has incorporated the Rome Convention into EU law by way of a regulation. The applicable law to individual employment contracts concluded after 17 December 2009 is governed by the so-called Rome I Regulation (Reg 593/2008). This regulation is binding upon all EU Member States with the exception of Denmark, thus Danish courts will continue to apply the Rome Convention.

The second Union instrument dealing with the applicable law to certain employment disputes is the Rome II Regulation (Reg 864/2007) which entered into force on 11 January 2009. It applies to non-contractual obligations arising out of disputes in civil and commercial matters and contains a provision referring to cross-border industrial actions. According to Art 9 Rome II, the law applicable in respect of the liability of a person in the capacity of a worker or an employer or the organizations representing their professional interests for damages caused by an industrial action shall be the law of the country where the action is to be, or has been, taken. This rule is based on the consideration that the applicable law to the industrial action, ie the law according to which the lawfulness of a particular industrial action is determined, depends on the locus where the industrial action is carried out, since the law of industrial action is not harmonized Europe-wide. In order to prevent an industrial action which is legal according to the law of the country where the action takes place leading to liability under foreign law, Art 9 Rome II prescribes a synchronization of the law applicable to industrial action and the claims which can result from industrial action such as strike action or lock-out.

Beyond the scope of Rome I and II, the applicability of a given labour law is determined according to the autonomous (national) conflict rules of the court seized. This is, for example, the case for the determination of the international scope of statutes governing industrial relations within a company as long as these relations cannot be considered as a contractual relation falling under Arts 3, 4 Rome I.

Besides the harmonization of conflict rules, Union law has also harmonized certain mandatory rules of substantive labour law. Thus, the directive concerning the posting of workers (Dir 98/71) sets out that an employee who temporarily performs work in another Member State cannot be denied particular minimum standards of employment protection (as laid down by law or certain collective agreements) in the legal order of the place where he performs the work (posting of workers). Further, the provisions of national law have to comply with the fundamental freedoms (general principles) and the general prohibition of discrimination (discrimination (general)) of the TFEU/EC Treaty.

Subsequently, selected features of the conflict regime relating to individual labour contracts will be described in more detail as this part of the harmonized conflict law is most important in practice. The relevant conflict rule of Rome I is based on the model of the Rome Convention, which on the whole has proven to be an appropriate and useful rule.

2. Choice of law and favourability principle

As a general principle, the parties to an individual employment contract may choose the law applicable (choice of law by the parties) to their contractual relationship (Arts 3, 6(1) Rome Convention/Arts 3, 8(1) Rome I). The possibility of choosing the law that shall govern the contract allows the parties to reach an appropriate solution for their employment relationship which rigid connecting factors cannot always guarantee. The parties are entitled to choose the law of any country, even if the country of the law chosen does not have any connection with the employment relationship. The principle of private autonomy is therefore more strongly implemented in EU law than in some national legal systems. For example, the Swiss Act on Private International Law of 1987 (Loi fédéral Suisse sur le droit international privé (Loi de d.i.p.)) entitles the parties only to choose the law of the country in which the employee has his habitual residence or in which the employer has his place of business, his domicile or his habitual residence (Art 121(3) Loi de d.i.p.). Under European law, as in most national legal systems, the parties can choose the applicable law expressly or implicitly. The national courts so far have been rather generous in assuming an implied choice of law under the Rome Convention. By far the most important evidence for such a choice of law in a contract of employment is the reference to legal provisions of a particular national legal order. It remains to be seen whether this trend will be continued by the ECJ under Rome I.

The right of the parties to choose the law that shall govern their contractual relationship is not absolute. To protect the employee as the potentially weaker contractual party, Art 6(1) Rome Convention/Art 8(1) Rome I states that a choice of law made by the parties shall not have ‘the result of depriving the employee of the protection afforded to him by provisions that cannot be derogated from by agreement under the law that, in the absence of choice, would have been applicable’. This so-called favourability principle ensures that the employee will always benefit from a certain minimum standard which cannot be derogated from to his detriment by a choice of law. It is rooted in the fear that an employer would often succeed in pushing through a legal order favourable to his needs, for example by means of standard form contract clauses (standard contract terms). As the prohibition of a choice of law for employment contracts would be too rigid, the legislatures of the Rome Convention and Rome I opted for the favourability principle to avoid abuses. This principle may lead to a ‘law mix’. In principle, the chosen law applies. With regard to the rules that cannot be derogated from by agreement, however, it has to be examined whether the law ascertained according to Art 6(2) Rome Convention/Art 8(2)-(4) Rome I contains rules which are more favourable to the employee. If this is the case, the more favourable rules of the objectively applicable law apply and not the rules of the chosen law. The comparison and the application of a ‘law mix’ is often a very burdensome task. However, cases with a ‘targeted’ choice of law, imposed upon the employee by the employer to offer minimal protection, have demonstrated no practical importance thus far. Rather, the parties of a contract of employment with a cross-border element regularly use their freedom to choose the applicable law to weed out possible ambiguities with regard to the applicable law and often opt for the law which would be applicable without a choice of law. This relieves judges in many cases of having to compare the chosen law and the law applicable without such a choice in order to carry out the favourability principle.

3. Applicable law in absence of a choice of law by the parties

a) Basic structure

The law to be applied in the absence of a choice by the contractual parties (the so-called objectively applicable law) is determined by the basic rules set forth in Art 6(2) Rome Convention/Art 8(2)-(4) Rome I: if the employee habitually carries out his work in one country, the applicable law will be the law of the country in which the work in performance of the contract is habitually carried out (lex loci laboris), even when the employee is temporarily (ie not permanently) employed in another country (Art 6(2) Rome Convention/Art 8(2) Rome I). If the employee, however, does not habitually carry out his work in any one country, the law of the country in which the place of business through which he was engaged is situated is applicable (Art 6(2) Rome Convention/Art 8(3) Rome I). Thus, the connecting factor for employment contracts with no habitual place of work in one country is the place of the engaging business. Both connecting factors can exceptionally be set aside according to the escape clause enshrined in Art 6(2) in fine Rome Convention/Art 8(4) Rome I. If it appears from the circumstances that the contract of employment is more closely connected to another country, the contract is governed by the law of that country.

This structure of rules offers a clear delimitation for the vast majority of cases. As a first step, it has to be determined whether the employee habitually performs his work in any one state or whether he constantly works in different countries. As a second step, it has to be considered with a view to the circumstances of the contract at hand if the law of the country that would apply according to the two basic rules should exceptionally not be applied since there is a closer connection to another legal order. Under the Rome Convention, the courts have taken into account a number of different factors when applying the escape clause, such as the location where the contract has been concluded, the language in which the contract was drafted or the currency for payment. In the past, an emphasis was also put on the common nationality of the contractual parties. In the course of an ever-increasing reduction of the principle of nationality in international contract law, the significance of this criterion has become very questionable. However, there is still a tendency by national courts to use the escape clause where the employer and employee have a common nationality and furthermore have their domicile in that same country.

b) Habitual place of work

The place were the employee habitually carries out his work in performance of his contract has no precise legal definition in Union law. To shape this legal concept, it is however possible—at least to some extent—to make recourse to the jurisprudence of the ECJ on the jurisdiction rules for employment disputes laid down in the Brussels I Regulation (European civil procedure). In the Mulox case (ECJ Case C-125/92 – Mulox IBC Ltd v Geels [1993] ECR I-4075) the ECJ defined the habitual place of work as that place ‘where or from which the employee principally discharges his obligations towards his employer’. Thus, it has to be considered in a holistic view if the centre of the employee’s working activities can be established as being in a single country (ECJ Case 29/10 – Koelzsch v Luxembourg nyr para. 48). The ECJ has considered this to be the case for an employed sales agent who spent two-thirds of his working time in a state in which he had an office where he organized his activities abroad even though he travelled during the rest of his working time through different countries (ECJ Case C-383/95 – Rutten v Cross Medical Ltd [1997] ECR I-57). In order to legally prescribe the synchronization between forum and ius, the Union legislature has attempted to codify this legislation in Rome I. Whereas Art 6 Rome Convention merely stated that the law of the country ‘in which’ the employee has his usual place of work is applicable, Art 8(2) Rome I lays down that the law of the country is applicable ‘in which or, failing that, from which the employee habitually carries out his work in performance of the contract’.

When converting the Rome Convention into a Community instrument the Union legislature, however, refrained from specifying clear-cut rules for particular important international employment relationships, such as contracts of seamen sailing on international routes. This reluctance hampers legal certainty as under the Rome Convention it was disputed which law applies to such contracts. In many Member States, the prevailing view is that such employment relationships have to be subjected to the law of the flag. This connecting factor is based on the assumption of a special and exclusive relationship between the ship and the flag state pursuant to international law, so that for the purposes of private international law it can be said that such sailors habitually carry out their work ‘in the country’ whose flag the ship flies. Against this specification of the lex locus laboris, it is however argued that it creates incentives for employers to fly a flag of convenience to ensure that an employment law unfavourable to the seamen applies. Other Member States have therefore subjected the employment contracts of international seamen to the law of the place of business through which the employee was engaged. This connecting factor, however, is also not unproblematic. In international shipping, seamen are often employed by so-called manning or crewing companies, which may have their registered offices in countries with low employment protection standards. Consequently, both solutions need to make recourse to the escape clause in those cases in which either the flag or the engaging business are the only factor pointing to the law of one country.

The new Art 8(2) Rome I does not settle the dispute. Seamen in international shipping do not perform their work in the form of an activity ‘from a state’, since the ship on which they work calls at ports in different countries. At the most, seamen working on boats that intermittently leave the territorial sea of the flag state can be said to work ‘from a state’. The classification of employment contracts of seamen in international shipping will thus have to be resolved by the ECJ. Within the framework of the Brussels I Regulation the ECJ took the view that a ship’s cook, who is employed on different ships and floating installations over the continental shelf, habitually performs his work in the state which according to public international law enjoys exclusive sovereign rights over this part of the ocean (ECJ Case C-37/00 – Weber v Ogden [2002] ECR I-2032). It therefore seems likely that under the Rome I Regulation the ECJ will subject employment contracts of seamen sailing on international routes to the law of the country whose flag the ship flies. Even though flag sovereignty is not as strong as territorial sovereignty or exclusive sovereign rights over the continental shelf, the flag ties a ship, ie the work environment of the seamen, to a single state, ie the flag state.

c) Posting of workers

A temporary posting of workers into another state does not lead to a change of the employee’s habitual place of work. This rule shall prevent each assignment abroad leading to a change of the applicable law. Union law, however, seems to attribute a narrow meaning to posting. This follows from recital 36 Rome I where it is stated that work carried out in another country should be regarded as temporary ‘if the employee is expected to resume working in the country of origin after carrying out his tasks abroad’. Taken literally, a temporary posting may therefore only be assumed if the employee was previously employed in his home country and the parties to the contract of employment agree that the employee should return to the country of origin. It remains to be seen whether the ECJ will follow this narrow view as there are situations in which a posting should also be regarded as temporary even if the employee does not return to is home state. This is, for example, the case if the employee, shortly before his retirement age, is posted abroad and shall retire there.

There is, however, no dispute that there is no temporary posting if the employee is specifically recruited for an assignment abroad or if he should stay abroad permanently. There is also no fixed upper limit which, when exceeded, would signify that a posting is ‘final’ (so that the employee works habitually in the posted state). Whether a posting is temporary or permanent has to be determined in light of the contractual arrangement and the objective circumstances of the case.

For a short-term posting abroad, such as a business trip, the existing contract of employment with the employer is usually not altered. For longer-term stays abroad in which the employee is integrated into a foreign firm, the employee, however, often enters an independent contract of employment with the foreign firm which exists in addition to the contract of the original employer, whose mutual obligations are suspended during the time of the foreign assignment. Recital 36 Rome I clarifies that the conclusion of a second contract of employment with the foreign business does not automatically preclude the finding of a posting. Thus, under such a scenario, it has to be examined in each case whether the local contract of employment is subject to the foreign law or if this legal relationship is subject to the state of posting.

d) Employing business

The use of the place of business through which the employee was engaged as the connecting factor shall ensure a proper connection to the law of one country in cases in which the employees perform their work habitually in different countries. This connecting factor also poses difficult questions of delimitation. Should the hiring be understood to mean the conclusion of the contract so that the place of business where the contract of employment was signed is decisive? Or does it refer to the place of business where the employee is integrated organizationally? All these questions will have to be decided by the ECJ as they were not clarified by the Union legislature when drafting Rome I.

4. Overriding mandatory provisions

In all European states, modern labour law has been created with the aim of protecting employees and is therefore dominated by rules which cannot be derogated by contractual agreement. Whether such rules are also lois de police within the meaning of Art 7(2) Rome Convention/Art 9 Rome I so that they apply irrespectively of the law determined by Art 6 Rome Convention/Art 8 Rome I (overriding mandatory provisions) has to be determined by interpretation. As Art 9(1) Rome I makes clear, only those rules of law which are crucial for safeguarding a state’s public interests, such as its political, social or economic organization, are considered to be such overriding mandatory provisions. It is highly controversial as to which provisions of modern labour law may be classified as falling in the realm of Art 7(2) Rome Convention/Art 9 Rome I. This is due to the difficulty of determining whether a provision requires its application on account of an outstanding public interest. Should, for example, the continued remuneration in case of illness be understood as mainly protecting the employee from social destitution or does this payment, due to its close relationship to the law of health insurance, have to be attributed to the public interest of health protection?

For employees within the EU, the Union legislature has extended the field of mandatory law. The directive on the posting of workers stipulates that an employee from one Member State, who performs temporary work in another Member State, cannot be denied particular minimum working conditions (such as working time, minimum wage and entitlement to holidays) as set out by law or by collective agreements which have been declared generally applicable (posting of workers). To what extent national rules based on this directive are overriding mandatory provisions is subject to great debate.


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Retrieved from Employment Contracts, Individual (PIL) – Max-EuP 2012 on 18 May 2024.

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